Case ID: dc_9/html/0219-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Wylie", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

BERNARD BURNSTINE vs. JAMES M. ORMES, WILLIAM H. WARD, JOHN N. HUBBARD, EDWARD W. PARSONS, ROBERT E. DAY, AND THE CONNECTICUT GENERAL LIFE-INSURANCE COMPANY.
    At Equity. —
    No. 3621.
    I. A court of equity will set aside a release of a deed of trust upon real estate when it has been obtained by fraud and imposition, and will restore such deed of trust to its priority, and will maintain the rights of those claiming under it.
    II. The beneficiaries of a second deed of trust upon the same property to recover the payment of money advanced after such release had been executed will not be entitled to any priority or advantage by means of such release when the same has been acquired by the active fraud or imposition of one of their own agents.
    STATEMENT OE THE CASE.
    This was a bill of complaint to set aside a release of a trust-deed upon real estate. In substance the case was this:
    That on Jauuary 31, 1872, John N. Hubbard executed a deed of trust on two lots of ground in this city to William H. Ward, trustee, to secure said Hubbard’s note to James M. Ormes, or order, for $3,000, at thirty days, with interest at ten per cent, per annum, which deed of trust was recorded February 2,1872, and which note was, a few days after it was made, indorsed and delivered, for value, to the plaintiff, who still holds it unpaid.
    That on February 4, 1873,' said Ward, trustee, executed a release of said deed of trust, on having the signature of said Ormes thereto, under which he styles himself the “ party secured and holder of the matter secured,” which they, the said Ormes and Hubbard, knew to be false, intending thereby to defraud the plaintiff which release was made without the knowledge or consent of plaintiff and was held a year before it was recorded.
    Mr. Ward, at the time said release was presented to him, was detained at his house by sickness, and upon seeing the memorandum, under the signature of Ormes, to the effect that he was the party holding the note the payment of which was secured by the deed of trust, executed the release without any further inquiry.
    The evidence discloses the fact that the complainant has no other security for his debt than this deed of trust, and that Hubbard aud Ormes were guilty of fraud, above mentioned, in procuring its release.
    Several months after the date of the trust-deed already referred to, viz, on the 11th day of November, 1872, Hubbard executed a second deed of trust to Edward W. Parsons and Eobert E. Day, to secure a debt of $12,000 to the Connecticut General Life-Insurance Company, which was, therefore, subordinate to that given to Ward, and on that account the insurance company was to retain out of the loan then made to Hubbard a sufficient sum to discharge certain incumbrances upon the property, including the trust-deed to Ward, until they should be discharged. In pursuance of this arrangement, the company did retain a sum sufficient to pay off the last-named incumbrances until the execution and delivery of the release, and then paid to Hubbard, upon the strength of such release, the amount which had been so retained. The company was not aware that the release had been obtained by fraud, or that complainant had an interest in the note secured by the first trust-deed, except it is to be charged with the acts and knowledge of its agent in Washington, one J. G. Bigelow. It appears from the testimony that Bigelow was the general agent of the insurance company in and for the District of Columbia. His written commission gives him authority to solicit life-insurance only, and he denies in his deposition that he represented the company in the negotiation of this loan; but, on the contrary, he claims that he acted in regard to that transaction as the agent of Hubbard. In this matter he is contradicted by Ormes, who states positively that Bigelow was the agent of the company in negotiating the loan. It also appears that he corresponded with the company in regard to the loan, that the drafts for the money as it was advanced from time to time were drawn by him and signed by him as agent, and that he was in the habit of making loans in this District for the company.
    
      From the proofs in the case, the court came to the conclusions of fact that Bigelow acted on behalf of the company and was their agent, through whom they managed this loan; that the circumstances attending the execution of the release were known to Bigelow, and that the same was without the knowledge or consent of the complainant; and' that Bigelow was also aware that the complainant was the holder of the note secured by the first deed of trust, and that he took part in the fraud and imposition by means of which the release was obtained from Ward. The conclusions of the court as relates to these facts is all that can conveniently be stated, as the testimony is too voluminous to admit of an abstract.
    The'equity term passed a decree on March 4, 1875, setting aside the release made by Ward and the record thereof and re-instating the deed of trust to him ; from which decree the life-insurance company has taken this appeal.
    
