the directors had no power or right to release him, and that, deducting his advance from this sum, he remained and was indebted to the company in the sum of $50,000.

ant.

Now, admitting that the plaintiff's present view of the defendant's liability in regard to this stock is the correct one, there is no ground for saying that the plaintiff was misled in this matter by the defendThe plaintiff knew as well as the defendant that the directors had accepted the return by the latter of the 3,000 shares of this stock, and the facts relating to it, and could and did judge for himself as to the effect thereof. At least the defendant does not appear to have been either his informer or adviser in the premises, while he does appear to have been in close correspondence with his friend E. W. Crichton, who has been a director and superintendent of the company since its formation, and the secretary thereof since December 1, 1883. But, admitting that the defendant was indebted to the company in the sum of $50,000, instead of the company being indebted to him in the sum of $100,000, and that the plaintiff was ignorant of that fact, the knowledge of it would not have prevented him from entering into this contract, but, on the contrary, would have been an additional inducement to do so. In this matter the defendant appears to have sought and obtained an opportunity to take an interest with the defendant in a loan to the company, not simply for the good of the latter, so far as appears, but his own good as well. The state of the account between the company and the defendant was a matter of no importance in the premises to the plaintiff, except as it indicated the solvency or not of the former and its ability to repay the loan with interest. So that, the defendant being abundantly able to pay this supposed indebtedness to the company, the fact of its existence, instead of operating as a fraud on the plaintiff as a party to to this contract, was an advantage to him, both as a creditor and a stockholder, to the extent that it increased the company's assets.

As to the other charge, the material facts appear to be that in the spring of 1883 negotiations were opened between the company and the firm of Smith Bros. & Watson, of this city, for the purchase of their foundry property, that resulted in a proposition by the latter to sell the same, at a valuation of $225,000, for 4,500 shares of the company's stock, valued at 50 cents on the dollar, and at a stockholders' meeting held on March 20, 1883, it was voted to authorize the directors to make the purchase, and upon the receipt of proper deeds and bills of sale of said property, to issue to Smith Bros. & Watson 4,500 shares of paid-up stock of the company; but the directors took no action in the premises, nor did the former ever make any conveyance or transfer of their property to the company. Subsequently they proposed to withdraw their proposition of sale, and at a meeting of the directors held on September 24, 1883, their request was unanimously complied with. In the mean time, between the making of the proposition and the withdrawal of the same, the two concerns maintained

intimate business relations, but were carried on separately and without any consolidation. In this time Smith Bros. & Watson put up the large iron transfer or ferry boat for the Northern Pacific, to be used on the Columbia river, at Kalama, by which it is said they cleared $100,000, and did work for the company for which they were allowed and paid on settlement $40,000.

The charge that the defendant and his "associates," meaning, I suppose, his co-directors, W. M. Ladd, E. W. Crichton, C. R. Donahue, and F. C. Smith, the persons constituting the board when Smith Bros. & Watson were allowed to withdraw, appropriated $400,000 of the assets of the company to their own use, is based on these facts. In other words, it is boldly assumed that the company not only lost the value of the foundry property, the alleged profits of the transfer-boat construction, and the money paid for work done for it, in all $365,000, by the illegal action of the defendant and his co-directors on September 24th, but that these parties thereby wrongfully appropriated the same to their own use. To begin with, the company could not have lost anything by not getting the foundry property, unless it was worth more than it was to give for it, which does not appear, and that it could possibly have lost $225,000 thereby, or any considerable portion of that sum, is, under the circumstances, simply absurd.

There is no proof of the profits made on the construction of the ferry-boat, but it is highly probable that there were profits, and it may be admitted for the purpose of this question that they reached the figure stated, $100,000. The $40,000 paid for work done could not have been lost to the company unless the transaction was fraudulent or fictitious, which does not appear, but rather the contrary. But, admitting that there is no ground for the general allegation that the defendant and his associates converted these sums to their own use, it is alleged that the defendant was at the date of the transaction complained of a secret partner in the firm of Smith Bros. & Watson, and that whatever the company lost by it he, as a member of that firm, got a share of. Granting for the time being that the defendant was a member of this firm, it does not follow that he was a gainer by any transaction between it and the company, even if the latter was the loser thereby. Taking the plaintiff's contention for true, the defendant was one of five persons constituting the firm of Smith Bros. & Watson, while it appears from the evidence that he was and is the owner of one-fifth of the stock of the company, and was therefore liable to lose on the one hand as much as he could gain on the other. And as to the question of whether the defendant and his co-directors acted wrongfully or even improvidently in consenting to the withdrawal of Smith Bros. & Watson's proposition, it must be remembered that it was done under the advice of eminent counsel, upon the very plausible ground, to say the least of it, that they could not be held thereto; the same not having been accepted by the directors, and the stockholders having no power under the corporation act to transact

