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Gamble v. Silver Peak

December 31, 1912


Appeal from the District Court of the Second Judicial District of the State of Nevada, Washoe County; W. H. A. Pike, Judge.

Samuel Platt (Rush Taggart, Clarence Blair Mitchell, and Bartlett & Thatcher, of Counsel), for Appellants

J. W. Dorsey, for Plaintiffs-Respondent, and J. W. Dorsey (F. R. F. Soto, of Counsel), for Defendants-Respondent.

By the Court, Norcross, J. (after stating the facts):

A full understanding of this case has made it necessary to make a preliminary statement of more than ordinary length. The case as submitted to this court, after fifteen years of proceedings in the district courts of the state and the Circuit Court of the United States, is comprehended in twelve volumes of some five thousand printed and typewritten pages, and the many legal questions raised are illuminated by hundreds of pages of printed briefs. Fortunately there are few, if any, material facts

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in the case that may be considered from the viewpoint of conflicting evidence. While a number of depositions were offered in evidence, the main questions involved upon the merits are settled by a consideration of the written contracts entered into and the correspondence had between the several parties. All of the correspondence between the parties does not appear to be in the record, owing to the fact, doubtless, that some letters may have been lost or mislaid during the many years which elapsed before the trial was actually reached, but in the main the correspondence is in the record, and enough appears to clearly show the true status of affairs existing between the several parties which forms the subject-matter of this action.

The case is a novel one, and it is virtually conceded that there is no precedent for such a suit, but it is also conceded that, if the judgment has equity to support it, the mere novelty or lack of precedent would afford no good reason for not affirming the judgment. The insurmountable obstacle in the way of affirming the judgment, however, lies in the fact that it cannot stand the test of an application of equitable principles, but, upon the contrary, is absolutely unconscionable. The effect of this judgment is to give respondents possession of what is regarded as one of the most valuable mines in this state, and not only this, but permit them to reap the benefit of the development of this property made at the vast expense of others, acquire absolute title to eleven-fifteenths of the mine and pay for the same out of the damages to be exacted from appellants for working the property after the present owners acquired possession. And these valuable rights are to be given to the respondents Gamble, Chadbourne and Wrights, because of the fact that, during all or the major portion of the time from March 9, 1893, to September 7, 1894, a year and a half, either Gamble or J. B. Wright held an option to purchase the Silver Peak mining properties, which options they utterly failed to comply with, and the further fact, if it be a fact, that the option and extensions thereof subsequently obtained

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by L. J. Hanchett, and which, also, were not fulfilled, were in equity obtained for the benefit of Gamble, Chadbourne, and the Wrights. Strong indeed would have to be the proofs of fraud upon the part of J. I. Blair or the Silver Peak Mines, or their successors in interest, that would justify the taking of this great property by respondents, practically without the direct payment of a dollar, and the ousting of others who, by the investment of vast capital, have created a great mine out of a property which Gamble repeatedly stated to the representatives of the Silver Peak Mines, during the time of his option, was not worth to exceed a hundred thousand dollars in its then condition, which was described in one of his letters, as being “worked-out stopes, valueless dumps, and barren croppings,” but a mine which was deemed of such value, at the time this appeal was taken, that respondent asked the lower court to fix a $1,000,000 bond as a condition of staying the execution.

If property has been acquired by fraud, or in utter disregard of the rights of others, and such property subsequently becomes of great value, the person defrauded would not for that reason alone be debarred from recovering possession, even though he reaped an increment entirely disproportionate to any efforts put forth by himself. Such, however, is not this case. There is no proof in the record, worthy of the name, of any fraud committed by John I. Blair or the Silver Peak Mines in their dealings with the respondents in this case, while the Silver Peak Gold Mining Company, the present owner of the property, is shown to have purchased it upon the faith of certain judgments rendered by the Circuit Court and the Circuit Court of Appeals of the United States. It is true that respondents contend that these judgments are not binding upon them for the reason that they were not made parties to the suits in question, that a lis pendens was on file in the office of the recorder of Esmeralda County before the suits in which they were entered were instituted, and that these federal judgments and the decisions upon which they are based are erroneous,

