German Sav. & Loan Soc. v. Tull

• Citation: 136 F. 1
• Decision Date: 06 March 1905
• Docket Number: 1,096.
• Parties: GERMAN SAVINGS & LOAN SOC. v. TULL et al.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

136 F. 1

GERMAN SAVINGS & LOAN SOC. v. TULL et al.

No. 1,096.

United States Court of Appeals, Ninth Circuit.

March 6, 1905

Happy &amp Hindman, Hughes, McMicken, Dovell & Ramsey, and W. S Goodfellow, for appellant.

Nash &amp Nash and James Dawson, for appellees.

Frederick W. Dewart, for cross-appellants.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

ROSS Circuit Judge.

The main facts of this case are stated in the opinion of our Brother MORROW, and it is therefore unnecessary to state them here. We agree with him in regard to the jurisdiction of the court and the conclusiveness of the judgment in the state court and the conclusiveness of the judgment in the state court of Washington in the case between these parties in respect to all matters there determined. We are unable to agree that the equities now sought to be set up by the appellant were not among those matters. According to the express declaration of the Supreme Court of the state of Washington (Dormitzer v. German Savings & Loan Soc., 23 Wash. 207, 62 P. 886) the decisive question in that case was 'whether the respondent (appellant here) took its mortgages upon the property in controversy in good faith, without knowing, or having the means of information by which it might, by the exercise of common prudence, have known, of the acts of the guardian and F. M. Tull in transferring the property from the minor children to F. M. Tull, and whether those acts were fraudulent. ' The Supreme Court of Washington, as did the United States Circuit Court from which the present appeals come, acquitted the appellant German Savings & Loan Society of any intention to commit or participate in any fraud upon the minor children of Tull, for the reason that the appellant based its action in the proceedings upon the advice of its attorney and agent at Portland, Or., to the effect that such proceedings were not illegal, but, on the contrary, valid; the Supreme Court of Washington saying, in its opinion (23 Wash. 220, 62 P. 890):

'The proof is uncontradicted, and it is admitted by the respondent in its brief, that the probate proceedings were for the purpose of vesting title to the entire piece of property in the father, so that he might mortgage it to the respondent in order to get money to go on with the buildings in course of construction on part of the property, and that, in place of the children's interest being sold for cash, they were to get a mortgage, second and subordinate to the respondent's, for a sum the father was to go through the form of bidding, which had been agreed upon in advance by the probate court, on testimony taken as to the fair value of the children's interest. The testimony of P. D. Tull, the appointed guardian, shows that he was used as an instrument by the father to accomplish this end. He was in no sense of the word 'guardian.' He did just as he was directed to do by the father, and, it seems, with full knowledge of the probate court. The father was the actual guardian. The law as it existed at the time these alleged sales by the guardian were made authorized the probate court, when the estate was suffering waste, or a better investment of the value could be made, to sell the infant's interest in real estate. Here no bona fide sale in the open market to the highest bidder was contemplated. If we should uphold these transactions, the interest of infants in real property in this state would be under a very precarious tenure. It may be conceded that there was no intention-- and we think that is a fact-- on the part of the attorneys, the probate judge, Tull, and the respondent to injure the appellants, and that they acted from the best of motives; but the fact stands out, nevertheless, that they perpetrated in law a fraud upon the children.'

The opinion of the Supreme Court of the state concluded with these words:

'The judgment and decree of the lower court is reversed, with costs to appellants. This cause is remanded to the court below, with instructions to enter a judgment and decree herein adjudging and decreeing that Dora May Dormitzer, William L. Tull, and Ernest B. Tull, the appellants herein, are entitled to an unincumbered undivided one-half of the real estate described in the pleadings and orders of the probate court of Spokane county, directing the sale of said half interest, or in any way affecting the same, and the said guardian deeds conveying the same to F. M. Tull by P. D. Tull, as guardian of said appellants, as set out in the pleadings, be declared fraudulent, null, and void; and also decreeing that the plaintiffs in the action below recover their costs.'

