Kimberly v. Arms

'Articles of agreement made and concluded this 27th day of April, A. D. 1878, by and between Hannah M. Arms, of Youngston, Mahoning county, and state of Ohio, party of the first part, and Peter L. Kimberly, of Sharon, Mercer county, and state of Pennsylvania, of the other part, witnesseth, that the said parties have agreed, and by these presents do agree, to associate themselves in the art, trade, and business of leasing, prospecting, buying, mining, working, and operating and dealing in lead, iron, silver, gold, and other minerals, together with the lands on which the same may be located, and to do and perform all things belonging to said trade or business, which said copartnership shall commence on the 27th day of April, A. D., 1878, and continue until dissolved by either or both of said parties; and to that end and purpose said Hannah M. Arms has this day paid in as capital stock six thousand dollars, and the said Peter L. Kimberly has paid in as capital stock six thousand dollars, which said twelve thousand dollars shall be used, laid out, and employed in common between them, for their mutual advantage. It is also agreed that all gains, profits, and increase as shall arise by reason of said joint business shall be divided equally, share and share alike, between said parties, and that all losses that shall happen to said joint business shall be shared and borne equally between said parties alike. That said business shall be carried on under the name and style of 'Arms & Kimberly, Charles D. Arms, Agent.' That Charles D. Arms shall act as agent for said firm, and receive in compensation for his services the sum of twenty-five hundred dollars per annum, or at that rate, while in their employ. That said business shall be carried on in the territories or states in the United States, or some of them.

'Witness our hands and seals the day and year aforesaid, at Youngstown, O.

'P. L. KIMBERLY. [Seal.]

'HANNAH M. ARMS. [Seal.]'

Hannah M. Arms was the wife of the defendant Charles D. Arms, and the instrument, though signed by her, was intended to express an agreement on his part, his name not being used, because at the time he was financially embarrassed. She was always treated as a mere nominal party, and he was treated as the real party. On the 10th of May following, Kimberly, having become embarrassed financially, assigned his interest in the partnership thus formed to Edwin M. Ohl. This assignment was made to prevent any interruption in the business of the part-nership, Arms having already gone to Arizona in its prosecution. Kimberly took at the time from Ohl a declaration showing that the latter had no personal interest in the partnership, or in the properties that had been or might be acquired by it, but held the interest assigned to him as the trustee of Kimberly. In all subsequent proceedings Kimberly and Charles D. Arms considered and treated each other as the real and sole parties in the partnership, and as solely interested in the properties which it acquired. Under this contract, and about the 1st of May following, Arms went to Arizona on the business of the firm, taking with him all its capital. viz., $12,000, to use in its business, and to pay his expenses and salary. While there he had his headquarters at Tucson, the capital of the territory, where he became acquainted with two persons by the name of Witherell and Gage, who were largely interested in property known as the 'Grand Central Mine,' which was reputed to be of great value, and was owned by the Grand Central Mining Company of Arizona, a corporation created under the laws of Missouri. From them Arms learned of the reputed value of the property, and very naturally became desirous of examining it, and, if found to be as valuable as reported, to acquire an interest in it. Accordingly, in November following, in company with Witherell and two other persons, by the names of Whiteside and Austin, who were also interested in the mine, he went to see the property, traveling a distance of about 200 miles, a portion of the way through the Apache territory, where they had an escort of soldiers. The expenses attending this visit were large, and were borne by Arms and Kimberly. Arms examined the property, and found good ore in it. He was informed by one of his companions, Whiteside, that he had in a crude way reduced four tons of ore, and obtained $900 in silver. Soon afterwards Arms returned to Ohio, met Kimberly, and reported that he had expended all the moneys of the firm, except three twenty-dollar gold pieces. It does not appear that any further account of his expenditure of the moneys was ever rendered.

