
    162 F. 432
    NOWELL et al. v. McBRIDE et al. (ENDICOTT, Intervener).
    No. 1,436.
    Circuit Court of Appeals, Ninth Circuit.
    June 8, 1908.
    
      George M. Nowell and Malony & Cobb, for appellants Willis E. Nowell and others.
    L. P. Shackleford, T. R. Lyons, John J. Boyce, E. S. Pillsbury, and Alfred Sutro, for appellees.
    Before GILBERT, Circuit Judge, and DE HAVEN and HUNT, District Judges.
   GILBERT, Circuit Judge

(after stating the facts as above).

We are unable to agree with the contention of the appellants that the bill fails to state facts sufficient to sustain the decree of the court below. It alleges: That Thomas S. Nowell and Willis E. Nowell represented to the -stockholders, creditors, and persons interested in the success of the Berner’s Bay Company the advantage to that company of purchasing 15 certain mining claims, the title to which was represented to be in the said Thomas S. and Willis E. Nowell, and that they would sell the same to the company in consideration of $1,500,000 of the capital stock of said company, which they suggested should be increased in that amount for that purpose; and they further proposed that an additional bonded indebtedness of $300,000 be incurred by the corporation to provide a fund for working the company’s mining properties; that in pursuance of that offer it was agreed that a special meeting of the stockholders of the company should be called to acquire said mining claims on the terms proposed, and Thomas S. Nowell caused a notice to he given that such a meeting would be held June 24, 1896, to consider the said proposal to sell the corporation the 15 mining claims, naming them and including therein the three claims in controversy in this suit, and to consider the increase of the capital stock of the company from $1,000,000 to $2,500,-000, for the purpose of paying for said property and to increase the bonded indebtedness as suggested; that the meeting was held, and it was then and there voted to increase the stock as proposed, and to increase the bonded indebtedness and to deliver to Thomas S. Nowell and Willis E. Nowell the $1,500,000 of such increased capital, and as the purchase price for said mining claims the company issued to Thomas S. and Willis E. Nowell the said shares of capital stock; that the true intent and meaning of the proceedings of the stockholders’ meeting was to sell to the company, with the other claims, the 3 claims constituting the Johnson Group, which were alleged to constitute the principal value of the 15 claims so offered; that after the date of said meeting, and after such sale, by the insertion in the offer of sale recorded in the minutes of the said stockholders’ meeting of the words “last twelve,” the true intent and meaning of the transaction was wrongfully. and fraudulently changed and altered; and that during the times of the said transactions all books and records of the corporation were in the custody and control of Thomas S. Nowell and Arthur L. Nowell. No demurrer was interposed to the bill. It was accepted as sufficient by the appellants and by them answered, and no objection was interposed to the reception of testimony on the ground of the insufficiency of its allegations.

It is too late now to urge that the details of the alleged fraud should have been more particularly specified. The bill states the case of a proposal to sell certain specified property for a certain specified price, the acceptance of the proposal, the payment of the specified price, and the subsequent fraudulent alteration of records so as to indicate that the property which constituted the principal value of that which was so offered and purchased was excluded from the sale. Those allegations are, under the circumstances, sufficient to sustain the decree.

Nor is the bill insufficient, as suggested .by the appellants, to show that the appellees were entitled to equitable relief, for the reason that it contains an allegation that Thomas S. and Willis E. Nowell subsequently acquired from the United States a patent to the mining claims so attempted to be withheld by them. According to the allegations of the bill, and as the facts were found by the trial court, the Berner’s Bay Company, through the proceedings at the stockholders’ meeting, became the equitable owner of the three mining claims in controversy. From that date Thomas S. and Willis E. Nowell and their successors in interest held the title in trust for the company, and as the patent thereafter obtained was likewise held by them and their successors in interest as trustees for the company, they were not in the adverse possession of said mining claims at any time before notice was brought home to the true owners thereof of their repudiation of the trust and their hostile assertion of title against them.

