In re Miley

Citation187 F. 177
PartiesIn re MILEY.
Decision Date25 April 1911
CourtU.S. Court of Appeals — Fourth Circuit

W. C Kilmer and Dailey, Gamble & McCauley, for petitioner.

W. H Griffith and H. H. Emmert, for trustee.

DAYTON District Judge.

I have very carefully considered the matters involved in this controversy which have been exhaustively and ably argued by counsel. The referee has filed an elaborate opinion in support of the ruling made by him, in which the facts are set forth. As I purpose to file this opinion as part hereof, I will not restate the facts. I am convinced that I must sustain the conclusions arrived at by the referee, for these reasons:

First. The contract, having been written by Carr, must be construed the stronger against him. If he was dealing with Miley as agent of Gebhart, it was incumbent on him to inform himself as to the extent of such agency in advance of contracting. He was not authorized in my judgment, because he knew Miley was Gebhart's authorized agent to purchase cattle, sheep, and hogs, to assume that he was his agent to purchase hotel properties.

The word 'agent,' following Miley's name in this contract under seal, without further disclosure of for whom he was agent, might well be held either surplusage or a word of description, and not limitation. If this had been a deed recorded, this word would not have prevented a creditor of Miley from obtaining a judgment lien against the property good against any claim of title by Gebhart as principal. The cases in West Virginia go very far to hold that in such contracts the agent alone is personally bound. See Rosendorf v. Poling, 48 W.Va. 621, 37 S.E. 555; Dyer v. Duffey, 39 W.Va. 149, 19 S.E. 540, 24 L.R.A. 339; Curry v. Hale, 15 W.Va. 867; Devendorf v. W.Va. Oil Co., 17 W.Va. 135, 149, 150; Hurst v. Hurst, 7 W.Va. 289; Scraggs v. Hill, 37 W.Va. 706, 17 S.E. 185; Knowlton v. Campbell, 48 W.Va. 294, 37 S.E. 581; Martin v. R.R. Co., 48 W.Va. 542, 37 S.E. 563.

As to the contention that Carr was misled by false representations on the part of Miley as to his acting solely as Gebhart's agent in the purchase, I am compelled to hold such contention untenable because (a) he drew the contract, as I have above pointed out, so as by law to bind Miley personally and alone, not Gebhart; (b) he gave possession of the property to Miley; (c) by other terms of the contract provided that Miley should board himself and wife; (d) allowed Miley personally to make improvements on the property; (e) accepted, after Gebhart had personally repudiated the contract, payment of the same $3,000 draft drawn by Miley on Gebhart instead of returning it and promptly, if the exigencies required, resorting to legal proceedings to set aside and annul the contract and reclaim the property.

That Gebhart, after full knowledge of the facts and after he had repudiated the contract, paid this draft and charged it on his books to Miley, very clearly establishes him a creditor of Miley as to this $3,000, nothing more and nothing less. He and Carr could not enter into a legal contract whereby, in effect, Gebhart could pay $3,000 to Carr on Miley's purchase price, charge it to and recover it back from Miley, at the same time repudiate Miley's contract, whereby Carr would still have the property with all of Miley's improvements thereon, and, when Carr sold it to some one else, get back the $3,000 a second time as well as one-fourth of the surplus over and above Miley's contract price of $12,000 that Carr might realize from such sale. If Carr had been misled by Miley's representations as to his agency, when Gebhart came forward and repudiated the contract, the right and proper thing to have done would have been to call in Miley, restore to him the protested draft for $3,000, cancel the contract with him, and secure repossession of the property.

Other reasons for the conclusions reached are set forth in the referee's opinion attached hereto.

Let order be entered affirming in all respects the decree entered by the referee.

NOTE.-- The opinion of James D. Butt, referee, is as follows:

Briefly stated, the facts in this case are as follows: On the 20th day of April, 1910, H. S. Carr and wife entered into a written agreement, under seal, with John R. Miley, agent, agreeing to sell to the said Miley agent the Mullen Hotel property and some extra lots therein set forth, located at Moorefield, W. Va., for the sum of $12,000. The terms of payment are fully set forth in the written agreement which is filed as an exhibit with the petition of the trustee, and admitted by the said Carr in his petition or answer in the case. On the 1st or 2d day of May, 1910, said J. R. Miley, agent, was placed in possession, custody, and control of all of the property named in the agreement of April 20, 1910, and so remained until August 25, 1910, when he turned the same over to Jno. O. Lemen, receiver in bankruptcy; said Jno. R. Miley having been adjudicated a bankrupt on the 24th day of August, 1910. The receiver held the property till on the 16th day of September, 1910, when he was elected by the creditors, trustee of the said estate, and then as receiver turned the same over to the trustee in bankruptcy, and as such has since held it in his possession, custody, and control. Between the 1st day of May, 1910, and August 25, 1910, it is not denied that, whilst Jno. R. Miley, agent, was in possession, custody, and control of the property mentioned in the agreement, he placed thereon permanent and valuable improvements to the value of from $300 to $500, and that such was its condition when it came into the hands of the trustee in bankruptcy.

