Court Opinion

ID: 8520021
Source: CourtListenerOpinion
Date Created: 2022-11-23 10:21:49.307057+00
Date Added: 2024-06-11T16:51:28.767887
License: Public Domain

Dumbauld, P. J.,
The conclusion reached by the majority of the court is so utterly in conflict with the facts, law, and inherent justice of the case, as they impress themselves upon me, that I am compelled to dissent and to place on record my reasons for such dissent. ■
Early in 1932, William H. Smart found himself in financial difficulties. At that time he was the owner of the legal title to eight contiguous lots of land, situate on Locust Street, in the City of Uniontown. On each of seven lots was located a frame house, of sufficient size to house a single family. Upon the eighth there was a double house.
These properties, as a whole, were encumbered by a purchase money mortgage in the sum of $9,000, reduced by payments to $2,000 with interest. Tax liens and judgments entered by other creditors after he acquired title aggregated $4,192, exclusive of interest and costs. There were thus encumbrances amounting to $6,192, with interest, when Baroni accomplished a sale of the corner lot with the double house for $1,300. In an effort to make title to the purchaser of the lot, the encumbrances above-mentioned prevented completion of the deal.
It must be apparent that, at that time Smart had an equity in the properties equal to the difference between $6,192, with some interest, and the value of the properties. In the correspondence between Baroni and Smart, Smart suggested a sacrifice price of $8,000 for the whole. The uncontradicted testimony of real estate *504dealers at the trial was that, in January, 1933, the lots had a market value of from $10,000 to $12,500. Obviously Smart had a substantial equity over and above all the encumbrances. In an effort to realize this equity, when approached by Baroni at his home in Lock Haven, he entered into the agreement of May 29, 1932, as follows:
“This will authorize you to buy the mortgage against my properties located on Locust Street, Uniontown, from Miss Sturgeon- and to sell them later after foreclosure on the best terms and conditions possible, acting as rental agent in the meantime for the houses. Such taxes as are due or may become due are to be paid and necessary repairs to make the properties salable are to be made and paid for and the profits, if any, are to be divided equally between us, and my share is to be remitted from time to time as they are made. It is understood that you will do everything possible to advance our joint interests in the transaction. This letter is to be binding on us both when you sign an acceptance on even date herewith.”
This agreement is not obscure. It is not fraudulent. It is not collusive. It simply creates the relationship of principal and agent for specific purposes between Smart and Baroni. Whether he remained throughout simply the agent or whether his conduct placed upon ■ him the additional responsibilities of a trustee, makes no difference in the final analysis. The-salient point is that the relationship is created by the document itself and is not to be established by the court in the trial of this case. He is authorized to buy the first lien; to acquire by purchase the title at sheriff’s sale in the foreclosure proceedings; to repair the houses; to pay present and future taxes; to rent in the meantime; and finally, to sell and remit to Smart profits on the basic of an equal division.
Baroni was at the time a real estate broker. He dealt as such. He became the agent for Smart for *505remunerative compensation, to acquire, rent, repair and sell Smart’s property, valued at from $8,000 to $12,500, encumbered by liens and taxes amounting to $6,192 — all in accordance with the terms of the written agreement. The transaction by which he acquired title in his own name in no wise changed this relationship. As to third parties, after he obtained the deed in August 1932 Baroni had the full right to convey legal title. Between Smart and himself he remained the agent. He continued to be bound by all the principles of loyalty and fidelity which good morals, sound law, and supervening equity impose upon real estate agents. Neither in law nor in equity could he take from Smart any ownership or any title, except as provided in the agreement — the right to retain half the profits.
Textbook and decision make this point crystal clear. The agent stands in the classification of a fiduciary to his principal, and in all of the deals he must serve the employer with the utmost good faith and loyalty. It is his duty to make known all matters affecting transactions which may be of importance to the one for whom he acts. He must not speculate in subject matter of agency, conduct a rival business, sell to himself, make any secret profits, or, without disclosing the fact, ask for compensation from both buyer and seller.
See 3 C. J. S., §§138, 142, 144(a), 144(c), 154(c), 154(a), 163, 165. Allegheny By-Product Coke Co. v. Hillman & Sons Co., 275 Pa. 191; Shepard & Co. v." Kaufman, 88 Pa. Superior Ct. 57; East & West Coast Service Corporation v. Papahagis (No. 1), 344 Pa. 183.
