Gragg v. Pruitt

1936 OK 842, 65 P.2d 994, 179 Okla. 369, 1936 Okla. LEXIS 752

• Court: Supreme Court of Oklahoma
• Decided: December 22, 1936
• Docket: No. 23764.
• Status: Published

Opinions

WELCH, J.

This is an appeal from the district court of Seminole county. The parties on appeal occupy positions the reverse to that occupied in the trial court, 'and will be referred to as plaintiff and defendants, as they appeared in the lower court.

The plaintiff, a minor, by his guardian, brought suit to declare a resulting trust in a certain oil and gas lease executed by a former guardian, and for an accounting of the proceeds derived therefrom. The lease covered an undivided 1/6 interest belonging to the plaintiff in and to 120 acres of land in Seminole county. Several of the original defendants have died during the pendency of this litigation, and various other defendants have been substituted in their stead.

Upon trial of the cause to the court, judgment was rendered in favor of plaintiff, declaring that the lease was held by the defendants in trust for the plaintiff. The judgment also required an accounting by the defendants as prayed in plaintiff’s petition. Certain of the defendants have appealed.

The facts necessary to an understanding of the issues here are substantially as follows : A short time prior to May 26, 1927, one of the original defendants, an attorney, Mr. Orwig, met in conference with defendants Gragg and Dovell, and it was agreed between them that a guardian’s sale of an oil and gas lease would be “put through” covering the minor’s interest in the land involved, the remaining portions of the title being owned by adults. The defendant Orwig, as plaintiff’s witness, testified in relation thereto as follows:

“Q. Was ’it not agreed 'at that time that the sale would be put through and one of them would purchase it and it would be the joint property of all of you? A. No, sir; it wasn’t agreed that I would have any interest in it and they didn’t definitely agree to buy it, but they were interested in it and expected the lease to be put up for sale and if 'it was cheap enough they would buy it. The reason for the sale was to get the lease in the name of some adult person so it could be leased for drilling.”

Some time after this -agreement, and on May 26, 1927, the said guardian, represented by Orwig as his attorney, filed a petition in the county court of Seminole county, and on the same day procured an order of the county court, authorizing the guardian at public sale to sell an oil and gas lease covering the minor’s interest in the land involved. Upon the sale date none of the persons who had participated in the conference above mentioned appeared to buy the lease, whereupon Onvig procured one Norvell to purchase the iease at a bid of $1,000. Such sale was confirmed to Norvell in regular order, and the oil and gas lease was duly executed and delivered thereunder, but no part of the consideration was then paid.

Some 60 days thereafter, Norvell, upon Orwig’s request, executed a conveyance of'a one-half interest in the lease to the defendant Graham. Prior to that time the $1,000 representing the purchase price of the lease had not been paid to the guardian. At that time, however, it appears that Graham furnished $500 and Orwig furnished $500, which was paid to the guardian through Norvell, as the consideration for the lease. The record fairly shows that Graham then knew the manner in which the guardianship sale had been handled up to that time, and the trial court so found. Title to the remaining one-half interest in the lease remained in Norvell until January 17, 1928. when, at the request and direction of Orwig, he assigned the same to one of the defendants, Gragg. Norvell never at any time claimed an interest in the lease, purchasing same only at the request of Orwig, and paying for same only with money furnished by Graham and Orwig some 60 days after the confirmation of sale. Norvell at all times held the title subject to the directions of Orwig. He conveyed the remaining one-half interest to Gragg after he had received several thousand dollars in proceeds from the lease, and upon his suggestion to Orwig that he did not desire title to remain longer in his name, since payments were being received from oil companies which had developed the property.

The uncontradicted evidence shows, and it is not contended otherwise, that the guardian was not informed and never had knowledge from any source that sale of the guardian’s lease was made to Norvell, as trustee, for the use and benefit of Orwig or any other person.