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and that we should now so hold, but, even if this contention could be concurred in, we do not think the judgment even then could be sustained for these reasons. Gamble knew at least as early as the date of his letter to Canda of December 12, 1894, that Hanchett was not considering him in on his option, yet he did not attempt to establish his rights by legal proceedings until March 2, 1896, nearly a year and three months later, after the Hanchett option had by its terms expired and the latter was holding by virtue of an extension which had partially expired. Chadbourne does not appear in the action as a complaining party until the filing of the second amended complaint, July 6, 1899, over three years later. J. B. Wright or his heirs never did appear as complaining parties, and it is manifest, it seems to us, that as to the Wrights the further impediment exists to any right of recovery in their favor on account of the fact that Wright assigned the option in his name to Hanchett, requested the Silver Peak Mines to deal with Hanchett, and accepted whatever interest he had as subordinate to Hanchett. Even if it could be said that the judgments obtained by Blair and the Silver Peak Mines against Hanchett were not binding on Gamble or Chadbourne, they certainly should be held to be binding on any interests which Wright had under the Hanchett option. For nearly four years after the filing of the “second amended complaint,” nothing appears to have been done by the plaintiffs Gamble and Chadbourne to press their suit to conclusion. In the meantime great changes were transpiring, not only in regard to this property, but in relation to the whole mining industry of the state.

Gamble and Chadbourne, if they were diligent in looking after their interests, could not have been unaware of the litigation between Blair and the Silver Peak Mines on the one hand and Hanchett on the other, involving the termination of the Hanchett option. It is true they were not made parties to those actions, and were not compelled to intervene to protect their rights, but it is equally true that Gamble had previously urged the Silver

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Peak Mines to repudiate its contract with Hanchett, and give another option to Gamble, who claimed to have parties with ample capital ready and anxious to take an option on the property and carry it into execution. If the record contains any evidence of an attempt upon the part of Gamble to obtain an option on this property after Blair or the Silver Peak Mines had undertaken to terminate the Hanchett option and recover possession of the property, it has not been called to our attention, nor have we discovered the same. If Gamble wanted Hanchett eliminated, as he said he did, and had financial backing sufficient to carry out a similar option, as he claimed to have, and really wanted to get possession of the Silver Peak mining property, a more opportune time was presented after the Silver Peak Mines had begun litigation to oust Hanchett than existed when he asked the company to repudiate their written agreement with Hanchett, which Canda frankly and properly informed him could not be done. It may be claimed by counsel for respondent that these observations have no place in this case, that respondents were not bound to have taken any such course, or bound to make any showing that, if they had another option, they could have made any better success of interesting capital than they made during the year and a half that they did have an option, or could have carried out the Hanchett option if they had had it. But they are in a court of equity asking practically that a mine, made immensely valuable by the efforts and money of others, be practically given them, a situation which requires the existence of the utmost good faith upon their part, ability, and readiness to perform during the time specified in the contract and an absence of laches. The showing in all these respects is woefully lacking.

In the case of Johnston v. Standard Mining Company, 148 U. S. 360, which was a bill in equity to establish the ownership of the plaintiff in one-fourth of a mining claim, and for a decree that the defendant be required to execute a deed of the same, and to account to plaintiff

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for one-fourth of the net proceeds of the mine, an interlocutory decree was entered, substantially in accordance with the prayer of the bill, and an accounting ordered. The defendant immediately applied for a rehearing, and the case was reheard without reference to the grounds relied upon in the petition for rehearing which did not raise the question of laches when the case was again taken under advisement, and the court later delivered a second opinion, dismissing the bill upon the ground of laches. Thereupon plaintiff filed a petition for a rehearing upon this question which was denied without argument, and plaintiff then appealed to the Supreme Court of the United States where the judgment was affirmed. From the opinion affirming the judgment of dismissal we quote the following:

“It was not until April, 1885, more than a year after the Fulton Mining Company had obtained a patent to the property, that he made a formal demand upon Chatfield, and on August 1, 1885, filed his first bill in the Circuit Court of the United States to establish his title to a quarter interest in the lode. This suit does not seem to have been prosecuted with much diligence, since it was allowed to linger for nearly a year, and was then dismissed, apparently, for a want of jurisdiction appearing upon the face of the bill. It has been frequently held that the mere institution of a suit does not of itself relieve a person from the charge of laches, and that if he fail in the diligent prosecution of the action, the consequences are the same as though no action had been begun. (Hawes v. Orr, 10 Bush, 431; Erhman v. Kendrick, 1 Metc. (Ky.) 146, 149; Watson v. Wilson, 2 Dana, 406; Ferrier v. Buzick, 6 Iowa, 258; Bybee v. Summers, 4 Or. 354, 361.) * * *

“The duty of inquiry was all the more peremptory in this case from the fact that the property of itself was of uncertain character, and was liable, as is most mining property, to suddenly develop an enormous increase in value. This is actually what took place in this case. A property which, in October, 1880, plaintiff sold to Chat

[34 Nev. 351, Page 429]

field upon the basis of $4,800 for the whole mine is charged, in a bill filed October 21, 1887, to be worth $1,000,000, exclusive of its accumulated profits. Under such circumstances, where property has been developed by the courage and energy and at the expense of the defendants, courts will look with disfavor upon the claims of those who have lain idle while awaiting the result of this development, and will require not only clear proof of fraud, but prompt assertion of plaintiff's rights. (Felix v. Patrick, 145 U. S. 317, 334; Hoyt v. Latham, 143 U. S. 553, 567; Hammond v. Hopkins, 143 U. S. 224; Great West Mining Co. v. Woodmas Mining Co., 14 Colo. 90.)