Equally without merit, in our judgment, is the appellants’ contention that the record is without sufficient proof to sustain the finding of the trial court that the records were fraudulently altered, as alleged in the bill. There was but one call for the special meeting of the stockholders of the corporation. That call was signed by Thomas S. Nowell, as president, by Henry Endicott, as a stockholder, and by three others. It notified the stockholders of the proposal to purchase the mining claims so offered for sale, and it enumerated them in the following order: Northern Light No. 1, Johnson, Portsmouth, Seward Extension, Columbian East Extension, Bear Extension, Savage Extension, Lucky Boy, Columbian West Extension, Selkirk, Rustler, Alaska Maid, Ackropolis, Northern Star, Northern Light No. 2. In the books of the records of the stockholders’ meeting so called on June 24, 1896, what purports to be a copy of the call of the special meeting is recorded. In that record a most significant change is found in the order of enumeration of the claims, the purchase of which was to be considered at said meeting. By the change so made the three claims in controversy are placed first in the list. At that meeting Thomas S. Nowell, who held the proxies of Henry Endicott and William Endicott, was not present in person; but he was represented by William S. Payson, who held his proxy and in whose handwriting the records are written. A. L. Nowell was also present. The capital stock of the company was increased in the sum of $1,500,000. According to the record as it now appears, A. L. Nowell presented a written offer from Thomas S. Nowell, the recorded copy of which begins thus: “To the Berner’s Bay Mining and Milling Company, 30 Exchange Street, Portland, Me. — Gentlemen: I hereby offer on behalf of myself and Willis E. Nowell to sell or convey or cause to be conveyed to your said corporation the last twelve mines, mining claims and properties named in article 3 of the call for the special meeting of June 24, 1896, for the one million five hundred' thousand shares of new stock of said corporation,” etc.

The original offer, a copy of which so purports to be transcribed into the record, shows upon its face that it was originally drawn in conformity with the original agreement between Thomas S. Nowell and Henry Endicott, and with the notice of the stockholders’ meeting. As produced in evidence, however, it contained. interlineations which had first been made in pencil and afterward written in ink. One of those interlineations very materially changed the purport of the instrument. It is the interlineation of the words “last twelve” in the line after the word “mines.” As copied into the record, however, the words “last twelve” were inserted, not after the word “mines,” but before it. This alteration of the original offer as it was accepted by Endicott, the intervener, and as it was proposed to the stockholders in the call for the special meeting, is in itself a very suspicious circumstance. Its effect is to leave out of the offer those claims which Thomas S. Now-ell himself declared to be the only claims of the 15 offered for sale which were known to be of great value, and which had been openly offered for sale to the corporation in consideration of the stock which was issued to said Thomas S. and Willis E. Nowell. But more suspicious than the alteration of the written offer is the alteration in the record of the notice of the special meeting as the same is carried into the minutes. For what purpose was the list of the mining claims therein enumerated and offered for sale so shifted as to present the 3 claims now in controversy at the head of the group? Obviously it was for the purpose of making a record such that the original offer on which the stockholders acted and relied might be interlined and altered so as to leave out of the deal the 3 valuable claims constituting the Johnson Group. The alterations so made, under the circumstances, and in view of the fact that the records were in'the hands of the Nowells, and the fact that none of the parties interested other than the Nowells and their clerk knew, as far as the evidence discloses, of the alterations at the time thereof, presents a case which called upon the appellants to make full and complete explanation. This they have wholly failed to make. They offer no explanation whatever. There is no testimony that the alterations were made prior to or at the time of the meeting, and it is shown that Thomas S. Nowell and Willis E. Nowell received the full amount of the consideration price for which they originally offered the 15 mining claims, including the 3 which they represented to constitute the chief value of the properties so offered.

Thomas S. Nowell, it is true, in his testimony, disclaimed all knowledge of the interlineations and alterations, and denied that any proposition was ever made at the stockholders’ meeting to sell the 15 mining claims to the corporation; but he did not deny his letter to Endicott in which he proposed to sell the 15 mining claims to the company, including the 3 in controversy. Nor did he deny that he had signed the original notice calling the stockholders’ meeting to consider the acquisition of those claims. Nor did he deny that six months after the stockholders’ meeting he stated to Endicott that the reason why the claims in controversy had not been conveyed to the Berner’s Bay Company was that a patent had not then been obtained for them — a reason which, we may here remark, does not appear to have been candid, for the want of a patent was no impediment to the conveyance of the claims, and in fact they were conveyed to the Nowell Company in 1899, several years before the issuance of the patent. Nowell’s testimony, so far from explaining the alterations in the record, is of such a nature, on the whole, as to cast additional suspicion upon that which arises from the condition of the records themselves. William Payson, who acted as the clerk and in whose handwriting the record is, was not called as a witness. Said the court, in Smith v. U. S., 2 Wall. 219, 17 L.Ed. 788: “The general rule is that where any suspicion is raised as to the-genuineness of an altered instrument, whether it be apparent upon inspection or is made so by extraneous evidence, the party producing the instrument and claiming under it is bound to remove the suspicion by accounting for the alteration.”

