Krause v. Krause

151 N.W. 991, 30 N.D. 54, 1915 N.D. LEXIS 101

• Court: North Dakota Supreme Court
• Decided: March 8, 1915
• Status: Published

Opinion

Pollock, District Judge

(after stating the-facts as above). A vast difference exists between a fací and an inference. That John and wife may have deeded the land to Herman is a fact; the inference to be drawn from, the act must be determined by the surrounding circumstances, coupled with the act. This is a trite statement, but one to be kept in mind in discussing the evidence in this case. The innumerable facts disclosed by the record are at first somewhat confusing, but if read accurately present very few conflicts. When discussing inferences, however, counsel became involved in hopeless contradictions. Two or three questions settled at the outset will, wé think, tend to clarify the atmosphere. They refer to the character of the transactions between plaintiff, her husband, and Herman; the nature of the mortgage to Jones, and plaintiff’s knowledge with reference to such transactions and mortgage.

(1) Did Herman take this land as security or payment for a debt? To substantiate this view of the case it would be incumbent upon defendant to show that there was a contract, either express or implied, entered into between the parties, before such a condition could follow. The testimony of Herman upon that point, if considering his claim that a debt was owing by implication for services performed, falls far short of what the plainest rules of evidence require of parties to support the existence of a contract, denied as it is in this case. No evidence appears as to the meeting of the minds of the parties upon the question of time of service; amounts paid or to be paid; efforts at settlement; demand for payment; in fact nothing beyond a guess or statement on Herman’s part that there were owing him $500 to $1,000; while the evidence does show much to contradict the idea of there having been established a relationship of the parties, other than what frequently is found to exist between relatives, situated as Herman was at the time, being unmarried, and having the care of a boy upon his hands, and having land of his own to cultivate. The fact that he had land elsewhere, and that, there seemed to be a particularly friendly relation existing between the brothers at the time, negatives in a large degree Herman’s claim that he had a contract for service, either express or implied. Indeed we are of the opinion that this contention is hardly the serious one made by the defendant. It would be wholly inconsistent with the other theory upon which he places so much reliance, and which is involved in the next proposition to which we will give our attention. If there is any unsatisfied obligation existing between Herman and his brother, that can be adjusted between them at a proper time and place. It is clear from the entire record in this case that the transfer of the property to Herman was not made in payment of or given as security for any such alleged obligation.

(2) Did the plaintiff and her husband assign the Hankinson contract to Herman with intent to hinder, delay or defraud their creditors ? It perhaps will be conceded, as claimed by appellant, that “fraud consists of unlawful conduct that operates prejudicially upon the rights of others. To defraud is to withhold from another that which is justly due him, or to deprive him of a right by deception or artifice. A fraud upon the creditors consists in the intention to prevent them from recovering their just debts, by an act which withdraws the property of the debtor from their reach. There can be no actual fraud without a dishonest intent ; but fraud does not consist in mere intent, but in intention carried out by hurtful acts. It consists of conduct that operates prejudicially on the rights of others, and is so intended.” Bump, Fraud. Conv. p. 19.

Doubtless the general rule will also be conceded that fraud is never presumed, but must be affirmatively proved. 0'n the contrary the presumption, if any, is in favor of innocence, and the burden falls on him who asserts fraud, to establish it by proving every material element constituting such fraud by a preponderance of the evidence. 20 Cyc. 108. The law presumes that all men are fair and honest, that their dealings are in good faith, and without intention to disturb, cheat, hinder, delay, or defraud others; where a transaction called in question is equally capable of two constructions — one that is fair and honest and one that is dishonest — then the law is that the fair and honest construction must prevail and the transaction called in question must be presumed to be fair and honest. Schroeder v. Walsh, 120 Ill. 411, 11 N. E. 70; Hill v. Reifsnider, 46 Md. 555; Tompkins v. Nichols, 53 Ala. 197. It is, however, true that when persons are in a fiduciary relation with each other, or are relatives, the law requires their acts to be scrutinized very closely to see that no wrong has been done.

There seems to be a dispute in the evidence as to when plaintiff made assignment of the Hankinson contract to Herman, whether before or after the sheriff’s deed to Latzke, which was given January 16, 1903, but there is no controversy that it was made after the sale on the judgment, January 13, 1902, which ripened into that deed. The sheriff’s deed purports to convey all title and interest of “John Krause and Albertina Krause had on the 18th day of. October, a. d. 1901, or at any time thereafter, or now has, in said land.” While under the rule in the case of Cummings v. Duncan, 22 N. D. 534, 134 N. W. 712, Ann. Cas. 1914B, 976, the lien of the judgment would not attach to the equitable interest of plaintiff, yet, after the levy and sale, it would, and Latzke’s rights at that time became fixed. Neither does it matter in this case whether Herman took his paramount legal title under the deed from Hankinson or the sheriff, his relation to the land as we conclude equitably considered must be determined by his agreements with plaintiff and her husband.. Facing the question then, what evidence is there of fraud ? It would seem that there is a vast distinction between paying and preventing the payment of what is owing another. It appears from the evidence that plaintiff, her husband, and Herman went to the office of one Gene Schuler, who acted as the scrivener, and while there, had a conversation with reference to the matter of this transaction.

