Orr v. Waldorf-Astoria Hotel Co.

291 F. 343, 1923 U.S. App. LEXIS 2836

Opinions

LEWIS, Circuit Judge.

Plaintiffs in error, lawyers practicing their profession at St. Paul under the firm name of Orr, Stark & Collett, in June, 1911, for an agreed consideration undertook the collection of a $6,500.00 note given by Wm. Sauntry of Minnesota, which had been endorsed and transferred for value by the payee to Waldorf-Astoria, a New York corporation. The arrangement was made through correspondence with New York counsel for Waldorf-Astoria. There can be no doubt as to the measure of duty assumed by the St. Paul firm. The law is plain. They were bound to exercise reasonable care, skill and diligence in the pe'rformance of the services undertaken, to put forth all reasonable and proper effort to collect the money, to advise their client of the situation and the steps necessary to be taken for its protection, and to utilize for that purpose the procedure and processes generally known to the profession. The relation is one of trust and confidence, and the law demands prompt and full disclosure of all facts which affect the duties and rights of either. Savings Bank v. Ward, 100 U. S. 195, 25 L. Ed. 621; Baker v. Humphrey, 101 U. S. 494, 25 L. Ed. 1065; Stockton v. Ford, 11 How. 232, 13 L. Ed. 676; Trice v. Comstock, 121 Fed. 620, 57 C. C. A. 646, 61 L. R. A. 176; Charles v. Roxana Corp. (C. C. A.) 282 Fed. 983; Mechem on Agency; 6 C. J. 682; 3 A. & E. Enc. of Law (2d Ed.) 379.

Plaintiffs in error advised Waldorf-Astoria through letters to New York counsel early in 1911 that Sauntry was insolvent, that he still had some cut-over timber lands and mining property, that they had had a great deal of experience with him and had collected considerable money from him, that judgment should be taken on the note and Sauntry brought up on supplementary proceedings to find out just what he had, and that payment was doubtful. On November 2, 1911, judgment on the note for $6,900.00 was entered in the State district court at St. Paul on Sauntry’s confession. Execution issued at once and writ of garnishment was served on Bennett & Longyear, a financially responsible firm of Minneapolis, who made return early in November that they were not indebted to Sauntry and had no money or property in their possession belonging to him. Thereupon plaintiffs in error directed the sheriff to return the execution unsatisfied. As a matter of fact Bennett & Longyear were at that time indebted to Sauntry in the sum of $10,000 for accrued and past-due royalties under a mining lease which they held as lessees on 40 acres of land in northern Minnesota in which Sauntry had a half-interest. The lease was given in 1907 by Sauntry and his cotenant, the lessees agreeing to pay Sauntry a royalty of not less than $10,000.00 per annum for the first four years and $15,000.00 per annum thereafter. But Sauntry had given a mortgage on his interest in the 40 acres securing an indebtedness of $30,000.00, and as further security he pledged the royalties to accrue. This accounts for the kind of return made by the garnishees. Of the accumulated royalties in the hands of Bennett & Longyear $2,500.00 was paid to a bank on consent of mortgagee and at the request.of Sauntry, the remaining $7,500.00 was held by them until paid into court some three and a half years later, in a suit brought by plaintiffs in error in their own interest. This action, brought by the Waldorf-Astoria against the plaintiffs in error, is for the recovery of damages on account of their failure to collect its judgment by application of the $7,500.00 to its payment, and also for their failure to procure its payment out of Sauntry’s equity in the 40 acres. The trial court held that plaintiffs in error had failed in the discharge of their duty to Waldorf-Astoria in not procuring the payment of its judgment out of the $7,-500.00 when, by the exercise of reasonable diligence, that could have been done, but further held there was no showing of neglect of duty as to the other ground. There was an instructed verdict in favor of Waldorf-Astoria, for the reason stated, and from judgment thereon defendants have brought the case here.