The record shows abundant proof that Baroni strictly carried out the terms of the agreement until he acquired title in his own name. He immediately began to exploit the properties. He completed the sale of the corner lot, collecting the $1,000 balance due on the purchase money. He had accepted a down-payment ;f $300 on this lot before the making of the agreement *506of May 29, 1982. He mortgaged the remaining lots for $1,500, which sum he retained. He immediately took charge of the collection of all the rents. He kept no account of rents received, but places the amount so collected from August 1932 to January 1933 at $300. He claims payment of taxes in the amount, as filed with the sheriff at the time of sale, but fiscal records leave the date of payment and the amount of taxes paid in doubt.
All this transpired between August 1932 and January 3, 1933, when, without notice to Smart, he conveyed all the properties, together with some other holdings to his clerk, confidant and constant companion, Ruth J. Frost, for the consideration of $1 named in the deed, for the actual consideration of $3,100, as testified by defendants.
He continued to execute leases in his own name. Receipts for rent were taken in his name, the money frequently being received by Ruth J. Frost and the receipt executed in his name and signed by her initials. Sales of several of the properties were negotiated by him and up to the time of the trial there was no change in the handling and managing of these properties.
The jury, under ample instructions, found that out of these transactions there were profits and that the two defendants, with fraudulent intent and knowledge of the existence and tenor of the agreement on the part of the defendant Frost, confederated and agreed to accomplish the withholding of Smart’s share of the profits, using the deed to Frost and other instrumentalities to accomplish such withholding.
The jury was told (page 1378 of the record) :
“Your problem in that respect will be in a consideration of that conveyance that is in and of itself an agreement whereby she became the holder of the legal title to these properties by virtue of a deed from Baroni. Your question will be to determine whether, from the circumstances that surround that transaction and the *507circumstances that have followed that transaction down to the date of the bringing of this indictment there was an understanding between these two people that that deed, that agreement to convey, was to be made the instrument by which Smart was to be deprived of his share of the profits in the disposing of the property. That is the heart of this case. All of the other testimony simply bears upon collateral questions that are at issue here. oWas there an understanding between them that this deed from him to her was to be made the instrument by which the agreement to divide profits arising out of the real estate would be voided and Smart’s part of such profits withheld if there were profits? As you decide that question, your verdict should turn. If there was an understanding or an agreement that this conveyance was to be so used, then these defendants are guilty as indicted.
“If there was no such understanding; if it was a good-faith business transaction on the part of either one of them and if the deed was not to be made an instrument by which Smart’s money was to be withheld, then the defendants are not guilty and your verdict should be such”: Commonwealth v. Smith et al., 151 Pa. Superior Ct. 113.
The answer of the jury was that both defendants are guilty. As suggested before, the testimony is ample to support this finding.
Notwithstanding the unequivocal language of the agreement and the relationship which it, by law, creates, and the clear cut verdict of the jury as to the vital facts, the majority invokes a “consideration of public policy”, the result of which is to repeal and annul all the rules of loyalty and fidelity, good-faith and fair dealing, which morals, law and equity have from time immemorial imposed upon the agent in dealing with his principal, and to estop the Commonwealth from placing its strong hand on the real estate broker, who contracts for half the profits of a transaction and *508by manipulation with a willing actor, with knowledge, takes the whole, and fraudulently shares with her the fruits thereof.
The judgment of the majority, in my opinion, is based upon two erroneous conceptions:
(a) That the agreement of May 29, 1932, is collusive and fraudulent as to the creditors of Smart; and
(b) Even though collusive and fraudulent as to Smart’s creditors, the agreement worked a breach of the relationship between Smart and Baroni and thus absolved Baroni from transmitting profits, as made, to Smart as provided in the agreement.
(a) I am completely at a loss to understand upon what premise the majority bases the statement that:
“The agreement clearly reveals the collusive scheme to divert the embarrassed debtor’s property from the payment of his debts through a transfer without a fair consideration, in contravention of the Uniform Fraudulent Conveyance Act.”
