shoshone mining co. v. rutter :: 177 u.s. 505 (1900) :: justia us supreme court center
A suit brought in support of an adverse claim under Rev.Stat. 2325, 2326, is not a suit arising under the laws of the United States in such a sense as to confer jurisdiction on a federal court, regardless of the citizenship of the parties.
Although suits like the present one may sometimes so present questions arising under the Constitution or laws of the United States that a federal court will have jurisdiction, yet the mere fact that a suit is an adverse suit, authorized by the statutes of Congress, is not, in and of itself, sufficient to vest jurisdiction in the federal courts.
A suit brought in support of an adverse claim under Rev.Stat. 2325, 2326, is not a suit arising under the laws of the United States in such a sense as to confer jurisdiction on a federal court, regardless of the citizenship of the parties.
Although suits like the present one may sometimes so present questions arising under the Constitution or laws of the United States that a federal court will have jurisdiction, yet the mere fact that a suit is an adverse suit, authorized by the statutes of Congress, is not, in and of itself, sufficient to vest jurisdiction in the federal courts.
In Blackburn v. Portland Gold Mining Company, 175 U. S. 571, decided January 8, 1900, we held that a suit brought in support of an adverse claim under sections 2325 and 2326 of the Revised Statutes was not a suit arising under the laws of the United States in such a sense as to confer jurisdiction on a federal court, regardless of the citizenship of the parties. In this case, the same question is again presented, and has been elaborately argued by counsel against the opinion we then announced. Its importance, as well as the great ability with which it was argued by counsel for appellee, have induced a careful reexamination of the question. While it may be conceded
that the matter is not free from doubt, nevertheless our reexamination has not led us to change our former views. We deem it unnecessary to restate all the reasons given in the opinion then delivered, and yet some matters may appropriately be noticed.
By the Constitution, Article III, Section 2, the judicial power of the United States extends "to all cases, in law and equity, arising under this Constitution, the laws of the United States" and to controversies "between citizens of different states." By Article IV, Section 3, cl. 2, Congress is given "power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States." Under these clauses, Congress might doubtless provide that any controversy of a judicial nature arising in or growing out of the disposal of the public lands should be litigated only in the courts of the United States. The question therefore is not one of the power of Congress, but of its intent. It has so constructed the judicial system of the United States that the great bulk of litigation respecting rights of property, although those rights may in their inception go back to some law of the United States, is in fact carried on in the courts of the several states. It has provided that the federal courts shall have exclusive jurisdiction of admiralty and patent litigation, and jurisdiction concurrent with the state courts of suits arising under the Constitution or laws of the United States. Rev.Stat. 629; 25 Stat. 433, c. 866.
When, in section 2326, Rev.Stat., Congress authorized that which is familiarly known in the mining regions as an "adverse suit," it simply declared that the adverse claimant should commence proceedings "in a court of competent jurisdiction." It did not in express language prescribe either a federal or a state court, and did not provide for exclusive or concurrent jurisdiction. If it had intended that the jurisdiction should be vested only in the federal courts, it would undoubtedly have said so. If it had intended that any new rule of demarcation between the jurisdiction of the federal and state courts should apply, it would likewise undoubtedly have said so. Leaving the matter as it did, it unquestionably meant that the competency of
the court should be determined by rules theretofore prescribed in respect to the jurisdiction of the federal courts. In that view, if the adverse suit were between citizens of different states, and the value of the thing in controversy exceeded $2,000, then, by virtue of the general provisions of the statutes, the federal courts might take jurisdiction, or, if the suit was one arising under the Constitution or the laws of the United States, and the amount in controversy was over $2,000, then also the federal courts might take jurisdiction. Conversely, it would be true that if the amount in controversy was not in excess of $2,000 or if the parties were not citizens of different states and the suit was not one arising under the Constitution or laws of the United States, the federal courts could not take jurisdiction.
We pointed out in the former opinion that it was well settled that a suit to enforce a right which takes its origin in the laws of the United States is not necessarily one arising under the Constitution or laws of the United States within the meaning of the jurisdiction clauses, for if it did, every action to establish title to real estate (at least in the newer states) would be such a one, as all titles in those states come from the United States or by virtue of its laws. As said by Mr. Chief Justice Waite, in Gold Washing & Water Co. v. Keyes, 96 U. S. 199, 96 U. S. 203.
"The suit must, in part at least, arise out of a controversy between the parties in regard to the operation and effect of the Constitution or laws upon the facts involved. . . . Before, therefore, a circuit court can be required to retain a cause under this jurisdiction, it must in some form appear upon the record by a statement of facts, 'in legal and logical form' such as is required in good pleading, . . . that the suit is one which 'really and substantially involves a dispute or controversy' as to a right which depends upon the construction or effect of the Constitution or some law or treaty of the United States."
not involve the construction or effect of the Constitution or a law or treaty of the United States. By sections 2319, 2324 and 2332, Revised Statutes, it is expressly provided that this right of possession may be determined by "local customs of rules of miners in the several mining districts, so far as the same are applicable and not inconsistent with the laws of the United States," or "by the statute of limitations for mining claims of the state or territory where the same may be situated." So that, in a given case, the right of possession may not involve any question under the Constitution or laws of the United States, but simply a determination of local rules and customs, or state statutes, or even only a mere matter of fact.
The recognition by Congress of local customs and statutory provisions as at times controlling the right of possession does not incorporate them into the body of federal law. Section 2 of Article I of the Constitution provides that the electors in each State of members of the House of Representatives "shall have the qualifications requisite for electors of the most numerous branch of the state legislature," but this does not make the statutes and constitutional provisions of the various states in reference to the qualifications of electors parts of the Constitution or laws of the United States.
On August 8, 1890, Congress enacted (26 Stat. 313, c. 728) that intoxicating liquors transported into any state or territory "shall upon arrival in such state or territory be subject to the operation and effect of the laws of such state or territory," etc., and in In re Rahrer, 140 U. S. 545, 140 U. S. 561, this Court said:
the acts of Congress, but what authority the railroad company had under the statute of the state. The construction of such a statute is a matter for the state court, and its determination thereof is binding on this Court. The fact that the state statute and the mortgage refer to certain acts of Congress as prescribing the rule and measure of the rights granted by the state does not make the determination of such rights a federal question. A state may prescribe the procedure in the federal courts as the rule of practice in its own tribunals; it may authorize the disposal of its own lands in accordance with the provisions for the sale of the public lands of the United States, and in such cases an examination may be necessary of the acts of Congress, the rules of the federal courts, and the practices of the Land Department, and yet the questions for decision would not be of a federal character. The inquiry along federal lines is only incidental to a determination of the local question of what the state has required and prescribed. The matter decided is one of state rule and practice. The facts by which that state rule and practice are determined may be of a federal origin."