These facts are undisputed: The $30,000.00 mortgage given by Sauntry on his undivided half-interest in the 40 acres was foreclosed and foreclosure sale had on September 20, 1910. Under the Minnesota statute the mortgagor and all lien-holders were given one year in which to redeem, exercising that right if they desired to do so in the order of their priorities. The year expired September 20, 1911, a month and a half before the entry of the Waldorf-Astoria judgment. Before the year expired the plaintiffs in error had obtained judgments for other creditors of Sauntry, one for $741.38 in favor of Hunt & Co., which they bought for $275.00 in January, 1911, and had it assigned to themselves. See Hunt v. Orr, 246 Fed. 252. They knew in January, 1911, that there had been foreclosure of the mortgage. In 1910 they had secured an abstract of the title to the 40 acres and a copy of the lease to Bennett & Longyear. In 1910 they had written a letter in which they stated they thought the 40 acres was worth 8100,000.00, and one of them later testified that it was worth from $200,000.00 to $300,000.-00. The}7 knew as early as 1910 that the minimum royalty payable to Sauntry was $10,000.00 a year, and after January 1, 191!, $15,-000.00 a year. They had a copy of the mortgage. A short while before the period of redemption expired William and Lyman Sutton, Sauntry’s nephews, evidently acting in their uncle’s behalf, furnished the funds to one Torinus with which he purchased from the mortgagee, who had bid in the property at foreclosure sale, the sheriff’s certificate • of sale, and had the certificate assigned to Torinus. They also secured funds with which Torinus bought the largest judgment placed in line for redemption. On September 20, 1911, at 5:19 p. m., plaintiffs in error docketed in the proper records of the county in which the 40 acres is situate the Hunt judgment and its assignment to them, for the obvious purpose of being last in right of redemption. After preceding judgment-lien creditors who desired to exercise their rights of redemption had done so, then plaintiffs in error redeemed under the Hunt judgment. In order to redeem they got one Spratt to advance the necessary amount, about $46,000.00, for which they agreed to give him an interest in the property. On September 20, 1911, Sauntry gave William Sutton a mortgage on the half-interest to secure Sauntry’s note for $50.00, and that mortgage was filed for record late in the evening of September 20th, after the Hunt judgment was docketed. Thereupon William Sutton undertook to redeem from plaintiffs in error. The latter resisted his right to do so. They and Spratt instituted a suit on October 16, 1911, against Sauntry, Torinus, William and Lyman Sutton and Bennett & Longyear, to obtain a judgment denying to Sutton the right of redemption, sustaining their redemption and to quiet their title to a half-interest in the 40 acres. In that suit it was finally adjudged on October 9, 1914, by the Supreme Court of Minnesota that Sutton had no right to redeem, on the ground that when he filed his $50.00 mortgage he failed to pay the 25 cent registry tax therefor. See Orr v. Sutton, 119 Minn. 193, 137 N. W. 973, 42 L. R. A. (N. S.) 146; Id., 127 Minn. 37, 148 N. W. 1066, Ann. Cas. 1916C, 527. Plaintiffs in error and Spratt then sued Bennett & Longyear for the unpaid royalties, including the $7,500.00 which was due at the time they were garnisheed in November, 1911, in the Waldorf-Astoria suit. Bennett & Longyear admitted that they owed $58,750.00 in accumulated royalties, and on their request they were permitted to pay it into court and were dismissed; but Sauntry had died on November 10, 1914, and his administrator intervened and claimed the $7,500.00 because it had accrued during the year of redemption and belonged to, Sauntry, and it was awarded to him on that ground. Had it not been for the death of Sauntry the plaintiffs in error and Spratt would have recovered it. Sauntry’s estate is insolvent. The mortgagee never made any claim to any part of the accumulated royalties, and we think it apparent from the amount raised by the Suttons to purchase the certificate of sale held by the mortgagee, and also from the amount furnished by plaintiffs in error to perfect their redemption, 127 Minn. 37, 148 N. W. 1067, Ann. Cas. 1916C, 527, that the mortgagee’s claim was paid in full, and that this was known to plaintiffs in error as early as September 20, 1911, and that thereafter from that day until Sauntry’s death on November 10, 1914, the $7,500.00 in the hands of Ben nett & Longyear could have been obtained and applied in satisfaction of the Waldorf-Astoria judgment by writ of garnishment served on them under an alias execution. No reason has been assigned by plaintiffs in error why they did not resort to that simple procedure in behalf of the Waldorf-Astoria. That its omission was ■ a lack of diligence and good faith to their client is too plain for argument. The only explanation which we can conceive is, that they had decided to get it for themselves. But this is not the only respect in which they neglected their client. On November 1, 1911, with full knowledge of the situación, they wrote to counsel in New York this remarkable letter:

“Nov. 1, 1911.