On the 24th of March, 1879, Arms and Kimberly, after consultation, concluded that it was advisable to increase the capital of their firm to $25,000, and accordingly did so, indorsing upon the original articles an agreement to that effect, signed, 'H. M. ARMS, by C. D. ARMS,' and 'E. N. OHL.' and, pursuant to it, each party paid $6,500, Kimberly paying his share to Arms. With this increased capital Arms returned to Arizona, leaving about the 1st of April, and was there until some time in the following July. Other sums were advanced by Kimberly in the business of the firm as they were from time to time needed. While in the territory Arms again made a visit to the Grand Central mine in company with a mining expert whom he had employed. The expenses of the trip and for the services of the expert were charged to the firm and paid. It is not necessary to state here the different steps taken by Arms which resulted in his acquiring an interest in the Grand Central mine by the purchase of a large number of shares of the company owning it, with moneys borrowed of one N. K. Fairbank, of Chicago; for the facts respecting this transaction are detailed in the findings of the master to whom the case was referred, which are hereafter given. The capital of the firm and other sums advanced by Kimberly were invested in various mining properties in Arizona and Colorado, the title of some of which was taken in his name, and of some in the name of Ohi, but all claims arising out of them have been adjusted and settled between the partners. The only remaining subject of controversy between them grows out of the interest which Arms acquired in the stock of the Grand Central Mining Company; Kimberly claiming that such interest belonged to the firm, and consequently that an undivided half thereof inured to him, and Arms claiming that the interest was acquired by him in his own right, and belonged to him individually. The present suit is brought to determine this disputed matter; the complainant, Kimberly, asking for an adjudication in his favor, and an accounting by Arms for the stock held by him in the Grand Central Mining Company, and for certain shares in the New York Grape Sugar Company, which he had acquired by a sale of some shares of the mining company. The bill contains all the averments necessary to present the claim of Kimberly, and the answer of Arms contains all the averments necessary to disclose his defense. The answers of the other defendants are not material upon the matters in controversy. Replications to the answers being filed, testimony was taken for some time, when, on the 16th of May, 1884, the parties consented that the case should be referred to a master 'to hear the evidence and decide all the issues' between them, and upon such agreement, and at the request of the parties, the court on that day entered the following order: 'By consent and request of all the parties herein, it is ordered by the court that Hon. Richard D. Harrison be, and is hereby, appointed a special master herein to hear the evidence, and decide all the issues between the parties, and make his report to this court, separately statings his finding of law and fact, together with all the evidence introduced before him, which evidence shall thereby become part of the report, which report shall be subject to like exceptions as other reports of masters. It is further ordered, by like consent and request, that said master shall proceed upon twenty days' notice from either party to hear and determine said issues, and with full power and authority to grant such adjournments, amendments, exceptions, and motions as might be granted by the court if the trial was by the court.'

Shortly after this order was made a hearing was commenced before the master, and two weeks were occupied in taking testimony, and in the arguments of counsel. After holding the case under consideration until Arpil 17, 1885, a period of 11 months, the master made his report, of which the following are the most important parts for the decision of the case, in addition to the facts stated above:

'The report of Richard A. Harrison, special master in chancery, to whom this cause stands referred for the purpose of hearing the evidence and determining all the issues between the parties, and making his report to said court, separately stating his findings of law and fact, together with all the evidence introduced before him, pursuant to an interlocutory decree, rendered at April term, A. D. 1884. Having heard the evidence in the presence of the parties and their counsel, and the arguments of counsel for the parties, in the city of Cleveland, my findings of fact, from such evidence, upon all the issues between the parties, are as follows: [The first six findings set forth substantially the facts as to the formation of the partnership between Arms and Kimberly, its object, the original capital put in, and its subsequent increase, the visit of Arms to Arizona on its business, and the purchase of mining properties there, which are narrated above.]

'(7) In the years 1878 and 1879, prior to October, 1879, said Charles D. Arms, while acting as the agent of said partnership, and as a partner of said Kimberly, and while receiving a salary from said partnership, and at the expense of said partnership, visited the Tombstone district of Arizona, and the mining claim then known as the 'Grand Central Mine,' which is in said district, and examined the same, and thus acquired a knowledge of the property.