Inasmuch, therefore, as the "adverse suit" to determine the right of possession may not involve any question as to the construction or effect of the Constitution or laws of the United States, but may present simply a question of fact as to the time of the discovery of mineral, the location of the claim on the ground, or a determination of the meaning and effect of certain local rules and customs prescribed by the miners of the district, or the effect of state statutes, it would seem to follow that it is not one which necessarily arises under the Constitution and laws of the United States.
As against this, we are met by these suggestions: first, that a corporation created by Congress has a right to invoke the jurisdiction of the federal courts in respect to any litigation which it may have, except as specifically restricted by some act of Congress. Osborn v. Bank of United States, 9 Wheat. 738; Pacific Railroad Removal Cases, 115 U. S. 1. The argument of Chief Justice Marshall in support of this was, briefly, that a corporation has no powers and can incur no obligations except as authorized or provided for in its charter. Its power to do
any act which it assumes to do, and its liability to any obligation which is sought to be cast upon it, depend upon its charter, and when such charter is given by one of the laws of the United States, there is the primary question of the extent and meaning of that law. In other words, as to every act or obligation, the first question is whether that act or obligation is within the scope of the law of Congress, and that being the matter which must be first determined, a suit by or against the corporation is one which involves a construction of the terms of its charter -- in other words, a question arising under the law of Congress. But that argument is not pertinent here. The right of the contestants in an adverse suit, as we have seen, does not always call for any construction of an act of Congress. It may depend solely on local rules or customs or state statutes, and in that case does not involve a dispute or controversy
"which depends upon the construction or effect of the Constitution, or some law or treaty of the United States. . . . In most actions concerning mining claims, the parties agree as to the proper rule of construction to be applied to the mining laws, and the controversies are usually limited to questions of fact relating to the compliance with these laws. In such cases, the federal courts have no original jurisdiction unless there is a diversity of citizenship; but in cases arising under section 2326 of the Revised Statutes, the authority for the action is found in the legislation of Congress. Without this authority, the action for the purposes avowed by the statute could not be maintained."
2 Lindley on Mines, sec. 748. A statute authorizing an action to establish a right is very different from one which creates a right to be established. An action brought under the one may involve no controversy as to the scope and effect of the statute, while in the other case it necessarily involves such a controversy, for the thing to be decided is the extent of the right given by the statute.
Again, it is said that this adverse suit is one step in the administration of the laws of the United States in respect to mineral lands, and therefore it must be presumed that Congress intended that such step should rightfully be taken in one of the courts of the United States. This suggestion was open to the
consideration of Congress when it was determining where the adverse suit should be brought, but that it did not consider it vital is evident from the conceded fact that, unless the amount in controversy is over $2,000, no jurisdiction attaches to the federal court. In other words, Congress did not deem the matter of the jurisdiction of those courts so essential a part of the administration of the land laws of the United States as to vest in them jurisdiction of all such controversies, but left a large, if not a major, portion of them to be determined in the state courts. It evidently contemplated the fact that a controversy about a right of possession might as appropriately be decided in a state as in a federal court, and, not prescribing in which court it should be litigated, left the matter to be determined by the ordinary rules in respect to the jurisdiction of the federal courts.
Counsel also calls our attention to the difference in the procedure in the disposal of agricultural and mineral lands. With respect to the former, all proceedings are carried on in the Land Department, and it is only after the legal title has passed by patent that inquiry is permissible in the courts, while in respect to the latter, the aid of the courts is invoked before the issue of a patent and in order to determine, to some extent, the right thereto. Noticing this distinction, he also notes the fact that a contest in respect to the validity of a patent for agricultural lands can be litigated in the federal courts, and hence draws the inference that a contest preliminary to a patent for mineral lands, and involving the right thereto, must also be one which can be litigated in the same courts. But we think the true inference from this difference of procedure is to the contrary, because, in respect to agricultural lands, it is settled that all questions of fact are determined by the Land Department, and that, after the issue of a patent, only questions of law are open for consideration in the courts, and as the laws of Congress alone determine the matter of the disposal of the public lands, it follows that the questions of law which are thus open for consideration are those arising under the acts of Congress. While on the other hand, as we have heretofore shown, in these adverse suits preliminary to a patent of mineral lands, not merely questions
of law arising under the statutes of the United States, but questions of fact and questions arising under local rules and customs and state statutes are open for consideration. The scope of the inquiry which is permissible in the two cases emphasizes the fact that, in the latter case, the controversy may be one not arising under the Constitution or laws of Congress.
Again, it is said that Congress has in these cases prescribed a specific rule of limitation which is ordinarily different from that obtaining under state statutes in respect to actions for the recovery of possession; that it has authorized decrees in peculiar form, some partly for and partly against each of the different parties, and also some adversely to both. 21 Stat. 505, c. 140; Richmond Mining Co. v. Rose, 114 U. S. 576, 114 U. S. 585; Perego v. Dodge, 163 U. S. 160, 163 U. S. 167. But incidental matters such as these are not decisive, especially as confessedly the statute leaves the jurisdiction over those cases in which the matter in controversy does not exceed $2,000 in value in the state courts. This fact shows conclusively that Congress was not intending to carve out a new jurisdiction for the federal courts, and also that it did not doubt that the state courts would carry into effect its enactments in reference to limitations and procedure.
And finally it is said that Congress cannot confer any jurisdiction on the state courts, that they may decline to entertain these adverse suits, and that Congress cannot compel them to do so. But here again we are met with the fact that Congress has left all controversies in respect to right of possession, not exceeding $2,000 in value, to the state courts. It evidently proceeded upon the supposition (which is a rightful one) that, as by the express terms of the Constitution, Article VI, clause 2,
"this Constitution, and the laws of the United States which shall be made in pursuance thereof, . . . shall be the supreme law of the land, and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding,"
no courts, national or state, would decline to carry into effect the acts of Congress. Whether, if a state court should refuse to act under these statutes, the matter is one which could be corrected by error in this Court is immaterial.
