Hambleton v. Rhind

McSherry, C. J., delivered the opinion of the Court. There are ten appeals now before us in a single record, but only one opinion will be required to cover them all; because, whilst there are some slight variations in minor details, the material facts in all the cases are identical and precisely the same legal principles are applicable to them. Sometime in the early fall of eighteen hundred and ninety-two the appellee, Colden Rhind, a resident of the State of Georgia, obtained authority from the Governor and Treasurer of South Carolina to float for that State, upon certain stipulated terms, an issue of about six millions of her four per cent bonds, the proceeds of which were to be used in retiring an outstanding and shortly maturing prior series known as “ Brown Consols.” He proceeded to New York, and after endeavoring, without success, to organize a syndicate to purchase the bonds, suggested a change in the character of the securities and then resumed his efforts. By the new scheme the bonds instead of being four per cent, forty-year bonds were, subject to the approval of the Legislature, to be four and a-half per cent, twenty-forty-year bonds, and were, when negotiated, to net the State par.

Rhind approached a banker by the name of Lancaster, who carried on business in both New York and Richmond, and agreed to give him, as compensation for his aid in forming a syndicate, one-third of the commission which Rhind himself might realize out of the transaction. Failing to secure a sufficient number of subscribers in New York, Lancaster, acting for and as the agent of Rhind, proceeded to Richmond in the month of December, and there enlisted the co-operation of the banking firm of Williams & Son, one of whose members suggested that he ⁴⁷⁶ could probably fill up the syndicate from amongst his acquaintances in Baltimore. Accordingly, with the sanction and approval of Lancaster, I. Skelton Williams went to Baltimore in the latter part of December, approached and interviewed the appellants and others, and solicited them to join the syndicate; and if this was not done with the knowledge of Rhind, certainly it was subsequently ratified by him. Williams represented to the appellants that all the/ subscribers to the bond purchase were to be placed on the! same footing of perfect equality, and that each was to shard alike in the profits of the venture.

He further represented that there were expenses connected with the syndicate that would have tó be provided for out of the profits. After considerable negotiation a sufficient amount was conditionally subscribed in Baltimore to make up with what had been taken elsewhere, the sum of two millions of dollars ; and the Baltimore Trust and Guarantee Company was selected as the agent of the syndicate toj carry out and consummate the transaction. Each of the appellants became a subscriber and each signed a memorandum setting forth the terms and specifying the amount of his subscription; and whilst these papers were executed at different times they all bear date on the thirtieth of December, eighteen hundred and ninety-two, and they were all executed in anticipation of the purchase of the bonds from the State. The material parts of these subscription contracts are in these words: “2.

The said Trust Company shall pay to R. A. Lancaster & Co. of New York City, for syndicate expenses, two-thirds of the interest on said bonds from January 1st, 1893, to July 1st, 1893, that may be received by it, that is to say, a commission of 1 Per cent, out of the interest or profit received on said bonds. 3. The said * * * shall have no right by virtue of his said subscription to actual delivery of said bonds from said Trust Company, but shall, in addition to the interest provided for by section 2 hereof, be entitled to receive from said Trust Company a share of the whole profits, if any, ⁴⁷⁷ that may be realized by the sale of said bonds by syndicate, at a greater price than that paid for the same, the share of the said * * * in the said profits to be in the proportion that the number of the said bonds subscribed for by him may bear to the whole number of bonds subscribed for by the syndicate. 4. The said Baltimore Trust and Guarantee Company is also authorized to pay R. M. Marshall & Bro. $2,500; the Bank of Charleston, N. B. A., $1,000; the Baltimore Trust and Guarantee Company $500, and such other expenses as maybe authorized by the syndicate. 5. It is understood that the syndicate shall have the same rights and privileges in the balance of about $3,800,000 of bonds as hereinbefore provided with reference to the said $2,000,000 of said bonds.” The subscriptions first made related only to the sum of two millions of the issue, but under the fifth clause an option was given to the subscribers to take the residue of the bonds, amounting to three millionsAwp_hundred_„ancL-fifty^thousand dollars, .on precisely^ the same, terms.

