Equitable Securities Co. v. Sheppard

Calhoon, J.

delivered the opinion of the court.

This is an appeal from a final decree in chancery rendered against the Equitable Sureties Company and the executors of the will of J. L. Hurley, the appellants, on a bill filed by Ann T. Sheppard, answers, and evidence. As briefly as it may be perspicuously put by the writer, the case is this: The complainant, Mrs. Sheppard, is the only child and heir at law of T. W. Deason, who died January 14, 1878, intestate, the owner of the lands in dispute. Mrs. Sheppard’s mother, Josephine Deason, who was the widow of the deceased, became the administratrix, and while administratrix the widow, Josephine Deason, intermarried with C. T. Mason on August 11, 1879. Mrs. Sheppard charges in her bill that, immediately on his marriage to her mother, C. T. Mason took sole charge of all the estate of her father, Mr. Deason, and began to scheme to get the title to the lands in his own name; that he rendered only such accounts to the court as he saw fit, and never consulted the administratrix; that he collected all the rents and used them as he pleased, allowing no interference; that he fraudulently obtained a claim of a Mrs. Williams against the estate, and, by collusion with her, obtained a judgment against it in a federal court; that the purchase money of this claim was paid by Mason largely from the rents of the estate lands, and then he forced his wife, the administratrix, to apply for the sale of the lands to pay this debt, by threats and intimidation, and that, by fear of personal harm, she was *226 deterred from interfering in the proceedings; that she was not. at the sale, knew nothing of it, or of the advertisement of it, beforehand, and that she gave no authority to any one to make it, though she signed the report of sale, but not willingly, and because of threats and duress; that W. B. Mason, brother of C. T. Mason, appeared to be the purchaser for $3,000, as reported, but that in fact he was not at the sale, and did not purchase nor pay any part of- the purchase price; that the bid was at the suggestion of C. T. Mason, to get the title in his brother, who had agreed to and did reconvey to him; that his first intent was to be the bidder, and take title to himself directly, but he selected his brother as a mere conduit, because of advice of counsel that he could not buy, he being trustee by law, in virtue of his marriage with Mrs. Deason; that she, at-first, refused to make the deed as administratrix to W. B. Mason, but afterwards did so from duress and threats and fear of personal violence, and because of ‘ ‘ numerous other unlawful means ” employed by him, and sue told the magistrate who took her acknowledgment that she had been compelled to sign; that simultaneously with the execution of the deed another was-ready for execution by W. B. to C. T. Mason; that her deed was dated June 6, 1884, and filed for record April 4, 1885, andón August 28, 1884, W. B. Mason executed conveyance to C. T. Mason, and this was filed for record April 4, 1885, and the point is made that the similarity of names and the lapse of only about two months between dates should put a purchaser on notice; that from then on C. T. Mason used the lands as his own, pocketing rents, etc.

The bill further charges that the sale was made subject to-dower and homestead rights, but, as these are not controverted, they need not be dwelt on. The bill proceeds to charge that, on January 23, 1891, C. T. Mason and his wife, Josephine, mortgaged the lands to secure a loan of $7,100 from the Equitable Mortgage Company, which the bill says had actual and constructive notice of the facts averred, and that a pretended *227 sale was made, not in compliance with the terms of the mortgage, to the Equitable Sureties Company, which was the-same corporation, and which had like notice, and that it conveyed to J. L. Hurley, who had like notice. The bill then states that C. T. Mason died intestate September 24, 1891, leaving his said wife, Josephine, his only heir at law, and she became his administratrix. She afterwards contracted a third marriage with a Mr. Reuter, and the prayer is for cancellation of conveyances, and for rents and profits, and the chancellor granted the relief. Everything material is denied by the answers.

