CATHARINE A. BECKETT v. WILLIAM TYLER ET AL.

CATHARINE A. BECKETT v. WILLIAM TYLER ET AL. Equity. — No. 4796. I. A court of equity will only sustain a purchase by a trustee from his cestui que trustyvhcre it is deliberately agreed and understood between them that the relation shall be considered dissolved, and there is a clear contract, ascertained to be such after a zealous and scrupulous examination of the circumstances, and it is clear that the cestui que trust intended that the trustee should buy, and that there is no fraud, concealment, or advantage taken by him. II. A party is not considered an innocent purchaser of real estate, as against prior equitable titles, where the record discloses such facts and circumstances as are sufficient to put him on inquiry. III. Where circumstances of fraud exist on the part of a purchaser of real estate or his assignee with notice thereof, lie will not be entitled to compensation for improvements made on such fraudulently acquired property. STATEMENT OP THE CASE. The bill charges that on the 28th day of September, 1874, Eli Beckett, the husband of complainant, being seized of a lot of ground and improvements in the city of Georgetown, known as the Beckett Hall, conveyed the said property to the defendant William Tyler, in trust, to hold the same tor the sole and separate use of said complainant, her heirs and assigns; and upon the further trust, whenever requested by her so to do, to unite with her in mortgaging or conveying the same absolutely in fee-simple, &c.; that on the 23d day of October, 1874, the said William Tyler procured to be recorded a deed purporting to be from himself as trustee and the complainant to the defendant' Frank P. McDermott, an employee in his office, and who acted in this behalf as his agent, for the pretended consideration of $1,000, as expressed in said deed;’that said deed was never signed' or acknowledged by said complainant, nor did she or the said Tyler ever receive the said consideration, or any other consideration, on account of the same; that said deed was fraudulent, and was. made for the purpose of having the property reconveyed by said McDermott to said Tyler in fee; that on the same day, and in pursuance of such fraudulent understanding, the said McDermott did reconvey the said property to said Tyler for the pretended consideration of $2,000; that at divers times subsequently the said Tyler procured loans of money, and executed deeds of trust upon said property securing the' same, which deeds of trust were released. The. said Tyler, on the 18th of November, 1875, conveyed said property to the defendant Saville, for the pretended consideration of $1,200; that at the time of said conveyance to said Saville, and long prior thereto, the said Tyler was 'indebted to said Saville, and that the said conveyance was made in attempted liquidation of said antecedent indebtedness, or a part thereof, and that at the time of said conveyance said Tyler was notoriously insolvent. The prayer of the bill was that the pretended conveyance purporting to be from Tyler and herself to McDermott, and the subsequent conveyance, be declared fraudulent and void, and for general relief. Decrees pro confesso were taken against some of the defendants; the others answered, and among them McDermott, who admitted the execution of the deed from himself to Tyler at said Tyler’s request, biit denied all knowledge of fraud; actual or contemplated, on the part of said Tyler against the complainant. At the final hearing the contest had narrowed down to a controversy between the complainant and defendant Saville as the only parties in interest. The answer of defendant James II. Saville denied that the deed to McDermott was fraudulently obtained, and alleged that it was executed and acknowledged by the complainant with full knowledge of its purport and effect; that the consideration was a good and valuable one; that Tyler believed he had a good title and proceeded to expend a large sum of money in improving and making the said property available; that having heard that a certain incumbrance of $500 upon the property was fraudulent, he sent for complainant; that she stated, in relation to her transactions with Tyler concerning the. property now in dispute, that she agreed with the said Tyler to exchange said property for a house and lot on Dunbarton street, in Georgetown, then owned by Tyler. He admitted the deed from McDermott to Tyler, but has no knowledge that the consideration was not paid; admits the other conveyances mentioned, but has no knowledge of frauds, want of consideration, or other allegations. He admits the conveyance from Tyler to him of 18th November, 1875, but denies that the consideration of $1,200 was