If it shall appear that state courts decline to entertain such jurisdiction, and that it cannot be enforced upon them, Congress may further legislate. Evidently, thus far in these cases, as in many others, there has been no reason to suppose that any state court would decline to enforce the laws of the United States or to carry into effect their provisions. And, as well said by Mr. Justice Miller in Iron Silver Mining Co. v. Campbell, 135 U. S. 286, 135 U. S. 299:
"The purpose of the statute seems to be that where there are two claimants to the same mine, neither of whom has yet acquired the title from the government, they shall bring their respective claims to the same property, in the manner prescribed in the statute, before some judicial tribunal located in the neighborhood where the property is, and that the result of this judicial investigation shall govern the action of the officers of the Land Department in determining which of these claimants shall have the patent, the final evidence of title, from the government."
If every adverse suit could be taken into the federal courts, obviously in some of the larger western states the litigation would not be "before some judicial tribunal located in the neighborhood where the property is," for in them the federal courts are often held only in the capital or chief city of the state and at a great distance from certain parts of the mining regions therein.
So we conclude, as we did in the prior case, that although these suits may sometimes so present questions arising under the Constitution or laws of the United States that the federal courts will have jurisdiction, yet the mere fact that a suit is an adverse suit authorized by the statutes of Congress is not, in and of itself, sufficient to vest jurisdiction in the federal courts.
It appears that there were two cases in the Circuit Court of Idaho, that they were there consolidated for trial, and the consolidated case taken on appeal to the circuit court of appeals. Of the two original cases, No. 81 on the docket of the circuit court was commenced by the appellees in that court. The other, No. 102, was commenced by the appellant in the District Court of the First Judicial District of the State of Idaho in and
for Shoshone County, and by the appellees removed to the federal court. The matters involved in the two cases were similar, and hence the consolidation. Under these circumstances, and in view of the conclusion to which we have arrived, the order will be that
The judgment of the United States Circuit Court of Appeals for the Ninth Circuit is reversed, and the case remanded to the Circuit Court, Northern Division, District of Idaho, with instructions to reverse its decree and enter a decree dismissing case No. 81, and an order remanding case No. 102 to the state court.
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enos v. picacho gold mining co. :: :: california court of appeal decisions :: california case law :: california law :: us law :: justia
The plaintiff, who is a mining engineer, was one of the organizers and first directors of Picacho Gold Mining Company, a corporation organized in 1934 in the State of Ohio, which will be hereinafter referred to as the Ohio company. He was appointed its general manager, and rendered sundry services to it, for which there was due to him on January 28, 1935, the sum of $7,850; and on that date a note in his favor for the sum stated, due on or before one year from its date, was executed and delivered to him by the Ohio company. The validity of this note is conceded by appellant. No security was given for the note, and by its terms interest was to be paid only out of the maker's net income--which has not yet made its appearance. Soon after the Ohio company was formed it obtained from one of its promoters an assignment of a contract, referred to in the record as a "bond and lease," by which it could acquire title to a certain gold mining property, on payment of a price, the balance of which appears then to have been $145,900. Thereafter the Ohio company acquired another similar contract for purchase of some adjoining mining property. This property was all in the Picacho Mining District, Imperial County, California, and no mines appear to have been in operation or opened thereon at the time these contracts were acquired. The Ohio company also made a conditional sale contract to purchase a considerable amount of mining machinery. The Ohio company had, as far as appears, no other property and no means of obtaining title to this mining property under these contracts unless it could obtain money from some source. All its stock except five shares was issued in exchange for the assignment above mentioned. It made several attempts, extending over a period of two years or more, to obtain a loan from the Reconstruction Finance Corporation. An application for such a loan was approved, but nothing came of it. The Ohio company borrowed some money from its stockholders with which to make payments on the contracts above mentioned. While this was going on plaintiff, on June 20, 1935, severed his connection, except as stockholder, [56 Cal. App. 2d 769] with the Ohio company. Finally, that company made a written agreement with defendant the Nipissing Mining Company, Ltd., a Canadian corporation, hereinafter designated as Nipissing, which has given rise to this lawsuit. This agreement was authorized by the board of directors of the Ohio company on October 29, 1938, and approved by its stockholders on November 16, 1938. Pursuant to this contract, a new corporation, the defendant the Picacho Mining Company, hereinafter referred to as the California company, was organized under the laws of California, the Ohio company transferred to it the above mentioned contracts for purchase of mining property and machinery, Nipissing loaned the California company $200,000, out of this sum the balance due on the contracts for purchase of the mining property, then amounting, less a discount, to $93,666.67, was paid, a conveyance of the mining property was made to the California company, and that company made its note to Nipissing for the loan, and to secure this note executed to Nipissing a mortgage on the mining property. All of these acts after the organization of the California company were handled through an escrow, so that the various transfers and the mortgage all took effect simultaneously in December, 1938.
The plaintiff brought this action against all the corporations above mentioned, as well as some individuals, and by his amended complaint, filed at the trial "to conform to the proof," he sought a judgment against all the defendants on his promissory note, and also, as to Nipissing, a decree that his claim is a charge on the mining property prior to that of Nipissing. The trial court made findings in plaintiff's favor, gave him judgment for the principal of the note against the Ohio company and decreed that the transfer of the mining property by the Ohio company to the California company was void as to plaintiff and that he had a lien on the mining property which was paramount to the mortgage of Nipissing. In support of this judgment plaintiff relies on two propositions. First, he claims that by the contract between the Ohio company and Nipissing the two became joint adventurers in relation to the mining property; and, second, he contends that the Ohio company's transfer of its assets to the California company and the latter's mortgage to Nipissing were made with intent to delay and defraud plaintiff as a creditor of the Ohio company, and were void as to him. Subordinate [56 Cal. App. 2d 770] to these are other contentions which can be considered in connection with them.
