Dunn v. Dunn

42 N.J. Eq. 431

• Court: Supreme Court of New Jersey
• Decided: November 15, 1886
• Status: Published

Opinions

The opinion of the court was delivered by

Magie, J.

The decree from which these appeals have been taken was made in a cause wherein Keziah Dunn was complainant and Jennie E. Dunn and Alexander Dunn, her husband, and Wood-bury D. Holt, were three of the defendants.

The allegations of complainant’s bill, pertinent to the questions raised here, are substantially these, viz., that complainant was the owner of a bond made by Alexander and William C. Dunn, conditioned for the payment of $8,000, with interest, and secured by a mortgage on several tracts of land in Trenton; that she was induced to part with the bond and mortgage for the consideration of only $1,225, and to make an assignment thereof, on February 2d, 1878, to Edward H. Murphy; that Murphy, on the same day, executed another assignment thereof in blank, 'which be delivered to Holt, who immediately sold the bond and mortgage to Jennie E. Dunn for a large sum, named as $4,000;. that her name was inserted in Murphy’s assignment, which was delivered to her; that Holt had before been, and was at the time of this transaction, complainant’s agent and attorney, and, as-such, in confidential relations towards complainant; that in the-transaction he had failed in the duty to her which arose from that relation; that Murphy had received no consideration for delivering to Holt the blank assignment, but that' the whole transaction was a conspiracy between these parties, with Murphy,, to defraud complainant.

Answers were filed by all the defendants, and the cause was heard by Vice-Chancellor Bird.

The vice-chancellor concluded that Holt had purchased the bond and mortgage from complainant, and paid therefor $1,825; that he had sold the same to Jennie E. Dunn, and received therefor $4,200; and that he was liable to account to complainant for the difference, $2,375, with interest, since March 2d, 1878, the date of the transfer to Jennie E. Dunn. A decree to that effect was made against Holt.

From so much of the decree Holt appealed.

The vice-chancellor further concluded that Jennie E. Dunn was chargeable with knowledge of the mode by which Holt had acquired the bond and mortgage, and so liable to complainant’s, equitable claim thereto, and he advised a decree as to her, requiring her to assign the bond and mortgage to complainant on being paid the amount she had paid for them, $4,200, with interest from January 1st, 1884.

From this part of the decree Jennie E. Dunn and her husband (now owner of the mortgaged premises) appealed. Keziah Dunn also appealed therefrom.

The questions raised by these appeals relate to the propriety of the decree upon the pleadings and proofs.

Before proceeding to consider the questions presented, it is proper to state that the decree was not sought below, nor has it been attempted to be sustained here, on the ground of active fraud and conspiracy between the parties. When the evidence was closed below, complainant’s counsel disclaimed any intent, to ask relief against Murphy, as to whom no other charge had been made. Holt and the Dunns had explicitly denied the-charge. It has not been insisted that there is evidence to overcome their denials'.

The decree against Holt was obviously grounded upon the fact that the transaction complained of was a purchase of the bond and mortgage by Holt from complainant, while he occupied a, relation of a confidential nature towards her.

If such was the fact, the rule applicable to such a transaction-has been settled indisputably.

When two parties stand toward each other in any relation which necessarily induces one to put confidence in the other, and gives to the latter the influence which naturally grows out of such confidence, and a sale is made by the former to the latter, equity raises a presumption against the validity of the transaction. To sustain it the buyer must show affirmatively that the transaction was conducted in perfectly good faith, without pressure of influence on his part, with complete knowledge of the situation and circumstances, and of entire freedom of action on the part of 'the seller. When the confidential relation is that of attorney and client, the attorney, who buys, must also show that he gave to his client, who sells, full information and disinterested advice. In the leading case of Gibson v. Jeyes, 6 Ves. 266, Lord Eldon said: “ The attorney must prove that his diligence to do the best for his vendor has been as great as if he was only an attorney dealing for that vendor with a stranger.” Chancellor Walworth said: “ The attorney can never sustain a purchase of this kind without showing that he communicated to his clients everything which was necessary to enable them to form a correct judgment of the actual value of the subject of the purchase, and as to the propriety of selling at the price offered, and his neglect to ascertain the true state of the facts himself will not sustain his purchase.” Howell v. Ransom, 11 Paige 538.

