Court Opinion

ID: 5168880
Source: CourtListenerOpinion
Date Created: 2022-01-02 04:51:24.936129+00
Date Added: 2024-06-11T08:25:59.298298
License: Public Domain

AILSHIE, J.,
Dissenting. — I am unable to concur in the conclusions reached by a majority of the court in this case. After repeated examinations of the voluminous record in the case, I am fully convinced that one of the closest, confidential, and fiduciary relations which can ordinarily be established has been proven to exist between Stuart and Hauser, for a period of more than thirty years. When such a relation is shown to exist between vendor and vendee at the time the .deed claimed to be a mortgage was executed, the rule laid down in Coyle v. Davis, 116 U. S. 583, 6 Sup. Ct. Rep. 314, 29 L. ed. 583, and supported by authorities from all the states, that the evidence to show it was intended as a mortgage “must be clear, unequivocal, and convincing,” does not apply. Where men deal with each other in the ordinary business affairs of life, with no special or specific relation of trust or confidence existing between them which would necessarily and unavoidably tend to the inevitable result of relaxing their ordinary business methods and caution, it is an equitable rule, well established, that he who questions his deed of conveyance must establish his charge by evidence clear and satisfactory. It seems to me that in equity and good conscience this rule should be relaxed proportionately as the relation of trust and confidence is shown to exist in each case. Equity lays down no invioable rules and precedents, but meets each case as it finds the facts therein, and deals out justice ir*74respective óf forma and precédents. It was for this identical purpose that the rule was'established of admitting parol 'evidence in such’ cases as the one under consideration. In this' case there is a substantial conflict in parts of the evidence, but 1 am unable 'to find anything which could be termed a conflict in the evidence as to the relation which has continuously existed between appellant and respondent Hauser, since the year Í862. I shall enumerate some facts which appear from the record; in addition to those contained in the opinion of the chief justice.
. Hauser was, practically, the First National Bank of Helena, which institution.was organized in 1866. Hauser was in absolute control of the business and management of the bank from its organization until its failure in 1893. In 1866 Stuart began working in the-bank as bookkeeper, which position he held for more than three years.. In 1878 Hauser caused ten shares of the capital stock .of said bank; to be transferred to Stuart^ and thereupon Stuart was made -a director o'f-the bank; which position he held until 1894. Stuart never owned the stock, and when he ceased to be a director transferred the same back to Hauser. Stuart had an open account with the bank from 1878 to 1895. From 1863 flown to 1895 or 1896 Stuart and Hauser were interested together in numerous mining companies, and during a part of that time in the cattle business Stuart being the general manager on the ranges. About 1883 Stuart purchased Hauser’s interest in the cattle business, and became heavily involved, and from that time on was financially at the mercy of Hauser, the individual, and the First National Bank, which was one of Hauser’s multitudinous corporate names. From about the year 1886 down to 1890 we find Stuart writing Hauser most pathetic letters of his financial distress and need, and drawing on Hauser for such sums as $100, and Hauser, ■while he has in his hands $10,600 belonging to Stuart from the sale of an interest in these Idaho mining properties to Kl'einschmidt, honors the drafts for these pittances. Part of the $10,600 was received by Hauser in October, 1886, and the- remainder in January, 1887, during the severe winter in which .Stuart lost so many cattle and was having his hardest struggles to maintain his business. Hauser holds this entire sum until *75October, 1890. On July 13, 1890, in answer to one of Stuart’s appealing'letters, Hauser writes:'“Yours in reference to Davis, having cut you off received. As I understand it, we are going to quit entirely. If we go on we will continue, but let the-matter rest until I return. In the meantime, if you need any money, draw on me from time to time, for one or two hundred' as you need it. You ain’t flat broke, nor won’t be unless I have, very bad luck. You have some money that you don’t know any--, thing about. Yours, S. T. Hauser.”- It would seem from this, letter that Stuart knew nothing at this time of the Kleinschmidt. ■sales, and that he was not aware that Hauser had $10,600 to his credit. During these years, Hauser, the individual, was-doing, a business which involved the expenditure' of an average of from; $1,000,000 to $1,500,000 annually. He was the controlling, spirit in numerous banks, organized so many mining corpora-tions that he says on- the witness-stand, “It would take' all the. evening for me to tell you all the mining companies I have been connected with.” He built ten. or twelve branch lines of rail-, roads in the territory of Montana, eight of them being branches of the Northern Pacific Railroad. In 1863 plaintiff and his brother James were partners, and in that year the brother loaned Hauser $1,000, with which he went to St. Louis and organized the first mining corporation of Montana. During all this time Stuart was either working for Hauser or associated with him in some of his enterprises, and invariably looking to Hauser to float the financial end of the business. Both were of the same political faith, and prominent in the politics of the territory. Hauser was appointed governor o.f the territory by President Cleveland, and served eighteen months, when he resigned to continue the prosecution of his gigantic business enterprises. On October, 6, 1890, the date on which the first two drafts for $6,000 each wtere drawn, Hauser had in his bank $135,769.23 to his individual credit. Stuart, while on the witness-stand, was evidently asked why he did not'take an agree•inent from Hauser to reeonvey these mining claims if this deed was only, intended as security. He testifies: “As I still owed ithe debt, it was a poor time to talk about reconveyance.. I understood the property was to revert to me upon the payment, of *76the debt.” This, it seems to me, is expressive of Stuart’s condition at that time. He was then indebted to Hauser, dealing as the Mrst National Bank, $37,033, and was absolutely dependent upon Hauser.