in any sense pretended; but alleges that said $1,200 was an amount of money owing to him by said Tyler and payable on said day, and denies all knowledge that Tyler was then insol veut. He also filed with his answer a cross-bill, in which he prayed that an account be taken of what had been expended by Tyler for improvements, and that he be required to produce his books, &c.; that if the conveyances whereby the title in fee was vested in said Tyler be declared void, then that Catharine A. Beckett be decreed to pay him the amouut of money expended by Tyler for improvements, and for general relief. The court below decreed a dismissal of the bill, from which decree the complainant appealed to the general term. Hugh T. Taggart and Frank T. Browning, for complainant. The deed to McDermott was fraudulent, and fraud cannot operate as the foundation of any title, legal or equitable. It is contended on behalf of defendant Saville that the complainant did execute the deed to McDermott, but, proceeding upon this hypothesis, it appears beyond doubt from the evidence that she never received any consideration from it, and that at the time of the conveyance to Saville her equities against Tyler were clear, and the said deed could have been avoided at her instance. (Perry on Trusts, p. 168, et seq; Wormley v. Wormley, 8 Wheat., 421; Michoud v. Girard, 4 How., 503.) The defendant Saville is in no better position with regard to complainant than Tyler was, because, first, the consideration of the deed from Tyler to him was a preexisting indebtedness of said Tyler to him, and he parted with no new consideration. The transfer of property as a new secui’ity for an old debt is not sufficient. (Perry on Trusts, 192; Root v. French, 13 Wend., 570; Clark v. Flint, 22 Pick., 231; Barrett v. Nosworthy, 2 White & Tudor, pt. 1, p. 100, and cases cited; Dickson et al. v. Tillinghast et al., 4 Paige, 215, et seq.) Second, he cannot be regarded as a bona-fide purchaser without notice; for the pretended conveyances were matters of record, and upon their face were sufficient to put him upon his inquiry. The testimony shows that he caused the title to be examined, and even had the objectionable deeds in his possession. They showed him that the transaction, regarded in the most favorable light, was a dickering between the trustee and cestui que trust in regard to the trust property, which is obnoxious to all the rules of equity, and in general utterly prohibited. Pie was bound to satisfy himself by actual inquiry of the honesty and good faith of the trustee’s transactions. (Perry on Trusts, 194-196; Oliver v. Piatt, 3 How., 479.) Third, the evidence shows that the conveyance from Tyler to Saville was not the voluntary act of Tyler, but was procured by duress ; that he went to the office of Tyler, retired with him to a private room and locked the door, (and at a time when complainant was in the outei’ office of said Tyler, waiting to see Mm in reference to said property,) and there procured by threats Tyler’s consent to said transaction. A conveyance thus obtained is invalid, not only as to the parties, but as to third persons. (Huguenin v. Basely, White & Tudor Lead. Cas., vol. 2, pt. 2, p. 1261, and authorites cited.) As to the matter of the so-called improvements, the expense of which the defendant Saville claims, in case the conveyances mentioned in the bill are set aside by the court, the testimony shows that they were a disadvantage to the property, and, in point of fact, made it less valuable than before; but in any event the defendant Saville can have no claim to the same. He is in no better position than Tyler, the trustee, and it is well settled that the trustee is not entitled to be paid for improvements. (Green et al. v. Winter, 1 Johns. Ch. Rep., 26 ; 2 Story’s Eq. Jur., p. 462, et seq.) It must appear from the foregoing that, taking any view of the case, regarding the complainant in either of the only two possible lights in which she can be considered under the testimony — that of the victim of a deliberate fraud, or the victim of misplaced confidence — her rights against Saville are equally clear. Th. Jessup Miller, for defendant Saville. It is true, and if it be material in this cause it is proved, that, in acquiring the property in the first instance from Mrs. Beckett, Tyler committed frauds upon those persons; but it is also true and is equally proved that the defendant Saville did not have notice of these frauds at the time of his pui'chase. The whole doctrine of bona-fide purchaser's, with full citations of the authorities, may be found in the notes to the case of Barrett v. Nosworthy, 2 White & Tudor’s Leading Cases in Equity, pt. 1, p. 33, et seq. The law is, that a bona-fide