Such principles have been applied in our own courts, and notably in Condit v. Blackwell, 7 C. E. Cr. 481; Porter v. Woodruff, 9 Stew. Eq. 174, and Farmer v. Farmer, 12 Stew. Eq. 211.

Upon Holt’s appeal, the first question is whether there existed a confidential relation between Holt and the complainant respecting the bond and mortgage. I think the conclusion reached by the vice-chancellor in this respect was entirely correct. Holt was a well-known attorney, and had held the bond and mortgage in his possession for a long time, collecting the interest for complainant, for which service he was paid a stipulated compensation. He had advanced her $550 and taken her note therefor, with an absolute assignment of the bond and mortgage as security. When the obligors became insolvent, he went to Philadelphia, where complainant lived, and gave her a statement of the situation of affairs. She called on him in Trenton. At these and other interviews she asked -for and obtained from him information respecting the lien of her mortgage and its relation to other mortgages on the same premises — facts necessarily affecting the value of her security. The information was such as would naturally be sought from an attorney, and it was imparted by Holt as if in recognition of her right to such service. The whole circumstances clearly indicate that complainant looked on Holt as her adviser, and that he acknowledged her right to do so. I have no doubt at all that a confidential relation did exist, and that it was the relation of attorney and client.

Nor is there anything in the claim urged here that this relation had ceased to exist when Holt made this purchase. When the existence of such a relation has once been established by proof, it will be presumed to continue, unless its cessation is shown. Kerr on Fraud 153. The contention is that complainant, by appointing Murphy her agent to sell the bond and mortgage, put an end to the confidential relation with Holt. But this is obviously not to be conceded. The agency of Murphy was not at all inconsistent with the relation of his principal and her attorney, nor could it relieve that attorney from any of his obligations or duties to his client. Where a client had become bankrupt, a purchase by his solicitor from the trustee in bankruptcy has been held to be incapable of enforcement. Peard v. Morton, L. R. (25 Ch. Div.) 394.

Holt was therefore properly held to have been complainant’s attorney at the time he acquired from, her the bond and mortgage, and to sustain his purchase he must show the requisites which equity exacts in such transactions. These requisites, as we have seen, are, on his part, perfect good faith, absence of the pressux*e of the influence acquired by the confidential relation, and the imparting of full information and disinterested advice to the client respecting the transaction — on her part, complete knowledge of the circumstances and entire freedom of action.

We are not required to determine that the attorney actually failed in the performance of these required duties. The invalidity of the transaction will result from a judicial determination that he has failed to show that he performed those duties.

The facts disclosed by the evidence, which are pertinent to this inquiry, are, I think, all included in the following statement: After Holt ascertained the insolvency of the obligors in complainant’s bond, he gave her information thereof. She says that he also informed her that her mortgage was subject to two prior mortgages amounting together to about $12,000. In fact, it was a first mortgage on a small triangular piece of land of very small value, except when owned in connection with the other mortgaged premises. This circumstance, it is quite probable, had escaped Holt’s recollection, as he says it did. The remainder of the mortgaged premises was covered by two prior mortgages of about $12,000. Holt says that at one of the interviews complainant asked him to purchase her bond and mortgage. She says that he told her that her mortgage was worthless, and offered her for it a small sum in addition to the $550 already advanced her thereon. Whoever most correctly remembers the incidents of these interviews need not be determined, for it is admitted that on December 8th, 1877, Holt took from complainant a paper signed by her, acknowledging the receipt from him of $100, and declaring that sum, with $375 more to be paid her on demand, and the amount due him for money advanced, was “ in full ” for the bond and mortgage, and these words were added:

“ Said mortgage having been formerly assigned to said Holt by me, and this makes the said assignment absolute.”

