Johnston v. Standard Mining Company/Opinion of the Court

The bill was dismissed in the court below upon the ground of laches, and the correctness of its ruling in that particular is the first question presented for our consideration.

The gist of the plaintiff's bill is the alleged fraud of Chatfield in failing to carry out his contract of October 12, 1880, wherein he agreed that, in the event of succeeding in certain legal proceedings to be instituted by him for vesting the legal title to the Johnston claim in the plaintiff, he would convey to plaintiff an undivided one-eighth interest in the lode, free and clear of all expenses incidental to the litigation; plaintiff, upon his part, agreeing to pay an undivided one eighth of the expenses which should accrue in the developing and opening of the lode. The lode in question had been located on the preceding 4th of August by Johnston, as owner of one half; Joseph W. Adair, as owner of one fourth; and George A. Crittenden, as owner of the remaining fourth. It seems there was a conflict between this and another mining claim, known as 'Smuggler No. 2,' and the agreement with Chatfield was made for the purpose of contesting this claim.

It also appeared that plaintiff was one of the parties who had located the Smuggler No. 2 claim; that, early in the year 1880, plaintiff and entered into what is known as a 'grub-stake' contract with one Acheson, individually and as agent and attorney in fact of Edward Dunscomb and James E. Seaver, whereby plaintiff agreed to locate mining claims on behalf of himself and these parties, in consideration of which they agreed to furnish all the supplies and pay all the expenses which should be required in prospecting, locating, and developing such mining claims; that, in pursuance of such agreement, plaintiff found indications of a silver-bearing lode on Smuggler mountain, in the Roaring Fork mining district, and on April 15, 1880, located Smuggler No. 2 mining claim upon this vein; that such location was made in the joint names of plaintiff, owner of one fourth, and the wives of Dunscomb and Seaver, each claiming three eighths; that after such location, and before the discovery of any vein within the limits of the Smuggler claim, the other parties abandoned such claim, failed to furnish the necessary supplies and money to the plaintiff, who continued to develop and work the ground on his own account and at his own expense; that on Aughst 4, 1880, plaintiff discovered within the limits of said Smuggler claim a vein or lode, and thereupon duly located the same as the J. C. Johnston lode mining claim, for the use of himself, Crittenden, and Adair, as above stated; that, upon learning of such discovery and location, Acheson, Dunscomb, and Seaver negotiated with Crittenden and Adair for the purchase of their interests in the Johnston claim, and on August 10, 1880, purchased the same for $1,000; that at the same time they negotiated with plaintiff, and agreed to purchase his one-fourth interest, but failed to do so.

Plaintiff further contended that these facts respecting the location of the two claims, and the negotiations with Acheson, Dunscomb, and Seaver, were known to Chatfield, Thomson, and Sayre, who still insisted that there were certain parties who, as grantees of Dunscomb and Seaver, claimed title under the Smuggler location adversely to plaintiff's interest in the Johnston claim, and that legal proceedings had already been, or were about to be, commenced to enforce said claims; that Chatfield, Thomson, and Sayre represented that it was disirable to perfect the title of the Johnston claim by obtaining a patent therefore, and to this end they had secured, or would secure, a conveyance from the owners of the other half of the Johnston claim. They further represented to him that, for the better management of the property, they proposed to organize a stock company, and to that end they had secured the other half interest in the Johnston claim; and that the defendants were then associated together, and had agreed to organize a stock company for that purpose, and that the Fulton Mining Company was shortly thereafter incorporated by them. These conflicting claims with regard to the ownership of the property within the limits of these two claims was evidently the foundation of the agreement of October 12, 1880, whereby Chatfield agreed to clear up the title to the property, and to convey one eighth to the plaintiff.

Most of the testimony was directed to the relative merits of the Smuggler No. 2 and the J. C. Johnston locations, apparently upon the assumption by the defendant that the plaintiff was bound to prove that the owners of the Johnston lode had the better title. Plaintiff, however, contends that the contract of October 12, 1880, and the other conveyances made about the same time, when read in the light of the surrounding circumstances, are conclusive evidence of the following: First, that the interest actually purchased by Chatfield in the Johnston mine was a quarter interest, and that the remaining fourth of Johnston's interest in the property, which he deeded to Chatfield, was in trust; second, that this fourth interest was the interest referred to in the contract as being claimed adversely to Chatfield by certain persons; third, that the defendants Thomson & Sayre were employed to institute the 'legal proceedings' mentioned in the contract, and were to receive as a contingent fee for their services in that behalf an eighth of the Johnston mine, in case those proceedings were successful; fourth, that in such case Johnston was to receive the remaining eighth of this contested quarter; fifth, that the 'legal proceedings' mentioned contemplated and included an application for letters patent, and the acquisition of the government title, as well as a suit of some kind.

