Opinion
No. 35795.
February 26, 1945.
1. VENDOR AND PURCHASER.
In suit against subsequent grantee or assignee to cancel for fraud a mineral lease and mineral deed, the issue was narrowed to inquiry whether defendant was a bona fide purchaser.
2. CORPORATIONS.
Where lease and deed were assigned by corporate grantee to another corporation, facts that both corporations had same office and same secretary, and that secretary and his brother were stockholders of both corporations, though corporations had other different stockholders, would not warrant imputing secretary's imputed knowledge of fraud invalidating the lease and deed to assignee corporation.
APPEAL from the chancery court of Lincoln county, HON. V.J. STRICKER, Chancellor.
R. Pearce Phillips, of Brookhaven, for appellant.
The evidence was insufficient to establish that the mineral deed was procured by Russell Investment Corporation through the false and fraudulent representations of its agent, Earl Garraway.
Thomas v. Rosenberg Sons, 153 Miss. 314, 120 So. 732; Watson et al. v. Owen, 142 Miss. 676, 107 So. 865; Rogers v. Clayton, 149 Miss. 47, 115 So. 106; Lamar v. Lane et al., 170 Miss. 260, 154 So. 709; Christian v. Green et al. (Miss.), 45 So. 425; Griffith's Mississippi Chancery Practice, Sec. 589; 9 C.J. 1254, Sec. 195, footnote.
The evidence was insufficient to warrant a cancellation of the mineral deed as against appellant, L. M. Land Mineral Corporation, because it plead and proved that it was an innocent purchaser for value without notice of the alleged fraud or misrepresentation.
Adler v. Interstate Trust Banking Co., 166 Miss. 215, 146 So. 107; Newcomb v. Home Trust Co., 169 Miss. 883, 151 So. 158; Lee et al. v. Boyd et ux., 195 Miss. 794, 16 So.2d 30.
The decree of the lower court should be reversed because it is based upon findings of fact which are clearly erroneous, manifestly wrong, and against the overwhelming weight of the evidence.
Gerard v. Gill et ux., 195 Miss. 726, 15 So.2d 478.
Jas. F. Noble, of Brookhaven, for appellees.
The mineral deed was procured by actual fraud of the worst sort. Fraud vitiates everything it touches. Therefore, this mineral deed should be struck down and held for naught.
Henry v. W.T. Rawleigh Co., 152 Miss. 320, 120 So. 188; Nash Mississippi Valley Motor Co. v. Childress, 156 Miss. 157, 125 So. 708; Randolph Lumber Co. v. Shaw, 174 Miss. 297, 164 So. 587; Fornea v. Goodyear Yellow Pine Co., 181 Miss. 50, 178 So. 914; Brown v. Norman, 65 Miss. 369, 4 So. 293; Fay Eagan Co. v. Louis Cohn Bros., 158 Miss. 733, 740, 130 So. 290, 292; White et al. v. Union Producing Co., 140 F.2d 176-179.
In some of the decisions above mentioned it will be found that the law in Mississippi is that appellees had the right to rely upon the representations made to them by appellant's agent as to the nature of the papers they were asked to sign, and to accept his statements as true without inquiry, although the means of correct information were within reach. It may be stated right here that attorney for appellees realizes that the rule in Mississippi is that fraud must be proven by clear and convincing evidence. The evidence in this case was clear and strong enough to do this.
Fay Eagan Co. v. Louis Cohn Bros., supra; Smith v. State, 107 Miss. 486, 496, 65 So. 564, 567.
Attorney for appellant argues that the evidence is not sufficient to warrant a cancellation of the mineral deed as against appellant, L. M. Land Mineral Corporation, because he says appellant plead and proved that it was an innocent purchaser for value without notice of the alleged fraud or misrepresentation. He cites certain authorities in an effort to sustain his contention. I must frankly say at this point that it is the law in Mississippi that an innocent purchaser, in truth and in fact an innocent purchaser, for value without notice of the fraud is protected, and of right ought to be protected, and the reason for this is at once apparent. But I urge that this is not a case of an innocent purchaser. The fraud in the first instance when the mineral deed was fraudulently procured travels right along and is present when Julius Russell undertakes to assign the mineral deed from one of his corporations (Russell Investment Corporation) to another of his corporations (The L. M. Land Mineral Corporation) in the belief that this would make everything very safe because of the idea of innocent purchaser. I wish to present a picture of Julius Russell, the actual head of both corporations, operating both in the same office in the City of New Orleans, and in this same office assigning the mineral deed from one corporation to the other, representing both assignor and assignee at the same time in the same office. It seems to me to be a rather peculiar and strange procedure. Was this one corporation dealing with another corporation at arm's length? Does this look like an honest and sincere assignment? I submit that this pretext at an assignment will not do and that this Court should hold same of no effect and void.
Appellees are the owners of certain lands in Lincoln County described as follows: The N.W. 1/4 of S.E. 1/4 and the N. 1/2 of the S.W. 1/4 of Section 13, and 5 acres on the east side of Brookhaven and Gallatin Road in the northeast corner of the N.E. 1/4 of the S.E. 1/4 of Section 14; all in Township 8 North, Range 6 East.
Bill was filed by appellees to cancel a certain mineral lease and a mineral deed executed by them to the Russell Investment Corporation on May 3, 1937. Relief is sought to be grounded upon the alleged fraud of one Garraway, an agent of the corporation. Such fraud is predicated upon the agent's alleged representation that failure of the lessee to pay yearly rentals under the lease would vitiate both the lease and the mineral deed, simultaneously executed.
The lease was assigned to one Willett, and it is agreed that it is subject to forfeiture for nonpayment of yearly rentals. The deed to a one-half interest in the minerals was assigned for valuable consideration to appellant. The suit being against a subsequent grantee or assignee, the issue is narrowed to the inquiry whether the appellant was a bona fide purchaser. Lee v. Boyd, 195 Miss. 794, 16 So.2d 30.
Assuming but not deciding that the alleged representations of the agent Garraway, as to the legal effect of the lease provisions upon the deed, were clearly and unequivocally shown and that they would constitute a vitiating fraud, and further assuming, without decision, that knowledge of such was imputed to the Russell Investment Corporation, there remains the contention that this knowledge so imputed to the original grantee would be further imputed to the assignee because of the circumstance that the secretary of the original grantee, Julius Russell, held a like position with the asssignee. There was no evidence that Mr. Russell had any actual knowledge of the transaction between its agent and appellees. He denied it positively.
Appellant is a distinct corporate entity from the Russell Investment Corporation. The L. M. Land Mineral Corporation had thirty-five stockholders and the Russell Company only three. Although both corporations used a common office, Mr. Russell and his brother were the only stockholders common to both. We find no warrant for impairing the status of appellant as a bona fide purchaser of the mineral deed. The mere incident that Mr. Russell was an officer and stockholder of both corporations is no basis for employing a fiction which, after having been invoked to charge Russell with knowledge of his agent's representations, would retain sufficient vigor to extend the imputed notice to a second principal of which Russell himself was an agent. Newcomb v. Home Trust Company, 169 Miss. 883, 151 So. 158; 13 Am. Jur., Corporations, sec. 1115; 19 C.J.S., Corporations, sec. 1085.
There are no other circumstances from which the requisite quality of proof could be inferred, and appellant's status as a bona fide purchaser makes it unnecessary to weigh the testimony as to whether the representations of the agent, if made, would constitute fraud. Lee v. Boyd, supra.
The decree of the chancellor insofar as it cancels the mineral deed to appellant is therefore reversed and decree entered here for appellant.
Reversed and decree for appellant.