 The contention regarding a joint adventure is based on the terms of the contract between the Ohio company and Nipissing, and to its understanding a further knowledge of the terms of that contract is essential. It is too long to insert here, but its salient provisions--those which must control its interpretation in this respect--may be stated as follows: After referring to the Ohio company's contracts for the purchase of the mining property, on which it recited that not more than $125,000 was then due, and stating that the Ohio company desired Nipissing to advance to it or the new company hereinafter mentioned $200,000 to be secured by a first mortgage on the mining property, the contract provided that Nipissing would incorporate a new corporation, under the laws of California, to which the Ohio company would cause the mining property to be transferred, that Nipissing would advance to this California company $200,000 to be secured by first mortgage executed by the California company on the mining property, that the balance of the price of this property should be paid from the loan, and that pending the completion of that transaction Nipissing would advance to the Ohio company $25,000 or more to finance current mining operations, which was to be repaid out of the loan. The California company was to assume certain debts of the Ohio company--which do not seem to include that to plaintiff. So long as any part of the money secured by the mortgage remained unpaid, Nipissing was to have full control and management of operations on the mining property. Nipissing was to have an option to buy 51 per cent of the stock of the California company (other than six directors' shares), at any time within two months after the loan was paid, for $333,000, on which any amount unpaid on the loan would be credited. The Ohio company was then to receive the other 49 per cent of the stock. In the meantime all the stock except six directors' shares was to be issued to and held by a trustee and not voted. Six directors' shares were to be issued as full paid, three to nominees of the Ohio company and three to nominees of Nipissing. If the option was not exercised Nipissing was to cause the three directors' shares held by its nominees to be transferred to the Ohio company, and the latter was to receive from the trustee all the stock to be held by it. The terms of this contract were substantially carried out, the [56 Cal. App. 2d 771] California company already referred to being the new corporation organized under it, except that no shares of stock of that corporation have been issued to a trustee, the only shares issued by it being the six directors' shares. The same person who was general manager of Nipissing became also general manager of the California company and acted as such without any compensation from the California company.
We cannot see in this contract, or in the acts of the parties in carrying it out, anything which can properly be deemed a joint adventure. In Dempsey-Kearns Theatrical & Motion Picture Enterprises v. Pantages, (1928) 91 Cal. App. 677, 682 [267 P. 550], the court gave this definition of a joint adventure: "... in order to bring a contract within the legal designation of a copartnership or a joint enterprise, it must appear that the parties thereto are associated together with the joint benefit of all; that they are joint owners of the property belonging to the association and share jointly in the profits as well as in the same proportion bear the losses that might result from the enterprise." This statement was approved and followed in Quinn v. Recreation Park Assn., (1935) 3 Cal. 2d 725, 728 [46 P.2d 144], and United Farmers Assn. v. Sakiota, (1935) 7 Cal. App. 2d 559, 560 [46 P.2d 770], as well as other cases; and the Sakiota case was cited in Stoddard v. Goldenberg, (1941) 48 Cal. App. 2d 319, 324 [119 P.2d 800], as authority for the proposition that before the relationship of partners or joint adventurers can exist, "it must be shown that there is a community of interest and an agreement to share jointly in the profits and losses resulting from the enterprise." In Spier v. Lang, (1935) 4 Cal. 2d 711, 716 [53 P.2d 138], it was held that the element of joint participation in the conduct of the business is necessary to constitute the parties joint adventurers.
In the present case, Nipissing, before it exercises its option to buy stock of the California company, is merely a lender of money. It did, indeed, stipulate for certain other matters, such as its right to nominate three directors of the California company and to have control of operations on the property, which might conduce to the safety of its loan; and it required the proceeds of the loan to be applied to purposes which would enhance its security. None of these matters, however, can suffice to convert its loan of money into any other sort of transaction. It appears also that Nipissing had been engaged in the gold mining business for a long time, [56 Cal. App. 2d 772] that the mines it was operating were nearly exhausted when this contract was made, and that it was looking about for another sphere of operations. Plaintiff lays stress on these facts, and they do show that the motive which induced Nipissing to enter into the transaction was probably the hope that it might by means of its option become the owner of a controlling interest in a new mine and thus continue its operations. But neither does such a motive alter the nature of the transaction. Until the option is exercised Nipissing has no interest by way of ownership in the property, and is not jointly participating in the conduct of the business with a view to obtaining profits therefrom. There is, it is true, a provision in the contract, and also in the mortgage, that until the mortgage is paid off any available profits shall be applied on the mortgage; but this is not an agreement to share in the profits. Money paid to Nipissing under this term of the contract would not come to it as profits, but as payment of interest or principal of its loan.
Since the option has not yet been exercised, the situation to arise upon its exercise is not important here, except as it may throw light on the prior situation. After exercise of the option, Nipissing would be a stockholder in the California company, the Ohio company would be the holder of the other stock therein, except for directors' shares, and the California company would be the operator of the mine.  As suggested in McSherry v. Market Corp., (1933) 129 Cal. App. 330, 333 [18 P.2d 776], cited by plaintiff, a corporation may be but an instrumentality to carry out a joint adventure, and hence the mere fact that a corporation is interposed as an operating agent between two parties who hold its shares does not prevent them from being joint adventurers. But, on the other hand, that mere fact does not make them joint adventurers. The elements of a joint adventure must be found in other matters. Here they do not so appear.
 But even if there were a joint adventure, it is not apparent how that fact would impose on Nipissing any liability for plaintiff's note or make its mortgage subject thereto. The note was executed long before the joint adventure, if any, was created, so that plaintiff can claim nothing on the theory of appearances, or estoppel by reason thereof to deny liability. There is nothing in the agreement out of which the joint adventure, if any, must be constructed, to suggest an assumption by either party of previous debts of the other. Certainly [56 Cal. App. 2d 773] one who enters into a joint adventure with another does not by that fact alone become liable for previous debts of the other, even if they have been incurred in connection with the subject matter of the joint adventure; nor is he thereby disabled from lending money to his fellow adventurer, or taking from him a mortgage to secure such a loan; nor does the mere existence of the joint adventure afford any reason why debts of such a mortgagor, not incurred in connection with the joint adventure, should be placed ahead of the mortgage. Plaintiff points to the fact that after the mining property was paid for and the other advances made by Nipissing were repaid, as required in the agreement, there remained $65,000 of the proceeds of the loan in the treasury of the California company, which was used to improve and develop the mining property, and he insists that this should have been used to pay his note. This point is argued both under the head of joint adventure and that of fraud on plaintiff as a creditor. We cannot see its relevancy to the matter of joint adventure, for it has no tendency either to prove the existence of a joint adventure or, if one did exist, to impose liability on the parties thereto. Its bearing on the question of fraud will be considered later.