"Whether Holt gave to his client, from whom he thus pur•chased this bond and mortgage for about $1,000, any information as to the value of the mortgaged premises, although he has testified as an expert in this case to its value, or any disinterested advice as to the propriety of her selling at the price he offered, has not been made to appear.

This transfer of the bond and mortgage was plainly absolute, yet it is clear that complainant did not so understand it. On January 14th, 1878, she wrote to Murphy, then a broker in Trenton, and stated that she desired to sell her mortgage, because there were $12,000 “ahead” of it, and she feared the property would be sold and she would be unable to protect herself. In consequence of this letter, Murphy visited complainant, and was employed to sell the bond and mortgage. He has not been called as a witness, but it appears that he expressed to Holt complainant’s dissatisfaction. Holt thereupon offered to return the bond and mortgage, on being repaid what he had paid or advanced. When this was not accepted, some other arrangement was entered into. It has not been made to appear that Holt gave his client any additional information or advice before this arrangement was concluded. Nor have all the terms ■of that an’angement been disclosed. It does appear that it was .agreed that Holt was to become the owner of the bond and mortgage, but that it was not to be assigned to him. It was in pursuance of this arrangement that it was assigned to Murphy, and by him in blank, and both assignments put in Holt’s possession. But what consideration Holt gave for this has not been disclosed. He says it was over $1,500 and less than $2,000. He produces the checks given Murphy for it, but they do not •aggregate the smallest sum named by him. Complainant states that she only got $1,225. In the assignment to Murphy, dated February 2d, 1878, and which was acknowledged by her in Philadelphia on the same day, no consideration was inserted. But another assignment has been put in evidence, executed by •complainant to Murphy, dated February 1st, 1878, and acknowledged in Trenton February 2d, 1878, in which the consideration is stated to be $1,825. Why these two assignments were made, or how they came to be acknowledged, one in Philadelphia and one in Trenton, on the same day, has riot been explained. Another paper has been put in evidence, executed by ■complainant, under date of March 2d, 1878, in which she acknowledges the receipt of $1,825. But complainant denies the receipt of so much, and I think it may well be questioned whether, in face of that denial, she ought to have been charged with having received that sum. In Gresley v. Mousely, 3 De G., F. & J. J. 433, a purchase by a solicitor from a client having been set aside, and an inquiry directed as to whether the purchase-money had been paid, no evidence of payment was adduced except the acknowledgment in the body of the deed and the endorsed receipt usual in English conveyances, and it was held that there was not sufficient evidence against parties claiming under the client (who was dead), and the purchase-money was treated as not having been paid at all.

.Reviewing the transaction as disclosed by the evidence, I have been unable to discover any indication that Holt, in making this purchase from complainant, recognized the confidential relation between them and the duties arising therefrom. If the fact was so, it has not been made to appear. The bargain seems to have differed in no material respect from a bargain between strangers.

This result imparts a peculiar significance to the fact that Holt, within a very short time after he acquired the title to the bond and mortgage, for an undisclosed sum — not greater than $1,825 —sold them for $4,200 cash. It is true that the security was not such that its value could be probably determined with accuracy. It was a third mortgage, and the encumbrances together equaled or exceeded the value of the mortgaged premises. The weight of the evidence is that the mortgaged premises were worth the encumbrances. But after giving effect to these facts, as tending to make it difficult to determine the value of the mortgage, yet the discrepancy between the price given and the price obtained is too great to escape notice. No satisfactory explanation has been given why this security in Holt’s hands appreciated in value over one hundred per cent, in one month.

There is no ground for the contention that complainant, in this transaction, resorted to or relied on independent advice. When that circumstance appears, transactions of this sort may often be sustained, because it shows that in hae re the relation of confidence has been superseded and the client deals at arm’s length with his attorney. Korn v. Becker, 13 Stew. Eq. 408. But the fact must be shown, and in this case the proof is wanting.