“The language of Mr. Justice Miller in Twin Lick Oil Company v. Marbury, 91 U. S. 587, 592, with regard to the fluctuating value of oil wells, is equally applicable to mining lodes: ‘Property worth thousands today is worth nothing tomorrow; and that which today would sell for a thousand dollars at its fair value may, by the natural changes of a week, or the energy and courage of desperate enterprise, in the same time be made to yield that much every day. The injustice, therefore, is obvious of permitting one holding the right to assert an ownership in such property to voluntarily await the event, and then decide, when the danger which is over has been at the risk of another, to come in and share the profit.' We think it is clear that the plaintiff did not make use of that diligence which the circumstances of the case called for, and the decree of the court below dismissing his bill is, therefore, affirmed.”

Chief Justice Fuller, writing the opinion for the court in Willard v. Wood, 164 U. S. 524, stated it to be “the recognized doctrine of courts of equity to withhold relief from those who have delayed the assertion of their claims for an unreasonable length of time may be applied in the discretion of the court, even though the laches are not pleaded or the bill demurred to.” Further on, the opinion states: “The mere fact that the bill was left on the files would not, in itself, relieve from the effects of laches, for failure in diligent prosecution may have the same con

[34 Nev. 351, Page 430]

sequences as if no suit has been instituted. (Johnston v. Standard Mining Co., 148 U. S. 360, 370.) * * * The changes which the lapse of time had wrought in the value of the property and in the situation of the parties were such as to render it inequitable to decree the relief sought as against Bryan.”

Cyc. says: “In the case of a mere option or other unilateral contract, or where the remedies are not mutual, delay is regarded with special strictness.” (36 Cyc. 727.)

In Hoyt v. Tuxbury, 70 Ill. 332, the court said: “The rule, time and again, announced by this court, is that a party cannot call, as a matter of right, upon a court of equity to specifically enforce the performance of a contract; that its exercise rests in the sound discretion of the court, in view of the terms of the contract of the parties and surrounding circumstances. A party demanding its exercise is bound to show that he himself has always been ready, willing and eager to perform, on his part. (Phelps v. Ill. Cent. R. R. Co., et al., 63 Ill. 468; Stow v. Russell, 36 Ill. 18; Board of Supervisors v. Henneberry, 41 Ill. 179.)”

“Where the contract is in any wise unilateral,” says Fry, in his work on Specific Performance, sec. 732, “as, for instance, in the case of an option to purchase a right of renewal, or any other condition in favor of one party, and not of the other, then any delay of the party in whose favor the contract is binding, is looked at with special strictness.”

In the case of Ally v. Deschamps, 13 Ves. 225, Ld. Ch. J. Erskin said: “It would be dangerous to permit parties to lie by with a view to see whether a contract would prove a gaining or a losing bargain, and according to the event, either to abandon it or, considering the lapse of time as nothing, to claim a specific performance, which is always the subject of discretion.”

In Kelly v. C. P. R. R. Co., 74 Cal. 557, the court said: “It is well settled that a court of equity may refuse specific performance of a contract which it could not set aside. Where the aid of a court of equity is sought by

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way of specific performance of a contract, the principles of ethics have a more extensive sway than where a contract is sought to be rescinded. (Kerr on Fraud and Mistake, Am. ed. 357, 358.) It is an acknowledged rule in equity jurisprudence that a party entitled to a specific conveyance of property will not be permitted to hold back from an assertion of his rights, and speculate upon the possibilities of such changes as may decide whether it would be to his interest to have the conveyance made; but he is required to be vigilant and prompt in the assertion of those rights, and if changes have occurred during this lapse of time in the value of the property to be conveyed, a court of equity will always refuse its aid, and leave the party to seek redress at law. (DeCordova v. Smith's Admx., 58 Am. Dec. 136.)”