'(8) In the fall of 1879 the Grand Central Mining Company of Arizona, a Missouri corporation, having previously been organized with a capital stock of 800 shares of the par value of $500 per share, representing the said property known as the 'Grand Central Mine,' E. B. Gage and W. F. Witherell, who were the holders of a large portion of said capital stock, proposed to sell a portion of the stock so held by them to said Charles D. Arms; whereupon Arms in October, 1879, came to Sharon, Pa., where said Kimberly resided, and there met said Kimberly; whereupon it was agreed between them that said Arms should go to Chicago, and there arrange with N. K. Fairbank, if possible, to furnish the money to purchase stock in said Grand Central Mining Company of Arizona; whereupon said Arms did go to Chicago, and did arrange with said Fairbank to furnish $87,500 for the purchase of said stock, and then returned to Youngstown, Ohio, and there again met said Kimberly, and informed him of the arrangement he had made with said Fairbank; whereupon it was further agreed between said Arms and Kimberly that if, when Arms got back to Arizona, and required the money to purchase said stock, said Fairbank should fail to furnish it, then said Kimberly, upon being notified of Fairbank's failure or refusal to furnish the money, would furnish at least $37,500 for that purpose.

'(9) Immediately after making the arrangement last aforesaid, said Arms returned to Arizona, and there, on the 13th of November, 1879, obtained, in writing, from said Gage and Witherell, an option to purchase from them 225 shares of said stock at the price of $87,500, in four months from said date. Said Gage and Witherell also agreed to give said Arms 40 additional shares of stock, in case he should finally elect to purchase said 225 shares under said option; and, as a part of said transaction, said Witherell also purchased of said Arms the interest of said Arms and Kimberly in certain mining properties known as the 'Mexican Mine,' at and for the price of $4,500. Afterwards, and prior to March 4, 1880, said Arms elected to purchase said stock under said option; and, of said 225 shares,

He received..................... 210 shares

Also said (bonus)................ 40  "

He also purchased of George P. Reed. 51  "

And of E. B. Gage................ 23  "

-

Making in all, acquired by said Arms. 324 "

'(10) For the purchase of 324 shares, and for assessments upon said stock to pay the expenses of developing said mine and for machinery, said Fairbank advanced to said Arms various sums of money, from time to time; which sums, including interest thereon up to October 13, 1880, aggregated $162,498.08. On or about the 13th of October, 1880, said Arms and Fairbank made a settlement of the moneys so advanced by said Fairbank and of the stock so acquired by said Arms; and said Fairbank received and accepted from said Arms 184 shares of said 324 shares of stock, in full payment and satisfaction of the moneys so advanced by him, leaving said Arms the holder of 140 shares of said stock.

'(11) Afterwards, to-wit, on or about the ___ day of _____, 1881, the Grand Central Mining Company, an Ohio corporation, and a defendant in this suit, was formed and organized, with a capital stock of 100,000 shares of the par value of $100 per share; and said Arms converted said 140 shares of said Missouri corporation into 17,500 shares of said Ohio corporation.

'(12) On the 4th of March, 1880, the partnership between said Arms and Kimberly was, by mutual consent, dissolved by them; Arms then claiming that said interest in said Grand Central Mining Company was his own individual property, which claim said Kimberly then disputed, and insisted that said interest belonged to said Arms and himself jointly, in equal proportions. On the 5th of March, 1880, said Edwin N. Ohl signed and delivered to said Arms an instrument of writing whereby he (said Ohl) agreed to convey, upon demand, the property held by him for said firm to said Arms and Kimberly; and said Arms, at the same time, signed and delivered to said Ohl an instrument of writing, whereby he (said Arms) agreed to convey to said Kimberly, upon demand, all the undivided one-half interest or interests which he (said Arms) had in mining lands and claims, or stocks in mining interests or claims, in the territory of Arizona, except his interest in what was known as the 'Grand Central Mining Company,' which said interest, it was provided in said instrument, should belong to the said Charles D. Arms absolutely.

'(13) Said last-mentioned instrument of writing was not shown to said Kimberly, and he had no knowledge of its provisions until on or about the ___ day of July, 1880, when, upon seeing and examining the same for the first time, and after consultation with legal counsel, he, said Kimberly, on the 22d of July, 1880, wrote, addressed, and mailed to said Arms, at Youngstown, Ohio, (his post office address,) a letter notifying him that he, said Kimberly, would not consent that said Arms should hold said interest in said Grand Central Mining Company as his own property, and insisting that said interest belonged to them jointly, and that he, Kimberly, would have his half of it, if he was compelled to get it at the end of a lawsuit. The evidence does not prove that Arms actually received said letter, and I therefore do not find he received it. Said Kimberly did not know that said first-mentioned instrument was executed until after July, 1880.