purchaser for value and without notice is a good defense against all prior equities and against all adverse proceedings in equity. (Woodruff v. Cook, 1 G. &. J., 270; Owings v. Mason, 2 A. K. Marsh., 380; Tollman v. Moore, 21 Grat., 213; Howell v. Ashmore, 7 Stock., 82; Demurest v. Wyncoop, 2 Johns. Ch., 147; High v. Battle, 10 Yer., 335; Varrick v. Briggs, 6 Paige, 323; Heilner v. Imbrie, 6 S. & R., 401.) A bona-fide purchase is valid not only against an antecedent equity, but although the premises were fraudulently acquired by the vendor. (Somes v. Brewer, 2 Pick., 184; Wood v. Man, 1 Sumn., 506; Gallatin v. Irwin, Hopk., 48; Beans v. Smith, 2 Mass., 252; Tufts v. Tufts, 3 W. & M., 457.) It is attempted to assail the' impregnable position of the defendant Saville as an innocent purchaser for value, by arguing that the consideration of his purchase was not valuable, because it was a pre-existing indebtedness. The law on this subject is perfectly well settled: the transfer of property as new security for an old debt is not á .valuable consideration, but the satisfaction of an old indebtedness is a valuable consideration for a transfer. The reason for this is, that the ex-tinguishment of this prior indebtedness changes the position of the purchaser for the worse. (Padget v. Lawrence, 10 Paige, 170; Petrie v. Clark, 11 S. & R., 371.) It is objected again, that because the deeds alleged to be fraudulent were recerded, the defendant Saville had notice of these frauds. There is nothing in the deeds to show or to raise a suspicion of any fraud attached to them. It does appear that Tyler acquired his title from one McDermott, who had purchased from him as trustee; but this sale to McDermott appeared to have been made with the acquiescence of his cestui que trust. When a trustee has fairly sold an estate, a subsequent purchase by him is unobjectionable. (Baker v. Peck, 9 W. R., 472.) Even if Tyler’s purchase had been directly from his cestui que trust, it would not have been void, but voidable only, and then only upon certain terms. The leading case (Fox v. Mackreth, 2 Cox, 320) settled the principle upon this subject. His cestui que trust, even after an acquiescence, could compel a trustee to account for any undue advantage or any profits derived from such transaction; (Thorp v. Cullom, 1 Gilman, 615; Ives v. Ashley, 97 Mass., 198;) but there is no reason in the position taken by counsel for Mrs. Beckett, that such a cestui que trust can follow the property in the hands of the purchaser, and there is no authority to sustain such a position. When the property has been resold by the trustee to a bona-fide purchaser before the cestui que trust applies to the court, the original sale cannot be set aside; the remedy will be only personal against the trustee for an account of the profit. (Jackson v. Walsh, 14 Johns., 407; Hawley v. Cramer, 4 Cowen, 719; Robbins v. Bates, 4 Cush., 104; Hoffman v. Cumberland, 16 Md., 456; Lazarus v. Bryson, 3 Binney, 54; Ringgold v. Ringgold, 1 H. & G., 70.) The evidence does not show that the conveyance to Saville was procured by duress. The answer of Tyler and of Saville and the deposition of Saville deny expressly any such statement. When a sale to a trustee is set aside, the trustee is entitled to have the amount expended by him for purchase-money and improvements. (Imboden v. Hunter, 23 Ark., 622; Bailey v. Robinson, 1 Grat., 4; Davoue v. Fanning, 2 Johns. Ch., 252; Mason v. Martin, 4 Md., 124.) The value of the improvements would inure to the assignee of the trustee. It is manifest that the complainant in this case, Beckett, is the party who reposed the confidence in Tyler; all of Saville’s transactions with him are complete in themselves; he does not take an executory contract, but a deed of conveyance, leaving no trust to be executed • and nothing to be done by Tyler. We believe no rule of law is better settled than that where innocent parties must suffer loss by the default or fraud of some other party, the loss must fall upon these who reposed the confidence, whose acts misled the other. (See Licbarrow v. Mason, 2 T. R., 70; Chitty on Contracts, 763; Rost v. French, 13 Wend., 573; Gill v. Schley, 2 Md. Ch. D., 281; Bigelow v. Comegys, 5 Ohio St. R., 256.) [MAJORITY — Mr. Justice Humphreys] Mr. Justice Humphreys delivered the opinion of the court: The object of the bill is to have sundry conveyances, which appear of record, affecting the title to a lot of ground and premises in Georgetown, known as the Beckett Hall, set aside on the ground of fraud. On the 23d of October, 1874, the legal title to the premises • being in the defendant "William Tyler, in trust for the benefit of the complainant, a paper-writing purporting to be a conveyance