Crimp v. McCormick Const. Co.

after making the foregoing statement, delivered the opinion of the court.

The contention of the appellant is that her intestate loaned to the McCormick Construction Company the sum of $25,200, mentioned in the first article of the contract of July 24, 1898, and that the 126 shares of capital stock of the company mentioned in that article, the 99 shares mentioned in the fourth article and the drainage contact" deferred to in the fifth article were delivered to him in pledge to secure the repayment of the loan. If it can be assumed or deduced .-that a loan was intended, it follows, of course, that the 126. shares of stock mentioned in the first article of the agreement, and perhaps the 99 shares mentioned in the fifth article, became a pledge or security for the repayment of the loan; but can that be said to have been intended, or to be the necessary result, in respect to the drainage contract? The fourth article of the agreement contains a guaranty, that Crimp’s share of profits shall not be less than $25,000,' “not .including” the sum of $25,200 invested in the stock of the company, which latter sum, it is provided, shall be returned to him be-. fore ¿ny division of profits shall be made. The fifth article provides that as security for the guaranty of $25,000 profit, “in additioh .to the principal sum” of $25,200, there shall be delivered and ássigíi'ed to the second party 99 shares of stock, “which shall be held as collateral to this undertaking, and as security for the guaranty of profits' herein made by the first party.” “This undertaking,” we suppose,' means the entire contract, and includes all obligations-thereby imposed upon the construction company and McCormick, or either. ,pf them, . The sixth article has special reference to the drainage contract, which, it is stipulated, shall be delivered, but not assigned, to/Crimp, to be held in connection with the stock agreed to: be transferred to.him “for the guáranty herein made, and as security *361for any sums or sum other than .above mentioned that he may ádvanee to said construction company”; it being intended that, through his ownership and control of all the stbck to he transferred to him, he shall control the said contract in the event of .failfire by the first party to perform the agreement. It is further'stipulated that said contract shall not be assigned by any of the parties, to the agreement, but shall always “remain the property,of said constrnétion company, subject to the rights of said second party heréunder.” We incline to the view that it was not intended by this provision to make a pledge of the drainage contract for' the performance of any obligation, and that the effect was simply to give to Crimj) the possession and such control as to enable him to prevent any disposition of the instrument which might depreciate the stoek, in which the security intended to be given him should consist. Th’e last clause, “subject to the rights of said second party,” does not expand to the dimensions of a pledge the right of mere physical possession which was made attendant upon the possession of the stock, which alone it was intended to pledge.

But, if it be conceded that there was a pledge of the drainage contract, the next inquiry is, to secure the performance of what act or obligation was the pledge intended? The language used is: “To be held, * * * in connection with the stock * * * transferred * * * for the guaranty herein made, and as security for any sums or sum other than above mentioned.” This seems to have been regarded by counsel on both sides as meaning that the stock referred to was pledged, not only “as security for the guaranty” of profit, according to the fifth article, but also as security for other sums, besides those before mentioned, which Crimp might advancé, but grammatically it seems rather to mean that the contract is to he the security for the additional sums contemplated. The substance of the expression is that the contract is to be held in connection with the stock, and as security for sums advanced other than those before mentioned. Upon this construction the contract was a security for the sum of $2,983.34, alleged to have been advanced by Crimp over and above the stipulated sum of $25,200; but, as no objection is urged here against the decree in that particular, the matter is important only as it bears upon the construction of the agreement in respect to matters in dispute.