There is no proof whatever of any fraud or collusion between C. T. Mason and Mrs. Williams, by which he bought her claim on Mr. Reason's estate. The contrary appears to be the fact, and that he bought to protect the estate, and gave time, and finally the sale was made to reimburse him. There is no proof whatever that he bought this claim with money of the Deason estate. On the contrary, what proof there is goes to show that he bought it with his own money, and that he was a man of large property in his own right, and that his widow, Josephine, formerly Mrs. Deason and afterwards Mrs. Reuter, was his-sole heir. It must be noted, also, that, in all the proceedings in the administration of Mr. Deason’s estate and of the sale of the lands, everything appears to be precisely regular on the face of the record. Every account and petition and power of attorney to sell, report of sale and petition to confirm sale were signed, and, when the law required, sworn to by Mrs. Deason as administratrix. It must be noted, also, that all and every of the charges in the bill of intimidation, duress, threats of personal violence, etc., as having been used towards Mrs. Mason are simple generalities; that they state merely the conclusions of the complainant, and do not specify anywhere any fact from which the court could judge of the correctness of such conclusions. It is also true that the testimony is silent as. to particulars and utterly fails to specify any act or word from. *228 Mr. Mason from which the court could infer any duress, threat of violence or intimidation of any kind or degree, though the widow, Josephine, was herself a witness, and must have been familiar with the details.

There is no proof to raise, more than a mere suspicion from results, that Mr. Mason ivas scheming to get the title in his own name, or doing more than to collect his debt, except certain letters from his counsel, to be hereafter noticed. The only other thing squinting this way is that Mrs. Reuter, in answer to a question as to this, says : “ Well, his object was to get the title in his own name. I never heard him say this. This is a matter of inference. ” There is no proof whatever that W. B. Mason was not present and a bidder at the sale, or did not pay his bid, and absolutely none of any malversation or misappropriation by C. T. Mason of the funds of the estate. On the contrary, the administration appears in all respects regular, and with full accounting and proper vouchers. It is perfectly clear, also, that the Equitable Mortgage Company and its vendee, the Equitable Sureties Company, and its vendee, Mr. Hurley, were purchasers absolutely innocent of any actual knowledge or notice of any vice in the title dehors the record, and the record itself showing none. Therefore, in order to affect them with notice, or to put them on inquiry, as to matters in pais, proof is adduced as follows : That Mr. Scott, an attorney at law, was the legal adviser of Mrs. Josephine Deason while she was administratrix, before she married Mason, and of Mason after her marriage ; that he conducted the sale, preparing all the papers ; that he wrote certain letters to Mr. C. T. Mason, showing his knowledge of the purpose of Mr. Mason to get the title in himself, which letters will be hereafter adverted to ; and that he was the attorney of the Equitable Mortgage Company, and made the abstract of title on which that company made the mortgage loan, nearly seven years after the court sale, and likewise as to Hurley'when he bought, and that Scott was chargeable with notice of the defect *229 clehors the record, which notice to him was notice to his principals. The petition for the court sale was filed April 30, 1883; the decree for it was rendered at the May term, 1883, and the sale made in' February, 1881, and duly confirmed, the mortgage to the Equitable Mortgage Company being of date January 23, 1891. As a witness, Mrs. Josephine Reuter, formerly Mrs. Mason, and before then Mrs. Deason, testified that about two months after Mr. Mason’s death, which occurred September 21, 1891, she saw Mr. Scott on a railroad train, and told him she wanted to sue for the land, and he laughed at her, and told her she could do nothing; that Mr. Mason had a Iona fide title; and that she replied that if “we failed to pay the mortgage we would sue for it; ” and that she went to him ‘ ‘ after that, and before the land was sold to Mr.. Hurley, and asked him if he would take the case for me, but he refused to take it, stating he was attorney for both parties; he afterwards stated that it meant the loss of $1,000 or $1,500 fee for him not to take it against me; he told me it would have been better for me that he did not take it, as he could then give his testimony for me. ’ ’