“Chas. J. Campbell, Esq., New York Life Bldg., New York City—Dear Sir:—In re Astoria Hotel Co. vs. Wm. Sauntry. As we advised you some time ago, we are in position to enter judgment in the above matter tomorrow, but from the best information which we can obtain at this time, Sauntry is absolutely insolvent. Some time ago he was the owner of an undivided interest in an iron mine worth considerable money. He gave a mortgage on the property for $30,000.00 which, mortgage was foreclosed. His year of redemption expired in September and he did not redeem but .certain people who we believe are friendly to Sauntry did redeem and presumably he has an interest but it is an interest that you could never show. One person close to the deal advised us that they simply told Sauntry that they, the redemptioners, would take care of him for the rest of his life but he retained no legal claim or could we prove any claim that would even cloud the title.

“An action has been commenced to clear the title to this property and we have been advised that there is some six or seven thousand dollars due from the mining lease that was on the property but the person to whom it is due is uncertain. It was probably either Sauntry or the mortgagees.

“If we are to try to follow up this money, it will be probably necessary to intervene in the suit and as that action is a complicated one, it will certainly go to the Supreme Court and probably more than once. As we stated before, we are told that Sauntry is insolvent and if clients wish, we are willing to go after this money providing they will allow us an adequate contingent fee. We should say that 33% per cent., one-third to you, would be about right.

If we undertake this you can assure clients that there is no need asking for frequent reports because it will doubtless t,ake more than a year to clear up this litigation and there will he' nothing to report until the matter is finally determined. We have had other executions against Sauntry recently return unsatisfied and this is the only hope of ever realizing anything on the matter.

“Kindly let us hear from you at your convenience, and oblige.

“Yours truly, ¡ . Orr, Stark & Collett.”

Remarkable, in that it shows that plaintiffs in error were then advised that several thousand dollars in accumulated royalties was past due; remarkable, also, in that it fails to disclose that the plaintiffs in error themselves had in their own behalf and for their own private interest commenced action to clear the title to Sauntry’s mining property ; remarkable, again, in that it sounds discouragement and warning to the Waldorf-Astoria not to try to follow up the money in the hands of the lessees by intervention in a complicated suit for that purpose, which would certainly be long-drawn out; and remarkable, further, in that it expresses a clear intent to lull their client into inaction. This cannot be explained, except on the theory that plaintiffs in error then had in mind obtaining all of Sauntry’s property, including the $7,500.-00, for themsélves. Waldorf-Astoria and New York counsel did not know that such a suit had been instituted. They were never -advised of its progress, nor the results, nor that plaintiffs in error had themselves acquired Sauntry’s interest in the .40 acres. As late as January 20, 1917, they wrote New York counsel this:

“On September 20, 1910, a mortgage of $30,000.00, was foreclosed on William Sauntry’s mining property in .the northern part of the state and the period of redemption expired September 1911. After, we entered judgment on your claim we levied upon the lessees of -this property, thinking we. might catch some of the royalties which would be due William Sauntry during the year for redemption. , But the lessees disclosed that they owed William Sauntry nothing. »

“William Sauntry died in December 1914 and we filed your client’s claim with the Probate Court. No inventory has yet been filed and it would appear that no assets have yet come to light except the homestead, which of course is exempt.

“We do know, however, as a matter of fact, that he had some mineral rights in the northern part of the state.”

