Submitted on briefs June 4, modified July 15, 1919;
On the Merits.
(182 Pac. 373.)
“That at said time the defendant represented to the plaintiff that he had certain bona fide and legal claims against said corporation aggregating the sum of nine thousand six hundred ($9,600.00) dollars, and that said claims represented moneys actually paid, laid out and expended by him, the said defendant, for and on behalf of said corporation, and the plaintiff relying on the truthfulness of said representations and in order to protect her interests in said corporation, agreed to purchase from the said defendant his interest in and against said corporation for and in consideration of the payment by the plaintiff to the defendant of the sums actually paid, laid out and expended by the defendant, for and on behalf of said corporation, and for which said corporation was represented by the defendant to the plaintiff to be liable to him; that defendant further required of plaintiff the performr anee by her of the duties imposed on defendant under the terms of a certain contract between himself.and one T. K. Anderson, et al., bearing date March 16, 1907; that a true copy of said last mentioned agreement marked Exhibit ‘A’ is filed herewith and prayed to be read as a part hereof. “That among the amounts which the defendant represented to the plaintiff to have been so paid, laid out and expended by him, was the sum of six thousand ($6,000.00) dollars secured by a mortgage upon the properties of said corporation; that defendant proceeded to foreclose said mortgage and to acquire and did so acquire at the sheriff’s sale the legal title to the property of said corporation, thus rendering valueless except as to the corporation’s equity of redemption, the stock interest of plaintiff herein. “That thereupon on the 11th day of June, 1907, the plaintiff, relying as aforesaid upon the truthfulness of the representations of the defendant hereinbefore set forth and upon the validity and good faith of said mortgage and the proceeding to foreclose same, paid to the defendant the snm of forty-eight hundred ($4,800.00) dollars, as the equivalent of one-half of the amount asserted by the defendant to be due him from said corporation and assumed one-half of the burdens of defendant under the contract with Anderson referred to as Exhibit ‘A’ herewith and at the time of purchasing said one-half interest, plaintiff and defendant entered into an agreement, a true copy of which is hereto attached marked Exhibit ‘B’ and prayed to be read as a part hereof; and thereafter, on or about October 19, 1907, plaintiff paid to the defendant an additional sum of forty-eight hundred ($4,800.00) dollars, representing the remaining one-half of the burdens of defendant under the contract with Anderson referred to as Exhibit ‘A’ herewith, and at the time of purchasing said one-half interest, plaintiff and defendant entered into an agreement, a true copy of which is hereto attached, marked Exhibit ‘C’ and prayed to be read as a part hereof. “That in truth and in fact, the said sum of six thousand ($6,000.00) dollars represented by said mortgage was not paid, laid out or expended by plaintiff (defendant) for said corporation, nor was any part thereof so advanced; that the pretended indebtedness of the corporation to the defendant in said amount was purely and wholly false and fictitious; that in truth and in fact, said mortgage had been executed by the corporation solely to secure the defendant against any liability which might arise out of his suretyship on certain undertakings of the corporation on an appeal to the Supreme Court of Oregon and that all liability on said undertakings had terminated before the transaction between plaintiff and defendant hereinbefore referred to; that said mortgage foreclosure proceedings whereby said defendant acquired the legal title to said corporate property and rendered valueless plaintiff’s stock in said corporation were pursuant to and a part of the fraudulent scheme of said defendant to bring pressure to bear on plaintiff in order to protect her said investment and compel her to procure an assignment from defendant of Ms alleged liens and claims against said corporation and of Ms interest therein as outlined in the exhibits filed herewith. 11 That the plaintiff, so relying upon and believing in the truthfulness of the defendant’s representations referred to, continued during the succeeding years upon said assumption, to shoulder and perform the burdens imposed by the defendant Phegley under said contract, Exhibit £A,’ and continued to incur the expenditures and make the disbursements necessary to preserve and protect the interest referred to in said contract; that nothing occurred to arouse the suspicions of the plaintiff as to the fraud so perpetrated upon her by the defendant until the present year at which time the plaintiff, in the course of investigation along other lines, came into possession of knowledge of circumstances, the further investigation of which led to the discovery of said fraud; that plaintiff promptly upon said discovery made demand upon the defendant for restitution; that some months of delay followed, during which time the matter was claimed by the defendant to be under the advisement of himself and his attorney, and that plaintiff within a reasonable time after the refusal of the defendant to restore her to the position in which she was before she was led into said agreement by the fraud of the defendant, instituted this suit.” It is further alleged that the existence and validity of the $6,000 mortgage was the material and primary consideration for the agreement of plaintiff to purchase the interest of the defendant, all of which facts were known and used by Mm as a means of inveigling the plaintiff into the agreement of purchase, and that she would not have entered into that had she known the mortgage did not represent an actual bona fide