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Buckley v. Altheimer

December 17, 1945

BUCKLEY
v.
ALTHEIMER, ET AL.



Author: Kerner

Before SPARKS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

Plaintiff, individually and as administrator of the estate of Harry J. Stoops, deceased, brought this action against defendants for an accounting and to recover certain timber lands in Avoyelles Parish, Louisiana.

The case was tried by the court without a jury. Fourteen days were devoted to the trial of the case. Twenty-three witnesses testified for plaintiff, two of these by deposition, and many hundreds of exhibits were introduced. Defendant Altheimer testified in his behalf and he, too, introduced a large number of exhibits. Most of the facts are undisputed. At the conclusion of all the evidence, the court entered judgment against plaintiff and dismissed the complaint for want of equity. To reverse the judgment, plaintiff appeals.

During his lifetime, prior to 1928, Harry J. Stoops was engaged in the buying, selling and exchanging of real estate and in the buying and selling of mortgages on hotels and apartment buildings. Altheimer was admitted to the bar in Arkansas in 1898 and to the Illinois bar in 1909 and since that time has practiced law in Chicago. In 1914 he entered into a partnership with Edwin B. Mayer. In 1924 or 1925 Stoops became a client of Altheimer & Mayer and that relationship continued through the year 1927, and during that period Stoops entrusted large and valuable property interests to their attention. In 1927 Stoops inquired of Altheimer if he knew anyone who held timber land mortgages and gas rights. Among the clients of Altheimer & Mayer at that time was one J. H. Hines of Memphis, Tennessee, who owned interests in the types of properties Stoops wanted to acquire. Altheimer introduced and brought Stoops and Hines together. At this time Hines was badly involved financially. He controlled a corporation known as J. H. Hines Co., Inc., which had the record title to a 10,600 acre tract of land, against which, since 1927, a foreclosure suit, foreclosing a bond issue of $150,000, had been pending in a federal court at Shreveport, Louisiana. Adjacent to this land was another tract of 15,000 acres, the title to which was in the National Lumber & Tie Corporation. Hines had an option to acquire this tract.

On February 1, 1928, Stoops and Hines entered into a contract respecting the various property interests owned by Hines, the terms of which were negotiated directly between Stoops and Hines and, after its terms had been agreed upon, at their request, Altheimer reduced their understanding to writing. By this contract Stoops agreed that within 50 days he would: 1. Respecting the bonds of J. H. Hines Company (a) pay off or discharge such of those bonds as were in the hands of others, and (b) pay off or discharge the debts of J. H. Hines Company secured by a deposit of such bonds. 2. Pay the amount due one James H. Allen for his interest in the 15,000 acre tract owned by National Lumber & Tie Company. 3. Furnish $150,000 to Tularosa Tie & Lumber Company. Should Stoops perform his part of the agreement, Hines agreed that he would convey and assign to Stoops the following: (a) Hines' option to the 15,000 acre tract; Hines' 250 shares of National Lumber & Tie Company stock; (b) fee simple title to the 10,600 acre tract of land; (c) one-half of the capital stock of Tularosa Tie & Lumber Company; and (d) one-half of the common stock of Sacramento Tie Company.

It was Stoops' plan, upon acquiring these lands, to place the title to the oil, gas and minerals in the 25,000 acres in a corporation to be formed under the name of Frost Oil & Gas Company, and to put the title to the land excepting the oil, gas and minerals in a corporation to be formed under the name of J. H. Hines Tie & Timber Company. This latter company was to put a trust deed on the 15,000 acre tract securing its bonds for $300,000 and a trust deed on the 10,600 acre tract for $200,000. The trust deeds and bonds were executed and these Stoops planned to sell. The corporations were formed and both were organized under the laws of the State of Delaware, and the record title to the land became vested in the Tie & Timber Company and the mineral, gas and oil rights were vested in the Frost Company.

Prior to February 1, 1928, Hines had owed Altheimer & Mayer $17,500 on his note, secured in part by $12,500 Hines Company defaulted mortgage bonds, then in foreclosure. These bonds were a part of the bonds which Stoops was to acquire and cancel by his agreement of February 1. February 16, 1928, there came into Altheimer & Mayer's office drafts for $22,500, having attached thereto 250 shares of National stock and $2,000 of the bonds of Hines Company. Stoops, having only $12,500 to apply towards the payment of these drafts, borrowed $10,000 of altheimer and gave his note to Altheimer & Mayer for $22,500. Concerning this loan, Altheimer, in a memorandum to Mayer, wrote: "I agreed to advance him [Stoops] $10,000 provided he took over $12,500 of the bonds that were collateral to the Hines note to us at par." The 250 shares of National stock and the Hines Company bonds were then put up as collateral for Stoops' note for $22,500 to Altheimer & Mayer with a Chicago bank.