On the 3d day of October, 1910, after proper and admitted notices to all of the creditors, including H. S. Carr, the vendor under the agreement of April 20, 1910, the said trustee filed a petition with the referee praying an order directing him to sell at public auction the said 'Mullen Hotel property' and all the other real estate mentioned in the agreement of April 20, 1910, for the benefit of the estate of Hohn R. Miley, bankrupt. Whereupon, the said H. S. Carr filed a petition with the referee, setting out facts from which he claimed 'that the agreement of April 20, 1910, had been procured by misrepresentation and fraud on the part of said Jno. R. Miley, agent,' and prayed that the petition of the said trustee be dismissed. Upon these two petitions, together with the testimony presented and oral argument of counsel and briefs submitted, the referee heard and considered the case, and on the 19th day of October, 1910, entered an order sustaining the petition of the trustee and directing him to make sale of the property as set out in his petition, all of which appears at full length in the order and certificate for review. The jurisdiction of the referee to hear and determine all the questions raised by the petitioners was not denied, and therefore all parties are in a court of equity, and, in accordance with the procedure of such courts, will be granted or denied relief. In re Rochford, 124 F. 182, 59 C.C.A. 388; A., T. & S.R.R. Co. v. Hurley, 153 F. 503, 82 C.C.A. 453, affirmed in 213 U.S. 126, 29 Sup.Ct. 466, 53 L.Ed. 729; In re Elletson Co. (D.C.) 174 F. 859; Coal Land Case v. Ruffner Bros., 21 Am.Bankr.Rep. 474, 165 F. 881, 91 C.C.A. 559 (4th Circuit).

Where an executory contract of a bankrupt comes to his trustee, it is for the latter to determine what, if any, action he will take thereunder. If he is of opinion to enforce it will be of benefit to the creditors, he may take such action as he thinks the situation warrants. He may enforce it specifically, or he may invoke the aid of the court in subjecting the interest of the bankrupt therein and 'reduce the same to money.' Mound Mines Co. v Hawthorne, 173 F. 882, 97 C.C.A. 394. (In this case specific performance was decreed in favor of the trustee.) 'Trustees in bankruptcy can assume an executory contract of the bankrupt and dispose of it for the benefit of the estate, and take such action under it as they may deem for the best interest of the estate. ' A., T. & S.F.R. Co. v. Hurley, 153 F. 503, 82 C.C.A. 453, affirmed 213 U.S. 126, 29 Sup.Ct. 466, 53 L.Ed. 729. In this case the trustee in his petition avers that it is for the best interest of the creditors to have the property in question sold and the proceeds applied for the benefit of the creditors. Mr. Carr in his petition does not deny the execution of the agreement to sell the Mullen Hotel property to Jno. R. Miley, agent, which is dated April 20, 1910, and that he placed said Miley in possession thereunder, and that said Miley was in possession of it when he was adjudicated a bankrupt, and that Miley had placed thereon valuable and permanent improvements, but rather seeks to avoid the agreement solely upon the grounds that it was procured from him by misrepresentation and fraud practiced by said Miley. He does not ask a performance of the agreement by the trustee. Therefore the petition of Mr. Carr must be treated as one solely for a 'rescission and cancellation by reason of fraud' of the agreement of April 20, 1910. 'The avoidance of transactions on the ground of fraud is a copious source of jurisdiction in equity. ' Adams, Equity, p. 175. In speaking of contracts obtained by misrepresentation and fraud, Fry on Specific Performance, at page 315, says: 'They are not void, but voidable only. They are not a nullity. ' So, to entitle the complainant to relief under the averments of his petition, it must conform to the usual established rules of equity which prevail in such cases; and he must prove his averments by testimony so clear and explicit as to leave no doubt in the mind of the court. If in his petition he fails to aver a state of facts from which the court can see that he...

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