' In this connection I must again refer to some of the salient facts. In 1932, Smart was an embarrassed debtor. He was also an embarrassed lot owner. Acting for him, Baroni negotiated the sale of one of the eight lots for $1,300. Transfer of title was prevented by a purchase money mortgage, on which there was a balance of $2,000, with some interest. Taxes and other liens added to the encumbrances $4,192, with costs and interest. Sale of these lots for taxes either had been made or was imminent. Smart offered the holder of the purchase money mortgage a part of the consideration for a release of the corner lot. This was not satisfactory. In desperation, he wrote to Baroni, suggesting a sacrifice sale of the whole for $8,000, the liens to be paid, Baroni to be paid his commission and he to get the balance.
What was the alternative? Dr. Sturgeon’s testimony clearly discloses that the holder of the purchase money mortgage was about to foreclose for the balance *509of the mortgage, interest and taxes. She did not want to deprive Smart of his equity. To avoid foreclosure, she offered to take $1,100.
“. . . After discussing it with my aunt, we felt that Mr. Smart had paid a good bit on this property up to that time and to try to foreclose when he was not able, to meet the figure of $2,000 remaining was unfair. So I wrote to Smart to the effect that we would take $1,000 for the mortgage and interest, $1,000 and $100 interest, and let him have the mortgage . . .”
On pages 114 and 115 of the notes, Dr. Sturgeon continues:
“. . . You asked me a question about the taxes . . . We talked that over. It was not the question of taxes taking the property from us. We were in position to pay the taxes. The question was whether we should take the property from Mr. Smart by paying the taxes and foreclosing the mortgage. There was enough houses there to cover the mortgage nicely, but we didn’t think it was equitable or fair to take the property from Mr. Smart, for the sake of a $2,000 remaining mortgage, and paying the taxes.”
Faced with this situation, in the presence of Justin M. Kunkle, a reputable real estate broker of-our.city, Baroni, Kunkle and Smart collaborated in the agreement of May 29,1932, by means of which Smart sought to salvage a part of his admitted equity in these lots which, when disposed of in January 1933 had a fair market value of from $10,000 to $12,500.
It must be evident that the junior lien creditors would have been in exactly the same position at the public sale of July 9, 1932, by the sheriff of Fayette County, if the foreclosure proceeding had been inaugurated by the holder of the first lien mortgage, Miss Sturgeon.
The agreement provides for foreclosure. The lien creditors could not be kept in the dark as to this proceeding. Thé bond was entered of record. An execu*510tion issued. The sheriff levied on the properties. The sale was duly advertised. The defendants themselves went to considerable length to prove that Smart knew of the date of the sale and was present thereat.
At a sheriff’s sale, publicly held, lien creditors must decide for themselves whether they will protect their liens by bidding on the property. Here was real estate worth at least $8,000. Other judgment creditors could have protected their claims by bidding $2,000, plus the taxes and their own claims in order, all not to exceed $6,192. This they failed to do, as happens in many, many cases. At a public sale, held in the broad, open light of day, no junior creditors made a bid and Baroni succeeded in getting the title in his own name, subject to all the duties of principal and agent as defined and set forth in the agreement. Creditors were not deceived or misled, except perhaps as to the $1,000 rebate by Miss Sturgeon. The total amount of the liens against the property, including that sum, together with the value of the land, make that fact immaterial.
The other judgment creditors stood by at the sale made by the sheriff publicly, after due advertisement, with nothing to prevent them from protecting their liens except their doubts and fears as to the value of the real estate involved.
There was no collusion or fraud as affecting junior lien creditors.
I also fail to find substantial basis for the statement of the majority that “The sole object of the purchase was to enable Baroni, with Smart’s connivance, to manipulate matters so as to foreclose the rights of other creditors. That object is not only openly avowed in the agreement itself, but is apparent in the proceedings that followed . . . The result of these maneuvers was that for a comparatively small advancement by Baroni, all of which was immediately recouped by closing the sale of the one lot and borrowing the value of one more upon the security of the seven that remained, *511the agreed transfer was colorably accomplished, and Smart’s creditors thus forcibly shaken off.” I have just shown that Smart’s creditors were not “forcibly shaken off” but shook themselves off when they failed to put a price on Smart’s equity at the public sale.