The judgment of the trial court contains the following findings of fact:

“The court further finds that heretofore, to wit: On or about the 1st day of June, 1927, the sale of an oil and gas lease was made through the county court of Seminole county, covering the interest of the plaintiff in the above-described lands; that in said sale the defendant S. S. Orwig acted as attorney for the guardian of the plaintiff and that said oil and gas lease was purchased by Spencer Norvell or R. S. Norvell for the use and benefit of the defendant S. S. Orwig.

“The court further finds that the said oil and gas lease brought its full market value at the time it was sold and that there was no fraud in said sale; the court further finds that at the time of said sale the said S. S. Orwig acted In the utmost good faith, with no intention on his part to cheat, wrong, or defraud this plaintiff, but that he was the purchaser at said sale and did not make a full and complete disclosure to his client of all the material facts concerning said sale.

“The court further finds that the defendant S. S. Orwig in all other respects gave the plaintiff and his guardian the same full, complete, and fair advice that he would have given had the sale been made to a stranger, except to advise the guardian or the plaintiff that he. S. S. Orwig, was the purchaser.'

“The court further finds that since the institution of this suit, A. E. Graham and Gordon Dovell have both died and that same has been duly and legally revived in the name of Mrs. Alice B. Graham, administratrix of the estate of A. E. Graham, deceased, and Mary Lou Graham, a Stanaert Graham and Mrs. Alice B. Graham, who are all the heirs of A. E. Graham, deceased; and Mrs. Pearl A. Dovell, administratrix of the estate of Gordon Dovell, Daisy Loree Dovell and Pearl A. Dovell, who are the heirs and all the heirs of Gordon Dovell, deceased.

“The court further finds that neither A. E. Graham, G. E. Gragg nor Gordon Dovell were innocent purchasers of the interest they purchased in the leasehold estate herein referred to, but that they purchased same with full knowledge of the fact that the same had been purchased by Spencer Norvell for the use and benefit of and as trustee for S. S. Orwig, and that S. S. Orwig acted as the attorney for the guardian in putting through the guardianship sale of the oil and gas lease through the county court.

“The court further finds that the plaintiff is entitled to an accounting against the defendants and to a judgment against the defendants and each of them, except the defendant S. S. Orwig, for such sum or sums of money as it shall develop in the accounting to be had in this cause hereafter as shall have come into their hands by reason of their holding said oil and gas lease upon the twenty (20) acres interest fully set forth herein.”

The defendants contend that the findings of fact and judgment are contrary to the evidence. This is an equitable action, and the findings and judgment of the trial court will be reversed ii from an examination of the record it appears that same are against the clear weight of the evidence. Schock et al. v. Fish, 45 Okla. 12, 144 P. 584. If, however, the findings are not against the clear weight of the evidence, the same will be affirmed. Prentice v. Freeman, 76 Okla. 260, 185 P. 87; Renas v. Green, 88 Okla. 169, 212 P. 755; Morrison v. Krouch, 141 Okla. 288, 285 P. 10; House, Administrator, et al. v. Gragg, 170 Okla. 550, 44 P. (2d) 832.

The contention in this regard is that the finding that “said oil and gas lease was purchased by Spencer Norvell or R. S. Norvell for the use and benefit of the defendant S. S. Orwig” is against the weight of the evidence. We do not agree with this contention. A careful examination of the record leads us to the conclusion that such finding is not against the weight of the evidence. It is not even intimated by anyone that Norvell purchased the lease for his own use and benefit. It is not disputed that he paid none of his own money therefor. It is not disputed that he held the lease at all times sub ject to the pleasure of Orwig, and would consider no assignment of same or any disposition of the proceeds derived therefrom except upon the direction of Orwig. Orwig himself does not testify or contend that there was any definite agreement on the part of any person to take the title at the time it was sold. The entire evidence is In accord that Nerval! did not intend to tale* the title for himself, and the definite authority for the bid 'and intention to take title can be traced no further than Orwig. It may be true that at the time of the sale Orwig intended to pass the title on to other persons, hut even he did not know to whom it might be passed, and no other person than he was in position to direct to whom the title should ultimately go. We think the finding of the trial court thus attacked is amply supported by the evidence.

