Earll v. Picken

• Decision Date: 15 April 1940
• Docket Number: 7298.,No. 7297,7297
• Citation: 113 F.2d 150,72 App. DC 91
• Parties: EARLL et al. v. PICKEN. PICKEN v. EARLL et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

72 App. DC 91, 113 F.2d 150 (1940)

EARLL et al. v. PICKEN.

PICKEN v. EARLL et al.

Nos. 7297, 7298.

United States Court of Appeals for the District of Columbia.

Decided April 15, 1940.

Motion to Modify Decision Denied May 20, 1940.

COPYRIGHT MATERIAL OMITTED

Charles A. Douglas, Hugh H. Obear, and Edmund D. Campbell, all of Washington, D. C., for appellants, and cross-appellees Earll and others.

John P. Labofish, of Washington, D. C., for appellee, and cross-appellant Picken.

Before EDGERTON, VINSON and RUTLEDGE, Associate Justices.

RUTLEDGE, Associate Justice.

The cross appeals are from a decree of the District Court allowing plaintiff, Harry E. Picken,¹ $3,100 damages against defendants Donald M. Earll and Louise C. Earll for breach of trust. The controversy arises from the fact that Donald M. Earll assumed inconsistent positions as trustee for the plaintiff and as owner of adverse interests in the trust property, which he concealed by use of straw men and otherwise. Various transactions flowing out of this situation are challenged, including a foreclosure of the plaintiff's interests in the property and acquisition of it by the defendants. The facts as found by the trial judge are not disputed in any material aspect and are supported by the evidence in the record. They are substantially as follows:

In September, 1930, plaintiff owned a residence on G Street, Washington, D. C., encumbered by a deed of trust which had been reduced to $1,900. A real estate broker, Lucien H. Thaden, persuaded plaintiff to buy a larger house on Military Road at a price of $13,500. The terms were assumption of a $7,500 first deed of trust, execution of a $4,500 second deed of trust, payable in installments of $65 per month, and $1,500 cash. As plaintiff did not have sufficient cash for the down payment, Thaden arranged with defendant Donald M. Earll "to secure a loan on the G Street property." Earll advanced the money, allegedly from a "joint account" which he held with his wife, Louise C. Earll, and took back a new first trust on the G Street property for $3,250. After deducting the amount due under the old trust, a $65 commission, and $14.63 for insurance premiums, Earll turned over the proceeds of the loan to the seller of the Military Road property and plaintiff made up the rest of the $1,500 payment. The note on the G Street property was made payable to a clerk in Earll's office, and Earll and his uncle, Albert M. Harding, became trustees of the G Street trust. Plaintiff did not know that Earll had advanced the money, or that the payee of the note was acting as his agent or straw man.

Earll and his uncle, Albert M. Harding, were also trustees of the $4,500 Military Road trust. While the Military Road transaction was still in the course of settlement, the vendor offered to sell the $4,500 note to plaintiff at a discount of $1,000. Plaintiff declined for lack of funds. Earll, unknown to plaintiff, then bought the note at a $1,500 discount, thus becoming trustee and holder of the notes under both deeds of trust.

Plaintiff moved into the Military Road property and began making payments on the $4,500 second trust note. In the latter part of 1931 he became "pinched for money," and wrote to the bank where he had been making payments, asking for an extension of time. The bank did not reply, but Earll got in touch with him, told him the bank had nothing to do with the note and he could have the extension. In the latter part of 1932 plaintiff again became pinched for money and requested the bank to inform him as to who held the note. The bank stated that it could not divulge the information, so plaintiff wrote to Earll asking for a reduction in the monthly payments. Earll ignored the letter, but when plaintiff wrote again threatening to notify the first trust mortgagee of his financial condition Earll promptly called upon him. Earll refused to grant any reduction in the payments, but urged him to "hold on," assuring him that "his man" had plenty of money and would see him through. Earll at all times refused to tell who held the note.

By February 4, 1933, Picken, after several conversations with Earll in which his financial embarrassment was discussed, concluded that it was "absolutely impossible" to meet the payments, and notified Earll of that decision. Earll warned that a foreclosure and a possible deficiency judgment might follow cessation of payments. Plaintiff then paid the due installment and moved out of the premises pursuant to an understanding between him and Earll that the property would be sold more easily if it were vacant. March 8, 1933, Earll obtained plaintiff's signature on a letter authorizing "his client" to foreclose. Earll told plaintiff that this was "a mere formality," and plaintiff testified he did not know that the letter authorized foreclosure when he signed it.