from her and the said Tyler to the defendant Mc-Dermott, an employee in his office, of the said property, in fee for the consideration of $1,000, was made and recorded. This deed, so far as the same purports to have been signed and acknowledged by her, complainant says is a fraud and a forgery; that she never authorized or requested Tyler to execute such a paper, and that she never received from the said McDermott, or the said Tyler, any money or other consideration whatever on account thereof. The reasonableness and probability of her story depends upon all the surroundings of the case. There are subscribing witnesses to the deed, but their testimony is uncertain and unsatisfactory as to its execution by her. The title does not remain long in McDermott; for on the same day he reconveys the property to Tyler in fee, relieved of any trust. The consideration named in this deed is $2,000. Not the least singular feature of this transaction is the fact that McDermott makes a clear gain of $1,000 oft' the trustee. Tyler now frequently incumbers the property to secure loans of money made to him, and finally, on the 18th November, 1875, executes a deed conveying the same in fee-simple to the defendant Saville, for an alleged consideration of $1,200. He has up to this time, it seems, rendered no account to his cestui que trust or paid her any money. A court of equity will only sustain a purchase by a trustee from. his cestui que trust where it is deliberately agreed and understood between them that the relation shall be considered dissolved, and there is a clear contract, ascertained to be such after a zealous and scrupulous examination of the circumstances, and it is clear that the cestui que trust intended that the trustee should buy, and that there is no fraud, no concealment, and no advantage taken by him. (Michoud v. Girard et al., 4 How., 556.) If, therefore, the deed to McDermott were genuine, and there had been a failure of consideration or other irregularity in the bargain, a court of equity would not hesitate to restore complainant’s former rights as against Tyler. Saville, however, urges that complainant did sign- the deed to McDermott; that he is an innocent purchaser for a valuable consideration; and that whatever may have been the wrongs of Tyler, and the credulity and confidence of the illiterate Catharine, he must not sutler. When questioned with some particularity as to the nature of the consideration he paid for the ground, he declined to answer, on the idea that it was his private business. We think that is exactly what we had a right to know, that where •the title of the person under whom he claimed was charged to be one tainted with bad faith, imposition and fraud upon the credulous and unsuspecting, it was part of his necessary defense that a full and open explanation should be made. An innocent person must be such in fact and in deed; he must have parted with his money or other property, and not have taken a conveyance on speculation. He further claims that finding the conveyances from Tyler and complainant to McDermott and from McDermott to Tyler on record, he was justified in concluding that the title was good. This is undoubtedly correct, as a general proposition, where there is nothing on the face of the papers to excite suspicion. The abstract of titles shows the trustee conveying to himself, through McDermott, by deeds executed at the same time and for different considerations; and whether she signed one of the deeds or not, Tyler was still her trustee, if fraud or imposition had been practiced upon her in the transfer. In this apparent condition of the title, the conveyance is made to Saville. If the facts were not sufficient to put even a person who pays out his money on his inquiry, then we are unable to see what could. But the evidence shows that the consideration of the deed to Saville was an old note, made by Tyler, which he held. We see nothing in the circumstances to justify us in protecting Saville at the expense of the complainant; and more especially because we do not regard the averment that complainant did unite in the deed to McDermott, on the promise by Tyler of a lot elsewhere, as being sustained by the testimony. The claim made for compensation for alleged improvements by the trustee, we do not consider as sustained by the proofs. Even if it were clear that any repairs amounting to improvements had been made, still the nature and character of the transaction would not authorize the court to charge the complainant with the burden thereof. It is only when fair, open dealing has been had, that a claim for improvements can be allowed. The decree below must be reversed, and a decree entered confirming the title of the complainant.