'(14) On the ___ day of August, 1881, said Edwin N. Ohl reconveyed all of his interest in said business to said Peter L. Kimberly.

'(15) On the 2d day of September, 1881, said Kimberly, by his attorney, requested of said Charles D. Arms, who was the president of said Grand Central Mining Company, permission to examine the records and books of said company, and also that said Arms should account with him, said Kimberly, for all the business that he, said Arms, had done since he and said Kimberly had gone into the mining business, all of which said Arms refused to do.' [The sixteenth and seventeenth findings show that, out of the 17,500 shares of stock of the Grand Central Mining Company, Arms sold to different parties, in 1881 and 1882, 4,800 shares, receiving therefor in cash $68,900, and from Jebb and Bond 625 shares of stock in the New York Grape Sugar Company, and during those years received cash dividends on his shares amounting to $81,775.]

'Upon the foregoing findings of fact my findings of law are as follows: (1) That the 12,700 shares of stock in the Grand Central Mining Company standing in the name of said Charles D. Arms on the 14th of August, 1882, and said 625 shares of stock in the New York Grape Sugar Company, received by said Charles D. Arms from said William T. Jebb and H. G. Bond, belong to said copartnership of Arms & Kimberly, composed of said Charles D. Arms and Peter L. Kimberly, and that said Peter L. Kimberly is entitled to have one-half of said 12,700 shares of stock and one-half of said 625 shares of stock transferred to him. (2) That the several sums of money received by said Charles D. Arms, from the sales made by him of stock in the Grand Central Mining Company, as well as the several sums of money received by him as dividends on stock held by him in said company, also belong to said copartnership of Arms & Kimberly, composed as aforesaid of said Charles D. Arms and Peter L. Kimberly, and that said Charles D. Arms is liable to said Peter L. Kimberly for one-half of said several sums of money, together with interest on such one-half, at the rate of six per cent. per annum from the respective dates when said moneys were received by said Charles D. Arms.'

Then follows a statement showing the amount due from Charies D. Arms to Peter L. Kimberly, on account of moneys thus received by Arms, and also a statement of the depositions offered to the master by the respective parties, which were returned with his report to the court. The report concludes as follows:

'The foregoing is all the evidence offered by either party. On the hearing, counsel for the respective parties agreed that all the evidence so offered, on either side, should be read subject to the objections by either party on the ground of incompetency or irrelevancy, and the same was read accordingly.

'Respectfully submitted,

'R. A. HARRISON, Special Master.'

Several exceptions were taken by the defendants to the report, amounting, in substance, to this: that the findings of fact were not supported by the evidence, and that the findings of law were not warranted by the law as applied to the evidence. On the hearing the court treated the report as merely presenting the testimony in the case, holding that the findings of the master were not entitled to consideration as presumptively correct, so as to throw the burden of proof on the excepting parties. The language of the presiding justice on this head was as follows: 'A question is made as to the legal effect to be given to the findings of fact reported by the special master, it being claimed by counsel for complainant that the presumption in favor of their correctness throws upon the defendants excepting the burden of proof, which otherwise would have to be borne by the complainant. Undoubtedly, in equity causes, where a particular matter, properly referable to a master, has been reported on, the burden is upon the party excepting; but that rule is not applicable to the present case, where the whole cause has been referred,-a practice not borrowed from the Code of Procedure of the state, and not sanctioned by the rules prescribed for the courts of the United States sitting in equity. The cause comes before me, as in other cases, for final hearing upon the pleadings and proofs, and, while not conceding to the report of the special master the legal effect claimed for it, it has, nevertheless, in forming the conclusions reached in this decision, had accorded to it that weight which is due to the careful and well-considered opinion of a lawyer chosen by the parties to act as judge, with every qualification to justify the selection.' The court held that the purchase by the defendant, Charles D. Arms, of the shares in the Grand Central Mining Company was made on his individual account, and not for the firm of Arms & Kimberly, and therefore that the equity of the case was with the defendants. It accordingly entered a decree sustaining the exceptions to the master's report, and setting aside the report and findings, and dismissing the bill. The case is here on appeal from this decree.

A. W. Jones and S. Griffith, for appellant.

S. Burke, W. B. Sanders, and ''Thos. W. Sanderson'', for appellees.

Mr. Justice FIELD, after stating the facts as above, delivered the opinion of the court.