      John E. Norris and Enoch Totten for complainant.
    
      S. R. Bond for the Connecticut General Life-Insurance Company:
    It is claimed that it is shown conclusively by the testimony that the insurance company paid to Hubbard the amount which had been retained to pay the first trust, upon the faith and strength of the release, in perfect good faith, and without notice that the debt secured by the first trust had not been paid, or that the release had not been properly obtained. Such being the case, the company became the first incumbrancer, and, having purchased the property at the sale under its trust, believing it to be the first incumbrance, it acquired the legal title, and holds the same discharged of plaintiff’s claim. The company did no act to the plaintiff’s prej udice, and if he has suffered injury, his remedy is against those who wrought it. It parted with its money, relying upon the act of a party whom others had intrusted with its proper performance, and the rights which it thus acquired cannot be divested by reason of either the laches or fraud of others, of which it was not only innocent but had no notice.
    Upon this state of facts the company stands in the position of a purchaser for a valuable consideration, without notice of a prior equitable right, and having obtained the legal estate, is entitled to priority in equity as well as at law.
    In support of this proposition the authorities aré uniform, and the following are referred to among a large number to the same effect:
    
      Valle's Administrator vs. American Iron Mountain Company, 27 Mo., 455 ; Barnes vs. Cammack, 1 Barb., S. C. N. Y., 392 ; Ely vs. Schofield, 35 Barb., 330; Bassett vs. Norworthy, 2 White & Tudor’s Leading Cases in Equity, 36; Executors of Swartz, vs. Leist, 13 Ohio, 419; Savage vs. Gregory, 32 Conn., 250; North vs. Belden, 13 Conn., 380; Henderson vs. Pilgrim, 22 Texas, 464.
    It was urged on the part of the plaintiff at the hearing below that J. G. Bigelow was the agent of the company, and that he had notice of the plaintiff’s claim, with which the company is chargeable by reason of such agency. ' Upon this point it is contended by the appellent that Bigelow’s agency for the company was for the sole purpose and with the sole authority to solicit life-insurance. This is clearly proved by the copy of Bigelow’s appointment or commission annexed to his deposition. Bigelow says the only contract or agency between him and the company was that stated above, and his duties as such agent were to solicit life-insurance. No other agency existed between him and the company. Where is the evidence of any other ? When did it commence ? How was it created, and what was its scope ? Story on Agency, secs. 69, 76, 83; 2 Greenl. on Evidence, sec. 62; Bank vs. Davis, 2 Hill, 451; Bank vs. Payne, 25 Conn., 444; Lewis vs. Phænix Mutual Life Insurance Company, 39 Conn., 100.
   Mr. Justice Wylie

delivered the opinion of the court:

In this case the negotiable note which was secured by the first deed of trust #as made by John N. Hubbard to James M. Ormes, and the latter indorsed it to the complainant Burnstine, who became the purchaser for full value. While the latter was relying upon this security, the trustee, William H. Ward, was induced by a fraudulent imposition and representation to execute a release of the deed of trust without any notice to Burnstine, and without his consent or knowledge. After the property had been released, the insurance company advanced money, upon the loan already nogotiated, to Hubbard, and claims that it has obtained a priority of lien by virtue of the second trust-deed which had been executed to the company, and that, consequently, Burnstine loses his security. We are, however, satisfied from the testimony that Bigelow, who was the a,gent of the insurance company, was an active party to the fraud in obtaining the release, and that Ormes acted in concert with him.

It is also clear that they both knew perfectly well that Burnstine held the note, and relied upon the property as security for its payment. The company, we think, are not justly entitled to the advantage which they claim, when it has been acquired by the active fraud or imposition of one of their own agents. As Burnstine wa¡s an innocent party, without notice, or any circumstance that could excite his suspicion, we think he ought to be maintained in his right, even if the loss falls upon the appellant.

The decree below is affirmed.