Case Name: Z. T. Dorrah, Admr., v. J. H. Hill et al.
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1896-03
Citations: 73 Miss. 787
Docket Number: 
Parties: Z. T. Dorrah, Admr., v. J. H. Hill et al.
Judges: 
Reporter: Mississippi Reports
Volume: 73
Pages: 787–802

Head Matter:
Z. T. Dorrah, Admr., v. J. H. Hill et al.
1. Principal and Agent. Contract im, fraud of principal.
An agent cannot bind his principal by a transaction effected without her knowledge, in which, to the knowledge of the other party, he employs her means intrusted to him for investment so as to procure the payment of a debt long’ due by such other person to himself, since he acts therein for himself as well as his principal.
3. Same. Trust deed in famor of agent. Subrogation of pinmcipal. Case.
P. sold land to H., and received in consideration his notes secured by a deed of trust on the land. P. loaned H. a small amount of money belonging to Mrs. G-., and took as security a deed of trust on his personalty. The purchase money notes given by H. were not paid at maturity, and only a small amount was paid P. to the credit of Mrs. G. P., as agent for investment, held money belonging’ to Mrs. J., appellant’s intestate, sufficient to cover H.’s indebtedness to himself and Mrs. G. He loaned this money to H., who made a note to Mrs. J., who was then living, and executed a deed of trust to secure the same on the land and personalty. The old notes to P. and Mrs. G. and the old deeds of trust were then released and destroyed. H. had knowledge that P. was acting as agent for Mrs. J., and that he was to retain her money in payment of the sums due to him and Mrs. G. The new note and trust deed remained in the hands of P. until his death, when they were delivered to appellant as Mrs. J.’s administrator, who, upon discovering that the wife of H. had not joined in the new trust deed so as to bar the homestead right, sought, by bill in equity, to have the original trust deed in favor of P. reinstated, and himself subrogated as Mrs. J.’s administrator to the rights of P. thereunder. Held, that P. could not act for both himself and Mrs. J., his principal, and that, since the transaction, made with H.’s knowledge of the fiduciary relation, was not binding on Mrs. J. or her estate, appellant should be subrogated to the original purchase money security released by P.
From the chancery court of Noxubee county.
Hon. T. B. Graham, Chancellor.
The case is stated in the opinion of the court and in the dissenting opinion of Whitfield, J.
J. JEJ. Hives, for appellant.
The trust deed executed by Hill upon the land in controversy, in favor of Mrs. Jeffries, to secure the $650 note, which we are seeking to collect by foreclosure of the trust deed, was given in renewal and extension of the trust deeds to Mrs. Gas-ton and R. C. Patty, which latter deed had been given by Hill to Patty to secure to him the unpaid purchase money of the land embraced in the deed of trust. To the extent that it was a renewal of the Patty trust deed, it is valid and binding, although the land is the homestead of Hill, and although Mrs. Hill never joined in the trust deed. Billingsley v. HFiblett, 56 Miss., 537.
The relations of the parties at the time the trust deed was given and the Gaston and Patty trust deeds were canceled, were such, that the cancellation of the Patty trust deed was such a fraud upon the rights of Mrs. Jeffries, that a court of equity will either enforce the Jeffries trust deed, or will revive the Patty trust deed and enforce it for her benefit. Patty was at that time the agent of Mrs. Jeffries and intrusted by her with her money for the purpose of lending it on good and sufficient security. He had the sole management and control of the lending of the money intrusted to him, except it was his duty to take good and ample security for all loans. At that time Patty had an individual interest in making- this loan to Hill. Hill was owing him, and to secure the debt he held a trust deed upon this land, which was a valid lien, the debt owing to Patty being for the purchase money of this land. By this loan Patty got the use of Mrs. Jeffries’ money.