Coming now to the question of fraud on plaintiff as a creditor, it is to be noted that in his amended complaint plaintiff alleged only that the Ohio company made the various conveyances, assignments and transfers of its property to the California company "with the intent to hinder, delay and defraud plaintiff, as a creditor" of the Ohio company, "intending thereby to put the said property beyond the reach of plaintiff, as its creditor," and that the California company accepted them with the knowledge of that fraudulent intent, and with the intent to assist in the fraud. The findings are to the same effect. In neither complaint nor findings is there any statement that Nipissing knew of or in any way aided or participated in this fraudulent intent of the Ohio company and the California company, or that Nipissing itself had any such intent. Appellant contends that there was no evidence to support such a finding, had it been made. Respondent does not dispute this contention and we have noted nothing contrary thereto in the record; we therefore accept it as correct. It does appear, from complaint, findings and evidence that before Nipissing made the loan and received the mortgage, it was informed that plaintiff was a creditor of the [56 Cal. App. 2d 774] Ohio company. Appellant contends also that the evidence does not support the finding of fraudulent intent on the part of the Ohio company, but we do not pass on this contention because, assuming such intent, it does not, in the circumstances of this case, support the judgment subjecting appellant's mortgage to payment of plaintiff's claim.
 At the time of the transaction in question it was subject to the provision of section 3439 of the Civil Code, as it stood before the 1939 amendment, that "Every transfer of property or charge thereon made ... with intent to delay or defraud any creditor or other person of his demands, is void against all creditors of the debtor ..." In the application of this rule it is settled that "A conveyance made for a valuable consideration may not be attacked by the grantor's creditor, even though the transaction was entered into by the debtor with intent to delay or defraud his creditors, unless the grantee so intended or participated in or had knowledge of the fraudulent intent." (Kuhlman v. Pacific States S. & L. Co., (1941) 17 Cal. 2d 820, 821-822 [112 P.2d 620].) The same rule is applicable to a mortgage or other incumbrance as to a conveyance.
 Mere knowledge by Nipissing that plaintiff was a creditor of the Ohio company is not enough to show an intent on its part to defraud him or to charge it with notice of such intent, if any, entertained by the Ohio company (Kuhlman v. Pacific States S. & L. Co., supra). In this connection plaintiff places considerable emphasis on a provision of the contract between Nipissing and the Ohio company that the latter "shall obtain and deliver such consents or other agreements or take such steps or proceedings as may be necessary to effectively postpone all claims" of its creditors other than trade creditors "so that the title of the new company shall be clear of all claims of such creditors and the transfer ... to such new company binding upon all such creditors." Nothing was done under this provision regarding plaintiff's claim, and appellant, we assume, is to be charged with notice of this fact. However, nothing was necessary to accomplish the result indicated by the language quoted. As a purely unsecured creditor plaintiff had no lien or claim on the property, and the transfer, if made for a valuable consideration, was binding upon him. He could be placed in a better position only if the transaction was made in fraud of creditors--a proposition which cannot be deduced from the terms of the contract itself [56 Cal. App. 2d 775] and which, as we have already stated, is not, so far as knowledge or intent of Nipissing is controlling, either stated in the pleadings or findings or established by the evidence. This contract was drawn by lawyers, and we see in this provision of it no more than a manifestation of that abundance of caution commonly displayed by the legal profession, in an effort to provide against possibilities and contingencies.
 The court found that after the contract between the Ohio company and Nipissing was made and the conveyances and mortgage provided for by it were executed and delivered, the Ohio company withdrew from the State of California, where it had previously been authorized to do business, and undertook to dissolve its corporate existence, and is now "a dormant corporation." We do not understand this to mean that the corporation was actually dissolved, and certainly the evidence does not go that far. As a part of a plan of reorganization the Ohio company undertook to organize a Nevada corporation to which its property was to be transferred. Stock of this Nevada corporation was to be issued to stockholders of the Ohio company and the latter was then to be dissolved. Plaintiff asserts that this plan made no provision for paying him, but this assertion is not accurate, for the plan did provide that the Nevada corporation would assume and pay all liabilities of the Ohio company. However, we do not regard these proceedings of the Ohio company as of any importance here, for two reasons: first, it does not appear that this plan of reorganization was ever carried to completion; and second, it does not appear that Nipissing in any way participated in this plan or was even informed of its existence. Whatever tendency the adoption of this plan by the Ohio company may have to show its intent to defraud plaintiff, certainly it cannot, in the absence of a showing that Nipissing knew of it, tend at all to show such intent on the part of Nipissing. Plaintiff contends that this action of the Ohio company was "done pursuant to the requirements of" Nipissing, the requirements referred to being the provision of the contract above discussed that the Ohio company would take such steps as were necessary to postpone the claims of its creditors to the transfer to the California company. We can see no connection between this term of the contract and the acts now under discussion. As already stated, plaintiff had no lien on the property and no such steps as these were necessary to the carrying out of the contract. [56 Cal. App. 2d 776]
 Coming again to the failure to apply, in payment of plaintiff's note, the part of the proceeds of the loan which remained in the treasury of the California company, we note that the contract between the Ohio company and Nipissing did not contain any provision regarding the application of this remainder; but perhaps it may be said that Nipissing brought about the use of it already stated by virtue of its nomination of three directors of the California company and the functioning of its general manager as general manager of the California company. There is nothing in all this, however, which shows or tends to show any intent of Nipissing to defraud plaintiff. As lender of money Nipissing had a right to stipulate for the use of the money lent, and it might have gone so far as to insert in the contract a provision that it be used as it was used, without being subject to the imputation of fraud. Application of the money to improvement of the property was beneficial, rather than detrimental, to plaintiff. This money was not concealed, or suddenly removed from plaintiff's reach. If for any reason it was subject to his claim he could have taken effective proceedings to assert that claim against it before it was expended. He was informed of the general nature of the transaction about the time it was entered into, but took no steps to look into it for a long time.