Plaintiff gives her version of the conversation as follows:

Q. Just state what was said and why you made this assignment,— all about it?

A. I told Gene Schuler that I gave the contract to Herman Krause to settle with Otto Latzke, and make a deal with him about the trouble we had together so I could settle with him, and after he had settled for us he shall .give me that back, and Schuler drawed the paper and we signed it, and then he asked him if he wanted to pay so wé get an alright settlement between me and Krause and him, and if it is so that I gave John that land back again, and he says “I will.”

Q. And what did Herman say to you?

A. He says, “I will.”

Upon redirect examination Mrs. Krause testified:

I am Krause, John Krause my husband, and Herman was there, and I tell after we have this fixed up so he would make settlement with him, and he shall give that piece of land back to me, and he says he will.

Q. Who bought this land first ?

A. I do.

Q. This is the contract, exhibit “C,” is it not? (Exhibit “0” is the Kinney contract.)

A. Yes, that is it.

Q. Your name appears first in this?

A. My name.

Q. Did you make the bargain for the land ?

A. Yes, I make the bargain.

John Krause testified upon redirect examination:

I talked it over with him (Herman) in Schuler’s office.

Q. Who was the land to go back to ?

A. To Mrs. Krause.

Q. That is your wife ?

A. That is my wife.

While speaking in broken English, this statement is fully corroborated by the conceded testimony of the scrivener, Gene Schuler. All this is, however, denied by Herman. Under this evidence and that of plaintiff’s financial condition, respondent insists there is proof positive that the parties were engaged in a scheme to defraud Latzke. Respondent evidently infers fraud. Is he justified in so doing ? We think not. The most that can be claimed is that the parties were trying to compound their debt, — a debt which they felt was toó large, — but concededly fixed by reason of the judgment and sale of the property to Latzke. So far as they knew, Latzke owned the property. They wanted to get it back. By reason of their ignorance, they went about the matter in a somewhat blundering fashion. However, they put no restrictions on. Herman as to the amount he should pay, and they showed their good faith by putting into his hands the assignment which made possible the accomplishment of their purpose. It was the attempt of unlettered persons to pay a claim, which, though onerous, yet must be borne, if they would free their land from a fixed -encumbrance. Herman, knew this. . His every dealing with the land thereafter, with Latzke, Jones, Grawe, - or anyone else, must, so far as he is concerned, be charged with such knowledge. He was a trustee. Good morals, safety in business, faith in human nature, all of which underlie and make possible honorable dealings between man and man, conspire to demand the highest good faith upon Herman’s part. He was not dealing with his own. The property belonged to another. Without consent he was powerless to convey or encumber it.

It is difficult to conceive how it would be possible to defraud Latzke, when, by reason of his sheriff’s certificate, he had the very weapon in his hands, for his own protection. There is no evidence that Herman was requested to or did in any way misrepresent to Latzke the true situation of affairs, and his dealings with him were in perfect harmony with the thought of perfecting an honorable settlement and paying the debt then owing. How could Latzke be inveigled into losing any of his rights, assisted, as he was, by astute counsel ever ready to protect his interests ? It seems hard for us to imagine how a person with no more ability than is possessed by Herman, as shown by his testimony in this record, could lead astray or fraudulently impose upon the credulity of a man who held a sheriff’s certificate to a piece of land, by which he coidd demand every cent coming to him. We might stop at this point, and conclude, as we must, that the assignment was not given for the purpose of hindering or in any manner delaying the creditor Latzke or anyone else in securing their just and legal obligations. If, however, we add to those acts the methods by which the parties themselves apparently construed their contract relations, we are bound to conclude that a trust relation, and that only was imposed upon Herman in the making of the Hankinson assignment and deed and taking the Latzke deed. The continuous possession and use of the land by the plaintiff and her husband; the uninterrupted enjoyment of the same; the making of contracts relative thereto by the plaintiff; the borrowing of money, and especially from Fligelman; the paying of a portion of the same to Hankinson; the payment of a portion of John’s obligations; the receipt of a part of the overplus by plaintiff and its nonretention by Herman; the redemption from foreclosure sale of the $300 mortgage by plaintiff; the payment of a large amount of interest on mortgage loans; tbe payment of taxes by plaintiff; the utter absence of any acts upon Herman’s part indicating ownership, — all combine to show that the parties, in dealing with each other and the land, proceeded upon the theory that plaintiff was in fact the owner of the same. There being, therefore, no fraud practised upon Latzke or anyone else, and there having existed only a trust relation between plaintiff and Herman, it would now be contrary to the plainest principles of equity to permit Herman to take advantage of his fiduciary relation, and burden the land with an additional encumbrance which would practically exhaust all interest which plaintiff has in the land, unless the rights of innocent parties became fixed by reason of the.record title concededly being in Herman.