It is alleged, and not denied, that not one dollar of money passed to. Hill at that time and not a dollar passed from Hill to Patty to warrant the cancellation of Patty’s trust deed, so that it necessarily follows that the only consideration for the note and trust deed in favor of Mrs. Jeffries was the cancellation of the trust deed in favor of Patty and the delivery up of the Hill note. Hill knew of this relation, for his dealings were with Patty alone. He knew that the interest of Patty was in direct conflict with that of his principal. He knew that he was not parting with a dollar of money, and that, in effect, this was only a transfer of the Patty trust deed to Mrs. Jeffries. Could a court of equity permit Hill to thus join in with the agent of Mrs. Jeffries and perpetrate such a fraud upon her? One dealing with an agent in a matter affecting his principal and knowing that the interest of the agent is adverse to that of the principal, should be held to the duty of ascertaining that the acts of the agent are authorized by the principal. Farrington v. South Boston Railroad Oo., 15 Am. St. Rep., 222. Mrs. Hill had no right except a mere veto power upon the alienation of the land by her husband. A court of equity will not allow an agent to use trust funds in any manner by which he himself acquires a special benefit to the detriment of his principal; it will not allow him to invest the funds in securities which he himself held; it would not allow the debtor to take advantage of any defect in securities while in the hands of the principal, which could not have been taken while they were in the hands of the agent. In such case, equity would allow the principal to be subrogated to the rights which the agent had at the time of the transaction, and this would be the case, even though the original securities were, canceled of record. Pomeroy Eq. Jur., §1211. If the money of Mrs. Jeffries in the hands of Patty had actually passed to Hill, and he had actually paid off Patty’s trust deed, under the authority of Mr. Pomeroy, sugora, Mrs. Jeffries would have the right to •enforce her trust deed, or have the Patty trust deed revived for her benefit. Pom. Eq. Jur., §§ 959, 1078, and 1077.
In this case it is apparent that the parties did not intend to extinguish the lien for the purchase money. That a mere change in the form of an indebtedness will not discharge a lien, unless it is apparent that the parties intended to extinguish it, is well settled. Howell v. Bush, 54 Miss., 437; Cansler v. Sallis, 54 Miss., 449. There can be no doubt that, under the allegations of this bill, and the facts in this case, the intention •of the parties was to substitute the Jeffries 0note and trust deed for the Patty note and trust deed, for some convenience to the parties. The convenience in this case was that Patty got the use of Mrs. Jeffries’ money, and he was joined in this scheme by Hill, who knew the facts. Where this is the case, a court of equity will look through the form to the substance, and keep alive the original security, if justice requires it. Gmisler v. Sallis, supra.
Independently of what might have been the intention of the parties at the time — even conceding that it was the purpose of Patty and of Hill that the debt to Mrs. Jeffries should be a new debt, that a mere change was not contemplated, and that the debt to Patty should be fully extinguished, still justice and equity require that the original security should be kept alive. This transaction was had in the absence of Mrs. Jeffries. She knew nothing about it; the note and trust deed were never delivered to her; and, after her death and the death of her agent, Hill recognized the fact that this was a renewal of the debt for the purchase money. The chancellor was misled by Howell v. Bush, 54 Miss., 437. The facts in that case are very different from the facts ifi this case.
Orr <& Dinsmore, for appellees.
(The brief filed on behalf of appellees is not in the record, and after diligent search and inquiry, the reporter is unable to find the same.;

Opinion:
Cooper, C. J.,
delivered the opinion of the court.
The appellant, as administrator of the 'estate of Mrs. Prances A. Jeffries, exhibited his bill against the appellee, asking to be subrogated to the security of a certain deed of trust executed by the appellee on the eighteenth day of January, 1889, to secure the payment of a debt of $450, and interest thereon, in such deed described, to one it. C. Patty. On final hearing this relief was denied, and the complainant appeals.