This court by Hawley J., in Lang Syne Mining Co. v. Ross, 20 Nev. 139, 19 Am. St. Rep. 337, said: “We are well aware that the value of mining claims is ordinarily of a very fluctuating character; that, as stated by the Supreme Court of the United States in Twin Lick Oil Co. v. Marbury, 91 U. S. 592, ‘property worth thousands today is worth nothing tomorrow, and that which would today sell for a thousand dollars at its fair value may, by the natural changes of a week, or the energy and courage of desperate enterprise in the same time, be made to yield that much every day. The injustice, therefore, is obvious of permitting one holding the right to an ownership in such property to voluntarily await the event, and then decide, when the danger which is over has been at the risk of another, to come in and share the profit.' In such cases the courts have repeatedly declared that the party claiming the rights to the property must ‘put forward his complaint at the earliest moment,' and that he ‘is bound to act with reasonable diligence as soon as the fraud is discovered.' There is nothing that can call forth a court of equity into activity ‘but conscience, good faith, and reasonable diligence.' It does not affirmatively appear upon the face of the complaint in this action that, at the time of the discovery of the fraud, the plaintiff consid

[34 Nev. 351, Page 432]

ered that the property was worthless; that it kept silent, waiting for the defendant Ross to develop the mine; and that then, after the value of the mine had been established by his labor, expense, and hazard, the plaintiff commenced this action, ‘to rob him of the fruits of his industry and enterprise.' It may be that, upon issues of facts and proofs made upon the trial, such a state of facts may be presented. But our decisions upon the questions of law raised by the demurrer must be governed solely by the sufficiency of the allegations of the complaint. We have no right to anticipate what the evidence will be.”

See, also, Stevens v. McChrystal, 150 Fed. 85; Taylor v. Langwith, 14 Pet. (U. S.) 172; Crandall v. Willig, 166 Ill. 240; Gentry v. Rogers, 40 Ala. 442; Henderson v. Hicks, 58 Cal. 371; Fry on Specific Performance, 732; Pomeroy on Specific Performance, 407.

That the doctrine of laches is particularly applicable to mining transactions which undergo frequent and great fluctuations in value is generally conceded. As to such properties, parties interested are required to be active and vigilant in asserting their rights. (McKenzie v. Coslett, 28 Nev. 65, 93; Waterman v. Banks, 144 U. S. 395; Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Galliher v. Caldwell, 145 U. S. 368; Johnston v. Standard Mining Co., 148 U. S. 368-371; Patterson v. Hewitt, 195 U. S. 309, 321; Curtis v. Lakin, 96 Fed. 251; Pomeroy on Contracts, 384, 385; Settle v. Winters, 2 Idaho, 199, 10 Pac. 216; Durant v. Comegys, 2 Idaho, 936, 28 Pac. 425; Idaho Gold M. Co. v. Union M. & M. Co., 5 Idaho, 107, 47 Pac. 95; Williams v. Long, 139 Cal. 186, 72 Pac. 911; Green Ridge Fuel Co. v. Little, 119 N. W. 698, 700, 141 Iowa, 221; Gaines v. Chew, 167 Fed. 630, 635; Standiford v. Thompson (4th C. C. A.) 135 Fed. 991; Fry on Specific Performance, 1082.)

It is contended by counsel for respondents that appellants are not in position to claim laches upon the part of respondents, for the reason that they either acquiesced in the delay or were directly responsible for a material portion thereof by moving the case into the Circuit Court

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of the United States, but, conceding that the appellants were responsible for this latter delay, they can hardly be chargeable with the delay for the nine or ten years preceding.

While we think this case could be disposed of upon the application of the doctrine of laches, the importance of other questions involved, in view of the earnestness of the contentions of the respective parties, warrants a determination of the primal question of respondents' rights to recover, irrespective of the question of laches.

Counsel for respondents in their brief say: “Although this suit does not count on fraud as its foundation, fraud is nevertheless charged by necessary implication, for it is only because of the fraudulent acts of the defendants, in collusion with Hanchett, that the plaintiffs have been deprived of the rights which they are seeking to enforce herein.”

It is the theory of respondents that all of the various options, whether held by Gamble, Wright, or Hanchett, should be regarded in effect as one continuing option; that Gamble, Chadbourne, and Wright were partners in these options; and that the Silver Peak Mines were aware of this partnership relation and executed the option to Hanchett with full knowledge of its existence and with knowledge of the fact that Hanchett was virtually the agent of the partnership, and that Hanchett in effect took the option in trust for Gamble, Chadbourne, and Wright.