any such business. But, however this may be, it is a sufficient answer to this charge, and to any claim the plaintiff may make on the facts involved in it, that he knew all about these matters at and before he executed the contract, and was in no way misinformed or misled by the defendant concerning them. With full knowledge of the facts, he then appears to have regarded the transaction as legal and honest, and if he has since come to a different conclusion, or been advised that the company has a valid claim against the defendant and his "associates" for $400,000 on this account, what possible cause is that for canceling a contract for an interest in a loan to the company?

When the plaintiff executed this contract he must have supposed the company was more or less financially embarrassed, and yet he was not only willing but desirous of taking a considerable interest in a large loan to it; but now that he finds it has a valid claim, of which he was then ignorant, against solvent parties for $400,000, a sum greatly beyond the company's indebtedness, he wishes to be released from his engagement upon the plea that this claim arises out of the previous misconduct of the defendant and his associates, which made this loan. necessary.

Neither is the plaintiff entitled to have this contract rescinded by reason of anything that has bappened or been omitted since it was executed. The defendant did not undertake absolutely to make this loan to the company or to do so within any specific time; and, in any event, the consent of the company must first be obtained, and the $100,000 already advanced was to be considered a part of it. Doubtless he was bound to make the loan in a reasonable time, the circumstances considered, or return the plaintiff his note and certificate of stock. But the loan has been made in pursuance of the contract, and as soon thereafter as the company would accept it, and give the plaintiff the proper acknowledgment thereof and obligation to repay it. And now whether as a result of this transaction the plaintiff is or may become a non-stockholder in the company, and therefore unable to maintain any suit for relief against these transactions, if wrongful and injurious to the stockholders, is altogether immaterial, so far as this case is concerned. An otherwise valid contract cannot be canceled on any such irrelevant ground or apprehension as this. If the plaintiff, by pledging his stock to the defendant as collateral security, with a blank assignment and power of tansfer, has deprived himself of the right and privilege of a stockholder in the company during the existence of the pledge, he must submit to such deprivation until he is ready to redeem the same by the payment of his note.

On the argument it was maintained on behalf of the defendant that the sale and purchase of the 62 shares of stock was a material part of the transaction resulting in the contract of March 27th, and therefore no decree of cancellation ought to be made under any circumstances, unless the plaintiff is required to return the $6,250 received

for this stock, on which terms the defendant, waiving all other objections, offers to consent to a rescission of the contract.

The evidence tends strongly to show that the transfer of this stock was a part of the transaction, and a substantial element in the considerations which induced or caused the parties to enter into the contract of March 27th. Seeley, who seems to have been without present means and in debt to Reed, appears to have made his coming to Oregon and taking charge of the company's business, as the latter desired, conditional on the purchase of this stock, while Reed appears to have made his consent to advance money to the company conditional on Seeley's taking charge of its business; and so it would seem that the three things-the purchase, management, and loan-were dependent parts of one whole. But, as in my view of the matter, the plaintiff is not entitled to the relief sought irrespective of this question, I do not further consider it; and if the parties wish to rescind on such terms, they can do so without the aid of the court.

There is no equity in the bill, and it must be dismissed; and it is so ordered.

NOTE.

Fraudulent Representations.

Where fraud has been committed, and by it plaintiff has been injured, equity will relieve against it, Singer Manuf'g Co. v. Yarger, 12 Fed. Rep. 487; Elfelt v. Hart, 1 Fed. Rep. 264; Taylor v. Saurman, 1 Atl. Rep. 44; otherwise, however, if no damage is sustained. Dunn v. Remington, 2 N. W. Rep. 230.

Misrepresentations are fraudulent, Lynch v. Mercantile Trust Co., 18 Fed. Rep. 486; Buckner v. Street, 15 Fed. Rep. 365; Chandler v. Childs, 3 N. W. Rep. 297; Cavender v. Roberson, 7 Pac. Rep. 152; even when believed to be true by party making them, Lynch v. Mercantile Trust Co., 18 Fed. Rep. 486; Seeberger v. Hobert, 8 N. W. Rep. 482; and the vendor cannot purge himself of fraud by offering to rescind. Lynch v. Mercantile Trust Co., 18 Fed. Rep. 486.

Fraudulent representations must be material, Hall v. Johnson, 2 N. W. Rep. 55; and must have been relied on. Lynch v. Mercantile Trust Co., 18 Fed. Rep. 486; Seeberger v. Hobert, 8 N. W. Rep. 482. But the purchaser need not suppose every statement made to him literally true in order to entitle him to relief. Heineman v. Steiger, 19 N. W. Rep. 965.