It should also be observed that on May 20, 1882, plaintiff and his wife executed and delivered to Hauser a power of attorney-authorizing him to sell, bond, or in any manner dispose of any and all mining claims held by him in the territory of Idaho, or which he might thereafter acquire, and to maintain or defend any and all actions in relation thereto. This power of attorney was held all these years by Hauser and never revoked. To further illustrate the implicit confidence Stuart had in Hauser, it is shown that on April 2, 1894, and only one day before plaintiff started on his official mission to Montevideo, South America, he and his wife executed and delivered to Hauser a further power of attorney authorizing him to demand, sue for, and receive any and all sums of money which were then due or might become due to plaintiff “in the United States of America,” and to dispose of real and personal property in the state of Montana, and apply for and receive patents to mining claims, and represent him at stockholders’ meetings, etc. It also appears that all the negotiations of every kind, both in purchasing and selling the Idaho mining properties, were by Hauser, and that Stuart knew nothing of what was going on in relation thereto; that Stuart’s account at the bank was charged from time to time as any interest was acquired or expense incurred, and that, as a matter of fact, Stuart seldom knew how his account stood, and after the transaction of October 6, 1890, we find him writing to know if an item of $854.11 was included in the notes, and saying, if not, to send him a note to cover that and he would sign and return it. In 1895, and while Stuart was in South America, all his interest in the cattle company was sold for $35,000, and his indebtedness to the Davis estate and one of the $12,000 notes were paid, and the other reduced to some $3,000. I recite these facts for the purpose of showing the intimate relation of trust and confidence existing between these men and the commanding position occupied by Hauser over Stuart. *77The ordinary and average relation between brothers is much surpassed by that existing between Stuart and Hauser, as is disclosed by this record.
As said by Judge Brewer in Keith v. Kellam (C. C.), 35 Fed. 245; “It will not do to separate these different transactions, and say that no one of them by itself was sufficient to establish a confidential relation. .... The only fair way to .look at it is to take all these transactions in the aggregate, and determine therefrom how each must have regarded the other.” The lord chancellor, in Vernon v. Bethel, 2 Eden, 110, stated the principle, which is just as applicable to-day as it was then, when he said: “Necessitous men are not, truly speaking, free men; but, to answer a present emergency, will submit to any terms that the crafty may impose upon them.” In Lindsay v. Lindsay, 1 Colo. App. 108, 27 Pac. 877, the supreme court of Colorado, in discussing the burden of proof in such cases as this, said: “Whenever the transaction is between parties whose relations are of a close fiduciary character, the complainant is not held to the same exactitude and strictness of proof, nor is the testimony offered in support of the bill to be viewed with the same scrutiny, as in those cases where the parties deal with each other at arm’s length.” In discussing the same principle of equity the supreme court of Missouri, in O’Neill v. Capelle, 62 Mo. 202, said: “Courts of equity watch transactions of this sort with such jealous and ever-vigilant solicitude that, if the matter be in doubt, they will desolve that doubt in favor of the theory of a mortgage, and compel the transaction to assume and wear that hue and complexion.” (City of Kansas City v. Zahner, 138 Mo. 453, 40 S. W. 103; Kyle v. Perdue, 95 Ala. 579, 10 South. 103; Waddell v. Lanier, 62 Ala. 347, Villa v. Rodreguez, 12 Wall. 339, 20 L. ed. 406.) In 2 Pomeroy’s Equity Jurisprudence, 479, the author lays down the rule as to the proof required in cases like this. He says: “Wherever two persons stand in such a relation that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person *78so availing himself of his position will not be permitted to regain the advantage, although the transaction could not have been impeached if no such confidential relation had existed.’5, (See Russell v. Southard, 53 U. S. 139, 13 L. ed. 927, where many questions arising in this ease are discussed.) In speaking of trustees, agents, etc., the New