(3) Is the I ones mortgage a lien upon this land ? The evidence is uncontradicted that plaintiff has been in open, notorious, adverse, hostile, and exclusive possession of the land in question since the same was purchased from Mr. Kinney in 1899. No one else has ever been in possession of it or any part thereof. Mr. Jones in his testimony concedes that he did not go and examine the land, and stood purely and simply upon his faith in Herman and the record title. It is elementary that one dealing with property, either as a purchaser or mortgagee, which property is in the possession of a third person, deals with it at his peril. An open, notorious, and adverse possession of real property is notice to the world of every right or interest owned or held by the person in possession, whether such right be legal or equitable. O’Toole v. Omlie, 8 N. D. 444, 79 N. W. 849; Hedlin v. Lee, 21 N. D. 495, 131 N. W. 390; 48 Century Dig. 765. In taking the mortgage Mr. Jones was thereby charged with the notice of plaintiff’s possession and every right she had to the land. Had he inquired of the plaintiff as to the character of her possession, knowledge would have immediately come to him that Herman did not own the land. He has, therefore, secured a mortgage upon land not owned by Herman, the mortgagor, and as such it would not constitute a lien upon the land.

(4) It is contended, however, that plaintiff is bound to pay Jones’s mortgage by reason of the deed from Herman to Grawe. It is claimed upon the part of the defendant Jones that the plaintiff constituted Grawe as her agent to secure the title from Herman, and authorized him to agree to pay the Jones mortgage, and therefore she cannot now be heard, in view of the evidence relative to that transaction, to be relieved from the contract alleged to have been entered into by her agent, Grawe. The relation of the parties to this transaction should be constantly kept in mind. Up to the point of time when this alleged contract was made, the parties are in the situation, equitably, of the plaintiff being the owner of the land with no mortgage to Jones thereon. An analysis of the facts show that all parties, with the possible exception of Grawe, had, or by reason of the possession of the plaintiff were presumed to have, full knowledge of the trust relation existing between Herman and plaintiff; so that while there was as a matter of record a mortgage running to Jones, yet, as a matter of substance and of fact, the mortgage did not exist as a lien or binding obligation of any sort upon the land in question or upon the plaintiff. It further appears from the undisputed evidence that at the time that plaintiff talked with Grawe, either through Forbes or by herself, over the ’phone, that she had no knowledge of the Jones mortgage, so that when Grawe, her agent, attempted to take the title from Herman, there was not in equity any such mortgage, and there was no knowledge upon the part of the plaintiff of the existence of the written paper and the record thereof in the form of a mortgage. She was not under any obligation to go and examine the record. She had a right to assume that Herman had been faithful to his trust. Herman knew, or is chargeable with knowledge, of these facts. Jones was not a party to the transaction in any form. There is some dispute in the evidence as to what authority was given to Grawe. The talk was over the ’phone, upon the one part by the plaintiff, who knew not of the existence of the Jones mortgage, and upon the other part by one who was simply intent upon collecting his own small obligation of a little over $100. Mr. Forbes, who probably did some of the talking, and was at least present when the talk took place, gives no evidence with reference to what was said. His silence upon this question is corroborative of the plaintiff’s contention that she did not authorize the payment of any mortgage to Jones. It is difficult for us to conclude that she gave any authority whatever to Grawe to agree to pay a mortgage she did not know was in existence, which she did not owe, and which, when discovered, she at once insisted she could not and would not pay. She, it is true, used the expression, “Back out,” in referring to her acceptance of the deed, but it is clear from the reading of the entire record that wbat she meant to say, and wbat tbe import of ber words and conduct clearly implied, was that sbe bad not authorized tbe acceptance of tbe Jones mortgage, and would not affirm any unauthorized act of Grawe agreeing to receive tbe land subject to that encumbrance. Herman is in no position to -claim any wrong done him,- because be is charged with tbe notice of bis relation to tbe land. His attempted participation in a fraud upon tbe plaintiff by seeking to burden tbe land with a debt of bis own in which sbe was not interested, or for which sbe was not responsible in any manner whatsoever, could not bind ber. This being true, tbe plaintiff is not responsible by reason of tbe unauthorized acceptance by Grawe of a deed from Herman. Tbe testimony of Grawe is very clear; that bis situation is not altered by reason of receiving tbe deed ■from Herman. Tbe giving of a receipt is only prima facie evidence of a payment. If, as a matter of fact, Herman did not pay bis debt to Grawe, and be could not by tbe transaction referred to, then be still owes Grawe tbe amount of bis debt, whatever that may be, and Grawe is in tbe attitude of having received a piece of paper which does not create any obligation upon him because of tbe fact that tbe party with whom be contracted with reference to tbe obligation could not, in tbe very nature of things, bind Grawe or bis assigns to pay something which did not in fact exist, that is to say, if there was any obligation whatever running from Grawe to Herman or tó Jones, it was to pay a lien which was upon this land in suit; and we bold that there was no such lien, and hence, if there was any obligation, it was to pay something that did not exist, which in itself would create no liability whatsoever.