The only letters bearing in any degree on this case from Mr. Scott are these, all to Mr. C. T. Mason. One is of date July 25, 1882, as follows: “Has Mrs. Mason, as administratrix, sold all the personal property of the Tom Deason estate ? If anything whatever is now left unsold, send me a detailed list of such articles, with estimated value of each. Second, if there are any debts unpaid send me a list of them, with names of creditors and amounts due each. I have received the record from Oxford, and desire to get your claim against the estate in shape for collection. ’ ’ This letter was long before the petition for the sale of the land, and has no significance in fact to the question in hand. It was a very proper letter from counsel advising and conducting the administration of an estate and representing an undoubtedly valid claim against it. Another is of date October 26, 1882, about six months before the peti *230 tion for sale was filed. It is as follows: “ Inclosed find your petition to enforce judgment against the Deason lands. According to my understanding from you, there is now a balance due you of $3,577.31. Look over the statement and see if that is correct, as I can’t be sure, and must depend on you for this information. I have informed you fully of the difficulties .and uncertainties in this case, and the trouble that may arise in the future over any title you may acquire to the lands. I will, of course, do my very best for you in the case, and it may be that no attack will be made on the title, but it is my duty to tell you that there may be, and you take the title with this risk to run. You paid in the purchase of this note a large sum of money, which the estate has been unable to pay you, and there is no reason why you should be expected to wait for it any longer, as you need the amount now due you in your own business. I will try to collect for you, and, as the estate is unable to pay, part of the land will have to be sold for that purpose. If you buy at this sale, the danger to the title above mentioned does not arise from the want of a good claim on your part .against the estate, for I know you paid your money to buy the Williams note, and that you had to mortgage your lands to raise it. But the trouble comes from the fact that it is difficult to bind a minor, and from the fact of your relationship to the administratrix. Sign affidavit annexed to petition, send back to me, and I will do the best I can with it. I also inclose Mrs. Mason’s third annual account, which please examine, and if all right let .her sign affidavit and return to me. You will have to send down to me by November 6 vouchers for all items of credit we claim.”

Another letter, dated June 11, 1881, is this: “Inclosed find the deed from Mrs. Mason to your brother, which you can have her sign and acknowledge, and you can get your brother to deed the property back to you, after which I will write the deed for one-half of it at some future time to Ann Deason. The deed from your brother it would be well to get at once, as *231 life is uncertain. He might die, and cause some inconvenience. Let the consideration be, say, $3,000. Please post the notice of sale on front of your store, and be sure to write me what day exactly you post it, so I can take your affidavit to that •effect.” Another letter, dated April 17, 1885, is this: <£I inclose the two deeds as requested. I suppose you know that after they are executed the property will become the property •of the minors, and the rents will belong to them.” The reference to Ann Deason in the next to the last letter and to the minors in the last is explained by the testimony of Mrs. Reuter, formerly Mrs. Mason, to be that Mr. .Mason designed, first, to put a half interest in complainant, a child of the Deason marriage, and afterwards to convey the whole to her and a female child of the Mason marriage, and when that child died he had the purpose to put the whole in complainant and a male child, who also died. All this was with his wife’s approval, but seems never to have been carried out, though the deed was prepared.

Mr. Scott was not made a, witness by either party, nor were Mr. Mason’s letters to him on the subject of Mr. Scott’s letters to him produced or called for by either side, so Mr. Scott’s letters must be construed as best they may be by their own context.

His abstract, approved by Messrs. Miller, Smith & Hirsh, of course refers to the record of the court sale as a link in the chain of title, and this abstract, so approved, was the .basis of the loan from the Equitable Mortgage Company, and the trust deed to secure it, under which appellants claim.

On the case presented this court concludes that the decision must rest on the question as to how far, and under what circumstances, notice to an agent or attorne}'- is notice to the principal. In this inquiry the whole matter must turn on examination of the facts, in the light of the legal principles universally recognized, that the law favors innocent purchasers, and that even a mala fide purchaser from a bona fide purchaser gets a good *232 title. In this view, it is unnecessary to consider the relation which Mr. Hurley, the last purchaser, bore to the land until we have determined that of the Equitable Mortgage Company, the first purchaser; because, if it shall appear that it took without notice, Mr. Hurley’s title is good, whether he had notice or not. Restating the facts as to this, it appears that the Equitable Mortgage Company loaned $7,100 with absolutely no'notice, in fact, of any defect in the title, and that, as we hold to be clear, there is no notice in the record, and nothing there which would reasonably put that company on inquiry into matters dehors the record. In this condition of things, it develops that Mr. Scott was employed by the company to make an abstract of the title, the same to be for approval or disapproval by Messrs. Miller, Smith & Hirsh, who did approve it, and thereupon, and because thereof only, the money was loaned and the mortgage taken, and that Mr. Scott was also the agent of Mason and wife, the mortgagors, to negotiate that loan, and that Mr. Scott had also, as attorney, nearly seven years before, conducted the proceedings for sale.