But neither in that letter nor in any other way did they ever advise their client of the true facts or that they had acquired any of Sauntry’s property and how they got it. The Waldorf-Astoria later learned that through other sources. They have made large profits out of their speculation, far in excess of what was required to pay the Waldorf-Astoria judgment. The acts of the two Suttons' bear every earmark of an attempt to hold a half-interest in the 40 acres for the use and benefit of their uncle. If that were so, and they had been permitted to redeem, equity would have applied that interest, though covered up in the name of Sutton, to the benefit of Sauntry’s creditors. The Suttons wanted to get the Hunt judgment out of the way, and in behalf of Sauntry tendered its full amount in gold to plaintiffs in error before they had perfected their redemption. They declined the tender. In Stockton v. Ford, supra, it is said:

“It is true, this is not tbe case of an -attorney purchasing property under an execution which be has issued on a judgment, the usual case in which a court of equity has interfered, .and declared the purchase to have been made in trust for the client. But the principle is the same. He had the charge of the judgment, and. was intrusted with the management of it for the purpose of collection; and can be allowed to do no act in the absence of the client, and without hiq consent concerning it, by which he can derive an advantage at the expense of the client.”

It seems to us that they neglected their duty to their client in another way. They did not take the simple and inexpensive precaution of fastening a lien on Sauntry’s interest in the 40 acres prior to September 20, 1911, in favor of their client, and thus putting it in line for redemption by filing for it a creditor’s bill, either solely in the name of Waldorf-Astoria or 'joining it with themselves as plaintiffs, assignees of the Hunt judgment. If this had been done it is more than probable, in view of the anxious concern of the Suttons, that the lien would have been satisfied and the claim of Waldorf-Astoria thus paid. But the simplest method by which, if they had adopted it, they could have undoubtedly secured payment of the judgment was to have issued another writ of garnishment against Bennett & Longyear on an alias- execution at any time during the three years just prior to Sauntry’s death. During all that time they were fully advised of the facts. The mortgage debt had been paid. No one had acquired any right as against Sauntry to that fund in the hands of Bennett & Longyear, and with full knowledge of the situation they preferred to neglect their client and attempt to recover the $7,500.00 for themselves.

It is said that even conceding a neglect of duty, still there can be no recovery in a case like this, unless the Waldorf-Astoria shows that it has been damaged; and it is argued that there is no evidence that the payee and indorser of the note is insolvent, and that if he be solvent it can be collected from him. But the judgment in its favor established that Sauntry was indebted to it, and it had a right to have that judgment collected. Plaintiffs in error were employed to collect it, if in the exercise of reasonable care and skill they could do so, and it is not for them to say that their client might collect the debt from someone else. After plaintiffs in error neglected the opportunity to collect, above-noted, no chance of ever realizing anything on that judgment was left. The damage to defendant in error was the result of their neglect. A collectible judgment became valueless.

At the close of the trial both sides moved for an instructed verdict. Plaintiffs in error now say that under the rule laid down in Williams v. Vreeland, 250 U. S. 295, 39 Sup. Ct. 438, 63 L. Ed. 989, 3 A. L. R. 1038, Sena v. Am. Turquoise Co., 220 U. S. 497, 31 Sup. Ct. 488, 55 L. Ed. 559, Empire Cattle Co. v. Atchison, 210 U. S. 1, 28 Sup. Ct. 607, 52 L. Ed. 931, 15 Ann. Cas. 70, and Beuttell v. Magone, 157 U. S. 154, 15 Sup. Ct. 566, 39 L. Ed. 654, their motion reserved the right to go to the jury if it should be overruled, that it was not a final submission of the cause on their part. We cannot assent to this. Their motion was put in writing. It embodies stated reasons why it should be sustained, and that part of it entitled, “Motion to Take from Jury,” and “Objection,” contains nothing more than additional reasons in support of the motion. Moreover, we are of opinion that if the case had been submitted to the jury and they had found in favor of plaintiffs in error, it would have .been the duty of the court to set the verdict aside. The undisputed facts required, in our judgment, that the court should have directed of its own motion the verdict that was returned.

Judgment affirmed.