Roberts v. W. H. Hughes Co.

Powers, J.,

dissenting. I cannot believe that Roberts is estopped, and I therefore dissent on that point.

1. It is the settled law of this State that an estoppel, to be available, must be pleaded, if, as here, the party relying upon it has an opportunity to plead it. Sawyer v. Hoyt, 2 Tyl. 288; Lord v. Bigelow, 8 Vt. 445; Brinsmaid v. Mayo, 9 Vt. 31; Isaacs v. Clark, 12 Vt. 692, 36 Am. Dec. 372. Every fact essential to the estoppel must be pleaded with accuracy. Gray v. Pingree, 17 Vt. 419, 44 Am. Dec. 345. If not pleaded, when the circumstances are such as to require it to be pleaded, the estoppel is waived. Brinsmaid v. Mayo; Isaacs v. Clark.

The defendants evidently had this rule in mind for they attempt to set up an estoppel in their answers. But the estoppel set up in the answers and the estoppel argued before us is not the one found and established by the majority opinion. That Roberts was estopped to assert the illegality of the issue of the $18,000 in bonds held as collateral to the receiver’s certificates by the Farmers’ National Bank had entirely escaped the vigilance of counsel. Indeed, these bonds were of so little consequence or importance in the estimation of the answering defendants that no mention of them is to be found in the answers until after the special master had filed his report. Then, for the first time, though it had filed what is called a “full answer” to the original and supplemental bills, the Farmers’ National Bank, in a supplemental answer, makes mention of these bonds. *114But it contents itself with asserting that it owns them, that they are security for the $14,000, and that they are secured by the trust deed. There is not a suggestion anywhere in the case, that Roberts is estopped to contest these bonds on the ground that they were unlawfully issued. The estoppel which the Hughes Company attempts to set up in its answer, and 'which the Farmers’ National Bank attempts to make a part of its answer by reference, is that Roberts stood by and allowed the Hughes Company to buy the property supposing it was getting full title, and allowed the company to sell stock to those who supposed the property was unincumbered, and consequently he will not be allowed to assert his mortgage to their injury.

It was said by this Court as recently as Conn. Valley Lumber Company v. Rowell, 84 Vt. 25, 77 Atl. 873, that “when parties go into special pleadings, they are confined strictly to the matters put in issue, for the Court tries only such issues as the parties make by their pleadings.” I submit that this rule is applicable though this is a suit in chancery.

The circumstances being such that the estoppel should have been pleaded, no advantage can be taken of it though it may have appeared from evidence introduced to establish the defence set forth in the answers. Poole v. Mass. Mut. Accident Asso., 75 Vt. 85, 53 Atl. 331.

So the majority has gone quite outside of the case made by the pleadings and argument to find that Roberts cannot be heard to say that these bonds were illegally issued and cannot be ahead of his mortgage, — and this for the sake of reversing a decree made upon consideration and not pro forma.

I say, then, that the defendants waived the estoppel established by the majority by not pleading it; and they waived it again by not briefing it. This Court, in chancery appeals, sits only as a court of error. Dietrich v. Hutchinson, 73 Vt. 134, 50 Atl. 810, 87 Am. St. Rep. 698. When reviewing this kind of a decree, it will make every reasonable presumption in favor of its correctness. It will decline to pass upon' questions not raised below and confine parties to the theories there advanced. Errors should not be sought for outside the record, nor questions settled which were not passed upon below. In this case, so far as estoppels are concerned, the questions raised below were correctly decided, and I should decline to consider any others. “The habit that has sometimes prevailed of ‘dragging’ a case in this *115Court, as for something lost, to find a fault that was undiscovered and unheeded in the trial of a cause is ever unavailing to the client, and a deviation from professional propriety and duty” was .Judge Redfield’s rebuke in Sequin v. Peterson, 45 Vt. 255, 12 Am. Rep. 194. I wonder what he would have said if the court had, in his day, not only deliberately reversed a case on a point not raised below, but reversed it on a point not raised at all, either here or below.