We come now to a consideration of the question whether or not the purchase of the lease at the guardian’s sale by the attorney, Orwig, at the time he ¡was representing the guardian in the matter of the sale proceedings, will or should be declared to be a purchase of such lease in trust for his client. The trial court, after finding that there was no intentional fraud on the part of Orwig in the transaction, nevertheless found for the plaintiff; the effect of the finding and judgment was to declare a resulting trust in plaintiff’s favor. The conclusion of the trial court was based upon the commonly recognized rule that it is against public policy for an attorney to place himself in a position where his own interest will be antagonistic to that of his clients, except in some eases where it is shown that the attorney and client have voluntarily agreed otherwise, after a full and complete disclosure of all material facts, and where the attorney sustains the heavy burden of proving ilia utmost good faith and fairness in the transaction. Watts v. Jackson, 75 Okla. 123, 182 P. 508.

The rule has long since been adopted and followed by this court.

In Board of Commissioners of Okfuskee County v. Hazelwood et al., 79 Okla. 185, 102 P. 217, this court held in the syllabus, paragraph 5, as follows:

“An attorney has no capacity to deal for himself In the subject-matter of his employment without his client’s knowledge and consent.”

And in syllabus, paragraph 6:

“Where an attorney deals in the subject-matter of his employment without the knowledge and consent of his client, the question of good faith or fairness or adequacy of the consideration will not be 'inquired into. The door is shut to all investigation, on the principle tfiat one cannot serve two masters, where self-interest is involved, and a transaction by an attorney involving the subject-matter of his employment, without the knowledge and consent of his client, is vitiated by the law, irrespective of its merits, fairness, or good faith; and whether it is injurious to the client is immaterial, because the law does not stop to speculate upon the probability that the attorney resisted temptation ; the law removes the temptation by proclaiming in advance that the attorney shall not deal for himself with the subject-matter intrusted to him by his client, without the knowledge and consent of his client.”

AVe consider the statements of law in the Hazelwood Case applicable and controlling when applied to the facts presented by this record.

The trial court found that, although the attorney, Owig, committed no overt act of fraud, he did fall to 'advise his client of all of the material facts. In truth the record here does not indicate in the slightest degree that the attorney advised with his client concerning the amount of the bid, or informed his client that he himself was taking title and that he would personally control and direct the future disposal of the lease, if in fact it should later be disposed of. It is suggested that a disclosure to the client of these facts was not material. The suggestion is not well taken. In a sale of this nature the client has the right to expect of his attorney a faithful devotion, to the end that the client’s best interest will be served. These interests were the sale of an oil and gas lease if such sale could be advantageously made. He had a right to unbiased and unprejudiced advice concerning whether any certain bid should be received or rejected; whether a lease should be sold, or refused entirely. It was his right to expect the utmost effort on the part of his attorney to obtain for him the greatest possible benefits to be derived from a sale, or the withholding of a sale. If the attorney places himself in the position of being the purchaser, he most certainly is occupying a dual capacity with conflicting interests with respect to the exact object of his employment. He must advise the client of the sufficiency or nonsnfficiency of a bid, and of the advantages or disadvantages of the acceptance thereof. At the same time, if he is the purchaser, it is to his own interest that he pay the least possible price therefor and generally obtain the greatest benefits from the transaction. The interest of buyer and seller are inherently adverse.