We agree with the court below that the decision of the Supreme Court of Washington 'fixes definitely and finally the rights of the Tull children as owners of an undivided one-half of the property unincumbered against any title or claim or lien which the German Savings & Loan Society can ever assert arising out of any transaction previous to the date of the mandate. ' That counsel for the respondent in that case (appellant here) understood that decision to go to that extent, is, as said by the court below, clear; for, in addition to their petition for a rehearing of that cause, they moved the Supreme Court of the state, on the 25th day of January, 1901, to modify its order and decree so as to leave open for investigation and adjudication in the superior court of the state all questions relating to rents, issues, and profits of the premises, and all questions as to the value of permanent improvements placed upon the premises in question with moneys borrowed from the society, and all moneys advanced and paid by it for the necessary and proper repairs and maintenance of the property, for taxes, and for assessments for local improvements. If it be true that the remittitur from the supreme to the superior court of the state had then gone down, it was still within the power of the Supreme Court to recall the remittitur for the purpose of modifying or changing its judgment according to its decision in the case of Bell v. Waudby, 7 Wash. 204, 34 P. 917. We find it impossible to conclude that the Supreme Court of the state would have denied those motions, and adhered to its decision directing a decree adjudging the children 'entitled to an unincumbered undivided one-half' of the property, and adjudging the deeds and orders in question 'in any way affecting the same' fraudulent, null, and void, if it had considered the society entitled to the equities there, as well as here, set up. Indeed, it is impossible to see how that court could have held the society entitled to such equities, in view of its express adjudication to the effect that it was not a purchaser in good faith, but, on the contrary, that, while not intending to do so, it in fact participated in a legal fraud upon the children in acquiring its asserted rights. That judgment is, as held in the opinion of our Brother MORROW, res adjudicata, and conclusive upon that question, as well as every other issue in the case. We must therefore accept it as an established fact that the present appellant does not occupy the position of a bona fide purchaser. Even if that were not so, the evidence in the present suit shows the same thing; for while the appellant relied and acted upon the advice of its attorney and agent, and was therefore innocent of any intended wrong, it knew of the rights of the children, for they were matters of public record, of which it had not only constructive, but actual, notice. And as it, through its agents, knew of, and, indeed, was a party to, the proceedings through which F. M. Tull sought to divest the interests of the children and invest the same in himself, and as those proceedings constituted a fraud in law, as was adjudged by the Supreme Court of Washington and the Supreme Court of the United States, it is impossible to see how the appellant can, in any aspect of the case, be regarded in the light of an innocent purchaser for value of the children's interest. A mistake in regard to the legal effect of transactions, of which, a party has notice, never makes of him a bona fide purchaser. In other words, as said in Bodkin v. Arnold, 48 W.Va. 108, 35 S.E. 980 'plaintiff's belief, to be bona fide, must be founded on ignorance of fact, and not ignorance of law. ' To the same effect is Milwaukee & Minnesota Ry. Co. v. Soutter, 13 Wall. 517, 20 L.Ed. 543. In Williamson v. Jones, 43 W.Va. 562, 27 S.E. 411, 38 ..R.A. 694; 64 Am.St.Rep. 891, it was expressly held that 'one having notice of facts rendering his title inferior to another, who, by mistake of law, regards his title as good, cannot claim for permanent improvements.'

The equities here set up by the appellant are not always accorded a purchaser in good faith, and are never awarded a tenant in common who becomes such mala fide. In Cosgriff v. Foss, 152 N.Y. 104, 46 N.E. 307, 36 L.R.A. 753, 57 Am.St.Rep. 500, the Court of Appeals of New York refused to allow a tenant in common to recover for improvements; saying:

'They were not in the line of restoration, but of a business venture. We know of no well-considered case in this state that would authorize an allowance for improvements under the circumstances. * * * Equity requires contribution from tenants in common only to prevent injustice; and, unless the rule is kept well in hand, it is liable to cause more injustice than it prevents.'

Authorities to the effect that a tenant in common who does not hold in good faith cannot recover for improvements put upon the property are too numerous to require citation. In Gillespie v. Moon, 2 Johns.Ch. 585, 7 Am.Dec. 559, Chancellor Kent said:

'Such an allowance would be confounding all moral distinctions, and be giving countenance and sanction to the most flagrant

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