The facts, chronologically stated, are as follows: In the year 1885, Patty sold to Hill a small tract of land, at the price of $450, for which he accepted the notes of Hill, payable at stated future times. On the eighteenth day of January, 1889, Hill, not having paid any part of the purchase price of said land, executed a deed of trust to Patty to secure the same. On the same day, Patty, acting as the agent of one Mrs. Gaston, loaned to Hill the sum of $264, and received from him, to secure its payment, a deed of trust on certain personal property. On the first day of January, 1890, Patty had in his hands, as the agent of Mrs. Jeffries, a sum of money which she had intrusted to him to lend, or otherwise invest, for her account. Hill had paid no part of the purchase price of the land, and not much of the amount due by him to Mrs. Gaston, and she desired to have the balance due her paid by him. Patty, acting for himself and Mrs. Gaston and Mrs. Jeffries, accepted from Hill his note for $650, payable to Mrs. Jeffries, in payment of the debt owing to him for the purchase money of the land, and in payment of the balance due to Mrs. Gaston. He delivered up to Hill the notes by which these debts were evidenced, and canceled the deeds of trust by which said notes had been secured, and accepted from Hill a deed of trust, upon the land and personalty, to secure the note then executed by him to Mrs. Jeffries. This note and deed Patty retained in his possession until his death, which occurred in December, 1890. Mrs. Jeffries died in August, 1890, not having been advised by Patty of the fact that he had made the investment of her money. After the death of Patty, the note and deed of trust were delivered by his representative to the administrator of Mrs. Jeffries. Hill had made some small payments to Patty on the note, and also paid two or three, small sums to the administrator of Mrs. Jef fries. It was then discovered that the wife of Hill had not joined in the deed securing the note to Mrs. Jeffries, by reason of which, since a part of the land was a homestead, the security, as to it, was invalid, under our statute requiring the wife to join in the conveyance of the homestead. Hill, it appears, thereupon promised to procure his wife to join him in the execution of a new deed of trust, but afterwards refused to do so, and the appellant exhibited his bill setting up the facts, and praying that the deed of trust executed by Hill to Patty, on the eighteenth of January, 1889, be reinstated and enforced. On final hearing it was agreed that the sum due by Hill was 1500, for which the court rendered a final personal decree against him, and directed the land, in excess of the homestead exemption, to be sold for its payment, and, on the cross bill of Hill,' decreed cancellation of the deed as to the land composing the homestead.
It is said by counsel that the chancellor was controlled in his decision by the case of Howell v. Bush, 54 Miss., 437. In that case Howell, who owned an incumbered homestead, borrowed the money from Bush to pay off the debt, agreeing to give as security a deed of trust on the property. This deed he executed, but there, as here, the wife did not join in the deed, and Bush sought subrogation to the rights of the incumbrancer, whose debt the money he loaned had paid. The court held that, since Bush had carved out and selected his own security, and had canceled, and intended to cancel, the original incumbrance, and since neither fraud nor mistake of fact was alleged or proved, the original incumbrance could not be revived for his protection.
If Mrs. Jeffreys had loaned the money to Hill and taken the invalid security, the case of Howell v. Bush would have controlled. The reason of that case, however, was that the lender had carved out his own security, which failed of effect because of a mistake of law. It does not decide that there can be no subrogation, in any event, to a security which was discharged, and intended to be discharged, by the parties. We need-not again examine this question, as it is fully discussed in the opinion of the court, and in the dissenting opinion of Judge Whitfield in Trust Co. v. Peters, 72 Miss., 1058. Starting with the proposition that, under circumstances, a security, though once intentionally canceled, may be revived and enforced by a court of- equity, the single inquiry is whether the facts of this case bring the complainant within the principle on which relief will be granted.
In the administration of relief by subrogation it will be found that the jurisdiction of equity rests largely upon the prevention of frauds and relief against mistakes, and the expansion of the rule has so nearly covered the field that it may now be said that wherever a court of equity will relieve against a transaction, it will do so by the remedy of subrogation if that be the most efficient and complete that can be afforded.
We* are of opinion that the complainant was and is entitled to the relief prayed in this cause, for the reason that the arrangement made between Patty, the agent of Mrs. Jeffries, and the defendant was one which Patty had no right to make, and because the defendant, by the very nature of the transaction, was bound to know, and did know, that the agent was, while professing to act for Mrs. Jeffries, directly interested in the negotiation, and could, therefore, only bind his principal by her consent, she being fully informed of what he was doing or had done. We need not cite authorities for the proposition that the agent must be loyal to his principal, and, like all other fiduciaries, is forbidden to make a profit by a breach of trust. An agent employed to sell cannot be a buyer, nor one employed to buy be a seller in the matters intrusted to him by his principal. Wharton on Agency, §232, 239, 594, 760. "Where an agent, without knowledge of his principal, becomes engaged in an adverse interest, he is guilty of a gross breach of trust, making himself personally liable to his principal for the damage, and vitiating, at his, principal's election, any contract made under the influence of such disloyal engagements. And this rule obtains even where the agent reaps no benefit from the transaction." Wharton on Agency, § 244; Baughn v. Shackleford, 48 Miss., 255.
