New Colonial Co. v. Canovanas Sugar Factory.

opposite sides have strenuously contended is the meaning of clause 19 of the contract of 1883.

The fore part of that clause unquestionably provides that if the English company should advance any money to prevent Lanman & Kemp from becoming entitled to enforce all or any of their rights, powers, or remedies under their mortgage, that in such case, next under Lanman & Kemp, the property of The Canovanas Sugar Factory, Limited, should be security for its repayment to the English company, and interest thereon at 6 per cent, and that the Canovanas Company should then execute a second mortgage or lien therefor. Then follows the celebrated proviso which is such a bone of contention in the controversy. We quote it: "Provided, also, that the Colonial Company, Limited, shall be entitled at any time, upon giving to Lanman & Kemp six calendar months previous notice in writing of the desire of the Colonial Company, Limited, to have an assignment of Lanman & Kemp's mortgage, to have, at the cost and expense in every respect of the Colonial Company, Limited, at the expiration of the said six months, the said mortgage and the principal and interest moneys secured thereby, assigned to the Colonial Company, Limited, or its nominees, upon payment to Lanman & Kemp of the principal money then due and owing under the said mortgage with the interest thereon up to the time of the assignment and all proper mortgagees' costs and expenses.'

The contention is that the language there used, "to have, at the cost and expense in every respect of the Colonial Company, Limited, at the expiration of the said six months, the said mortgage, etc., assigned," gave a direct authorization to the English company, even though it is a trustee, to buy this mort

New Colonial Co. v. Canovanas Sugar Factory.

gage at any time, step into the shoes of Lanman & Kemp, and foreclose it without regard to any right of the Porto Ricans.

To our mind, every word in this proviso was intended to mean, and does mean, that the Colonial Company, Limited, could secure a six months option on that mortgage at any time on giving the proper notice, and that everything connected therewith, the making of the papers and the recording of the same in England and out in Porto Rico, etc., etc., must be at its own cost as against Lanman & Kemp. Were it otherwise, in order to overthrow all the other provisions of the entire contract, its twenty-year term, and all the other provisions in it and duties connected with it, including the restriction of the equity rule that a trustee cannot speculate with, or make profit out of, claims against the property of his cestui que trust, which was as well known to those English lawyers there present as it is to any American lawyer, these astute gentlemen who formulated that instrument would surely have added right there at the end of that proviso, the usual words, which every lawyer knows would have suggested themselves on the spot, as follows: "And thereupon, the said Colonial Company, Limited, or its successors or assigns, shall become vested with all the rights, powers, and privileges of foreclosure, etc., in the said mortgage contained, the same as the said Lanman & Kemp would have been in the absence of the assignment, and may immediately, or as soon thereafter as they choose, at their option, proceed to foreclose the same against the Canovanas Sugar Factory, Limited, without reference to whether the twenty-year term has elapsed or not."

The evidence taken in the cause in London shows, as stated, that the Englishmen and the Porto Ricans held each other in the highest esteem, and this is also made manifest by the large

New Colonial Co. v. Canovanas Sugar Factory.

credits extended to the ancestors of these respondents by the older English concerns. But were not this fact in evidence, a reading of the contract of 1883 would make it certain. No one can read that contract without appreciating the fact, under all the circumstances, that the Englishmen stood between the Por to Ricans and Lanman & Kemp to protect them from the foreclosure of that mortgage as best they might. The first portion of clause 19 shows plainly that the fact the Englishmen might have to advance large sums of money out of their own pockets to Lanman & Kemp to keep the latter from foreclosing was talked of and was in contemplation of the parties, as it is mentioned in the contract itself. The fact the assignment of the mortgage was to be made to the Colonial Company, Limited, or its nominees, as provided in the closing words of clause 19, is not, in the opinion of the court, of much importance, because that word "nominees" is used also in other places, notably in clauses 5, 21, and 22, and appears to be used in not any very definite sense, and only out of an abundance of caution. The English company might have required to have it made to one of its clerks, for reasons of its own; or, had the English company failed before the purchase of the mortgage, as it did in fact afterwards fail, it certainly would have desired to be in a position to name its own successor to receive the assignment. In fact, all that kept that very thing from occurring in this very case was the fact that the assignment of the mortgage was made just before the English company failed or was reorganized. In America, the words used would have been, "or its assigns," instead of nominees.

To appreciate how fully the English company was put in possession of the property of the Porto Ricans, and how little the Canovanas Company meant, one has but to read § 7 of the

contract.

New Colonial Co. v. Canovanas Sugar Factory.

Under that section, the Porto Ricans simply stepped out of the equation for twenty years. They didn't even keep anybody on guard in the new corporation created for them, to audit their accounts or protect their interests. This shows the confidence they reposed in the Englishmen. Not one of them. remained as an officer of the new company, and the contract devests them for the twenty years from being able to elect any officer in that corporation, that might be solely interested in looking out for their interests. It will be noticed that in clause 22 of the contract, the English company as pledgee is empowered to vote the stock of the Porto Ricans the same as if the latter had not any interest therein. This provision that a mere pledgee should be the person to vote the stock at elections of the corporation was unusual.

One's mind cannot grasp the situation of these parties without coming to the conclusion, and that unhesitatingly, that the English company was, in the fullest sense, created a trustee of an express trust, by the Porto Ricans under the contract of 1883, and left to manage their affairs for twenty years. The main dread of the Porto Ricans was of necessity the Lanman & Kemp mortgage. The Englishmen were their friends. Therefore it does not appeal to the court's conscience that they should be permitted to grasp this mortgage as a weapon with which to wipe out of existence all equities and rights of the people they were supposed to be helping. If it is to be conceded that the English company, under all the circumstances here, had a right to speculate on this mortgage on the theory that anything they could do to save themselves some of the debt due them is legitimate, then, if they took that sugar factory and employed the large number of men necessary to conduct it and agreed to pay them one rate of wages, and then, either designedly mis

New Colonial Co. v. Canovanas Sugar Factory.

managed the plant so that it became embarrassed, or if it became embarrassed in the regular course of business without their fault, and they had bought up the wage claims of the help at a discount and charged it all in the accounts of the concern at the regular rate, no counsel would have had the temerity to come before the court and argue that the transaction was legitimate or that it could be done even under a mere agency, let alone a trusteeship. If, in the same way, the factory had required a new set of boilers or other sugar plant machinery, and the management had bought them at one price, which was extremely low, through the chance of finding somebody who had to sell, and then charged for them at their real value, or even at a low value, but more than they paid for them, in the accounts of the management, no one would contend that it was legitimate. Yet the chancellor here is asked to countenance the purchase of this mortgage by the English company without the knowledge of the Porto Ricans, and without notice to them, at a tremendous discount, on seven years time, and to continue the conducting of the Canovanas sugar plantation during those seven years while they were paying for this mortgage by instalments, still without notice to the Porto Ricans, and then to charge a profit of $220,000 on it, with interest on $340,000 for twenty-three years. It would be unconscionable. It is, of course, unfortunate that Lanman & Kemp lost so heavily in the matter, because there is no intervening relieving feature of profits on merchandise or through sugar commissions as to them, but the final sale was their own deliberate act and they made no reservation in the assignment. But that is no reason why the profits from their loss should all go to the English company, unless the law and the situation of the parties warrant