Nor is there anything effectual in the contention that complainant ratified the transaction. A paper signed by her and dated March 2d, 1878, expressing her satisfaction with it, has been put in evidence. There is some question whether this paper was not executed simultaneously with the assignment. But if executed at its date, it will not be effective as a ratification of the previous transaction, without proof that complainant, at the time of its execution, had obtained a complete knowledge of all the material facts and circumstances affecting the transaction, and rendering it avoidable. 2 Pom. Eq. Jur. § 964. There is no such proof. And the paper itself seems not unsusceptible of the interpretation given it by the learned vice-chancellor.

The result is that Holt was rightly held liable to account to complainant for the bond and mortgage. If yet in his possession he would doubtless have been compelled to re-assign them to her. But he had converted them by his sale. Under those circumstances I think he should have been compelled to account for their value. The decree only held him liable to account for what he had acquired by his sale. In this respect, it gave the relief specifically asked in complainant’s bill. Whether she would have been entitled to broader relief under the general prayer cannot be considered. No such relief seems to have been contended for. Complainant has not appealed from this part of the decree. We are therefore unable to correct any error — if any there was — in charging complainant in the account with more than she was shown to have received — or in failing to subject Holt to the full extent of his liability.

The decree in this respect should therefore be affirmed.

The decree against Jennie E. Dunn was put on the ground that she was not an innocent purchaser of the bond and mortgage, but took them with notice of the steps by which Holt had procured them.

I am unable to follow the vice-chancellor to that conclusion.

No contention has been made that Jennie E. Dunn entered into a conspiracy, designed to procure the bond and mortgage from complainant. I find no evidence that she had any actual knowledge that complainant had been induced to assign the mortgage, until after complainant’s assignment and Murphy’s assignment in blank had been put into Holt’s hands. Then her husband heard that Holt had the security for sale, and advised his wife to buy it. Negotiations were opened with Holt, which resulted in her purchase. She took title by assignment from Murphy, who held complainant’s assignment.

To render Jennie E. Dunn liable for the acts or omissions of Holt, it is obvious that it should appear that she had notice of Holt’s interest in the bond and mortgage, or that the circumstances were such as to put her on an inquiry, which would have disclosed his interest. I find nothing to indicate that she had actual notice that Holt was the owner of the bond and mortgage. The chain of title shown by the papers did not indicate his interest. On the contrary, they disclosed the title in Murphy. While it is true that she, through her husband, may be charged with notice that Holt had acted as complainant’s attorney, yet the fact that Holt, an attorney-at-law, held complainant’s assignment to Murphy, and Murphy’s assignment in blank, with power to sell, clearly indicated that Holt was then acting, not for complainant, but for Murphy, and I perceive nothing in these circumstances calculated to awaken any suspicion, or evoke any inquiry.

Nor do I think there was anything to awaken inquiry in the fact that she was able to purchase the security for about half its face value. It is evident that its market value must have been less than par, and I find nothing in the evidence to indicate that the price paid, $4,200, was so greatly, if at all, below its real value as to show unfair dealing.

The title acquired by Jennie E. Dunn, through Murphy’s assignment, is therefore, in my judgment, unassailable by complainant. She clothed Murphy with complete title to the security in question, and thereby enabled him to dispose of it to Jennie E. Dunn, who purchased it for value, and without notice of the facts which affected the assignment. The assignment was affected, not by the acts or omissions of Murphy, but of a third person, whose interest was undisclosed. Under these circumstances, complainant is estopped from contesting the validity of Murphy’s assignment to pass a complete title to Jennie E. Dunn.

The result is that the decree as to Jennie E. Dunn should be reversed, and the bill be dismissed as to her.

This result disposes also of the appeal of Keziah Dunn.

On the appeal of Holt, I shall vote to affirm the decree below, with costs.

On the appeal of Jennie E. Dunn, I shall vote to. reverse the decree below, and for a decree dismissing the bill as to her, with costs.

I shall vote to dismiss the appeal of Keziah Dunn as disposed of by the above votes, with costs.