(5) It is urged that Herman cannot be compelled to give a deed to something which be does not own and tbe legal title of which is not in him. There should be no confusion with reference to this matter. We bold that tbe deed from Herman to Grawe did not pass any title to him whatsoever, and that, therefore, tbe legal title to tbe land still remains in Herman, and be should be compelled to quitclaim all interest be may have in tbe land to plaintiff, upon ber adjusting tbe equities hereinafter, referred to. We bold that tbe trust relation was settled in Schuler’s office, and by tbe agreement of .John, Herman, and plaintiff tbe legal title was to be returned to plaintiff alone. We are of tbe opinion that tbe deed to Grawe was only nominal in its character, and tbe passing of tbe title from Herman to Grawe and Grawe to tbe plaintiff was simply'as a matter of convenience, not as a fraud upon anyone, and plaintiff’s refusing .to accept the same would leave the matter in the same situation as though Herman had offered to deed directly to plaintiff and she had refused to accept it with the Jones mortgage feature therein. If Grawe had been a party to this action, we would have entered a decree which would adjust any apparent rights which Grawe might have had in said land. That, however, can be undoubtedly corrected by securing a quitclaim deed from Grawe, because under his testimony, as shown in this record, he claims no interest whatsoever in the land, and upon his testimony, together with the surrounding circumstances, it seems clear that his relation to the controversy is fixed and determined as against any possible personal interest in the land, or liability which might have been incurred by reason of taking said deed in its present form.

(6) This being an equitable proceeding, before the defendant Herman can be required to execute a deed to the plaintiff, she must of course do equity. This she has, at all times, in her pleadings and in the trial of this action, expressed a perfect willingness to do; and the decree to be entered in this case must be conditioned that Herman be reimbursed for any and all moneys he has himself paid out on account of his trust, and that he be relieved from further liability on the two mortgages, — the $1,500 mortgage and the $300 mortgage, — except as to those portions thereof retained by him. The land conceded to be Herman’s must be released from the lien of the $1,500 mortgage. This was the mortgage given to Brokken and which included some of Herman’s land as well as the quarter section here in suit.

(7) It is therefore ordered that the decision of the lower court be, and the same is, in all things reversed and the district court is required to enter a judgment to that effect. Further, that court shall require the parties to appear before him, make an account of all the moneys Herman has himself received and paid out on account of the transactions involved in the trust relation, if any, as well as the mortgages above referred to, and plaintiff must present proper releases to Herman’s land from the $1,500 mortgage. When this is done Herman is required immediately and within three days to give,a quitclaim deed to plaintiff, conveying all of his interest in the land in question. It being distinctly understood that this accounting referred to has reference only to the moneys involved in the trust relation, and does not refer to any alleged debts owing to Herman by reason of the working upon or in connection with the premises here in suit or elsewhere; or growing out of any supposed contract relations with reference to farming the land with John or plaintiff; it being held that plaintiff, or she and her husband together (except as John’s interest was affected by the trust agreement), were the owners of this land during all the times, and were entitled to all of the proceeds of the crops grown thereon. It is further directed that if defendant, Herman fails to give the quitclaim deed as required herein immediately upon the entering of the decree in the lower court, or within three days thereafter, that this decree shall stand in the place of such deed, and its record in the office of the register of deeds shall operate to make a transfer from the said Herman to the plaintiff herein, as fully as though he did in fact execute and deliver the deed thus required of him to be made and delivered.

It is further decreed that the so-called Jones mortgage of $2,361.84 is not a lien upon the premises in question, and that by this judgment the said land is freed from all possible rights said Jones or anyone claiming under him may have under said mortgage, and this judgment shall operate as full satisfaction thereof. Plaintiff to have costs in both courts.

Goss, J., did not sit, nor did he take part in this decision, Honorable Chas. A. Pollock, Judge District Court Third Judicial District, sitting in his stead.