Just what was the relationship existing between Gamble, Chadbourne and Wright relative to any of these options is not shown by any written evidence other than the receipt of date October 30, 1893, by the terms of which Gamble agreed “to transfer to said Chadbourne and Wright a one-third interest each in such bond as I may acquire.” In the depositions of Gamble and Chadbourne, taken some thirteen years after the events had transpired, is testimony to the effect that they had a partnership arrangement by oral understanding for the purpose of exploiting the Silver Peak Mines. In Gamble's

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original complaint made when his memory should have been clearer as the relations of the parties he alleges that after he had secured the option of November 13, 1893, he submitted the same to Chadbourne and Wright who then and there “agreed that they would join the plaintiff, in the formation of said corporation, and in consideration of the assignment to said corporation of the said contract, dated November 13, 1893, between the said ‘Silver Peak Mines' and the plaintiff, that they would, in accordance with the said contract, furnish to said corporation a subscribed capital stock of $200,000, and would actually pay into the treasury of said corporation the sum of $30,000; and the said plaintiff and the defendants then became and, until the assignment from the said John B. Wright to L. J. Hanchett hereinafter alleged, remained co-partners in said contract, each owning and being entitled to one-third of all the net profits of said contract.”

The agreement, as alleged, was never complied with by Chadbourne and Wright, or either of them, for they failed to furnish the prerequisite stock subscription or actually pay into the treasury any money. Just how such an arrangement could be construed into a partnership relation is not clear. There is evidence tending to show that these parties were working in concert trying to get others interested in the property through these options who would supply the necessary money, and that this situation existed after the subsequent option was obtained in the name of Wright. Had the Wright option been carried out, Gamble and Chadbourne doubtless would have been entitled to share in the profits of the venture. But neither this nor any other option was ever carried out. More actual effort appears to have been put forth by Hanchett to carry out the option obtained in his name than was ever put forth by Gamble, Chadbourne, and Wright. Declarations oral and written made by Gamble to Canda of what he could and would do were most promising, but when it came to a matter of performance there was always a failure of anything tangible. One thing is evident from the evidence in this case, and that is that

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Gamble, Chadbourne, and Wright either did not have the money themselves to put into the venture, or did not propose to risk any considerable amount thereof to carry out the options, and further, at the time they secured these options, they had nothing more in view than making an effort to interest the capital of others, and that, if they were successful in this purpose, they were to make their profits thereby.

It is clear, we think, from the evidence that Gamble, Chadbourne, and Wright were simply trying to promote a mining enterprise upon the money of others, which they were unable to obtain, and that the real status of the situation is not materially different from that of mining promotions generally which result in failure, with the exception that in this case the promoters are seeking now to acquire the benefits of some one else's money and enterprise.

It is one of the main contentions of respondents that the Silver Peak Mines was aware of the existence of the partnership alleged to exist between Gamble, Chadbourne, and Wright, and entered into the Hanchett option with full knowledge of this partnership and in fraud of their rights.

The only evidence in the record as to knowledge upon the part of the Silver Peak Mines of the alleged partnership relations existing between Gamble, Chadbourne, and Wright, in addition to the correspondence, is contained in the depositions of the said Gamble, Hanchett, and C. J. Canda relative to the negotiations which led up to the execution of the second Gamble option and the options to Wright and Hanchett. In considering the testimony contained in these depositions, it should be borne in mind that the depositions were taken some thirteen years after the events to which they relate had transpired. The memory of the witnesses in a number of instances is shown to have been defective when compared with the written evidence made at the time, and, wherever it is in conflict with such documentary evidence, we believe the latter evidence should control. There is apparently noth

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ing in the correspondence that would indicate a desire upon the part of the writers to give a false color to the situation as they understood it, and we do not understand there is any such contention in this case.

The depositions appear to have all been taken upon the motion of the plaintiffs, and upon the trial the direct and redirect examinations were offered upon the part of plaintiffs and the cross and recross-examinations were offered upon the part of the defendants.

Relative to the negotiations for the option of November 13, 1893, from Blair to Gamble, which is the time claimed that Gamble informed C. J. Canda of the existence of the alleged partnership between himself, Chadbourne, and Wright, the testimony in the case is substantially as follows:

Direct examination of Gamble: Q. State what occurred between you and him (C. J. Canda). A. I submitted letters to him from different people out here, Mr. Frank S. Chadbourne, Mr. J. E. Doolittle, D. A. Bender, J. B. Wright, and maybe some others; I cannot recall them.

Q. What became of those letters? A. I left some with him, and some I have left.

Q. What did you do with them? A. I gave them to him; he read them all.

Q. What did you ask him to do, if anything? A. I asked him to make a new contract with me, extend that contract there, and make some modifications in it, which was finally done with John I. Blair.

Q. Did you see John I. Blair? A. No, sir.

Q. What did Mr. Canda say about it when you asked him for an extension? A. He granted it to me.

Cross-examination of Gamble: Q. Was the extension of the contract made for the benefit of yourself, or for the benefit of all the parties ...

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