CIRCUIT COURT, DISTRICT OF CALIFORNIA.

PIONEER GOLD MINING COMPANY V. BAKER.

Decided March, 1884.

A MORTGAGE OF CERTAIN PROPERTY OF A CORPORATION, held to be created by a sheriff's sale, and certain contracts made by the defendant with two of the directors of the corporation, in their names, but for the benefit of the corporation.

IN A SUIT BY THE CORPORATION TO REDEEM from such mortgage, the directors who made the contracts are not necessary or indispensable parties, where they claim no individual interest, and no relief is asked against them.

Before SAWYER, Circuit Judge, and SABIN, District Judge. ON demurrer to the complaint.

This is a suit to redeem the Pioneer mine in Sierra county, California, from the defendant, under a mortgage alleged to have been effected by means of certain contracts and sheriff's sale, as set forth in the complaint. A demurrer to the complaint was interposed on two grounds: 1, insufficiency of facts to constitute a cause of action; and, 2, non-joinder of W. S. Chapman and A. L. Sayre as necessary parties defendant.

The complaint sets forth in hæc verba certain contracts made by the defendant Baker, the first made August 22, 1876, with the Pioneer Mining Company, by which the company became indebted to Baker $100,000, to be paid from the net proceeds of the mine, within three years; if not so paid Baker was to take possession of the mine and work it until he should from the net proceeds pay himself said $100,000.

The second contract between Baker and W. S. Chapman, president and principal stockholder of the company, recited that Baker was about to foreclose his claim for $100,000, as a lien upon the mine, and provided that if the mine was sold under the judgment of foreclosure and Baker purchased the same, he was to take possession of the mine and work it with reasonable diligence in a skillful manner, and out of the proceeds was to pay: 1, his judgment of $100,000; 2, all sums he might advance to pay judgments and indebtedness of the company; 3, expenses of working the mine; and 4, reasonable compensation for Baker's services. When these claims were paid to Baker he was to convey the mine to Chapman. Baker was to keep accurate accounts of his receipts and expenditures, subject at all times to Chapman's inspection. Baker was not to sell, convey or otherwise dispose of the mine without Chapman's written consent. Baker commenced suit and obtained judgment by default against the company in August, 1878, foreclosing his lien on the mine for $100,000. Instead of selling the mine on his judgment of foreclosure, Baker, with the advice and assistance of Chapman, made an agreement with the California powder works by which the mine was sold on a judgment obtained by the powder works against the company, and the title under that sale was to be conveyed to one

Titus, as trustee, who was to mortgage the mine to the powder works to secure the payment of the amount of their judgment, within thirty months thereafter. The sale was made accordingly on October 21, 1878, and the title thereunder conveyed to Titus, as trustee, who executed the mortgage to the powder works, and subsequently, in September, 1882, deeded the mine to Baker, subject to the contract of December 20, 1878, hereinafter mentioned. On December 20, 1878, and before the statutory period of redemption had expired, Baker make a final agreemeent with Chapman and A. L. Sayre. Chapman and Sayre constituted a majority of the directors of the company, and owned 47-48 of the stock. This contract recites that the company is "the owner" of the mine, and states the sale and proceedings had on the powder works judgment, and the agreement with the powder works, and provides that "in consideration of the premises" Chapman and Sayre should have the right and privilege to redeem the mine at any time within four years, on paying Baker his judgment of $100,000, the powder works judgment with interest, and all other judgments and demands against the Pioneer Company, which Baker might pay, with the consent of Chapman and Sayre, also such sums as Baker might expend in working the mine, and a reasonable compensation for his services. Baker was to keep accounts of his receipts and expenditures, which were to be at all times open to the inspection of Chapman and Sayre. Baker was not to sell or encumber the mine without the written consent of Chapman and Sayre. The contract further provided that if the mine was not redeemed within four years, Chapman and Sayre should have the right to redeem the same at the expiration of four years, by paying one-half of the sum then due Baker and giving him a mortgage on the mine for the remaining half. The complaint averred that Chapman and Sayre had made the contracts with Baker for the use and benefit of the company, which had by vote of its board of directors, including Chapman and Sayre, adopted and ratified all that Chapman and Sayre had done in the premises.

