Opinion
No. 5462.
October 22, 1928.
In Error to the District Court of the United States for the Southern Division of the Southern District of California; William P. James, Judge.
Action by Fred L. Walter, executor of the estate of Henrietta Goodyear, deceased, against Lamont Rowlands and wife. Judgment for defendants, and plaintiff brings error. Judgment affirmed.
The plaintiff in error, as executor of the last will and testament of Henrietta Goodyear, deceased, brought an action against the defendants in error, alleging in his complaint that on March 23, 1923, said testatrix entered into a contract with the defendants, whereby the latter promised to pay her within her lifetime $175,200, with interest thereon at 7 per cent per annum from January 1, 1923, and with the said agreement delivered to her 1,750 shares of the Goodyear Lumber Company; that Charles A. Goodyear, the husband of said testatrix and the father of the defendant Josephine Rowlands, was for many years previous to his death engaged in the lumber business, and the defendants were associated with him and acquainted with his business affairs and knew that the testatrix owned 1,372 shares of stock in the Goodyear Lumber Company and that she had received a large sum of money from life insurance policies on the life of her deceased husband; that the defendants, being anxious to obtain from her her shares of stock in said lumber company so that they could use the same in the purchase of stock of the Goodyear Redwood Company, and also obtain $25,000 of her life insurance money, and knowing that she had received no dividends or income from her shares of the Goodyear Lumber Company stock and knowing her desire of obtaining a steady income and to have her principal and interest made secure and certain, agreed that if she would assign to them her shares in the Goodyear Lumber Company and lend them $25,000 they would deliver to her 1,752 shares of stock of the Goodyear Redwood Company, the defendant Lamont Rowlands being president thereof, and that they would pay her annually 7 per cent. upon the $175,200 representing the principal of said stock, and that they would pay her within her lifetime $175,200 in cash, the principal of said stock; that since her death the defendants had obtained control of the Goodyear Redwood Company and had sold its valuable assets to the Goodyear Redwood Lumber Company and had placed a heavy bonded indebtedness upon the latter company rendering the stock owned by the testatrix of no value. The contract provided as follows:
"This agreement, made this 23rd day of March, 1923, between Henrietta Goodyear, first party and Lamont Rowlands and Josephine Rowlands, second parties, Witnesseth: For value received second parties jointly and severally guarantee to first party, during her life time and during the period when she remains the owner of the stock below mentioned, the full payment of all principal and interest called for by 1752 shares of first party of the preferred stock of Goodyear Redwood Company; agreeing to hold first party free and harmless from any and all loss, expense or damage by reason of any default of said Goodyear Redwood Company as to the payment of the principal or interest, or any part thereof; and agree, on account of interest called for by said preferred stock, to pay to first party on the first of January of each year a sum equal to interest called for by said preferred stock upon all of the same for the preceding calendar year. Upon each of said payments of interest being made to first party, first party agrees to assign to second parties all her right to receive interest under said preferred stock for the period covering which second parties have already paid her interest as above provided.
"Provided, however, that it is understood and agreed, as to all accrued and unpaid interest called for by all of said 1752 shares of the preferred stock of said Goodyear Redwood Company for the period up to January first, 1923, that first party is not the owner of and has no beneficial interest therein but that the same is due and payable to and owned by second parties. Said first party, to confirm such understanding, hereby transfers, assigns, sells and sets over to second parties all accrued and unpaid interest upon said 1752 shares of said preferred stock covering all the period up to the first day of January, 1923."
A jury trial was waived and the case was tried to the court. Upon the pleadings and testimony the court below found the facts substantially as follows: That at the time of entering into the contract in question the par value of 1,750 shares of stock in the Goodyear Lumber Company was $175,200, but the defendants did not contract to pay to Henrietta Goodyear said sum with interest thereon at 7 per cent. per annum from January 1, 1923, nor did they promise to pay her $175,200 within her lifetime or upon demand, but they agreed to pay her interest on $175,200 at 7 per cent. per annum during such portion of her lifetime as she remained the owner of said stock, and that in case of a sale or liquidation of said company during her lifetime and while she remained the owner of said stock, and in case she should receive an amount less than the face value of said stock, the defendants would pay to her a sufficient additional amount to make up said sum of $175,200; that no sale or liquidation of said company was made during her lifetime or at all; that the defendants agreed to pay her on January 1st of each year, during such period of her lifetime as she remained the owner of said stock, a sum equal to the interest called for thereby for the preceding calendar year, and that she agreed to assign to them all her right to receive interest under said stock for the period covering which they would pay her such interest; that she exchanged 1,352 shares of the preferred stock of the C.A. Goodyear Lumber Company for 1,752 shares of the preferred stock of the Goodyear Redwood Company, which stock of the former company was a part of that used in carrying out an agreement between the defendants and the C.A. Goodyear Lumber Company and as part of the consideration moving from the defendants, and that the defendants were to some extent benefited by Henrietta's act in exchanging her stock in the former corporation for that of the Goodyear Redwood Company; that the relations between the defendants and Henrietta were at and prior to the execution of the contract friendly and of mutual trust, but were not fiduciary in any degree; that the contract was fair and equitable toward Henrietta and that she was not imposed upon or taken advantage of or damaged in any way; that the defendants were to a great extent acquainted with the business affairs of Charles A. Goodyear, and knew that Henrietta owned 1,372 shares of the C.A. Goodyear Lumber Company and that she had received considerable sums of money from life insurance policies, but that it was not true that they desired to get any part of said life insurance money; that the affairs of the C.A. Goodyear Lumber Company were in a bad financial condition; that in order to rehabilitate the same the plan was conceived to separate a portion of its business, and thereupon Henrietta and the defendants agreed to exchange stock owned by them in said