 Plaintiff contends, however, that the Ohio company, by the transfer of its several contracts to the California company, divested itself of all its property, that it received no consideration for the transfer, and that by reason thereof it became insolvent. If such were the case, the transfer would be fraudulent and void as to plaintiff, an existing creditor, under the provision of section 3442, of the Civil Code, as it existed at the time of the transfer, that "any transfer or incumbrance of property made or given voluntarily, or without a valuable consideration, by a party while insolvent or in contemplation of insolvency, shall be fraudulent, and void as to existing creditors." In such case, it would not be necessary for plaintiff to show fraudulent intent of the transferee, or its knowledge of any fraudulent intent of the transferor. (Tobias v. Adams, (1927) 201 Cal. 689, 695 [258 P. 588].) Indeed, where both insolvency or contemplation thereof on the part of the transferor and lack of a valuable consideration for the transfer appear, the transfer is void under section 3442 without any showing of actual intent to defraud by [56 Cal. App. 2d 777] either party. (Lefrooth v. Prentice, (1927) 202 Cal. 215, 228-229 [259 P. 947].)  The term "voluntarily," as used in section 3442, is synonymous with its companion phrase, "without a valuable consideration," and adds nothing to the section. (Security Trust Co. v. Silverman, (1930) 210 Cal. 578 [292 P. 636].)  We do not agree that the transfer by the Ohio company to the California company was without consideration. By the terms of the agreement for the transfer the California company was to assume and agree to pay the balance due from the Ohio company for purchase of some machinery, amounting to $57,000, certain other debts of the Ohio company amounting to not over $25,000 and all further operating debts it might incur up to the transfer. Such an assumption of liability is a sufficient consideration to uphold a transfer against such an attack as we are now considering. (Bacciocco v. Curtis, (1938) 12 Cal. 2d 109, 114 [82 P.2d 385]; Mix v. Yoakum, (1934) 138 Cal. App. 290, 294 [31 P.2d 1071]; Hasenjeager v. Voth, (1928) 91 Cal. App. 394, 398 [267 P. 146]; 12 Cal.Jur. 1015, 1021.)  Furthermore, the agreement provided that the Ohio company was to receive shares of stock of the California company for its transfer. If Nipissing does not exercise its option to buy part of the stock the Ohio company will receive all of it, and thus, in effect, it will own the same property it had before, but greatly improved and freed from conditions of payment formerly attached to it. If Nipissing does exercise its option, the Ohio company will receive only 49 per cent of the stock, but Nipissing must pay the California company $333,000, either all in cash, or partly in cash and partly by cancelling its loan, and this would bring the value of the 49 per cent of the stock received by the Ohio company nearly up to the value that all of it would have if the option were not exercised, on the valuations written into the contract and not disputed here. This is sufficient to comply with former section 3442 of the Civil Code, above quoted. One who transfers property to a corporation and in exchange for it receives all of the stock of the corporation, or even a substantial part of it where the corporation has other substantial assets, has received a valuable consideration for the property, within the meaning of section 3442.
 Plaintiff calls our attention to the fact that no stock of the California company, except the six directors' shares, has yet been issued, and contends that by reason thereof the Ohio [56 Cal. App. 2d 778] company has received nothing for the property. Where a contract provides for consideration to a transferor for his transfer of property, the transfer does not become a voluntary one, within the meaning of the rule now under consideration, merely because the consideration is not received immediately or at the time fixed therefor. The contract provided that the stock other than directors' shares should be issued and held by a trustee until it was determined whether Nipissing would exercise its option, and this was not done. But this is a mere incident to the other provisions that the Ohio company shall have all of the stock if the option is not exercised, and 49 per cent if it is exercised. It is true, the stock called for by the contract cannot be issued without a permit from the Commissioner of Corporations and that no permit therefor has yet been issued or applied for. If on application for such a permit he issues it, no doubt he will do so on such terms and conditions as will protect the rights of the Ohio company in the property it has transferred. If he should refuse a permit, or if the contract or this particular part of it should be held to violate the Corporate Securities Act, the Ohio company would not for that reason forfeit all interest in the property. The terms of the contract show that the transfer was not intended to be made without consideration, and if the consideration should fail for any reason, the Ohio company would undoubtedly have rights the exact nature and manner of assertion of which we need not consider, whereby it could maintain or reclaim an interest in the property transferred.
 Moreover, the loan of $200,000 by Nipissing and the use made of it cannot be ignored in considering the question of consideration. Had that loan been made directly to the Ohio company and a mortgage made by that company to Nipissing, the money loaned being used as it was here, to pay for and to improve the mortgaged property, no question could have been raised regarding the existence of a valuable consideration for the mortgage, nor would the facts in the case, if otherwise the same as they are, lend any countenance to the theory that the transaction was in fraud of plaintiff or any other unsecured creditor of the mortgagor. The interposition of the California company between the Ohio company and the lender, Nipissing, does not alter the essential nature of the transaction in this respect, nor afford a basis for the charge of fraud. [56 Cal. App. 2d 779]
Plaintiff also cites Blanc v. Paymaster Mining Co., (1892) 95 Cal. 524, 533 [30 P. 765, 29 Am.St.Rep. 149], and other cases following the same rule, but those cases are not applicable here. In the Blanc case, it appeared that all the assets of a corporation which was indebted to plaintiff were transferred in a roundabout manner to another corporation which was organized for the purpose of holding them, and which paid no consideration therefor, the whole scheme being devised and carried out for the purpose of defrauding creditors of plaintiff's debtor. It was held that equity would regard the new corporation, against which the suit was brought, as being "a mere continuation of the former corporation under a different name" and hence the new corporation would be held liable to plaintiff for the debt of the old corporation, "at least to the extent of the value of the property which it received from it without consideration." An essential foundation of the rule so applied is the lack of consideration running from the new company to the old. Here, as we have already held, there is no such lack. But if the rule of these cases were applicable here, it would lead only to a judgment against the California company on the note. No such judgment was given, so the trial court could not have proceeded on this theory. Moreover, this rule, being based on the essential identity of the two corporations, would afford no greater reason for preferring plaintiff's claim over a mortgage executed by the second corporation than for giving it priority over one executed by his original debtor, which, as already stated, could not be done under the circumstances of this case.