Jersey chancery court says; “Such transactions are never upheld .unless it is clearly shown that there has been on the part of the person trusted that most, marked integrity — that uberrima fides — which removes alt doubt respecting the fairness of the contract.” (Porter v. Woodruff, 36 N. J. Eq. 179; 1 Story’s Equity Jurisprudence, secs. 217, 323; Perry on Trusts, secs. 170, 194; Tappan v. Aylsworth, 13 R. I. 582.) After a careful examination of the authorities bearing on this question, I am of the opinion that as, soon as plaintiff established the close relation of confidence and trust which the record discloses in this case, equity will at once relax the rule of strict proof, if not entirely shift the burden onto the defendant of showing that his deed was in fact intended to pass the title absolute. Where such relation is shown, and the evidence as to the purpose for which the conveyance was made leaves the court, acting as a chancellor, in doubt, it seems to me that the equitable and more conseionable rule is to hold the instrument to have been intended as security, and thereby save harmless both debtor and creditor. Entertaining this view of the ease, I think the evidence overwhelming in favor of the appellant, and that the rule often announced by this court in eases of a substantial conflict in the evidence does not apply here. ■. . • . .
i But there is another and equally serious question in. this case. Bespondent contends that appellant’s note for $37,033* held by the bank, was paid October 16, 1890, by Stuart giving the two notes for $12,500 each, secured by mortgage on all his Montana property, and the two drafts for $6,000 each, which were accepted by Hauser, and that these two accepted drafts covered the purchase price of the Idaho mining property. The note itself bears indorsements as follows: “Oct. 16, ’90, $12,000-paid by. ecc of S. T. Hauser, $25,033.00 paid by A. K. Ban-hour.” This note was never surrendered to Stuart, and when *79he wrote for it the bank informed him that it was held by A. K. Barbour as a voucher. The first two drafts for $6,000 each were drawn October - 6, 1890, one payable six months after date and the other payable seven months after date. The second two drafts for $6,660 each, covering interest from date of first settlement, 'were drawn August 31, 1892; one payable six months after date, the other eight months after date. The third and last two for $6,600 each were drawn April 2, 3894, the day before Stuart started for South America, each payable eighteen months after date. From these facts it will be seen that a period of five' years from October 6, 1890, Stuart’s indebtedness continued both to Hauser the individual and Hauser the bank, and as between Stuart and Hauser the indebtedness has never been discharged. It is true the form and evidence of the indebtedness was changed, but this only suspended the remedy by the creditor, and in no respect paid the debt. Not being paid when due, the remedy on the original note revived, and the debt never was extinguished. (Welch v. Alington, 23 Cal. 322; Brown v. Olmsted, 50 Cal. 162; Tolman v. Smith, 85 Cal. 280, 24 Pac. 743; 18 Am. & Eng. Ency. of Law, 167; Comptoir D’Escompte de Paris v. Dresbach, 78 Cal. 15, 20 Pac. 28.) It is clear to my mind that the preexisting indebtedness .for which it is claimed this deed was given was not paid, extinguished or canceled at the time of the execution of the deed, nor for more than five years thereafter, and that protest for that period was unnecessary on the part of the bank to hold Stup-rt, the drafts not yet being due. Chief Justice Post, speaking for the court, in Riley v. Starr, 48 Neb. 243, 67 N. W. 187, announces what seems to me the chief and crucial test to be applied- in ascertaining whether the instrument was intended to secure a debt or vest the title. He says: “A safe, and perhaps the most satisfactory, test in all such cases- is whether the relation-of the parties to each other as debtor and creditor continues. If it does, the transaction will be treated as a mortgage;' otherwise hot.” This .question has repeatedly been discussed and held to.be a pivotal point in cases of this kind. (City of Kansas City v. Zahner, 138 Mo. 453, 40 S. W. 103; Campbell v. Dearborn, 109 Mass. 130, 12 Am. Rep. 671; Pingree *80on Mortgages, sec. 116.) In 20 American and English Encyclopedia of Law, second edition, at page 944, this principle is announced in the text, and the authorities are collated in the note.