Before the commencement of the suit the Pioneer Mining Company conveyed and assigned all its rights in the premises to the Pioneer Gold Mining Company, the complainant. Other facts stated in the complaint sufficiently appear from the opinions of the judges.

Stewart & Herrin for complainant.

Van Clief & Gear for defendant.

SABIN, D. J. (delivering an oral opinion.) In this suit a demurrer to the bill has been filed. The grounds of demurrer are: first, that the bill does not state facts sufficient to constitute a cause of action, and, second, that Chapman and Sayre are necessary parties to the bill. I shall not attempt an extended review of the case, as I do not deem it necessary, nor have I so thoroughly collated the facts in the case as I should desire, were I to attempt to review it upon all the points raised. But it seems to us that the considerations

which I am about to submit are controlling in the matter, and, if so, the demurrer upon both points must be overruled.

The bill sets out that in 1876 the defendant Baker entered into a certain contract, "A," with the Pioneer Mining Company, the predecessor in interest of plaintiff in this suit.

This contract was for the purpose of securing the payment to Baker of an acknowledged indebtedness due him from said company, as provided therein. In case this indebtedness was not paid within three years from the date of said contract, Baker was entitled to take possession of the property and mines of the company, work the mines, and from the net proceeds thereof pay himself the amount due him, with expenses, and a reasonable compensation for his services.

Subsequent to that contract, another contract, "B," was entered into between Baker and W. S. Chapman, then president of said Pioneer Mining Company.

This contract was made, as alleged in the bill, for the benefit of said company, and taken in connection with contract "A," there can be little, if any, doubt on this point.

It was virtually in aid of contract "A.". Its object was the same, the payment of this very indebtedness of the company to Baker and also the indebtedness of the Pioneer Mining Company due to the Bank of La Porte, and also the debt of the company to the California Powder Works, nearly twenty thousand dollars due to the two last-named parties.

Now it will be observed that the sole object of this contract "A" was to pay an indebtedness of the company to Baker, and as modified by contract "B," the indebtedness to the Bank of La Porte and the California Powder Works, in addition to the indebtedness due Baker. These debts paid, Baker had no further demand or claim upon this property.

If it be assumed that Chapman, as president of the company, and Sayre, as one of the directors thereof, in any of the contracts which they severally or jointly entered into with Baker acted solely in their individual capacity, in violation of their duties as directors of the Pioneer Mining Company and in derogation of the rights of the stockholders of that company, it will be sufficient to say it was beyond their capacity as directors of that company to bind the company by such contracts, but if any benefits accrued to the Pioneer Mining Company by virtue of any of those contracts the company is entitled to the benefits arising therefrom. But taking all of the facts together, as alleged in the bill, no such presumption arises. They may have been careless in the manner in which they executed these contracts, but nothing criminal or fraudulent appears therefrom. They were, all of the time and in all of these contracts which were made, contracting about and handling the property of the Pioneer Mining Company for the purpose of paying and discharging those debts. Certain sales were made upon payments, and the same purpose and object runs through all of those sales. They were permitted to be