2. The decree below having been made upon consideration, it should be sustained by this Court if that result can be reasonably attained. To that end, if a fact essential to the correctness of the decree is omitted from the findings, and such fact can reasonably be inferred from those certified up, it is the duty of this Court to assume that the court made such inference. Russell v. Davis, 69 Vt. 275, 37 Atl. 746; Sowles v. St. Albans, 71 Vt. 418, 45 Atl. 1050; Davenport v. Crowell, 79 Vt. 419, 65 Atl. 557; VanDyke v. Cole, 81 Vt. 379, 70 Atl. 593; Perkins & Co. v. Perley, 82 Vt. 524, 74 Atl. 231; Whitehead v. Whitehead, 84 Vt. 325, 79 Atl. 516. But if the result will be a reversal, this Court should not assume that the court below drew any inference not affirmatively shown by the record, unless the same is a necessary inference from the facts found. Whitehead v. Whitehead, supra; Adams v. Ladeau, 84 Vt. 464, 79 Atl. 996; Plumley’s Admr. v. Plumley, 84 Vt. 290, 79 Atl. 45. In no event can this Court draw the inference. It is an inference of fact, and it is not for this Court to supply a fact, either for affirmance or reversal. “It is never the province of a court of errors to deduce inferences of fact from a case agreed, a special verdict, or a report of referees or auditors,” said this Court in Abbott v. Camp, 23 Vt. 650. And all along down through our cases runs the idea that if any inferences are to be drawn from the facts certified, they must be drawn by the trial court and not by this Court.

As pointed out in the majority opinion, the report is silent as to the particular circumstances under which these $18,000 in bonds were issued to the Adirondack Trust Company. By whom they were actually pledged is a fact not found. That they were pledged by either the receiver or the corporation is probably ei necessary inference. But that it is • so plain that they were' pledged by the corporation — the theory on which the majority opinion is based — that that conclusion is compelled by the facts *116found, I wish to register a very respectful but a most vigorous disagreement.

There may be circumstances of more or less significance indicating this, but it can not be said that they are sufficiently decisive to be determinative of the question. There is room for reasonable men to differ in their conclusions on this subject,— opposing inferences may be drawn from the facts reported,— and therefore this Court should assume that the court below drew the one which will support the decree. “We ought not, for the purpose of reversing a judgment, to read into the finding of facts something which is not there and which is not a necessary inference from the facts found.” Adams v. Ladeau, 84 Vt. 464. To my mind it is vastly more reasonable to infer from the facts found that the receiver, finding the bonds all prepared and ready for delivery, assuming to carry out the previous plan of the corporation, took them and pledged them as collateral to his certificate. If this view is even possible, under the rule referred to the decree should be affirmed; for no one suggests that Roberts could be estopped by what the receiver did. In passing upon the possibility of the conclusion suggested, keep in mind the situation: Here was a corporation shorn of its power to incur debts or pay them; its functions suspended, and its activities paralyzed by the receivership; its assets and affairs had been ordered by the court to be transferred; its corporate powers, so far as now involved, terminated by an implied injunction; and yet to reverse a decree, the majority assumes that the court of chancery, by force of necessity, inferred iu the very teeth of the court’s order and injunction, that the corporation assumed to issue $18,000 in bonds, thereby increasing its mortgage indebtedness by $14,000.

I ought to say, in passing, that if the bonds were issued by the receiver as I have suggested, they would be wholly invalid. A receiver has no authority to issue bonds of his own execution, and these were of no validity if executed by the corporation and issued by him. Woodford v. Darwin, 3 Vt. 82, 21 Am. Dec. 573, and Woodworth v. Downer, 13 Vt. 522, 27 Am. Dec. 611, involved the power of a partner to- issue promissory notes after dissolution of the partnership. In principle those cases are much, like this. After the corporation went into the hands of the receiver, corporate action was forbidden, and the *117receiver could not give vitality to the unissued bonds by delivering them.

Believing as I do, that it is not only possible but reasonable to assume that the court of chancery inferred from the findings that the bonds were pledged by the receiver, I would so assume and affirm the decree.