It may be said, and it is undoubtedly true, that one may occupy the position as shown here without succumbing to the temptation to commit actual fraud or take undue advantage, as was evidently found to be true by the trial court in this case. However, the courts have almost universally considered that the public policy of the law demands the rule which prevents the existence of such a condition, except under the most rigid and favorable circumstances. The rule, with reasons for its, existence, is aptly discussed by the Minnesota Supreme Court in King v. Remington et al., 36 Minn. 15, 29 N. W. 352. Therein the court said:

“* * * The rule which disables one occupying a confidential or fiduciary relation, in respect to property the subject of a sale, from purchasing for his own benefit, and regarding him as a trustee if he do purchase, is absolute, and looks to no other facts than the relation and the purchaser. ‘No fraud in fact need be shown by the cestui que trust, and no excuse will be heard from the trustee. The fact established, and the result inevitably follows.’ Baldwin v. Allison, 4 Minn. 25. (Gil. 11). The rule is entirely independent of the fact whether any fraud has intervened. It is to avoid the necessity of any such inquiry that the rule takes so general a form. Jewitt v. Miller, 10 N. Y. 402. The general interests of society require it to be so, as no court is equal to the examination and ascertainment of the truth in much the greater number of cases. Ex parte James, 8 Ves. 337. The rule stands on the moral obligation to refrain from placing one’s self in relations which ordinarily excite a conflict between self-interest and integrity. Michoud v. Girod, 4 How. 503. It seeks to remove the temptation that might arise out of such a relation to serve one’s self-interest at the expense of one’s integrity and duty to another, by making it impossible to profit by yielding to the temptation. Nor is the application of the rule confined to a particular class of persons;, as guardians, solicitors, attorneys, etc. It applies universally, to all who come within its principle; which principle is that no party can be permitted to purchase an interest in property, and hold it for his own benefit, where he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser on his own account, and for his individual use. Greenlaw v. King 5 Jur. 18; Van Epps v. Van Epps, 9 Paige, 137. The duty in relation to the property need not be a legal one such as the law will enforce a performance of. If it be a moral duty, growing out of confidence and trust reposed by one and accepted by another in business relations and transactions, it is enough.”

The defendants cite 'and rely strongly upon Watts v. Jackson, supra, wherein it is shown that the general rule prohibiting the attorneys from purchasing his client’s property is not inexorable. This court there upheld the purchase by the attorney of the property, which was the subject of his employment. An examination of the case, however, discloses that it is in thorough accord with what we have said here. There the land was being sold regardless of the client’s wishes. The entire matter was fully discussed with the clients and it is readily discernible tlvat they specifically desired the attorney to do what he did. and there is shown no possibility of there being any conflict of interests between the attorney and his client in that case.

To the same general effect is Daniel v. Tolon et al., 53 Okla. 606, 157 P. 756; Minton v. Roberts, 119 Okla. 32, 247 P. 662, and other cases called to our attention. No cases have been cited, and we have found none, which permit the attorney to occupy the role here shown without 'at least informing the client of the existence of the adverse relationship, so that the client may be upon his guard, and may be permitted to choose freely and with full knowledge of the facts and status of the relationship, whether he will rely upon the attorney’s advice, or depend upon his own ability with reference to the particular transaction. The facts here, and the authorities discussed, impel the conclusion that the judgment of the trial court is not contrary to law as here contended in this respect.

It is further contended that this action is in effect a collateral attack upon the order and judgment of the county court of Seminole county approving and confirming the sale of the oil and gas leas© involved. Aside from the possible constitutional question involving the power of the county courts of this state to determine the equitable title in 'and to real estate, which is not discussed by the parties here, and which we do not decide, it is apparent from this record that the order of the county court does not purport to deal with anything other than the naked legal title to the oil and gas lease involved. The legal title is not attacked in this suit, the parties proceeding upon the theory that the legal title properly passed to Norvell in trust for the use and benefit of Orwig, who, by operation of law, in turn held in trust for ttie plaintiff. The defendants cite a number of cases from this court to the effect that county courts, in the proper exercise of their jurisdiction, are courts of general jurisdiction, and that their judgment's are free from collateral attack the same as any other court of general jurisdiction; among the cases cited are found Manuel v. Kidd et al., 126 Okla. 71, 258 P. 732; Moffer v. Jones et al., 67 Okla. 171, 169 P. 652; Cochran v. Barkus, 112 Okla. 180, 240 P. 321. We do not consider the citations as authority for the proposition urged. It is our conclusion that the present action in no way seeks to disturb the legal effect of the judgment of the county court under discussion.