Upon the basis of the fifth and last proposition above stated the plaintiff contends that it would follow that a cause of action did not accrue to him until a patent had been issued by the government, which did not take place until July, 1884, and that as plaintiff was not informed of this fact until some time in 1885, and as he filed his first bill against Chatfield in the United States court on August 1, 1885, he insists that he fulfilled all the requirements of the law with respect to diligence, and that the defense of laches is not sustained. We think this position, however, is founded upon a somewhat strained interpretation of the contract in question. It provides that 'in the event of the party of the first part [Chatfield] prevailing and succeeding in certain legal proceedings about to be instituted and commenced by the party of the first part for the vesting of the legal title in the party of the first part, against persons who claim adversely to him an interest in the following described property, * *  * that the party of the first part, upon so acquiring the title, legal and equitable, to the said mine, by means of the legal proceedings so about to be commenced, doth hereby covenant and agree to and with the said party of the second part [Johnston] to convey to the said party of the second part an undivided one-eighth interest in and to the said above-described lode, which shall be free and clear from all expense incidental to the litigation incident to said contemplated suit.' A compliance with this contract on Chatfield's part evidently required the commencement within a reasonable time, and the diligent prosecution of, a suit for the establishment of his title to the property, since the question of adverse claims could not be determined by the mere application for a patent without the institution of a suit, or the compromise of these conflicting claims. That this was the construction put upon it by Chatfield himself is evident from the fact that, three days after this contract was made, he executed a quitclaim deed to Thomson & Sayre of an undivided one-eighth interest in the Johnston lode for a nominal consideration of $500. It is admitted, however, that no money consideration was paid for this conveyance, and Chatfield testifies that the actual consideration for this deed to Thomson & Sayre was the legal services which they were to perform in and about the 'legal proceedings' mentioned in the contract, and he further testifies that those services were never performed. This is all that Chatfield appears to have done at this time in the performance of his contract. Whether, if suit had been begun and prosecuted to a successful termination, a bill would have lain before the patent was issued, it is not necessary to decide, since it is clear that the failure of Chatfield to institute legal proceedings within a reasonable time was a breach of his contract, and entitled plaintiff to treat it as at an end.

There were also significant facts occurring thereafter which should have put plaintiff upon inquiry, and stimulated him to activity in asserting his rights. As he was one of the original locators, both of the Smuggler No. 2 and the Johnston claims, he must have known that, in any controversy between them, he would have been an important witness; and the very fact that he was not called upon indicated that the suit was not being prosecuted, and strengthened the inference, derivable from all the testimony, that the claim was not then considered of sufficient value to warrant the institution of a suit. That he was accessible as a witness is evident from his own testimony that he was in Thomson & Sayre's office in 1881, and was working at that time for Chatfield on a subcontract. The incorporation of the Fulton Mining Company in 1880, and the conveyance by Chatfield, Crittenden, and Adair of the entire property to the mining company by deeds put upon record, were wholly inconsistent with the spirit, if not with the letter, of the contract, and were circumstances calculated to arouse suspicion, since they divested Chatfield of his interest in the mine, disabled him from instituting legal proceedings in his own name, and put the ownership of the mine in the shape of capital stock, which was liable at any time to pass into the hands of purchasers who might be entirely ignorant of the plaintiff's interest. It is but just, however, to say in this connection that plaintiff seems to have been apprised of the fact that these parties were about to associate themselves together in forming a stock company, and that the advantages of such a corporation were urged upon him, and in his first bill he averred that it was understood that the company would convey and transfer to him stock in such company to the amount of his interest in the lode, and that Chatfield would hold his interest in trust for the plaintiff until his title to the location had been established. If he assented to the formation of the corporation, and to the transfer of the mine to it, he clearly waived his right to reclaim an interest in the mine itself. It is also a circumstance proper to be considered, as bearing upon the equities of this defense, that at the time of the institution of this suit a large proportion, if not a majority, of the stock in this company had passed into the hands of purchasers who had not been connected with the formation of the company, and were entirely ignorant of the Johnston-Chatfield contract.