3. I call attention to another assumption made by the majority which I regard as unwarranted: A copy of the bond is found in the corporate records. From this it appears that the bonds were not to be obligatory until duly certified by the trustee. Whether or not the bonds here in question bore this certificate does not appear from the report. Is it a necessary inference, from the finding made, that they do bear this certificate ? The finding, reads: “It appears from the testimony of Eugene E. Norton, and I so find the fact, that there are outstanding $18,000 more of said bonds, which $18,000 were negotiated with Senator Brackett for the Adirondack Trust Company, as security for funds obtained to meet the July pay-roll and some other obligations * I admit that the inference would be a natural one, but I deny that it would be a necessary one, unless it can be said as matter of law that bankers never make mistakes.

4. One who relies upon an estoppel for his protection must prove it. He takes the burden of establishing every fact essential to the estoppel. Robinson v. Morgan, 65 Vt. 37, 25 Atl. 899; Royce v. Carpenter, 80 Vt. 37, 66 Atl. 888; Spear v. Spear, (Me.), 54 Atl. 1106; Kroll v. Close, (Oh.), 92 N. E. 29, 16 Cyc. 811. One of these essential facts is, that he relied upon the act or conduct specified, and was thereby induced to change his position. 957 Vt. Dig. 38. The master has wholly failed to find this fact in the case in hand. The absence of this finding is recognized by the majority, for it is said in the opinion that “there is no need of a direct finding that the party taking the bonds had knowledge and relied upon any particular feature of Eoberts’ conduct,” and that “it is to be presumed that the holder was induced to purchase by the advantages of the opportunity as presented.” Eemembering that we are now dealing with necessary inferences only, can it be said that the question of a creditor’s reliance upon collateral security is never open to inquiry? If a perfectly solvent borrower deposits collateral as security for his note does the law conclusively presume that the *118lender relies upon the security? Here again the presumption may be very strong, but I cannot believe it is conclusive.

5. There is another fact essential to an estoppel: It must be made to appear that the party seeking to avail himself of it had altered his position to his prejudice, — has been misled to his injury. Woolen v. Edson, 35 Vt. 214; Earl v. Stevens, 57 Vt. 474; Goodell v. Brandon National Bank, 63 Vt. 303, 21 Atl. 956, 25 Am. St. Rep. 766. An estoppel is protective, only, and its whole office is to shield one from a loss which, but for it, he could not escape. Smith v. Powell, 98 Va. 431, 36 S. E. 522; Gerstadengen v. Hartzell, 9 N. Dak. 268, 83 N. W. 230, 81 Am. St. Rep. 575; Lindsay v. Cooper, 94 Ala. 170, 16 L. R. A. 813, 11 So. 325, 33 Am. St. Rep. 105; Atkins v. Payne, (Penn.) 50 Atl. 158; Schwab v. Edge, (Penn.) 64 Atl. 80; Stewart v. Parnell, (Penn.) 23 Atl. 838. It is plain enough to me that the Farmers’ National Bank is in no danger here. It cannot

lose a cent by this transaction. The corporation is behind their loan. Nobody claims that the corporation is insolvent, and if they did, it sufficiently appears otherwise by the record. In the first place, it is shown that the trustee in bankruptcy of Hughes came into possession of 1,645 shares of the stock of the corporation, which he sold at auction in June, 1904, — long after all these bonds and receiver’s certificates had been issued — to one who knew all about the liabilities of the corporation, including the Roberts debt, for $33,900.00. One cannot believe that the Nortons were paying more than $20.50 a share for the stock of an insolvent corporation, when they knew all about its assets and liabilities. Moreover, the master finds that the value of the property conveyed to the corporation by Hughes was, at the time the stock was bid off for the Nortons, $95,000, and the liabilities of the corporation then amounted to $72,000, to which should be added the notes here sought to be foreclosed. The margin of solvency thus established is not a very large one, I admit, but is apparently safe. Not only this; it appears that after the Nortons acquired their interest, the receivership was terminated and the corporation resumed control of its affairs. Does anybody believe that the Court relinquished its control without making any provision for the payment of the sums represented by the receiver’s certificates which had been issued by its authority ? Of course not. But we are not left to conjecture on this point. The corporation says in its answer that it “is *119required and compelled” to pay the expenses of the receivership, and that they amount to $18,000. The Farmers’ National Bank is amply protected without resort to the bonds; but the orators, are not creditors of the corporation; they only hold the obligations of Hughes. So their only protection depends upon the availability of their security, and if they lose their mortgage, they lose all. The debt is an honest one. Ignorance rather than dishonest purpose is responsible for the present situation of the orators. And if it be urged that though the bank might escape loss as suggested, the burden would then fall upon the corporation, my reply is that there is just where it ought to fall, for it took with full notice, as did those owners who are not protected by the majority opinion.