made, and were made in the interest of the Pioneer Mining Company, and to save the property, if possible, for the company, and to prevent its passing from its control. They were made pursuant to an understanding and agreement between Baker and the company, and for its benefit and not its ruin. Baker subsequently executed a mortgage upon this property to secure the payment of the judgment of the California Powder Works obtained against the Pioneer Mining Company, but he executed it only upon and with the written consent of Chapman, and all the time, in all their transactions, it seems to me patent not only that Baker so understood it, but that Chapman and Sayre also understood that they were managing and handling this property for and on behalf of the Pioneer Mining Company, and to save it for the company. Neither Baker, nor Chapman nor Sayre ever assumed to contract in reference to this property upon any other basis than that it was the property of the Pioneer Mining Company, and not the property of Chapman or Sayre, or both, and all of the transactions between these parties, from first to last, had but one object, to wit, the payment of the various debts of the Pioneer Mining Company, due Baker and others. Baker all the time knew that the property involved in these contracts and sales was the property of the Pioneer Mining Company; that it did not belong to Chapman and Sayre individually, or to either of them, and he knew their official relation to the Pioneer Mining Company.

If, then, it be true, as alleged in the bill, that Baker has been fully paid, or has been tendered the full amount due him, and for which this property was pledged to him, the Pioneer Mining Company, or its successor in interest, the plaintiff herein, is entitled to a surrender of the property. It was upon this very condition that he was given possession of the property, and under which he has held it and worked the mine. All that Baker has a right to demand is that his debt be paid. The bill alleges that Baker has taken from the mine sufficient money to pay his debt; it also alleges that he refuses to account for the moneys taken from the mine; and it also alleges a tender and demand-a tender of anything that may be due. If these matters set forth in the bill are true, and of course we take the bill as true, it seems to us very plain that Baker, having received from the company after going into possession of the property, all that is due him, ought to, and must, surrender the property to the company or its successor in interest.

I may observe that in the contract made December 20, 1878, between Chapman and Sayre and Baker, Baker expressly agreed that he would not sell or encumber the mine. The contract provides for the redemption of the property when the debt is paid. In 1882 Baker extended the time for the redemption of the property. Now if these things demonstrate anything, it appears clear to my mind that Baker, in each and every one of these transactions, and Chapman and Sayre also, considered that he, Baker, merely held this property as a pledge to be handled by him to pay himself his indebt

edness; and if he has been paid he ought to surrender the property to the owners.

This is all as to the first point of the demurrer.

As to the second point raised, that Chapman and Sayre should be made parties to the bill. Whatever Chapman and Sayre may have done in and about this property and in making these contracts, they acted in their official capacity for and on behalf of the Pioneer Mining Company.

It is possible, and I believe it is true, that they signed some of these contracts individually, and not in their official capacity; and it might seem, viewing the contracts alone, and not in connection with all of the facts set forth in the bill, that they were of a personal nature. As I observed before, if they sought to do anything in derogation of their duties as trustees and directors of the company, to that extent their contracts might be held void, but to the extent to which their acts and contracts were beneficial to the company, the company would have a right to the enjoyment of such benefit. All of the contracts which they at any time made were made in regard to the property of the company. They did not assume to own any of this property themselves. They were merely stockholders and directors in the Pioneer Company, which fact Baker well knew. If Chapman and Sayre are now stockholders in the company, they will, by this action, be benefited to the extent of their interest in the company, whatever the interest may be. If they are not stockholders they have no interest in the matter one way or the other. It is barely possible that they might have been joined as proper parties, though I do not see that point clearly, but I do not think that in any sense they are necessary parties to the bill as made. There is no relief demanded against them. There is nothing demanded of them one way or the other. They merely appear in this case as actors in the contracts and matters set forth in the bill. Their actions in the various matters set forth are those of directors of the company, and no claim or demand is made against either of

them.

We therefore think that even if, under any construction, they might be proper parties to the bill, they certainly are not, from anything disclosed upon the face of the bill, necessary parties thereto. The demurrer therefore, is overruled upon both points.

SAWYER, C. J., orally concurring.

I desire to make an observation or two in addition to what has been said by my associate. There is some point and a considerable argument made on the fact that there was no valid cenveyance from the Pioneer Mining Company to Baker. These parties, Chapman and Sayre, so far as appears, were not authorized to convey, and they did not attempt to convey, to Baker. There does not purport to be any conveyance from them to Baker. The legal title, which