A treatment of all the phases of the doctrine of notice to agents will be found in 1 Am. & Eng. Enc. L., pp. 1144— 1161, and the citations are full, and, so far as we have verified them, quite accurate. In all of them, as in case of all principles, the courts are in separate droves, following the lead of certain original decisions on the various phases of the doctrine, and, as usual, it will be seen, as I think, that the departures from the main road are simply near cuts to avoid hard cases. Basic principles ordinarily ignore individual hardship, and are laid down for the general good of societj'- at large, and to secure the greatest good to the greatest number. They are fixed to promote confidence in the multiplied transactions of business life, and too often they are disturbed by modern courts to avoid particular hardship, and thus, to avoid harsh results to one individual, they not only inflict them on another equally innocent, but also on the body politic.

*233 Pursuing the order and substance of 1 Am. & Eng. Enc. L., some decided principles may be thus stated: (1) Notice to an agent, given to him while he is such agent, is notice to the principal. All the authorities concur in. this general rule, based, as Lord Brougham says, on “the policy and safety of the public.” (2) Notice to the agent is not notice to the principal where the notice to the agent was acquired by him confidentially as attorney for a former client in a prior transaction. This is held by the great numerical preponderance of decisions, though denied by some. (3) Notice to an agent is not notice to the principal, where the agent is acting in his own fraud in his own interest. There seems to be no dissent as to this, and it is based by some on the reason that the agent could hardly be expected to communicate to his principal what he is fraudulently interested in concealing, and based by others on the reason that an independent fraud of the agent on his own account is beyond the scope of his employment. (4) In 2 White & T. Lead. Cas. Eq., pt. 1, p. 178, notes, which contain a very full discussion of nearly every phase of the question, a modification is given of the doctrine in its application to notice to attorneys at law. It is there said: “It would also appear that, to render the knowledge of an attorney the knowledge of his principal, he must be an attorney in fact.’’ Then, after stating where the notice to the attorney is such to the principal, the note proceeds as follows: “But the case is obviously different where an attorney who has been retained to examine a. title conducts the investigation in the usual course of his business, without discovering a break or flaw, and so informs his client, without disclosing a fact which he has learned incidentally in examining the same title for another party. Under these circumstances, the purchase is not made through the agent, nor does he practice a fraud on the equitable owner. His failure to disclose the truth may be wrongful, or it may be dictated by a sense of professional obligation to the person for whom he was acting when he obtained the in *234 formation. But there is nothing to affect the conscience of the principal, nor can he be said to have constructive notice of that which he would not have ascertained if he had examined the title instead of employing an attorney. ’ ’

The foregoing propositions are stated here because, in one view or another, some, or all of them, may perhaps seem to be developed by this record, and we state them to exclude the conclusion that the opinion is based on any one of them. Without now committing ourselves to any of them, except, of course, the first, which is the bottom principle of all of them, and expressly negativing any idea of committal to the view that any knowledge of the agent obtained previous to the commencement of his agency may or may not affect his principal, we proceed to state the precise ground upon which we decide this case, and on which we all agree. We refer the bar to the notes of Mr. Freeman in Melms v. Brewing Co. (Wis.), 57 Am. St. Rep., 914 -919, s.c. 66 N. W., 518 , for an exhaustive analysis of authorities, and the writer refers to his conclusion on page 919. It is beyond dispute that the utmost limit to which the courts have gone in the line of present inquiry, in order to affect the principal by the antecedent knowledge of the agent, is to show, by “clear and satisfactory proof,’’ that the antecedent knowledge was present in his mind while negotiating the new transaction. In re Distilled Spirits, 11 Wall., 356 ; 20 L. Ed., 167 ; Constant v. University, 111 N. Y., 604 ; 19 N. E., 631 ; 2 L. R. A., 734; Bank v. Chase, 72 Me., 226; Melms v. Brewing Co., 93 Wis., 153 ; 66 N. W., 518 ; 2 Pom. Eq. Jur., C72. From these authorities it also appears that the courts will presume forgetfulness until overcome by evidence, unless the occurrence was so recent as to make it incredible. In the case from 72 Me., 228, 229, it is held that “ the knowledge must be present to the mind of the agent when acting for the principal; so fully in his mind that it could not have been at the time forgotten by him.” No court can say this of any lawyer in reference to any transaction or incident *235 in his practice over six years old. There being no evidence whatever of his recollection in the present case, the decree below, in so far only as it affects other than homestead lands, is Reversed and cause remanded.