This option was availed of on March the seventh, eighteen hundred and ninety-three. It was understood that the subscriptions for the first two millions were only to be binding in the event that the syndicate should succeed in disposing of that amount of the bonds to parties in .South -Carolina or elsewhere outside of the syndicate. This condition having been ultimately complied with, a meeting of the members of the syndicate was held in Baltimore, on January the eleventh or twelfth, eighteen hundred and ninety-three, and this meeting was attended by Lancaster. It is proved beyond the possibility of doubt that Lancaster then and there and repeatedly afterwards unequivocally declared that he had no interest beyond about five hundred dollars for travelling expenses, in the fund payable under the second clause of the subscription agreements to R. A. Lancaster and Company “for syndicate expenses.” He urged the members of the syndicate not to press him with inquiries as to what disposition was to be made of this fund for “syndicate expenses,” and strongly intimated that ⁴⁷⁸ it was to be used in some way among parties who exercised political influence in South Carolina; though he declared emphatically that he knew not to whom the money was to go and persistently protested that he did not wish to know.

This fund, as the clause already quoted from the subscription agreement shows, was to be raised by deducting two-thirds from the amount of the interest due July the first, eighteen hundred and ninety-three on the new four and a-half bonds. The syndicate agreeing to take the two millions of bonds at par fiat as of July the first, and also agreeing under the option to take the remaining three millions two hundred and fifty thousand, the interest coupons to mature that day for the preceding six months and amounting to two and a-quarter per cent., were to be the property of the syndicate, and out of their proceeds, when paid by the State Treasurer, a portion of the profits of the members was to be derived after the syndicate expenses and the other items named in the fourth paragraph of the subscription papers were first subtracted. It is obvious, therefore, that one of the things which the members of the syndicate contracted to get and one of the things that was to be their common property, under both the original subscription and the option, was this six months’ interest amounting at two and a-quarter per cent, on the two millions of dollars to the sum of forty-five thousand dollars, and on the remaining three millions two hundred and fifty thousand dollars to the further sum of seventy-three thousand one hundred and twenty-five dollars, and aggregating the gross sum of one hundred and eighteen thousand one hundred and twenty-five dollars. The Trust Company was authorized to disburse in discharge of “syndicate expenses” from this common or partnership fund for the benefit of the whole syndicate two-thirds, or seventy-eight thousand seven hundred and fifty dollars, if the entire 5,250,000 of bonds were included under the second clause of the subscription agreements, or thirty-thousand dollars if only the 2,000,000 purchase was embraced and covered by that clause. ⁴⁷⁹ It was perfectly natural that the members of the syndicate should inquire of Lancaster, himself also a member, as to what these expenses were for; and both as a promoter of and a participant in the enterprise he was bound to disclose the literal truth on this subject to his associates ; but as already stated and as the sequel will further show, he not only did not content himself with a mere concealment and a suppression of the truth, but he deliberately uttered the most unblushing falsehoods, strictly in keeping with his subsequent reprehensible efforts, during his examination as a witness, to deny, avoid and explain away his glaring duplicity.