I have looked in vain for any authority, local, State or Federal, which holds that an embarrassed debtor and landowner is guilty of collusion and fraud when he contracts with a real estate broker to acquire the first lien, to foreclose thereon, to become the purchaser at the foreclosure sale, to rent, repair and sell the properties and divide with such broker the profits of such handling of the estate.
A contract similar in every respect was litigated and its legality determined in the case of Kramer v. Wins-low, 130 Pa. 484, and the same case retried and reported in 154 Pa. 637.
(5) Admitting for the sake of argument that the agreement was collusive as to other lien creditors, the relationship between Baroni and Smart was in no wise changed. Baroni carried on according to the terms of the agreement until he acquired the title in his own name. He carried on while realizing from the property rents, the proceeds of a mortgage, and the purchase price of the sale of the corner lot. He carried on, he alleges, in making repairs and paying taxes. He failed only in dividing profits. He was carrying on, when, on January 2, 1933, the day before he deeded the properties to the other defendant, he wrote Smart at Lock Haven:
“. . . The tenant on Locust Street are most of them on relief and the best I could do to chisel few dollars are of tham to pay the water rent, do that or have the houses vacant wich will be damaged to greater extent, and the mooto round here now is mark time and say nothing by this week or next I will get all bills together and make out an itemized statement and mail you a copie, and in mean time if is possible for me to gather *512up few dollars I should be only to glad to send you some money ...”
He was carrying on when, on the following day he completed a transaction which he says he had been carrying on with Ruth Frost’s husband for some time, whereby he conveyed the entire area to Ruth J. Frost. He continued to carry on when he wrote to Smart on February 1, 1933, March 4, 1933, March 16, 1933, and April 15,1933 — in all of which letters he promises to see Smart with “good news” and in most of which he promises to bring money.
He has carried on in the collection of rents, the leasing of the dwellings and other items of management of the properties to the time of the trial.
To me it is inconceivable that any rule of public policy may be invoked in behalf of these defendants under circumstances such as are proven in the trial of this case.
No creditor of Smart is invoking the collusiveness of the agreement. No taxing authority is heard to complain. The only result, as the rule is applied by the majority, is to permit defendants to continue to enjoy in safety the whole of the profits arising from this real estate transaction where there was a solemn contract providing for only half of the profits as compensation and when a jury has fairly found from ample and competent testimony that these defendants conspired to withhold from Smart the profits which the agreement provided should be sent to him as made.
Such is not my understanding of the rule. The opinion of Chief Justice Gibson, in Stewart v. Kearney, 6 Watts 453, quoted strangely enough in the opinion of the majority, begins and leads up to the part quoted with these significant words:
“That a collusive contract binds the parties to it, is a principle which commends itself no less to the moralist than to the jurist . . .” immediately followed by the part quoted:
*513. . for no dictate of duty calls upon a judge to extricate a rogue from his own toils.”
Thus it is plain that whether collusive (which it was not), or otherwise, as to Smart’s creditors, the agreement binds and continues to bind the parties to it and that agreement, as it has been pointed out again and again, provides that profits arising under the agreement shall be divided equally and Smart’s part sent to him. Collusiveness as to creditors certainly did not confer upon the parties the right to steal from each other.
The jury having determined that fact, that there were profits to be divided and that Baroni and his clerk wilfully and fraudulently conspired to withhold these profits, exactly what is charged in the indictment, not a conspiracy to commit the crime of fraudulent conversion, the verdict should stand.
The judgment of the majority leaves these defendants in possession of the fruits of their fraudulent conduct — in unmolested possession of all the profits, where only half were contracted for. If any rogue is to be extricated from his toils in this case by judicial decree, obviously it is not the prosecutor who started out with a substantial equity in real estate, who bargained with a licensed realtor to salvage that equity for half thereof and who finished with neither land, credit nor money.
The logic and result of the application of the rule of public policy to the facts of this case go far toward making hijacking a respectable occupation.
The demurrer was properly overruled, the case fairly submitted to an intelligent jury, and verdict of guilty should be followed by sentence of the defendants.
[NOTE. — An appeal to the Superior Court from the foregoing decision of the majority was quashed on the ground that the order entered was interlocutory.]