The defendants suggest further that the plaintiff is estopped by virtue of a decree of the district court of Seminole county rendered in another cause on January 9, 1928. There were numerous parties to that suit. Defendants point specially to the following portion of the decree in that case:

“It is further ordered, adjudged and decreed that the oil and gas mining lease executed by Ollie Dunlap as guardian of the minor defendants, Preeland Pruitt and Oce-ana Pruitt, to R. S. Norvell under date of June 1, 1927, is a valid and existing lease in so far as the same affects the right and title of said minor defendants in and to the lands covered 'by said lease, and that the said R. S. Norvell has a valid and indefeasible title thereto.”

They point to the fact that the plaintiff herein was a party to that suit. They make no contention, however, that the question at issue in the instant ease was adjudicated ini the former case. They make no' suggestion that the issues made in the instant case could have been determined in the former case. There is no showing here that the plaintiff was advised of the conditions existing, upon which he based his present cause of action, at any time prior to the determination of the former suit. It was necessary that they show that the issues presented in the instant case were or could have been determined in the former case.

“Identity of causes of action is not a necessary element in the plea of estoppel by judgment, but it is necessary that the point upon which the plea of estoppel by ‘ judgment is based is an issue in the latter case and was in issue and decided in the former.” Craig v. Roxoline Petroleum Co., 170 Okla. 307, 39 P. (2d) 575.

We conclude, therefore, that there is no merit in that contention.

Defendants further contend that plaintiff’s petition was defective, and that a demurrer thereto should have been sustained for the reason that the petition failed to allege damages, or a state of facts from which • damages could result. We find that contention is without merit. The authorities cited by the defendants in this regard support the general principle of law that fraud will not support a pause of action unless damages are shown. The rule is not applicable where no judgment for damage is sought. Here plaintiff seeks no judgment for damages, but seeks merely to recover property which is held in trust. The application of the rule where no judgment for damages is sought, is discussed in Conrad v. Darnell et al., 114 Okla. 49, 242 P. 772, wherein the court said:

“The rule that fraud without damages resulting therefrom never gives a right of action in favor of the defrauded party applies to those eases' where the injured party is seeking to recover damages from the wrongdoer in an action ex delicto as an indemnity against the injury which he has sustained by reason of the fraud, and has no application to a case where it is sought to cancel an instrument because it was entered into by reason of fraud and misrepresentation.”

The defendants next contend that as to the defendants Alice B. Graham, adminis-tratrix of the estate of A. E. Graham, deceased, and Pearl A. Dovell, administratrix of the estate of Gordon Dovell, deceased, the plaintiff’s petition fails to state a cause of action against them in their representative capacities, for the reason that plaintiff failed to amend his petition charging the presentation of a claim against the respective estates, and failed to prove on the trial that any claim had been presented and disallowed. In support thereof they cite Walker Drilling Co. et al. v. Carlew Drilling Contractors, 109 Okla. 7, 234 P. 598. An examination of the cited case discloses that the suit there was brought to recover judgment under the terms of a contract. In Jones v. Woodward, 50 Okla. 704, 151 P. 586. this court held that a cause of action on account, of the alleged fraud of an intestate is not one arising out of contract, and claim therefor need not be presented to the administrator before suit may be maintained thereon. We conclude, therefore, that this court is committed to the rule that only such claims as arise out of contract are required to be presented to an administrator. It is obvious that this is not such an action. We, therefore, hold that it was not necessary for the plaintiff to present a claim.

Finding no error in the record, the judgment is affirmed.

RILEY, BAYLESS, BUSBY, PHELPS,' and CORN, JL, Concur. McNEILL, C. J., OSBORN, Y. O. J., and W. V. PRYOR, Special Justice, dissent.