In Ex parte James, 8 Ves., 337, Lord Eldon said that "the doctrine as to purchasers, assignees and persons having a confidential character, stands much more upion general principles than upon the circumstances of any individual case. It rests upon this: that the purchase is not permitted in any case, however honest the circumstances, the general interests of justice requiring it to be destroyed in every instance, as no court is equal to the examination and ascertainment of the truth in much the greater number of cases. ' '
The fact is apparent that in making the loan to Hill, Patty, the agent, was acting in a matter in which his interests were adverse to those of Mrs. Jeffries. He had sold the land to Hill years before, and no part of the purchase price had been paid. It is not unreasonable to assume that it was not to him a desirable investment of bis own funds, and that he took advantage of the opportunity afforded by the circumstance of having Mrs. Jeffries' money in his hands to transfer his claim against a slow debtor to his principal. Whether this be true, however, is immaterial, for Mrs. Jeffries was entitled to the exercise of his j udgment, uninfluenced by bis personal interests, in making loans of her money, and this she did not have. Whether the investment in the particular case would have been a desirable one if the deed had been executed by both Hill and his wife, is not the question. That would be the "circumstance," as Lord Eldon puts it, of the particular case. But the rule, as he says, rests, not upon the particular case, but upon general principles. The disqualification to make the arrangement, and thereby bind Mrs. Jeffries, arose from the fact that, in so doing, he was acting for-her and for himself.
Nor can it be doubted that Hill knew precisely what was being done — that Patty was to retain the money of "his princi pal in payment of the sum due him, and that he, Hill, was to execute his note to Mrs. Jeffries, to represent the sums he had before owed to Patty and Mrs. Gaston. In truth the very transaction demonstrated that Patty was representing both himself and his principal, for he agreed, as an individual, to cancel the deed of trust and note he held against Hill, and deliver them over to him, and this was done as a part and parcel of the arrangement. Dealing thus surreptitiously with the agent was a fraud upon the principal, and Hill, equally with Patty, was subject to the right of the principal to repudiate the contract upon receiving knowledge of its character. Norris v. Taylor, 49 Ill., 18; Brockett v. Richardson, 61 Miss., 766; Panama Co. v. India Rubber Co., L. R., 10 Ch. App. Cas., 515.
In the case of Panama Co. v. India Rubber Co., supra, the complainant had contracted with the defendant company to lay a submarine cable, payments to be made, as the work progressed, upon the estimates and certificates of Sir C. T. Bright, the complainant's engineer. After the contract had been made, the defendant made a contract with Bright- to lay the cable. The complainant had paid to the defendant company £60,000 on the contract, when it discovered that its engineer had entered into the contract with the defendant, and thereupon exhibited its bill for cancellation of the contract and to recover the sum it had paid. Pull relief was afforded, the court holding that any surreptitious dealing between one principal and the agent of the other principal, is a fraud on such other principal, cognizable in equity. James, L. J., said: "That I take to be a clear proposition, and I take it, according to my view, to be equally clear that the defrauded principal, if he comes in time, is entitled, at his option, to have the contract rescinded, or, if he elects not to have it .rescinded, to have such other adequate relief as the court may think right to give him."
In that case, as in this, the fraud- upon the principal did not consist in an actual purpose to cheat the principal. In that case the fault was in dealing with the agent in such manner as to create personal interests inconsistent with, the discharge of his full duty to the principal. In this it was in dealing with him in reference to a matter in which- he had an adverse personal interest. We do not suppose the defendant, Hill, at the time the arrangement was made, purposed not to pay the debt to Mrs. Jeffries. But he now refuses to do so, and relies upon the cancellation by Patty of the original security as a reply to the complainant's prayer for subrogation to its benefit, and the complainant responds that this cancellation was a part of a contract entered into between Patty, the agent of Mrs. Jeffries, and the defendant, by which she was not bound; that the defendant, by the very nature of the transaction, was advised that Patty, by reason of his adverse interest, was incompetent to bind his principal, and both he and Hill took the chance of ratification or repudiation by the principal. We take it to be the law that Patty could not, without express authority from Mrs. Jeffries, thus transfer to her his claim against Hill, and that Hill, having notice of the want of authority of the agent, stands in no better situation, and that the representative of Mrs. Jeffries has the right to repudiate the contract and have such restoration of the status quo as is now practicable. And since it is evident that only by subrogating the complainant to the security afforded by the deed of trust to Patty can adequate relief be afforded, the chancellor should have so decreed.
So much of the decree as denies to complainant the right of subrogation is reversed, and a decree may be entered here directing a sale of the property described in complainant's bill for- the amount agreed to be due and all costs.
So ordered.