The foreclosure sale was held March 21, 1933. The property was bought by Edward T. Harding, another uncle of Earll, acting either for Earll or for him and his wife, Louise C. Earll. Harding put up no money, and the purchase price of $2,200 above the $7,500 first trust, conceded to be fair, was credited on the note. Plaintiff knew of the sale but did not attend. May 26, 1933, defendant Louise C. Earll, claiming to be holder of the note, sued in Municipal Court for a deficiency judgment of $983.98 against plaintiff. The appearance of Mrs. Earll's name (though not her relationship to Earll) as plaintiff caused Picken to suspect collusion, but he assumed that it was "strictly legal" as Earll "seemed to know his business." Having no money to defend and believing that he had no legal defense, plaintiff allowed judgment to go by default on June 26, 1933.

Plaintiff had conveyed his G Street property to his daughter by a deed recorded February 9, 1933, and later notified Earll of that fact. Mrs. Earll promptly brought a creditor's bill in District Court to set aside the conveyance as fraudulent. Plaintiff, wishing to keep the names of his wife and daughter out of the case, offered to settle by having the G Street property deeded to Mrs. Earll in satisfaction of the deficiency judgment. The offer was accepted, the conveyance was made in July, 1933, and the judgment was marked satisfied.

Mrs. Earll collected $765 rent on the G Street property, then sold it for $4,750, less $250 commission. The Military Road property lay idle for 19 months while Earll sought to sell it. It was then sold to one Russon, who defaulted on his payments after paying about $2,000 of the purchase price. Russon's interest thereafter was foreclosed, Edward T. Harding taking title for the Earlls. Since February, 1937, it has been rented at $90 a month.

According to the trial court's findings of fact, "The upshot of these transactions was that the Pickens lost the Military Road property and the G Street property. No accounting was ever made to them. Louise C. Earll, wife of the trustee in the new first trust on the G Street property and in the second trust on the Military Road property, obtained both houses, holding them through Edward T. Harding, the brother of one of the trustees and the uncle of the other."

Plaintiff filed this action May 28, 1936, praying reconveyance of the Military Road and G Street properties, an accounting of the rents received from both properties, damages, an order restraining enforcement of the deficiency judgment, and general relief. The trial court made its findings of fact and conclusions of law, and entered its decree on August 31, 1938. In addition to the facts previously stated, the court found that "defendant Donald M. Earll dominated this transaction throughout. He himself made the loan on the G Street property and it was his money, not that of his wife, which was used to purchase the second trust note on the Military Road property, which note was taken in his wife's name. The `joint account' and the taking of the second trust note in his wife's name were subterfuges whereby Earll endeavored to occupy the conflicting positions of creditor and fiduciary and betray his trust." The court found further that the money for this loan did not come from the "joint account"; that plaintiff assumed, when served in the Municipal Court suit, that Louise C. Earll, plaintiff there, was the wife or mother of the defendant Donald M. Earll, but "suspected nothing wrong, as Earll seemed to know his business" and plaintiff "had no business experience or knowledge of law, and no money." For these reasons the Pickens made no defense and allowed judgment to go by default against them. The findings further state that Picken's proposal for settlement of the judgment was "made in ignorance of the law governing such cases." As conclusions of law the court found the defendants guilty of fraud in secretly purchasing the $4,500 note at a discount, in concealing and refusing to disclose Earll's interest, and in procuring the Municipal Court judgment and the deed given in satisfaction of it. The defenses of laches, unclean hands and res judicata were found not sustained, as was that of "ratification" by the plaintiffs, because they "were cestuis que trustent and did not know all the material particulars and circumstances and were not apprised of the law and how the facts, if they had known them, would be dealt with by a court of equity." Defendants were ordered to cancel the note on the G Street property, and to pay $3,100 damages with interest from the date of the decree.² Reconveyance of the properties was denied for the reasons that the G Street property had been resold to a bona fide purchaser and that plaintiff was unable financially to "carry" the Military Road property if it were returned to him. Both parties appeal, defendants contending that plaintiff is barred by ratification, laches and res judicata; and plaintiff seeking a complete accounting of all rents and profits on both properties with interest to the time of judgment.

The principal issues raised on...