Godfrey v. Dutton

16 App. D.C. 117, 1900 U.S. App. LEXIS 5278

• Court: Court of Appeals for the D.C. Circuit
• Decided: February 8, 1900
• Docket: No. 892
• Status: Published

Opinion

Mr. Justice Shepard

delivered the opinion of the Court:

1. The fraud practiced by Dutton upon the unsuspecting complainant and her mother, whereby they were induced to execute conveyances to him of the several parcels of property in Washington, is unquestioned, and has been settled by the decree against him; which decree also removes the Connecticut avenue property from the controversy.

The record contains an enormous volume of testimony, much of which is irrelevant, directed to the issues between complainant and the defendants Warner and Wine, respecting their knowledge of the fraudulent character of the title that had been acquired by Dutton.

An attempt was first made by the complainant to prove that,prior to this transaction, Warner had become acquainted with Dutton, had been seen in his office in New York and in his company on several occasions, and was aware of his pecuniary condition and real character; and hence ought to have suspected — to such an extent as to be put upon inquiry — that Dutton had come into the apparent ownership of this valuable property by means of fraud and false pretenses.

Counsel, who appeared for the appellant on this appeal, has admitted the failure of this testimony; and properly so, we think, because it comes from questionable sources, and has, besides, been completely met by evidence on behalf of the defendants.

It is an unquestioned fact, also, that Dutton actually received from Warner and Wine nearly $7,000 in cash, the same being the excess of the consideration agreed upon over and above the sum total of the incumbrances assumed in the conveyance made to Richardson.

2. The final contention is, that, treating Dutton as an entire stranger to his vendees, the facts and circumstances of and surrounding the transaction were not only sufficient to cause them to suspect, but also to indicate that they did in fact suspect that Dutton had acquired his apparent title through fraud practiced upon the complainant; and that, put upon inquiry thereby, they would have discovered the same had they exercised ordinary care.

This contention is founded on four main facts claimed to have been proved by the remaining testimony, namely, the gross inadequacy of the consideration; the former agency of the firm of B. H. Warner & Co., for sale on behalf of the complainant; the haste with which the negotiation was conducted and the sale completed; the execution of title to Richardson for the benefit of Warner and Wine, and the concealment of their interest.

In view of our conclusion in respect of the final disposi- ■ tion of this case we think it unnecessary to consume time with a lengthy review of the mass of evidence bearing on the foregoing points, and of all the inferences deducible therefrom.

It is sufficient, therefore, to say: (1) That there is great conflict of opinion between the many well informed witnesses who have testified to the value of the premises in April, 1896. These estimates range between $25,000 to $30,000 upon one side, and from $45,000 to $55,000 upon the other.

Without undertaking the difficult task of determining the real market value of the property at that time, we are not satisfied that the price paid was so low, or so out of proportion to that value, as to suggest a suspicion of the fairness of the seller’s title.

(2) That the testimony does not show that at the time of the purchase from Dutton, B. JH. Warner & Co., of -which firm Warner and Wine were leading partners, were the agents of complainant for the sale of the property. It had been upon their books at one time, as well as upon those of many others. They had no negotiations looking to its sale, and had, a considerable time before, dropped it from their published lists. The reliance of complainant for the sale of her property was clearly not upon them at the time, but another.

(3) That the haste with which the negotiation, was conducted was not so unreasonable as, of itself, to naturally excite suspicion and prompt investigation. Dutton was represented by a reputable attorney to whom he had come with a letter of introduction. He represented that he had judgments against him which made it necessary for him to raise money immediately. An unsuccessful attempt was made to secure a loan upon second mortgage; and then it was offered for sale.

(4) That the contract for the purchase was made in the name of Richardson by Warner and Wine, who were in fact the real purchasers, though professedly acting as Dutton’s agents, through the use of the name of B. H. Warner & Co., does not warrant the inference, in connection with the other circumstances of the transaction, that they either colluded with Dutton, or must have known the purpose' of his sale. Their real ownership was known to several persons at least, at the time, though intended to be kept from the public generally, as appears from the transaction itself, and from the letter of B. H. Warner & Co., asking for the key and stating that the lots had been sold to their client.

Richardson was a young man without means, a nephew of Wine, and an employee of B. H. Warner & Co. Men of their business experience must have been aware that his mere agency for them could not have been kept concealed from inquiry, even if concealment had been studiously attempted; and also that studied concealment and express denial would be regarded as evidence of their guilty knowledge or collusion. s The inference is reasonable, therefore, that they used the name of Richardson for the purposes stated in their answer.