In May, 1881, plaintiff went to the office of Thomson & Sayre, in Leadville, asked how the case was, and was informed that it was compromised. He then told them he would like to take the papers and copy them. They gave them to him. He took them, and looked them over; went down to have them copied, but found it would cost too much, and did not have it done. These papers were the contracts between Chatfield and himself, Crittenden, Adair, and himself, and the original grub-stake contract between Dunscomb, Seaver, and himself. He must them have been informed of the fact that the contract of October 12, 1880, had not been recorded, although Thomson & Sayre promised him it should be. In 1882 it seems that he spoke to Chatfield, and said that he thought he ought to be entitled to his interest in the property; that they should have gone on and contested the case; to which Chatfield replied that they had found that there was 'no shadow of a ghost to maintain his case.' Even then he did not act.

It was not until April, 1885, more than a year after the Fulton Mining Company had obtained a patent to the property, that he made a formal demand upon Chatfield, and on August 1, 1885, filed his first bill in the circuit court of the United States to establish his title to a quarter interest in the lode. This suit does not seem to have been prosecuted with mcuh diligence, since it was allowed to linger for nearly a year, and was then dismissed, apparently, for a want of jurisdiction appearing upon the face of the bill. It has been frequently held that the mere institution of a suit does not, of itself, relieve a person from the charge of laches, and that if he fail in the diligent prosecution of the action the consequences are the same as though no action had been begun. Hawes v. Orr, 10 Bush, 437; Erhman v. Kendrick, 1 Metc. (Ky.) 149; Watson v. Wilson, 2 Dana, 406; Ferrier v. Buzick, 6 Iowa, 258; Bybee v. Summers, 4 Or. 361.

On the 19th of August, 1886, a second suit was brought in the state court, which, after some delay, caused in part by the death of the plaintiff's counsel, was dismissed because of a defective summons under the state practice.

While there is no direct or positive testimony that plaintiff had knowledge of what was taking place with respect to the title or development of the property, the circumstances were such as to put him upon inquiry; and the law is well settled that where the question of laches is in issue the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known by him were such as to put upon a man of ordinary intelligence the duty of inquiry. This principle was applied at the present term of this court in Foster v. Railway Co., 146 U.S. 88, 13 Sup. Ct. Rep. 28, to a case where a stockholder in a railway company sought to set aside a sale of the road which had taken place 10 years before, when the facts upon which he relied to vacate the sale were of record, and within easy reach. See, also, Wood v. Carpenter, 101 U.S. 135, 141; Kennedy v. Green, 3 Mylne & K. 722; Buckner v. Calcote, 28 Miss. 432; Cole v. McGlathry, 9 Me. 131; McKown v. Whitmore, 31 Me. 448.

The duty of inquiry was all the more peremptory, in this case, from the fact that the property of itself was of uncertain character, and was liable, as is most mining property, to suddenly develop an enormous increase in value. This is actually what took place in this case. A property which, in October, 1880, plaintiff sold to Chatfield upon the basis of $4,800 for the whole mine is charged in a bill filed October 21, 1887, to be worth $1,000,000, exclusive of its accumulated profits. Under such circumstances, where property has been developed by the courage and energy and at the expense of the defendants, courts will look with disfavor upon the claims of those who have lain idle while awaiting the results of this development, and will require, not only clear proof of fraud, but prompt assertion of plaintiff's rights. Felix v. Patrick, 145 U.S. 317, 334, 12 Sup. Ct. Rep. 862; Hoyt v. Latham, 143 U.S. 553, 567, 12 Sup. Ct. Rep. 568; Hammond v. Hopkins, 143 U.S. 224, 12 Sup. Ct. Rep. 418; Great West Min. Co. v. Woodmas of Alston Min. Co., 14 Colo. 90, 23 Pac. Rep. 908.

The language of Mr. Justice Miller in Oil Co. v. Marbury, 91 U.S. 587, 592, with regard to the fluctuating value of oil wells, is equally applicable to mining lodes: 'Property worth thousands to-day is worth nothing to-morrow; and that which to-day would sell for a thousand dollars, at its fair value, may by the natural changes of a week, or the energy and courage of desperate enterprise, in the same time be made to yield that much every day. The injustice, therefore, is obvious, of permitting one holding the right to assert an ownership in such property to voluntarily await the event, and then decide, when the danger which is over has been at the risk of another, to come in and share the profit.'

We think it is clear that the plaintiff did not make use of that diligence which the circumstances of the case called for, and the decree of the court below, dismissing his bill, is therefore affirmed.