After the most unqualified declarations on the part of Lancaster, who, it must be borne in mind, was acting throughout this whole transaction as the agent and partner of Rhind, to the effect that he had no interest in these expenses and was to get no part of the proceeds of these coupons beyond the five hundred dollars already named, the arrangement to take the two millions of bonds was concluded, and on January the nineteenth, eighteen hundred and ninety-three, a contract for the purchase of the bonds with the interest coupons attached was entered into between the Baltimore Trust and Guarantee Company, as agent for the syndicate, and the Governor and the Treasurer of South Carolina in behalf of the State. By that agreement it was provided: “ That under and by virtue of the Act of the General Assembly of the State of South Carolina, hereinafter mentioned, the parties of the first part hereby covenant and agree to sell and deliver to the party of the second part, its successors or assigns, and the party of the second part, in its own behalf, to the extent of its subscription and as agent as' hereinbefore set forth, hereby covenants and agrees to purchase from the parties of the first part, for itself and its associates, two million ($2,000,000) dollars of the bonds and stock bearing four and a-half (4%) per cent, interest, payable semi-annually, and issued pursuant to the terms of ‘ An Act of the General Assembly of the said State of ⁴⁸⁰ South Carolina, entitled an Act to provide for the redemption of that part of the State debt known as the Brown consol bonds and stock, by an issue of other bonds and stock,’ approved the 22nd day of December, 1892, upon the following terms and conditions, that is to say: The bonds and stock so purchased shall bear date January 1st, 1893; and shall carry interest from January 1st, 1893, payable semi-annually; they shall be sold by the parties of the first part and purchased by the party of the second part at par flat; that is to say, nothing additional shall be paid for any interest which may have accrued at the time of delivery ; the purchase money of said bonds and stock shall be due and. payable one hundred thousand ($100,000) dollars thereof upon the execution of this contract and the remainder thereof on or before the 30th day of June, 1893, in such sums and at such times, as to the party of the second part may be most convenient, and the said bonds and stock shall be delivered by the parties of the first part to the parties of the second part in such amounts and at süch times as they may be called for by the party of the second part upon payment of the balance of ninety-five (95) per cent, due thereon; the said sum of $100,000, being held and taken to be 5 per cent, upon the whole purchase of $2,000,000, and that payments of said balance of ninety-five (95) per cent, may be made by said party of .the second part, either in cash or in Brown consols, due July 1st, 1893, the July coupons thereon being retained by the party of the second part.” A subsequent clause of the same agreement reads as follows : “ And in consideration of the purchase aforesaid by the party of the second part, the parties of the first part hereby further covenant and agreee to sell and deliver to the party of the second part, its successors or assigns, so much of the remainder of the bonds and stock issued, or to be issued, by virtue of the said Act, as is saleable by the Governor and Treasurer under the said Act, or any part thereof, said bonds ⁴⁸¹ and stock to bear date January 1st, 1893, to carry interest from January 1st, 1893, and to be paid for at par flat, said remainder of such bonds and stock being understood to be $3,800,000.” On the second of January, eighteen hundred and ninety-three, and consequently before the syndicate was fully formed and before its obligation to take the bonds was complete, and before Lancaster made his false representations, Rhind and Lancaster entered into a secret agreement by which it was stipulated that in the matter of the refunding of the South Carolina State debt “the commissions we expect to earn thereon of one and one-half per cent., is to be divided between us in the proportion of two-thirds to Col-den Rhind and one-third to R. A. Lancaster & Co.” When it was concluded to avail of the option provided for in the clause quoted above, as to the residue of the bonds over and beyond the first two millions, a second contract, bearing date March the seventh, was made between the Trust Company and the State officials of South Carolina. Some of the members of the first syndicate declined or failed to unite in the second purchase and other parties took their places; and this is what is called in the record, the second syndicate. One of the questions to be disposed of is, whether two-thirds of the July, 1893, interest on these three millions two hundred and fifty thousand dollars of bonds covered by the second purchase in execution of the option, is payable to Lancaster and Company under clause two of the original subscription agreements for “ Syndicate Expenses.” The Trust Company conducted the business for the syndicate with the State’s officers, and the proceeds of the July coupons were remitted to it or treated as if in its ac tual possession.

On the sixth of June, 1893, Lancaster and Company drew five drafts, aggregating twenty-five thousand two hundred and fifty dollars on the Trust Company, payable to the order of Colden Rhind, which Rhind at once indorsed in blank without recourse and delivered ⁴⁸² to Lancaster, who procured them to .be accepted by the Treasurer of South Carolina with the consent of the Trust Company in part payment of the bonds bought by Lancaster. The drafts for this sum of twenty-five thousand two hundred and fifty dollars were drawn upon and were ultimately paid out of the fund set apart in the subscription agreement for “ syndicate expenses.” When it was discovered by other members of the syndicate that Lancaster, one of their number and a copartner with them in the transaction, had received a large sum in excess of his legitimate share of profits, they promptly notified the Trust Company not to pay out any further portions of this fund and asserted a claim to the residue. The Trust Company was thus confronted with conflicting claims to the fund—on the one hand, Rhind asserted that he was entitled to it for two reasons ; first, under three drafts drawn in his favor by Lancaster and Company on the Baltimore Trust and Guarantee Company, for sums aggregating forty eight thousand five hundred dollars; and secondly, because, though the fund was made payable to Lancaster and Company, it was known and understood by the members of the syndicate that the money was really payable and belonged to Rhind. On the other hand the appellants insisted that the fund belonged to them to the extent that was necessary to equalize them with Lancaster; and they further contended that only two-thirds of the interest due on the first,two millions purchase was payable for syndicate expenses under "clause two of the subscription agreements.

Threatened by these opposing demands and unable to decide between them, the Trust Company filed a bill of interpleader against the appellants and other members of the syndicate, including Lancaster, and against Rhind, praying that they be summoned into the Circuit Court of Baltimore City and be there required to interplead and adjust their conflicting claims and demands upon this fund amongst themselves. Most of the defendants filed answers. Lancaster disclaimed any interest in the controversy, having ⁴⁸³ been paid by Rhind all he claimed to be entitled to. Subsequently a cross-bill was filed which was later on dismissed by a decree of June the thirteenth, 1894.