The appellants earnestly insist that the laches of the appellees is such as to bar their right to equitable relief. It is not shown that the values of the mining properties in controversy have increased since the time when the contract for their sale was made. As to the delay of the intervener, Endicott, in asserting his rights, his testimony is that he did not discover the fraud until some six months after the stockholders’ meeting, and that at that time, in a conversation with Thomas S. Nowell, the latter informed him that the reason why the mines had not been conveyed was “that they could not convey them for they had not procured the patent yet.” Endicott testified, further, that thereafter he made search for Nowell’s letter to him of June 3, 1896, concerning the proposed sale of the IS mining claims to the company, but that he could not find it until 1900, and that thereafter Nowell was making endeavors to sell the Berner’s Bay and Johnson property together, and that he (Endicott) was more anxious to realize on such deal than to delay the consummation of the same by litigation over the title of the Johnson properties. But he testified that on finding the letter he sent a copy thereof to Nowell and informed him “that we consider we have at least a moral claim on the Johnson property.”

So far as the other appellee is concerned, it is sufficient to direct attention to the fact that, from the year 1898 until just prior to the commencement of this suit, F. D. Nowell, the son of Thomas S. Nowell, and a stockholder in the Alaska Nowell Company, was the sole receiver of the Berner’s Bay Company. As such receiver, he was the proper person to institute a suit to enforce the trust against the appellants. Owing to his relation to the appellants and' his own interest in the Alaska Nowell Company, he was unwilling to bring the suit. In the fall of 1905 a reorganization committee, which had become interested in the properties of the Berner’s Bay Company on behalf of a large body of creditors, became possessed of knowledge of the nature of the transactions preceding and attending the stockholders’ meeting of June 24, 1896, and caused a request to be served upon the receiver, F. D. Nowell, to bring suit to enforce the specific performance of the contract for the conveyance of the Johnson Group; but he refused to comply therewith. It was not until a co-receiver was appointed and an order of the court obtained requiring the receiver to institute a suit that the present suit was commenced. Whether equitable relief shall be barred for laches must largely depend upon the circumstances of each case. Where there is no considerable change .in the value of the property involved so as to make the relief equitable, the mere lapse of time, even for a period longer than that which intervened in the present case, is not necessarily conclusive against the right of relief. Especially is this so in a case such as the present, where trust and confidence were imposed by stockholders in the president of a corporation, who, with his relatives and subordinates, had the sole control and possession of the records of the company and fraudulently altered the same so as to evade the obligation on a contract made and entered into for the conveyance to the corporation of real estate, which in equity still belongs to it and is held in trust for it.

The appellants make the contention that the issuance of a patent from the United States to the Nowell Company for the mining claims in controversy was conclusive of the rights of all parties, including the Berner’s Bay Company, and that the appellees waived all claim to said property by failing to adverse the Nowell Company’s application for the patent. It is sufficient to say, in answer to this; that the appellees do not claim adversely to-the patent, but under it. The purpose of the present suit is to establish and enforce a trust. The statute providing for adverse proceedings on an application' for a patent, says Lindley, “have reference to an adverse claim arising from independent and conflicting locations of the same ground, and not to a controversy between co-owners or others claiming under the same location.” Lindley on Mines (2d Ed.) 728; Turner v. Sawyer, 150 U.S. 578, 14 S.Ct. 192, 37 L.Ed. 1189; Stevens v. Grand Central Mining Co., 133 F. 28, 67 C.C.A. 284. In the fact that an application was made for a patent by the Nowells there was nothing to indicate to the Berner’s Bay Company, or to any of its stockholders, that the intention was to acquire a title adverse to them. The declaration of Thomas S. Nowell to Endicott, made some six months after the stockholders’ meeting, that the reason why the claims in controversy had not been transferred to the Berner’s Bay Company was that a patent had not been obtained thereto, was not inconsistent with a purpose on the part of the Nowells to obtain a patent for the benefit of the company, and in furtherance of the original agreement to transfer the claims to the company.

We find no error for which the decree should be reversed.

It is, accordingly, affirmed.  