existing debt of the corporation to the defendant. After the foreclosure, the title to the property was lost to the mining company and that corporation was dissolved in 1908. The agreement between the plaintiff and the defendant executed on June 11,1907, recites that the defendant does sell, assign and transfer to the plaintiff a one-half interest in his mortgage and other claims against the company, and all his rights under the foreclosure decree, by which there was to be a sale of the property on June 15, 1907, in consideration of which the plaintiff was to pay the defendant one half of the amount of his claim, amounting in all to $9,600. The agreement states that “they shall buy” and “share equally in purchasing said property”; that “whatever may be done by either of them in regard to the matters aforesaid, shall be for the mutual benefit of both of them, and that they shall be equally interested therein” ; that the agreement is based upon the mutual trust of the parties and that neither of them shall dispose of any part of the property to a third party, without the written consent of the other, or without giving the other thirty days’ option at the “same price at which he shall propose to sell.” Concurrent with the execution of the agreement, the plaintiff paid the defendant $1,000 and gaye him a 60-day note for $3,800. On October 19, 1907, she purchased from the defendant his remaining half interest, paying therefor the further sum of $4,800. In his answer the defendant admits his ownership of the $6,000 mortgage and the foreclosure decree rendered thereon, and that the plaintiff purchased and acquired all of his interest therein, but denies all other material allegations of the complaint. For a further and separate answer he alleges the execution of the written agreements; that he has fully performed all of their respective provisions; that by reason thereof the plaintiff entered upon and took possession of the property and should now be estopped from claiming that the contracts were otherwise than as alleged and set forth in the complaint; that the plaintiff was a stockholder in the company; that she acquired and has never been disturbed in her possession of the property; that she has enjoyed such undisturbed possession for a period of nine years, during all of which time she made no effort to determine the validity of the mortgage, and that she is now and ought to be es-topped from attacking the same in this suit. For appellant there was a brief submitted by Mr. Wilson T. Hume. For respondent there was a brief prepared and submitted by Mr. Ralph A. Goan and Mr. G. A. Sheppard. In her reply the plaintiff denies all new matter in the answer. After the testimony was taken the trial court rendered a decree dismissing the complaint, and the plaintiff appeals. Modified. JOHNS, J.The law of this case was settled by Mr. Justice McCamant’s opinion. Hence the validity of the $6,000 mortgage and the relations existing between the plaintiff in regard to the mortgage are the only questions involved and they are questions of fact. The case was tried by the plaintiff in the lower court upon the theory that the $6,000 mortgage was fictitious and void.
The defendant was not a stockholder in the mining company and apparently had no interest in it, yet for some reason not disclosed by the record he voluntarily offered to purchase the $2,000 mortgage from the Grants Pass Banking & Trust Company, which was a prior lien upon the property, and he testified that he *310told Dr. Cable, “If they have to have the cash I’ll buy the note, if it is agreeable to you; I will write them to that effect,” and the latter replied, “All right, go ahead and take it up.” The defendant further testified that he then wrote the bank and within a few days the assignment was forwarded to a Portland bank. He says, “I paid them the $2,000 plus the interest due on it and took it up,” paying the bank the full amount of the $2,000 mortgage with all accrued interest to the date of purchase.
5. The testimony that the $6,000 mortgage was duly executed for a valuable consideration is clear and convincing. It appears that the execution of that note and mortgage was authorized at a meeting of the board of directors of the corporation called for that purpose, at which Dr. Cable, president, Milton Weidler, secretary, and all the other directors were present and agreed to its execution. At that meeting it was represented that Dr. Cable had advanced money to pay the bills of the company amounting to $4,000; that there was due Mr. Cousins for his salary and money advanced by him $2,700; that the company owed attorneys’ fees and miscellaneous bills to the amount of $1,250, making a total of about $8,000, and that there was to be returned from the bond company $2,000, leaving a net amount of $6,000 due Cousins and Cable, all of which matters were fully explained and approved at the meeting of the directors.
It also appears that neither Cousins nor Cable desired to have the mortgage taken in his own name, and they suggested that it be executed in the name of the defendant as trustee for them according to their respective interests, and it was executed in the name' of the defendant, while in fact the latter was the apparent owner and holder of the $6,000 note and mort*311gage and held himself dut to the plaintiff as snch owner at the time of the execution of the contract between them, yet he held such note and mortgage as trustee only for Cousins and Cable and did not have any personal claim against the mining company for the amount represented thereby.
The purpose of the plaintiff, and the opinion of Mr. Justice MoCamant so decides, was to acquire all the existing liens against the corporation, to protect her investment of more than $15,000 in the stock of the corporation, and if the liens were valid it could not make any difference to her personally, who was the owner or holder of such claims.