Where the vendor honestly expresses an incorrect opinion as to the amount, quality, and value of the goods he disposes of in a sale of his business, and good-will thereof, and the purchaser sees or knows the property, or has an opportunity to know it, no action for false representations will lie. Collins v. Jackson, 19 N. W. Rep. 947. And mere "dealing talk" in the sale of goods, unless accompanied by some artifice to deceive the purchaser or throw him off his guard, or some concealment of intrinsic defects not easily detected by ordinary care and diligence, does not amount to misrepresentation, Reynolds v. Palmer, 21 Fed. Rep. 433; unless there be false statements in some manner affecting the character, quality, value, or title of the articles sold. Bank of Barnesville v. Yocum, 9 N. W. Rep. 84. But a statement recklessly made without knowledge of its truth is a false statement knowingly made within the settled rule. Cooper v. Schlesinger, 4 Sup. Ct. Rep. 360.

Whether or not omission to communicate known facts will amount to fraudulent representation depends upon the circumstances of the particular case, and the relations of the parties. Britton v. Brewster, 2 Fed. Rep. 160. Where a vendor conceals a material fact, which is substantially the consideration of the contract, and which is peculiarly within his knowledge, it is fraudulent misrepresentation. Dowling v. Lawrence, 16 N. W. Rep. 552.

Fraud is a good defense to an action on a contract. but it is not sufficient to plead fraud in general term. The specific statements and acts relied upon as constituting the fraud must be sets out. Mills v. Collins, 25 N. W. Rep. 109. See Van Weel v. Winston, 6 Sup. Ct. Rep. 22.

Evidence of fraudulent representations must be clear and convincing. Wickham v. Morehouse, 16 Fed. Rep. 324. Where a man sells a business, and the contract of sa e contained a clause including all right to business done by certain agents, evidence that

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the seller was willing to engage in the same business with such agents is not proof of fraud in making the contract. Taylor v. Saurman, 1 Atl. Rep. 44. Equity will not presume the ratification of fraudulent contract. Northern Pac. R. Co. v. Kindred, 14 Fed. Rep. 77.

St. Paul, Minn.

JAS. M. KERE,

SHELLEY and another v. PURDY and others."

(Circuit Court, E. D. Missouri. October 31, 1885.)

MORTGAGE OF PROPERTY HELD IN TRUST-ESTOPPEL.

A. died, leaving seven children. In his will he named his wife, B., and two of his sons, C. and D., as his executors, and directed them to convert his estate into cash and invest the proceeds in real property, with a life interest in B. and remainder to A.'s heirs. The investment was made, but the executors took the title in their individual names without any declaration of the trust, and C. and D. then conveyed their interest in the estate by a quitclaim deed to B., who thereafter mortgaged the property to X. to secure the payment of promissory notes. None of the other heirs assented to the mortgage, and X. took with notice of their interests. Held, that after B.'s death C. and D. were estopped from claiming any interest in the mortgaged property in a suit brought to foreclose the mortgage, but that the mortgage had not affected the interests of the other heirs.

In Equity. Foreclosure suit. Bill of review and cross-bill. Most of the material facts are stated in the opinion of the court. Aaron Purdy left seven children. Haley Parkins is a married daughter. Martha J. Chapman is a deceased married daughter, and Maud Chapman is her only child and heir. The bill of foreclosure was brought to foreclose a deed of trust executed by Nancy Purdy, and conveying the real estate purchased by her and her husband's other executors to James Hagermann, as trustee, to secure the payment of certain promissory notes executed and delivered by her and William Purdy to W. F. Shelley, trustee. The heirs in their answer and cross-bill state that said notes were given for an antecedent debt of William Purdy's, and that Nancy Purdy was an accomodation maker; that the conveyance from John J. and William M. Purdy to their mother was by a quitclaim deed and without consideration; and that the complainants knew when said deed of trust was executed and delivered that the real estate conveyed was held in trust by Nancy Purdy. The prayer of the cross-bill is that the complainants in the original bill be divested of all title in and to the mortgaged premises, and that the same be vested in the heirs of Aaron Purdy. The words used in the granting clause of the deed from John J. and William M. to Nancy Purdy are "demise, release, and forever quitclaim." The consideration recited is $500.

Hagerman, McCrary & Hagerman, for complainants.

Dryden & Dryden, for respondents and complainants in the crossbill.

1 Reported by Benj. F. Rex, Esq., of the St. Louis bar.