My associates lay stress on the fact that these drafts were never protested, and that eventually, in 1901, Hauser compromised with the receiver of the bank, and settled them, and that Stuart was never called upon to pay them. I am unable to see the force in such contention. It seems to me that the question is, Was the debt paid and extinguished when the deed was executed and delivered? If it was not, how can the creditor thereafter — one month, five years, or, as in this case, eleven years — cancel the obligation, and say that his debtor owes him nothing, and thereby convert the conveyance which was intended as security for the debt into a sale absolute of the property covered by the deed? The proposition, “once a mortgage, always a mortgage,” has become a legal maxim in this country, and the test is, What became of the debt at the time the deed was executed? (20 Am. & Eng. Ency. of Law, 2d ed., 951; Tower v. Fetz, 26 Neb. 706, 18 Am. St. Rep. 795, 42 N. W. 884; Macauley v. Smith, 132 N. Y. 524, 30 N. E. 997; Lounsbury v. Norton, 59 Conn. 170, 22 Atl. 153; Murry v. Walker, 31 N. Y. 401; Riley v. Starr, 48 Neb. 243, 67 N. W. 187; State Bank v. Mathews, 45 Neb. 659, 50 Am. St. Rep. 565, 63 N. W. 930; Odenbaugh v. Bradford, 67 Pa. St. 104; Rankin v. Mortimers, 7 Watts, 375.) Hauser attempts to explain these drafts by saying, “I wanted Mr. Stuart’s name on this paper for the accommodation it might be to me.” It is at least significant, when we remember that this is all a part of the one transaction, to contend in one breath that these parties were dealing at arm’s length, and that the original debt was paid by executing a deed, and in the next breath to say that Hauser the individual borrowed from Hauser the bank the money with which to pay for this deed, and at the very same time procured the vendor to draw on him as an “accommodation,” and stiE failed to pay the drafts when due. LE it was not intended to continue the debt in existence, why did- Hauser not pay these drafts out of the $136,000 he then had in the bank to his credit? *81Hauser further explains this by saying that he had borrowed of the bank up to the limit allowed by law to be loaned by a national bank to any one person, and that this method was adopted “to kind of fool the comptroller.” Were it not for the statute of limitations, I apprehend that Governor Hauser would not have made this admission in face of the acts of Congress governing officers of national banks. To say the least of this, to my mind it does not support the proposition for which it was evidently given; and, furthermore, we do not find in this record Stuart at any time trying “to kind of fool” anybody. The fact that Stuart waited ten years before demanding his rights in this case is urged to his detriment, and at the same time the fact that eleven years after the first drafts were drawn they were compromised, settled, and canceled by Hauser is cited with approval, and to establish the fact that the debt was actually liquidated. Stuart certainly makes a reasonable explanation of the matter. He had been absent four years. During the entire ten years Hauser had held powers of attorney to do as he pleased with Stuart’s property. Nothing came to Stuart’s knowledge of any deals or transactions affecting these mining properties until Hauser and Holter commenced a partition suit against their co-owners for a sale of the claims and distribution of the proceeds. Stuart says: “As I was not mentioned in the partition suit, it became evident at once that I was left out, as it were; and it occurred to me that it was time 1 was taking steps to .assert my rights, which I proceeded to do.” It is reasonable to believe that Stuart was lured on by the same confidence in the fair treatment he would receive from Hauser, which had been growing for forty years, and which had caused him to leave in Hauser’s hands a general power of attorney to dispose of this property since 1882. The greater portion of this property had stood on the record in the name of Hauser since 1879. Why, then, should the plaintiff lose his property because he continues to trust the man with whom he had dealt so many years.
The fact that Stuart is a man o,f varied business experience, who enjoyed the confidence of his fellow-citizens, and was rec*82ognized by the chief executive of the nation as a fit man to represent this government in a foreign country, is cited to show that Hauser-had no unusual influence over him, and that the relation of trust and confidence therefore did not exist; By this is certainly not meant that a man must be either ignorant, feeble-, minded, or disreputable before he can repose trust and confidence in another, or be influenced and financially dominated by another; nor do I suppose it is meant- that he must be such. before he can assert his rights in a court of equity.
I have recited many facts which are not found in the majority opinion by Chief Justice Sullivan in order to illustrate the position I take in this case. In the consideration of the entire case the facts in the majority opinion should be taken in connection with those recited herein.
The foregoing are the principal reasons why I think the judg- • ment of the lower court should be reversed.