debt was their contingent liability in case of Dollar of Delaware's default -- so when the stock was transferred there was nothing in the transaction to indicate it was for any debt then owed by them to the United States and the argument that it is to be regarded as further collateral for an existing debt of theirs falls of its own weight. The Government by the act of transfer never became their creditor or mortgagee, their liability being purely contingent on default by the debtor Dollar of Delaware -- so while it is admitted that it is sound law that ' * * * when a debtor deposits property with his creditor, in the absence of any showing as to the purpose with which the deposit is made or received, it is presumed that it was intended as a collateral security for the debt.' Borland v. Nevada Bank, 1893, 99 Cal. 89, 95, 33 P. 737, 739, 37 Am.St.Rep. 32 (emphasis supplied) -- the analogy fails for as he has been said there was no debt for there never was any mortgagor-mortgagee relationship between the Commission and the plaintiffs since 1929 when the ships were conveyed to Dollar of Delaware.
Plaintiffs not being mortgagors, they had therefore no equity of redemption in the ships. 'The equity of redemption is a distinct estate from that which is vested in the mortgagee before or after condition broken. It is descendible, devisable, and alienable like other interests in real property.' Clark v. Reyburn, 1868, 8 Wall. 318, 321, 322, 19 L. Ed. 354. While here the property was personalty the same observation applies. True the debt is regarded as the principal and the mortgage only as an accessory and security -- but the mortgage was Dollar of Delaware's as has been said -- and the liability of the plaintiffs on the debt a purely contingent one. They had no right, title or interest in the ships and the right to regain free and clear title by payment of the debt is in the party having title in the res given as security. Moore v. Beasom, 1862, 44 N.H. 215, 218.
Paragraph 23(d), it may be admitted, is susceptible of two interpretations -- read alone it lends color at least to the plaintiff's view, but the instrument must be read and construed as a whole and not in parts, and in the light of all the attendant circumstances.
Counsel vigorously urges however that 'if the Commission's Special Counsel, who prepared this draft, and its General Counsel, who reviewed it and ordered numerous changes to be made, * * * did not in the private recesses of their minds intend by the words we have emphasized above to indicate that the stock was transferred as security only, their acts certainly were a representation to the proposed transferors that such was the character of the transaction * * * .'
"Intention," he continues quoting, 'when used with reference to a written instrument, signifies the meaning of the words used 'deducible from the language of the contract and the acts of the parties."
But the same argument can be used nonetheless as forcibly against the plaintiffs, for when a contract is ambiguous the surrounding circumstances including the acts of the parties can be considered for clarification of their intention. Lowber v. Bangs, 1864, 2 Wall. 728, 737, 17 L. Ed. 768; Pitcairn v. American Refrigerator Transit Co., 8 Cir., 1939, 937; Moran v. Prather, 1874, 23 Wall. 492, 501, 23 L. Ed. 121.
Paragraph 4 of the Agreement provided for a transfer of 'all rights and interests' in the A stock subject to existing bank pledges -- and each transferor executed a so-called assignment stating that it 'hereby sells, assigns, transfers, and sets over unto the Commission subject to said existing pledge all his right, title, and interest in and to said Class A stock.'
Mr. Dollar and Mr. Lorber were men of large interests and great business experience, and it certainly cannot be argued that Dollar of California was in the dark as to the meaning of such language -- and all three had the assistance of able counsel throughout.
Further, in the Commission's proposals of April 28, 1938, which subsequently fell through, a 'pledge' of stock was sought and the plaintiffs' replies indicate beyond doubt they knew the meaning and import of the word, as also that of the word 'guarantee.'
But more significant and more damaging to their case and conclusive is their own interpretation in the nature of admissions against interest, after the deal was made and long before this suit was entered. R. Stanley Dollar in December 1940 referred to himself -- his reference to the others not being binding on them -- as a former owner of the stock in controversy, while in his tax return for the year 1938 he indicated that the contract provided for 'the surrender and transfer' of all right, title and interest in the A stock thus listed in his return. The plaintiff Lorber was of the same opinion, and the balance sheet of plaintiff Dollar of California as of December 31, 1938 indicated a similar view with respect to its conclusions as to the character of the matter, while strangely enough the stock was again set up on its books in 1942 as an asset after counsel had been employed to recover it. The executors of the estate of the late J. Harold Dollar, Keith Ferguson and Robert Dollar II, who were also parties to the agreement in issue, petitioned the California courts for an order authorizing the sale to the Commission of all its 'right, title and interest' in the A stock held by it which was approved. This while it may or may not be a quasi-admission certainly is a 'surrounding circumstance' which cannot be overlooked because of its clear showing of the intent of these two parties to the agreement.
Further the Dollar interest were insistent that the Dollar name, flag and insignia be no longer used by Dollar of Delaware and that some provision be made for the absorption by it of some if not all of the employees of the management company, The Robert Dollar Company. These are facts whose significance cannot be explained away.
Stress has also been laid on the fact that 'equity will not permit the mortgagee' to secure 'from the mortgagors stockholders a conveyance of the same control of the equity of redemption as it would have received had the corporation itself conveyed. Otherwise the rules of equity applicable to a release of the equity of redemption would become a sham.' No authority is cited in support of this proposition, but it may be pointed out here that a 'corporation is a person and its ownership is a nonconductor that makes it impossible to attribute an interest in its property to its members.' Klein v. Board of Tax Supervisors, 1930, 282 U.S. 19, 24, 51 S. Ct. 15, 16, 75 L. Ed. 140, 73 A.L.R. 679.
With reference to the claim of gross disparity and bargaining power this argument carries no weight. The Commission was as reluctant to assert its rights as a creditor against Dollar of Delaware and as anxious to have the operation of the line continue as were the Dollar interests; and the individual plaintiffs stood to gain by being bailed out of a situation that for them at the time was bordering on the catastrophic, as most certainly neither Dollar of California nor its affiliates, nor the personal plaintiffs would escape unscathed if the line went to the wall. The whole history of negotiations between the parties leading up to the agreement of August 15, 1938, lends emphasis to the fact that the end result to be obtained, if at all possible, was the continuation of the line in business. There were proposals for 'guarantees,' and as has been observed, of pledge and collateral stemming from both sides, but time and circumstances became master of the situation and apparently it was felt that the only hope of solution and the only circumstances under which an operating subsidy could then be granted and further public money poured into a sinking enterprise in an effort to salvage it, was by its complete divorcement from both the personal and corporate plaintiffs.
I am of the opinion therefore that the transfer was outright and one of title and so hold. A great deal of stress has also been laid by exceedingly able and resourceful counsel on the so-called value of the stock. With reference to that let it simply be observed the line was at the end of its resources and there is a serious question as to whether or not the stock had any value at the time.
In essence the situation it seems to me comes down factually to this: the plaintiffs were caught between Scylla and Charybdis. On the one side was disaster complete and irretrievable, which meant undoubtedly not only the end of Dollar of Delaware but in all probability, if not the end then certainly damage of an irreparable character of Dollar of California and its affiliates, and to the financial stability of the personal plaintiffs. On the other there was still hope of saving something. They decided to jettison what they could, to save themselves and Dollar of California and its associated enterprises
This memorandum opinion will serve as provided by the rule, Federal Rules of Civil Procedure, rule 52(a), as amended, 28 U.S.C.A., as the court's findings of facts and conclusions of law, counsel will submit proper order.