Barstow v. Stone

• Decision Date: 13 December 1897
• Citation: 10 Colo.App. 396,52 P. 48
• Parties: BARSTOW v. STONE et al. [1]
• Court: Colorado Court of Appeals

52 P. 48

10 Colo.App. 396

BARSTOW v. STONE et al. ^[1]

Court of Appeals of Colorado

December 13, 1897

Appeal from district court, Pueblo county.

Action by John L. Barstow against Wilbur F. Stone and others. Judgment for defendants. Plaintiff appeals. Reversed.

Waldron & Devine, for appellant.

A.B Seaman, amicus curiae. Chas. E. Gast, for appellees.

THOMSON P.J.

This is a controversy between the holders of two trust deeds upon the same property. The facts are as follows: On the 15th day of February, 1892, the plaintiff, John L. Barstow, loaned Judge Wilbur F. Stone $8,000. Barstow was represented in the transaction by Theodore A. Sloane, who looked after the execution of the papers securing the loan. The debt was evidenced by a promissory note for the amount, dated February 15, 1892, signed by Stone, payable to Sloane, and due three years from its date, with interest at 8 per cent. per annum payable semiannually. Attached to the note, as representing the interest, were six interest coupons for $320 each. The note was secured by a trust deed, executed by Stone, conveying certain real estate in the city of Pueblo to N.D. Hinsdale, as trustee, with power of sale in the trustee, in case of default in the payment of the principal or any installment of the interest. The deed named the clerk and recorder of Pueblo county as successor in trust. The note, shortly after its execution, was indorsed by Sloane and forwarded, together with the trust deed, which had been duly recorded, to the plaintiff, who lived in the state of Vermont. As the coupons matured, the plaintiff clipped them off, and sent them to Sloane for collection. Sloane collected the first two coupons, and remitted the money to the plaintiff. In the early part of 1893, Stone, being desirous of placing some improvements on the property, and it being necessary, in order to enable him to do so, that he should incumber it for a larger amount, procured Sloane to communicate to the plaintiff his desire to pay off the note. The plaintiff answered the communication by a letter written March 17, 1893, authorizing the submission of a proposition to Stone that, if he desired to discharge the loan before the maturity of the note, he should allow him (the plaintiff) a bonus of six months' interest; saying, also, that, if Stone should accept the proposition, he (the plaintiff) might want Sloane to reinvest the money for him. It does not appear that any reply was ever returned to the plaintiff's letter. A short time after receiving this letter Sloane, in behalf of Judge Stone, applied to Thomas J. Downen, a real-estate and loan agent in the city of Pueblo, for a loan of $10,000 on the same property upon which the plaintiff was secured. After some negotiation, Downen consented to advance the money, to be secured by a trust deed on the property, provided it was released from the first trust deed. On the 5th day of May, 1893, Sloane procured the successor in trust named in the plaintiff's trust deed, C.D. Henderson, the clerk and recorder of Pueblo county, to execute to Stone a deed of release and quitclaim of the property, and placed it on record. This deed recited that the note held by the plaintiff had been fully paid and satisfied by Stone, and that the trustee, Hinsdale, was absent from the state, and unable to act as trustee. Downen thereupon loaned Stone $10,000, taking his note for the amount, dated May 3, 1893, due January 1, 1896, with interest from date at 8 per cent. per annum, and secured by a trust deed to Samuel F. Crawford, conveying the property which had just been released. Sloane gave Stone $2,000 of the money, less a commission of $400 exacted by Downen for making the loan, and converted the remainder to his own use. On the 15th day of August, 1893, Sloane remitted to the plaintiff, out of his own funds, the amount of the coupon then due. No further payment of interest was ever made. The plaintiff was kept in ignorance of the transaction with Downen, and first acquired knowledge of it in an investigation which he set on foot when he failed to receive the money on the next coupon. On the 13th day of May, 1893, Downen sold and transferred the note which he had received from Stone to Pope Yeatman. Mr. Yeatman made the purchase in good faith, and without any knowledge whatever of the fraud connected with the release of the former trust deed. The plaintiff, upon becoming conversant with the facts, instituted this proceeding to cancel and annul the release from Henderson, and to foreclose his own trust deed. All the persons connected with both trust deeds were made parties defendant. The lower court denied him relief, and he appealed to this court.

We have here two men, alike guiltless of bad faith or questionable purpose, one of whom must suffer on account of the rascality of Sloane. If the retention by Sloane of $8,000 of the $10,000 received from Downen was not a payment of the note held by Barstow, and if the instrument executed by Henderson was, on its face, a valid release, the equities of these two men would be so evenly balanced that we should find considerable difficulty in deciding between them. Payment of the note would have rendered the security functus officio, and it would have been a matter of no vital importance whether the release was properly executed, or whether there was any formal release at all. In such case, in the absence of a release by the trustee, a court of equity would order the security satisfied and canceled. But, if the note was not paid, then, as between Barstow and Yeatman, the question of the validity of the release becomes important.

Stone seems to have thought that the note was paid. For some reason he allowed himself to believe that Sloane had authority from Barstow to receive the money, although the note was not in Sloane's hands, and he had nothing in writing from Barstow bearing on the subject of its payment, except the letter of March 17, 1893. It is true that the loan had been originally negotiated for Barstow by Sloane, and that the interest had been paid to the latter as agent, the coupons having been forwarded to him for collection; and if, after its maturity, the note had been found in Sloane's hands Stone would doubtless have been justified in assuming that it also had been sent for collection, and would have been warranted in paying to Sloane the amount due. How far the apparent agency with which Sloane was clothed would have warranted Stone in paying him the money after the maturity of the note, if it was not in his possession, does not require decision in this case. The note was not due, no unpaid installment of interest was due, and the authority which Stone had the right to believe Sloane possessed was not an authority to enter into a new arrangement with Stone, whereby the latter would be entitled to pay off the note before its maturity. To enable him to do this would involve the making of a new contract, and, to constitute Sloane an agent for the purpose, the investing of him with a new authority. Judge Stone understood perfectly the requirements of the situation, and accordingly procured Sloane to correspond with Barstow on the subject of payment of the note. The result was Barstow's letter of March 17, 1893, and whatever authority Sloane had in the premises must be found there. The letter did not empower Sloane to make any contract or arrangement with Stone whatever. It stated that, if Stone wished to pay the note, he should allow Barstow a bonus of six months' interest, and then said: "You can give him my proposition." The whole authority of Sloane is contained in these words. For any purpose except the submission of the proposition he had no agency. Outside of the letter, he did not even have such appearance of agency as possession of the note might have given him. Whether the proposition was submitted does not very clearly appear; but the parties proceeded without further communication with Barstow, or advices from him, and the settlement they assumed to make was not on the basis of the proposition. By its terms there would have been payable the principal of the note, $8,000, with interest from the date of payment of the last coupon, together with a bonus of six months' interest. This bonus was the consideration demanded by Barstow for permitting a settlement at that time, and would amount to $320. But Sloane retained only $8,000 out of the $10,000. This was the exact principal, so that nothing was withheld for...