We do not rest any part of this conclusion upon the fact, as proved, that such lodgments of title are frequently made by purchasers of land for convenience, and not regarded as improper.

If such a practice be common for convenience in avoiding the procurement of the signatures of the real owners’ wives, or to evade personal liability for the assumption of incumbrances, or to conceal from the general public the fact that agents dealing in lands for others are also engaged in purchasing on their own account, or for other reasons that might be suggested, we are not to be understood as giving it our indorsement.

Any custom that looks to the concealment of the truth of a transaction, or tends to mislead the public generally, although it may not be accompanied by an intention to defraud any particular person, is more honored in the breach than the observance.

• 3. If it were conceded, however, that the circumstances attending the transaction were of a character that might, to a cautious mind, have suggested inquiry into the nature of Dutton’s apparent title, our conclusion, from the testimony on behalf of complainant, is that such an inquiry would not have resulted in arresting the sale.

The testimony shows that the complainant and her mother had implicit confidence in Dutton and were under his influence.

They believed that he was a very wealthy man. He lived in a house which he made them believe had cost $70,000. They had not the slightest suspicion of his true character.

They believed that the property he contracted to convey to them in exchange for the Washington property was very valuable. They took the statement of his attorney regarding the title, when the slightest inquiry or investigation would have clearly shown the fraud practiced upon them. So completely were they satisfied wdth the exchange contracted for, that when Dutton went to Washington, as they supposed, td examine the property, on March 31,1896, they sent the following telegram to Mr. John B. Wight, who had been acting as agent for the sale of the property: “Sold New Hampshire avenue corner to New York party last week for full price; they will look at property today; recommend you as best real estate agent. If they call, please uphold my valuation and praise property in every respect. I want them to be satisfied with purchase.”

Dutton was in Mr. Wight’s office with the deed in his pocket when this dispatch came.

Complainant did not, of course, know or suspect that Dutton needed no commendation of the property, and that his purpose was to sell it for what he could get. She did, however, expect him to obtain a loan upon it, as he had led her to believe that he would erect a handsome hotel or apartment house upon it.

But the title conveyed was absolute.. There was certainly no express collateral agreement that he should build on the property, or that he should not sell it.

There was no occasion for such a condition under the circumstances existing at the time. They had sold for what they believed to be a “full price,” to a man supposed to be worth millions, and in whom they had perfect faith. After his return from Washington they executed new deeds to cure some supposed defect in the former.

When informed by the letter of B. H. Warner & Co. that the property had been sold to a client who wanted the key, they sent it without a word of inquiry. The terms of this letter were plain enough, but complainant testified that she thought there was some mistake because Dutton had told her that he had obtained a loan upon the property and intended to erect a large apartment house. But instead of inquiring of Warner & Co. as to this, she inquired of Dutton. He told her it was “a mere clerical error;” that he had just obtained a large building loan and had plans for the house. He exhibited his plans, consulted complainant and her mother in regard thereto, and, in complainant’s own language, “explained eveything so satisfactorily that no doubt or suspicion in any way entered our minds.”

When complainant first suspected Dutton does not appear; it is apparent, however, that it was not before some time in July, 1896. In June, or about July 1, she was induced by him to sign an additional agreement concerning the wharf leasehold that he had given her for her property, whereby she was made to assume certain judgments against him. She said she did not understand the matter fully, but “had confidence in him and did what he told me.” Prior to this, about April 21, one Czaki, who had been concerned in affairs with Dutton, undertook to tell her of Dutton’s real character. Dutton came in while Czaki was talking and the latter “slid out of the door.” Dutton explained Czaki’s conduct by telling her that the latter had turned against him under the influence of the “Ice Trust” that was engaged in his persecution. She was completely reassured, and gave Dutton a paper left with her by Czaki. This seems to have been a subpoena to her in some supplementary proceedings by judgment creditors of Dutton. Complainant and her mother had interviews with Dutton at the Astor House café as late as J uly, going there, instead of his office, because, as they say, it was pleasanter, and also for fear that papers might be served upon them at the latter place.

Now, in the light of all this evidence, we can not believe that a direct inquiry by Warner and Wine, before their purchase, would have led to a denial of Dutton’s apparent title.

Notwithstanding the Washington property is the fruit of the fraud practiced by Dutton, it must not be forgotten that this fraud did not consist in obtaining an absolute title to that property, when none was intended to be conveyed; but in procuring the title upon false representations as to the title of that which he exchanged for it. Had that property proved to be as represented, complainant would have had no cause to complain of any disposition made by Dutton of the Washington property. The real fraud perpetrated, then, in regard to the consideration given to her, was not discovered, as we have seen, until July; consequently, the presumption is not at all reasonable that the inquiry by Warner and Wine of the nature of Dutton’s title would have developed that fraud.