6. It is held by the majority that the Farmers’ National Bank took the bonds with notice of the illegality of their issue. How, then, can Roberts be estopped from asserting it? What has he ever said or done to mislead the bank or anybody else on that subject? Assuming that the corporation issued them, what did he have to do with it ? The legality of the issue of the bonds is a subject on which Roberts has never spoken, either expressly or by implication. But it is said by the majority that the corporation had the benefit of this loan, — that its avails went to pay its debt, — and therefore the corporation is estopped to deny the validity of the bonds pledged to secure It; and that Roberts being a director, is also estopped to deny it. I do not agree that the corporation is estopped. The Adirondack Trust Company and the Farmers’ National Bank knew all about it. ' They knew every single material fact. Their mistake, if there was any, arose from their ignorance of their legal rights, — just as Roberts did when he omitted to record the mortgages. They knew they were dealing with a receiver,. — that this corporation was in. the hands of the court. What fact did the corporation suppress, that it should now tie the hands of this honest creditor ? Knowing these facts, they were bound to know that the corporation could not make a legal issue of bonds, and that the receiver could not. Indeed, this is the view of the majority, and the very ground on which the invalidity of the bonds in the hands of the bank is put in the opinion.

One cannot be estopped when the other party knows the truth. Deception is of the very essence of estoppel; and this deception must be as to material facts, for one knowing the facts *120is presumed to know the law. If estoppels are ever available to relieve from a mistake of law, this ease affords no opportunity for the application of one of that class. Without admitting then, that Roberts’ estoppel would follow that of the corporation without some participation in the wrongful act, I insist that the corporation was not estopped because the bank knew the truth. Boynton v. Braley, 54 Vt. 92; Pond v. Pond’s Est., 79 Vt. 359, 65 Atl. 97, 8 L. R. A. (N. S.) 212; Beach Eq. Jur., §1108; Sleele v. St. Louis Smelting & Refining Co., 106 U. S. 447, 27 L. Ed. 226, 1 Sup. Ct. 389; Sanborn v. Van Duyne, 90 Minn. 215; Lash v. Rendell, 72 Ind. 475; Estis v. Jackson, 111 N. C. 145, 16 S. E. 7, 32 Am. St. Rep. 784; Blodgett v. Perry, 97 Mo. 263, 10 S. W. 891, 10 Am. St. Rep. 307.

It necessarily follows that Roberts’ representations about the condition of the title arising from his failure to record or give notice of his mortgage becomes entirely immaterial. For if the bonds are invalid in the hands of the bank, as the majority says, and Roberts is allowed to'say so, it is of no possible consequence whether they are- — or would be if legally issued — a first or second lien on the property. They are unenforceable, and Roberts’ implied representation that the title was clear was utterly harmless to the bank.

It requires no very careful study of this case to discover that the result reached by the majority not only does great injustice to Roberts, but accomplishes no benefit to the Farmers’ Bank in whose behalf the estoppel is established. The corporation and its owners reap the benefit, though they took with notice, and are now enabled, by shielding themselves behind an estoppel to which they are strangers, to avoid an encumbrance valid as to them, and thus escape the payment of the debt secured thereby. It cannot be that in foro conscientiae such a rank injustice should be tolerated.

I should affirm the decree.

Watson, J., concurs in this dissent.