Other matters advanced by plaintiff in support of the judgment have been considered but are not deemed to merit more detailed discussion. Plaintiff's attempt, throughout the case, is to appeal to rules of equity. We see no equity in a judgment which gives to a previously unsecured creditor of a moribund corporation, whose only asset is a conditional right to acquire property by the payment of money which it has no means of paying, a lien on that property after its acquisition by means of the proceeds of a loan, paramount to that of a mortgagee who in good faith makes that loan and takes as security a mortgage which attaches to the property at the very instant of its acquisition. Such is the judgment here. [56 Cal. App. 2d 780]
mckinley creek mining co v. alaska united mining co | findlaw
The bill alleged that 'Peter Hall, William A. Chisholm, James Hansen, John Dalton, and Dan. Sutherland, partners under the firm name and style of the Alaska United Mining Company, bring this their bill of complaint against C. G. Lewis, Bert Woodin, Edwin Hackley, Alex. McConaghy, Carl A. West, W. S. Hawes, Chas. P. Leitch, and C. P. Cahoon, partners under the firm name of the McKinley Creek Mining Company, and show to the court that the said parties, both plaintiffs and defendants, are citizens of the United States and residents of the district of Alaska.'
The bill also alleged ownership of the claims by reason of location, exploration, and discovery of precious metals, and the compliance with the local rules and regulations of the mining district. Also possession of the claims and the erection of val-
[183 U.S. 563, 564]
uable improvements thereon, and forcible entry upon that possession by defendants (appellants) with an attempt and avowed purpose to drive plaintiffs (appellees) therefrom, and unless restrained they would proceed to the execution of said threats. An injunction was prayed for.
The defendants admitted their citizenship, but denied the citizenship of plaintiffs on the ground that the defendants had not sufficient knowledge to form a belief thereto, and traversed in like manner or absolutely the other allegations of the bill, and alleged title by reason of prior discovery by members of the company. The answer also alleged prior possession by members of the company, from which they were dispossessed by the plaintiff, and claimed that as to the controversies thus arising 'defendants are under the law and practice of this court entitled to a jury trial for the trial of the title to said claims and each of them, and to that end and purpose have commenced in this honorable court a suit in ejectment for the trial and determination of the title to said property in an action at law and according to the usage and practice of this court, and until the trial and determination of such trial at law by this honorable court the defendants are entitled to a restraining order against said plaintiff company and its individual members restraining them and each of them from the commission of the wrongful acts herein complained of.'
A jury was impaneled to try the case on motion of plaintiffs, no objection being made by defendants, and, after hearing the evidence and receiving instructions from the court, the jury rendered a verdict for plaintiffs, as follows: 'We, the jury in the above-entitled and numbered cause, find for the plaintiffs, Peter Hall, Wm. A. Chisholm, Dan. Sutherland, James Hansen, and John Dalton, partners under the firm name and style of the Alaska United Mining Company, the claims in controversy.'
The defendants in due time moved for judgment notwithstanding the verdict, upon the ground that on the evidence the
[183 U.S. 563, 565]
defendants were entitled 'to a judgment in their favor for the possession of the mines and property in controversy.' The motion was denied.
Subsequently defendants moved for a new trial (1) upon the testimony in the cause, the rulings therein and exceptions taken, and upon the pleadings and proceedings in cause No. 967; (2) the insufficiency of the evidence to justify the verdict; (3) error in refusing to give certain instructions requested by defendants (appellants).
Objection was made to the judgment, and the defendants claimed that the only judgment which could be entered was one 'restraining the defendants from the acts complained of in the bill of complaint pending the trial of cause No. 967, McKinley Creek Min. Co. v. Alaska United Min. Co., which is a suit in ejectment now pending in this court and at issue, the record and files of which are hereby referred to and made a part of this objection.'
The assignments of error present for review the rulings of
[183 U.S. 563, 567]
the court upon the admission of testimony, the correctness of the court's instructions to the jury, and the sufficiency of the evidence to justify the judgment.
We may dispose of the rulings on the admission of testimony summarily. They are not precisely indicated by counsel in their brief, and to review them with a detail of the evidence would unduly extend this opinion. It is enough to say that we have examined the evidence and considered the rulings, and do not discover any prejudicial error in the latter. Besides, it is questionable if such rulings are reviewable in an appellate court. Wilson v. Riddle,
123 U.S. 608
, 31 L. ed. 280, 8 Sup. Ct. Rep. 255; Huse v. Washburn, 59 Wis. 414, 18 N. W. 341; Peabody v. Kendall, 145 Ill. 519, 32 N. E. 674.
For an understanding and consideration of the other contentions of appellants it is only necessary to indicate the propositions which the evidence of the parties tended to establish. On the part of the plaintiffs ( appellees) the evidence tended to show that Dan. Sutherland, James Hanson, William Chisholm, and Jack Dalton, who compose the appellee company, and Peter Hall, and one Hawes, and C. P. Cahoon, were working at Pleasant camp in Alaska for William Chisholm on and prior to October, 1898. Prospecting on the river Porcupine was resolved on to be done by Hanson, Sutherland, and Cahoon, and the following power of attorney was given to Cahoon:
Know all men by these presents that Peter Hall, William Chisholm, William S. Hawes, of Pleasant camp, British Columbia, have made, constituted, and appointed, and by these presents do make, constitute, and appoint, C. P. Cahoon, of Pleasant camp, British Columbia, our true and lawful attorney, for us and in our names, place, and stead, to locate a mining claim in the territory of Alaska.
[183 U.S. 563, 568]
Provisions were furnished the party, and they started out on the 4th of October, 1898, and met on the creek (subsequently given the name of McKinley) certain members of the appellant company. Gold was discovered, and Cahoon wrote notices of location for Chisholm and Hall upon a snag or stump in the creek, making their claims contiguous, and afterward reported that he had done so, saying that he had staked Chisholm first and Hall next. Chisholm and Hall went to the claims about the 20th of October, and cut trails to them, and did other work upon them; and at that time copied the notices of location and had them recorded. The notices, with their indorsements, were introduced in evidence.