It is true that when one acquiring a title, has acted without inquiry, under circumstances so strongly suggestive as to make inquiry a positive duty, it would be a dangerous innovation to rest the question of implied or constructive notice upon the possible result of inquiry had it been made; and we are not to be understood as enouncing any such doctrine. '

The case at bar presents no such question. The circumstances relied on as putting the purchasers upon inquiry are, as we have seen, insufficient to make that inquiry a duty. Hence, under the special circumstances of the case which lead to a conclusion, not speculative, but reasonably certain, we have deemed it just to consider what would have been the result of direct inquiry of the complainant in respect of the nature of the title then held by Dutton.

If this case necessarily turned upon the contentions above considered, we would be compelled to affirm the decree as the inevitable result of the conclusions announced thereon; for it is a well settled rule that one who has put it within the power of another to com mit a fraud upon himself and a third person, who parts with value without notice, must suffer the consequences rather than visit them upon that person.

' 4. We come now to consider the case from another point of view made clear by the testimony, though it may not' be specifically presented by the pleadings.

A.s before suggested, it is not controverted that complainant was grossly defrauded by Dutton, and that as to him she is entitled to have restoration of her property — a right that has beemaccorded her in the matter of the Connecticut avenue property. She is entitled, therefore, to all such relief as can be afforded without injury to the just rights and interests of others.

Whilst Dutton was apparently vested with a legal title to the New Hampshire avenue lots, he held it, in the view of a court of equity, as a trustee for the complainant.

Saving the rights of innocent purchasers from Dutton, her right was paramount, and any equities he might have, arising out of his dealings with such persons, resulted to her.

Now it is clear that, as between Dutton, and Warner and Wine — vendor and vendees — equity will construe a trust in favor of the former from the relations of principal and agent which the testimony shows existed between them.

Putting Richardson out of further consideration, as a mere figurehead — a person interposed as a eonduit of title — Warner and Wine purchased and received title from Dutton. They were at the time the controlling members of the firm of B. H. Warner & Co., real estate brokers, who appear in the preliminary contract as the agents of Dutton, and not of Richardson.

It is a well established rule of law that an agent to sell can not, either directly or indirectly, become the purchaser at his own sale. Michoud v. Girod, 4 How. 503, 554; Veazie v. Williams, 8 How. 134, 152; Hoyt v. Latham, 143 U. S. 553, 566; Robertson v. Chapman, 152 U. S. 673, 681; 1 Am. & Eng. Encyc. L. 1075.

It is claimed that Mrs. Mussey was the agent of Dutton, and not B. H. Warner & Co.; but the testimony is distinctly against the claim.

It is very true that she was originally his agent, and so continued to act; but B. H. Warner & Co. associated themselves with her, and practically displaced her, for their names, and not hers, appear in the written contract as agents of the vendor. This contract was made an exhibit to the answer of Richardson to the original bill, wherein he avers a purchase through them as agents of Dutton, and was made part of the answer and proof of the defendants; and they are bound by it. It is also in proof that of the $750 paid by Dutton as commissions for effecting the sale, B. H. Warner '& Co. received $500 and Mrs. Mussey $250. •

There can he no doubt, therefore, that this sale could have been annulled by Dutton upon a timely bill for that purpose, without regard, to adequacy of consideration, or complete fairness in all other respects. The inquiry in such a proceeding is not whether there was or was not fraud in fact. The transaction is what the inflexible rule of equity, founded in the soundest public policy, denominates a fraud in law, as differentiated from fraud in fact.

This right of Dutton to disaffirm the sale necessarily results to the complainant, for whom he must be regarded as a trustee by construction of equity.

The disaffirmance can only be decreed, however, upon condition that the complainant shall repay Warner and Wine the money actually paid by them to Dutton, and all other sums that may have been paid by them in the discharge of taxes and incumbrances, less such sums as they maj7 have received, or ought in the exercise of due diligence to have received, as rents and profits of the property, since their possession began. Upon such payment they should be decreed to reconvey the property to the complainant, who to have equity must do equity.

It may be, that to obtain this relief the bill will have to be amended to some extent. If so, it can be done without reopening the case for further testimony. Doubtless, too, a reference to the auditor will be necessary for a statement of the account between the parties before a final decree can be entered.

It follows that the decree dismissing the bill must be reversed, and the cause remanded with directions to vacate the said decree, and take such further proceedings in accordance with this opinion as may be expedient and proper.

The costs-of this appeal will be divided equally between the parties. It is so ordered. Reversed.