By, this decree the original bill of interpleader was dismissed as to Lancaster and several other defendants, who disclaimed any interest in the fund; and it was adjudged as to certain others of the defendants who had failed to answer, that they were not entitled to any part of the money in controversy. It was further provided that the remaining defendants should interplead, and for that purpose all except Rhind were made plaintiffs, and Rhind was made defendant. Ah agreement was then signed to the -effect that Rhind would not, in the subsequent proceedings, make claim or contention that Lancaster was a necessary party to the suit. Quite a mass of evidence was taken, and after a hearing the Court below, on May the fifth, eighteen hundred and ninety-six, adjudged and decreed that the funds in Court belonged to Colden Rhind, free from any claims or interest of the other parties in the cause.

From that decree these ten appeals have been taken. There are two questions involved. First. It is insisted that the one and a-half per cent, for syndicate expenses out of the two and one-quarter per cent, interest, does not extend^ t.o_ and include one and a-half per cent, on the three millions two hundred and fifty thousand dollars of bonds taken by what has been called the second syndicate.

And, secondly, if the one and a-half per cent, does extend to the second, purchase,.then it is maintained that Rhind ought to be required, to account for and pay to the appellants out of the funds in Court and which are claimed by him, the amount that he stipulated to pay Lancaster under the secret agreement between them, in prejudice of the rights of the other members of the syndicate. With regard to the first question but little need be said. Whilst there is some conflict of opinion amongst the witnesses who, being members of the syndicate, have testified as to what their understanding of the matter was, we lay ⁴⁸⁴ that out of view altogether and look alone to the face of the written instruments themselves; and from their tenor and terms, construed in the light of the surrounding circumstances, this first contention must be judged. Now, what the syndicate agreed to purchase from the Governor and Treasurer of South Carolina was, first, a block of two millions of certain bonds with attached coupons ; and secondly, if the syndicate availed of an option given to it, another block of three millions two hundred and fifty thousand of the same series of bonds with attached coupons.

The separate obligation of each member of the syndicate bound the individual signing it to^pay, first, for such portion of the two millions as he had agreed to take, and, secondly, should the option be availed of, then to pay such proportion of the residue as his original subscription would entitle him to in the larger amount. Each subscriber further stipulated that out of the interest which would accrue July the first on the bonds subscribed for, the Trust Company should pay to R. A. Lancaster and Company for syndicate expenses two-thirds, or in other words “ a commission of one and one-half per cent, out of the interest or profit received on said bonds.” So that the rights of the members as to the profits of the venture were restricted to the excess for which the bonds might sell over and above the cost at which they were purchased, plus a share in three-fourths of one per cent, of the July interest—this three-fourths of one per cent, being the amount of the July interest remaining after the commission of one and one-half per cent, was paid by the Trust Company. Therefore, though the title to the proceeds of the July coupon vested in the Trust Company under the agreement with the State of South Carolina, it vested in trust for specified purposes. When the option to take the remaining three millions two hundred and fifty thousand dollars of bonds was exercised, the syndicate was to “ have the same rights and privileges in ” them “ as hereinbefore provided with reference to said two millions of said bonds.” That is to say, with respect to the three millions two hundred and fifty ⁴⁸⁵ thousand, the title to the proceeds of the coupons should vest in the Trust Company subject to the same trusts declared with respect to the proceeds of the July interest on the two million block, viz., for the payment of two-thirds to R. A. Lancaster & Company for syndicate expenses, and for the payment of the other one-third, or the three-fourths of one per cent., less other syndicate expenses, to the subscribers as part of their profits.

As the rights and privileges which the members of the syndicate were to have under the two millions purchase depended in part on what disposition was provided to be made of the proceeds of the coupon on that block of bonds ; and as they were to have precisely the same rights and privileges and none other with respect to the second purchase that they had in regard to the first, it follows that the right to share in the proceeds of the July coupon on the three millions two hundreds andjifty thousand block could not be larger or more extensive than the right to share in the proceeds of the coupon on the two million block ; andThat consequently the option subscription was also subject to the provision that two-thirds of the proceeds of the July Interest was-to be deducted for syndicate expenses or commissions. This brings us to the other question respecting the claim of the appellants to a portion of the funds now in Court. It has been stated in a preceding part of this opinion that the syndicate acquired title to the proceeds of the July interest, through the Trust Company, on the whole issue of five millions two hundred and fifty thousand dollars of bonds; but the reasons for that conclusion have not yet been set forth. The correctness of this position is of vital consequence in the discussion still to follow; and it is therefore appropriate that it should now be clearly established.

What was it that the syndicate agreed to purchase ? Was it the bonds less the coupons, or the bonds plus the coupons ? This inquiry is answered by the written contract between the syndicate on the one side through its agent the Trust Company, and the State of South Carolina by her