The testimony was given by several witnesses and in great detail, and it was opposed at about all points by testimony of several witnesses, including Cahoon; and as to who first discovered gold there was a decided conflict whether Sutherland did, who is one of the appellee company, or whether Hackley did, under a location by whom the appellant company claims. Also a conflict as to whether Hackley protested when Cahoon wrote the notices of location for Chisholm and Hall, and whether Cahoon promised to take them down and authorized Hackley to do so, and, upon his declining, authorized Lewis, one of the appellant company, to taken them down and relocate Chisholm and Hall further up the creek, and whether Lewis did so.
It will be observed that the main controversy of fact between the parties was as to who made the first discovery of gold,- Hackley or Sutherland. On this testimony appellants base three contentions, to which, they claim, the instructions asked by them at the trial court were addressed:
That the citizenship of Chisholm and Hall was put at issue by the pleadings, and no evidence was offered to establish
[183 U.S. 563, 569]
it, but, on the contrary, the power of attorney under which Cahoon acted represents them to be citizens of British Columbia.
Without now questioning the soundness of either of these contentions, it is enough to say that the assignments of error based upon the refusal of instructions cannot be entertained. This is undoubtedly a suit in equity, and if it may be regarded as entertained under the general powers conferred by the act of May 17, 1884 (23 Stat. at L. 24, chap. 53), error cannot be predicated upon the giving or the refusing of instructions. The verdict was but advisory to the court, to be adopted or disregarded at the court's discretion. This we regarded as indisputable, but in order that counsel might be heard upon the effect of the Oregon Code, if regarded as applicable to Alaska, we requested briefs of counsel 'as to what errors, in respect of giving or refusing instructions or other rulings on trial by a jury in a cause of this character, are open for consideration on appeal from the district court of Alaska.'
In response to that request, counsel for appellant urge that by 7 of the act of May 17, 1884, supra, the final judgments of a district court of Alaska are reviewable by this court 'as in other cases,' and that the terms, 'other cases,' 'necessarily refer to the procedure for review provided by 691 and 692, Revised Statutes, governing district and circuit courts having like jurisdiction.' But the procedure there prescribed is for the purpose of reviewing error, and error, as we have already said, cannot be based on instructions given or refused in an equity case. Nor is the rule different in the state of Oregon. De Lashmutt v. Everson, 7 Or. 212; Swegle v. Wells, 7 Or. 222.
There was no finding of facts by the court, and, assuming that we may look into the evidence, we find it conflicting as to who first discovered gold,-Hackley or Sutherland. The court below evidently determined that Sutherland did, and, having no test of the credibility of the witnesses, we cannot pronounce that determination unsound. Sutherland seems to have been acting with and co-operating with Cahoon. At any rate, Sutherland is not contesting the locations made by Cahoon
[183 U.S. 563, 570]
for Chisholm and Hall, but, on the contrary, asserts their validity and claims title under them. The locations, therefore, are valid so far as they depend upon the discovery of gold.
The second contention is that they are invalid because they were not 'distinctly marked on the ground.' The appellants base this contention on Cahoon's testimony. His testimony is that he wrote the notices of locations upon a stump or snag in the creek, and they were as follows: 'I, the undersigned, claim 1,500 feet running down this creek and 300 feet on each side.'
Notice is hereby given that I, the undersigned, have, this 6th day of October, 1898, located a placer mining claim 1,500 feet running with the creek and 300 feet on each side from center of creek known as McKinley creek, in Porcupine mining district, running into Procupine river. This claim is the east extension of W. A. Chisholm claim on about 1,800 feet from the first falls above the Porcupine river, in the district of Alaska.
Notice is hereby given that I, the undersigned, have, this 6th day of Oct., 1898, located a placer mining claim 1,500 feet along creek bottom and 300 feet from center of creek each way on creek known as McKinley, in Porcupine mining district, described as follows: West extension of Peter Hall's claim and about 300 feet above first falls on said creek, in the district of Alaska.
These notices constituted a sufficient location; the creek was identified, and between it and the stump there was a definite relation which, combined with the measurements, enabled the boundaries of the claim to be readily traced. Haws v. Victoria Copper Mic. Co.
160 U.S. 303
, 40 L. ed. 436, 16 Sup. Ct. Rep. 282.
[183 U.S. 563, 571]
3. Conceding, appellants say, a proper discovery and aproper description of the location, nevertheless, as the citizenship of the locators was put in issue, it was necessary to be proved to justify a judgment for the appellees, because, under 2319, Rev. Stat., the public lands of the United States are only open to exploration, occupation, and purchase by citizens of the United States and those who have declared their intention to become such.
In Manuel v. Wulff,
152 U.S. 505
, 38 L. ed. 532, 14 Sup. Ct. Rep. 651, this court sustained the validity of a conveyance of a mining location to an alien, reversing a decision of the supreme court of Montana to the contrary. The decision was based upon the difference between a title by purchase and title by descent, and the doctrine expressed that an alien can take title by purchase, and can only be devested of it by office found. The case of Doe ex dem. Goveneur v. Robertson, 11 Wheat. 332, 6 L. ed. 488, was cited and approved, and the remarks of Mr. Justice Johnson in that case become apposite:
That grantees of the public land take by purchase this court, in Manuel v. Wulff, left no doubt. It was said that when a
[183 U.S. 563, 572]
location is perfected it has the effect of a grant by the United States of the right of present and exclusive possession. Forbes v. Gracey,
94 U.S. 762
, 24 L. ed. 313; Belk v. Meagher,
104 U.S. 279
, 26 L. ed. 735; Gwillim v. Donnellan,
115 U.S. 45
, 29 L. ed. 348, 5 Sup. Ct. Rep. 1110; Noyes v. Mantle,
127 U.S. 348
, 32 L. ed. 168, 8 Sup. Ct. Rep. 1132.
The appellants, however, deny the application of Manuel v. Wulff, and contend that this suit having been brought under 500 of the Oregon Code, in order to maintain the suit, the appellees must show a right to the exclusive possession of the ground in dispute. This is in effect to say that, while the validity of the location may not be disputed by appellants, that the right to the possession, which is but an incident of the location, may be. We do not concur in this view. The meaning of Manuel v. Wulff is that the location by an alien and all of the rights following from such location are voidable, not void, and are free from attack by anyone except the government.