On March 9, 1928, the option to acquire the 15,000 acre tract was to expire. An extension of that option was obtained by turning over to National 125 shares of the 250 shares of that company's stock securing Stoops' note. The Chicago bank released the 125 shares when Daniel E. Frost, one of Stoops' financial backers, advanced $5,000 upon Stoops' note, thereby reducing the $22,500 note to $17,500. April 12, with $10,000 of Frost's money and $5,000 of his own funds, Stoops further reduced his note to $2,500, and the Chicago bank released the remaining 125 shares of National stock. However, the extension of the option was again about to expire and Stoops was not able to pay Allen for his release or raise the $50,000 required to be paid to National. He requested Altheimer & Mayer to assist him. Altheimer & Mayer borrowed &50,000 upon their note from a Chicago bank and Altheimer prevailed upon Allen to look to him for the payment of Allen's claim against National, which Allen was willing to release for $17,500. April 12, 1928, Stoops signed an agreement which provided that Altheimer & Mayer should hold the title to the 15,000 acres as security for their $50,000 advance and $10,000 of Allen's claim, Stoops having given Allen his note for $7,500 for the balance due. By the agreement it was also provided that in the event title to the 15,000 acres and title to the oil and gas rights should be put in a corporation or corporations, all of the stocks and bonds of those companies should be held by Altheimer & Mayer as security for their advances. April 13, Altheimer delivered to National the remaining 125 shares of its stock, the releases of Hines and Allen, and a check for $50,000, and received in exchange therefor a deed for the 15,000 acre tract to Alan Altheimer, the nominee of Altheimer & Mayer. In the meantime, as already noted, Frost Oil & Gas Company and J. H. Hines Tie and Timber Company had been formed, and under the agreement of April 12, Altheimer & Mayer held all of the stock and bonds of these corporations as security for their advances.

May 18, 1928, Stoops increased the $2,500 balance of his note to Altheimer & Mayer to $4,000, leaving $6,000 of Hines Company bonds as collateral, and transferred $8,500 of such bonds as collateral to the $4,500 due on Hines' note, which Stoops had agreed to pay. September 13, 1928, Altheimer personally took over and assumed the obligations of Altheimer & Mayer on their $50,000 note, as well as on the $4,000 Stoops note and the $4,500 Hines note, and received all of the collateral securing these notes.

We have already observed that in the contract of February 1, Stoops agreed with Hines that he would, within 50 days, acquire all of the $150,000 bonds of the Hines Company, secured by a trust deed, which trust deed was then in foreclosure and a sale of the property had been advertised. Several extensions of this sale were obtained. The first of such extensions was obtained on February 7, when Stoops paid Altheimer $3,000 which Altheimer forwarded to the receiver in the foreclosure suit; a second, when Stoops paid $4,000 to the receiver to use for the payment of taxes; and a third, on December 17, 1928, when Frost sent $5,000 to the receiver.

At this time Stoops owed Altheimer, Altheimer & Mayer and others in connection with the 15,000 acre tract, $112,760, for which he executed, on November 20, 1928, his note for $100,000 and on November 22, 1928, a note for $10,000. The $100,000 note was secured by $300,000 par value bonds on the 15,000 acre-tract, 60% of the stock of J. H. Hines Tie & Timber Company, 42% of the stock of Frost Oil & Gas Company, and that part of the J. H. Hines Company bonds which Stoops should thereafter acquire with his own money. Between February 1, 1928 and November 30, 1929, the date of the foreclosure sale, bonds of the J. H. Hines Company, par value $92,000, were acquired for $39,950. Of these Frost, on November 10, 1928, acquired $30,000, paying therefor $15,000. These Frost pledged with Altheimer as further security for Stoops' $100,000 note. The remaining $62,000 par value of these bonds were acquired for $24,950, Altheimer advancing $17,450 and Stoops $7,500. The bonds acquired by Stoops were also pledged with Altheimer as security for Stoops' $100,000 note.

On November 6, 1929, Stoops had a paralytic stroke and suffered a complete physical and mental collapse from which he never recovered. April 9, 1930, he was adjudged insane. He died May 8, 1932, and on January 2, 1941, plaintiff was appointed administrator of his estate. At the time of trial, plaintiff was sole distributee of her father's estate. In her original brief, plaintiff claimed that up to November 6, 1929, her father, with his own funds and with moneys advanced for him by Frost, had invested $52,000.

The foreclosure sale was held on November 30, 1929. To save whatever funds had thus far been invested in the project, Altheimer bid $50,000, later reduced to $41,000, for the property by allowing a credit of $9,000 paid to the receiver for taxes. After discharging the fees due to various parties in the foreclosure proceedings, $33,000 remained to be paid. Altheimer advanced and paid $20,559.27 of this amount in cash. The balance of $12,440.73 represented the distribution value of the Hines Company bonds in Altheimer's hands, which bonds he delivered to the receiver. The par value of these bonds was $110,050. In addition to these bonds, Altheimer acquired $8,500 par value of the Hines Company bonds from a bank holding them as collateral for Hines' $4,500 note, $6,000 of bonds from the Chicago bank pledged to secure Stoops' note, and $3,550 of bonds from the Tremont Lumber Company.

Thus it appears that in connection with the 10,600 acre tract Altheimer had paid out $56,009.27, exclusive of interest on bank loans and taxes and other expenses, and $64,425 in connection with the acquisition of the 15,000 acre tract. The record also reveals in connection with both tracts, that in addition to the $56,009.27 paid out by Altheimer, Altheimer paid $42,465.66 for taxes, $6,813.50 for attorneys' fees and $3,201.99 for expenses, making a total of $172,915.42, no part of which, excepting $29,739.50 received as rental of these lands, has even been repaid to Altheimer by Stoops or anyone in his behalf.

Tularosa Tie & Lumber Company was engaged in cutting timber in Otero County, New Mexico, and in the manufacture and delivery of lumber.The cutting rights were actually owned by the Sacramento Tie Company, which had a contract to furnish ties to the Southern Pacific Railroad, which contract Tularosa had assumed and agreed to perform. All of the stock of Tularosa was owned by Hines but had been pledged to L. K. ...


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