But there is another element which as between the plaintiff and the defendant enters into and is a part of the consideration and purchase price of the $6,000 note and mortgage. Phegley testified:
“Q. What was the amount of fees upon which you •had agreed with these gentlemen that you were to receive for your services ?
“A. They were to give me one third of the six thousand dollars.
“Q. Were you to get any part of the two thousand dollars?
“A. I owned the two thousand dollars; all of that.
“ Q. The other two thousand?
“A. The trustee; no.
“Q. You were only to get one third of the six thousand dollars?
“A. That is all.”
After stating that the defendant’s wife and her sister and two of her brothers had been her pupils and that “they were a lovely family of boys and girls that I thought a great deal of; and so when I found she was married to Mr. Phegley I at once had implicit con*312fidence in Mr. Phegley that I conld rely upon him,” the plaintiff testified:
• “I talked over the matter with him and said I wanted to save my possession, and it resulted in me buying out the half of his interest for exactly dollar for dollar of what he himself had put into the property. * * At any rate I signed the contract for one half, for exactly one half of what he put in, cash advanced, nothing else.
“Q. Will you state whether or not there was to be any profit or loss on his part in the transaction?
“A. Not a cent. * *,
“A. He gave me to understand that he had put in dollar for dollar for that in the property, money advanced by him in the property and he was actually entitled to it. * # He said he had put that much money into the property; every dollar of it. * #
“Q. Will you state whether or not you were suspicious of the statements made by Mr. Phegley at the time of this transaction?
“A. I had no suspicions whatever.
“Q. Will you state to the court whether or not this consideration would have been paid or contract entered into by you at the time had you known that this six thousand dollar mortgage was a mortgage given to secure the president and manager of that corporation for alleged past indebtedness due them?
“A. I never would; I wouldn’t have entered into if.”
Regarding her contract with the defendant, she further testified:
“I-was to take over one half of Mr. Phegley’s interest, dollar for dollar, for what he had put in; I would make good to him for one half and not a dollar more.
“Q. Didn’t you and Mr. Phegley agree before this meeting you were to buy half of this nine thousand six hundred dollars?
*313“A. No, sir; it was half of what he put into the property.
“Q. You had not agreed with Mr. Phegley how much you were to pay for this property?
“A. I repeated that I agreed, over and over, I agreed to pay him dollar for dollar for what he put into it.”
Although the defendant denies that he ever represented to the plaintiff that he had “paid out or expended on this property that $6,000 claim,” he does not dispute her testimony that she was “buying out the one half of his interest for exactly dollar for dollar, all of what he himself had put into the property, ’ ’ and the fact remains that the original contract between them, dated June 11, 1907, was prepared and executed on the representation that the defendant was the owner and holder of the $6,000 note and mortgage in his own right and name, and the plaintiff never knew or was advised that the defendant held the mortgage as trustee for Cousins and Cable until he testified as a witness in this case.
Eeferring to the $6,000 note and mortgage, he testified that he was to receive one third of that amount, or $2,000, for his services as trustee for Cousins and Cable, who were the real owners, and that important fact was concealed from the plaintiff, who paid the full face value of both mortgages and accrued interest and other moneys advanced, making a total of $9,600.
While the record shows that the full amount of the $6,000 mortgage was a just and valid debt and lien against the corporation, the fact that the defendant was to receive $2,000 out of the principal for his services as trustee of that mortgage is sufficient to arouse at least a suspicion of the good faith of the whole *314transaction. Legitimate business is not done on any such basis.
It further appears that when the plaintiff paid the agreed purchase price to the defendant the latter took the trustee money of Cousins and Cable, which he received from her, and purchased stock for them in another mining corporation of which he was the moving spirit.
6. On the record, we are of the opinion that the defendant held the $6,000 note and mortgage as trustee for the use and benefit of Cousins and Cable only; th&fi they were executed for a valuable consideration and constituted a valid and subsisting lien on the property of the mining company at the time of purchase by the plaintiff. The agreement by which the plaintiff purchased the $6,000 note and mortgage included and carried with it the agreement that she was to pay “dollar for dollar all of what he himself had put into the property.” That was one of the considerations for, and which entered into, the purchase. It is very apparent that the defendant misled and deceived the plaintiff and concealed from her the fact that he was to have and did receive a fee of $2,000 out of the $6,000 note and mortgage, for his services as trustee for Cousins and Cable, and that the plaintiff'relied upon the statements of the defendant as to the amount of his investment. We hold that in equity and good conscience the defendant should be required to pay over to the plaintiff the $2,000.
7, 8'. This is a suit in equity and is tried de novo in this court. The decree of the Circuit Court will be modified and one entered here in favor of the plaintiff against the defendant for $2,000, with cósts in this and the Circuit Court. Modified.