If next it be conceded that the contract was pledged for all that the stock, in connection with which the contract was “to be held,” was pledged, what is embraced in the security? By force of the fifth article of the agreement the 99 shares of stock are to be assigned as security for the guaranty of a profit not less than $25,000, “in addition to,” or, as it is expressed in the fourth article, “not including,” the original sum of $25,200, which Crimp agreed to invest, and which it was agreed should he returned to him before there should be any distribution of profits. That guaranty does not in terms nor by necessary implication embrace the agreement that the original loan or investment should be returned. The agreement is not, though it was probably the understanding Or expectation, that *362that return should be made out of the profits of the drainage contract. ; . It might be made out of other assets of the construction ,compariy if the scheme, had been prosecuted with success. The construction company and McCormick, if the transaction was a loan, ;’assumed two distinct obligations: First, to repay the debt; and, second, if .the'contract in that respect is binding upon the corporation, to make good to Crimp the stipulated profit. But the guaranty for which the 99 shares of stock were pledged, and for which the drainage contract is assumed to have been pledged, extends only to the latter obligation. The entire investment or loan is to be returned, it is true, before the counting of profits begins; but it does not follow that the guaranty that the profits shall not fall below a stated amount includes or is equivalent to a guaranty of the ! loan. It means no more than that earnings or receipts, which otherwise might be counted as profits, shall be first used, if necessary after exhausting other resources, to repay the investment; and, whether there be enough or more or less than enough for that purpose, the guaranty is confined to the profits, and does not include the whole or any part of the investment. But the appellant has .made no claim for profits; and as the 126 shares of stock, which, upon the theory of a loan, were pledged for repayment of the money, are worthless, the appellant’s position, on this theory, was that of .an unsecured creditor, entitled to share ratably with other creditors of the construction company in the proceeds of the sale of the drainage contract. .

, But we do not think that the theory of a loan is tenable. Wé ...are of opinion, on the contrary, that upon the face of the agreement, unaided by extraneous evidence, the advancement which Crimp un- . dertook to make must be regarded as the price of 126 shares of stock purchased. The purchase was a conditional one; that is to say, it was upon an agreement to resell to the vendor, who bound . himself to repurchase, at the original price, provided the other parts ,of the agreement were duly performed. When the question is whether a transaction was a conditional sale or a mortgage, the courts, in doubtful cases, lean to the conclusion that the reality was . a mortgage, and. not a sale. Russell v. Southard, 12 How. 139. When extraneous evidence is heard, the controlling inquiry is whether or not there was a debt, pre-existing or then created, for which .the conveyance or transfer was intended to be a security. When, as here, the question is to be determined by the face of a writing, the rule has been declared that “where all the clauses of an instrument ace -, consistent with a conditional sale, but some inconsistent ,with a mortgage, it will be construed as being the former, and not the latter.” 1 Hil. Mortg. 100, note a; Chapman v. Turner, 1 Call, 251. Without repeating or going into a further analysis of the .'terms of this agreement, we think the clear intention of the parties was a sale of the 126 shares of stock. Article 1, by itself, can mean nothing else; and the other provisions and expressions of-the agree- , ment not only support that conclusion, but, in some respects, are irreconcilable with the theory of a loan; especially the provision of *363lli« twelfth anide that after fulfillment of the agreement in all 'its terms ánd conditions, and a retransfer of all of the stock to McCormick, “all of the increment and betterment of the assets of said company, and all additions thereto, made subsequent to the date of this agreement, shall be the joint and equal property of the parties hereto, to he disposed of as they may agree.” Money advanced as the price of shares of stock in a company upon an agreement that it shall be returned and the stock reassigned might be regarded as a loan, perhaps, notwithstanding stipulations that the lender should be made president, and be guarantied large profits, — in lieu of interest, it. might be, and of compensation for services; but such a right as this to share in the increment and betterments of the corporate property caunot pertain to a loan, and is consistent only with the theory that Crimp intended, as in explicit hums he agreed, to become a shareholder. Upon this point the tenth article of the agreement is of great significance and perhaps is controlling. It provides that, in case of the failure of the first party to perform the agreement, in all its parts, the 99 shares of stock shall immediately upon such failure become the property of the second party, as and for liquidated damages. No other remedy seems to have been contemplated, and in such casi; — such is the present case — perhaps no other can be invoked. To say the least, if that remedy were asserted, the absolute ownership of the 225 shares of stock would become vested in the appellant as the representative of the second party, and the right of the company to retake possession of the drainage contract, which could not he included in the forfeiture, would immediately revive.

The decree below is therefore affirmed.