corporation for stock in the Goodyear Redwood Company; that Lamont Rowlands thereupon became personally liable for a large amount of indebtedness owed by the C.A. Goodyear Lumber Company pertaining to the operation of the Goodyear Redwood Company, and that he took over the management of the latter company in an effort to benefit the stockholders and with no desire to gain any benefit himself, and by reason of the long-standing friendship between the defendants and Henrietta, the defendants volunteered to execute the contract in question; that Henrietta had received no dividends or income from the C.A. Goodyear Lumber Company for many years, and she desired to receive a steady income, and, while it was true that the defendants borrowed from her $25,000 of her life insurance money, they gave her their promissory note therefor and subsequently paid the same in full; that it was not true that the defendants agreed with her that if she would assign to them her 1,372 shares of stock of the C.A. Goodyear Lumber Company and loan to them $25,000, they would deliver to her 1,752 shares of the Goodyear Redwood Company, nor was it true that by reason of any advantage to them they agreed to pay her interest on said stock or any sum representing the principal thereof, and that the contract in question was not executed in consideration of the loan of $25,000 or in consideration of the assignment of stock in the C.A. Goodyear Lumber Company; that Henrietta never at any time demanded of the defendants the sum of $175,200 or any sum as principal of said stock or at all; that it was not true that the defendants had sold or transferred assets of the Goodyear Redwood Company so as to affect the value of the stock owned by Henrietta in said company. And the court found that the tender alleged in the answer was true; that prior to the commencement of the action the defendants in writing offered to pay interest up to the time of the death of Henrietta Goodyear in the sum of $13,432.20, and had ever since been ready and willing to pay the same, but acceptance had been refused. As conclusion of law from the facts so found, the court held that the plaintiff was entitled to judgment for the interest in the sum of $13,432.20, upon payment of which the defendants were entitled to have assigned to them the right to receive the interest on the Goodyear Redwood stock from January 21, 1923, to April 4, 1924, and costs were allowed to the defendants.
G.A. Gibbs, of Pasadena, Cal., and John G. Graham, of Tampa, Fla., for plaintiff in error.
Robert Duncan, of San Francisco, Cal. (Annette Abbott Adams, of San Francisco, Cal., of counsel), for defendants in error.
Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.
It is assigned as error that in answer to the question, what was his understanding of the condition of the C.A. Goodyear Lumber Company at the time of entering into the contract of March 23, 1923, Lamont Rowlands was permitted to testify that his understanding was that the company was in a very serious condition, and that "the report of the president to the stockholders indicated that." It is objected that the testimony was proof, not of the fact of financial difficulties, but only of Rowland's state of mind. To this it is to be said that the state of mind of the witness had been brought in issue by the plaintiff's contention that he had not acted in good faith in dealing with Henrietta Goodyear. The trial court ruled that the testimony was admissible, not as tending to show the financial condition of the corporation, but as going to the question of the good faith and the understanding of the witness when the contract was made and the source of the information on which he relied. Where the motive of a party in performing an act thus becomes a material issue or reflects light upon the same, he may testify concerning it, and his testimony is competent to be considered for the value which it may have on the question of good faith. Jones on Evidence (2d Ed.) §§ 709, 710, and cases there cited. And in any event there was no reversible error in the ruling upon the objection specified and relied upon, which was that the testimony was not the best evidence of the contents of a written report, for the report was later received in evidence without objection.
We find no error in the trial court's refusal to strike out, as tending to alter or vary the terms of the written contract, the testimony of Lamont Rowlands that in his conversation with Henrietta on the day prior to the execution of the contract nothing was said about guaranteeing the principal of the stock. That the contract was ambiguous admits of no doubt. The parties litigant claimed for its provisions totally diverse meanings, the plaintiff asserting that therein the defendants had agreed to pay Henrietta $175,200 within her lifetime and interest thereon from January 1, 1923; the defendants contending that the contract bound them only to the payment of interest on $175,200 from January 1, 1923, to the date of Henrietta's death. Where the meaning of the contracting parties is thus made uncertain and may not be ascertained by reference to the body of the instrument, evidence may be received of the acts of the parties prior to and at the time of entering into the contract. Lowrey v. Hawaii, 206 U.S. 206, 211, 27 S. Ct. 622, 51 L. Ed. 1026; Standard Scale Supply Co. v. Reiter (C.C.A.) 199 F. 91; Neal v. Akers (C.C.A.) 286 F. 903; Miller v. Spring Garden Ins. Co. (C.C.A.) 202 F. 442.
The foregoing considerations are also applicable to the assignment that it was error to permit the defendant Lamont Rowlands to testify as to conversations had in the office of an attorney while the latter was engaged in dictating the terms of the contract, in which conversations the said defendant stated that all he was guaranteeing Mrs. Goodyear was the interest on her preferred stock from the time when she bought it and during her lifetime or while she was the owner thereof, to which Mrs. Goodyear answered that such was her understanding. The testimony was clearly admissible as tending to show the understanding of both parties to the contract at the time when its terms were being expressed in writing. Nor was it error to permit the attorney and his secretary to testify as to what was said on that occasion. It appeared therefrom that after the contract had been drafted and read to the contracting parties it was altered to conform to the understanding upon which their minds had met.
Several assignments challenge the findings of the trial court on the ground that they are not supported by the evidence, are contrary to the admissions of the defendants, and vary the terms of the written instrument. We deem it unnecessary to discuss in detail the evidence upon which the findings were based. They are all supported by competent evidence sufficient to sustain the court's conclusion that the relations between the defendants and Henrietta Goodyear were not fiduciary, that the contract was fair and equitable toward her, that she was not damaged thereby, and that the contract was executed for her benefit and was limited to her lifetime or such shorter period as she might remain the owner of the stock and ceased upon her death. We find no error.
The judgment is affirmed.