Kenney v. Jefferson County Bank

• Decision Date: 12 September 1898
• Citation: 12 Colo.App. 24,54 P. 404
• Parties: KENNEY v. JEFFERSON COUNTY BANK.
• Court: Colorado Court of Appeals

54 P. 404

12 Colo.App. 24

KENNEY v. JEFFERSON COUNTY BANK.

Court of Appeals of Colorado

September 12, 1898

Appeal from district court, Arapahoe county.

Action by the Jefferson County Bank against Asa W. Kenney. From a judgment for plaintiff, defendant appeals. Affirmed.

Talbot, Denison & Wadley, for appellant.

William A. Dier, for appellee.

BISSELL J.

This record presents a sharply-defined controversy between these parties, each of whom asserts a priority of lien by trust deed on the same property. The bank's security antedates Kenney's by about four years and a half; yet Kenney insists that he has the superior claim, because of an attempted and fraudulent foreclosure of the first security by the trustee. The arguments of counsel are almost wholly based on their conflicting theories respecting the effect of an indorsement of commercial paper secured by a deed of trust and the equity of a second lienor which it is said springs up and becomes superior when the holder of the first note fails to spread on the county records some transfer which shall give to the public notice of his rights. We shall not attempt to resolve all phases of the proposition, nor to reach the logical conclusions which would perhaps be necessary if we should decide every point collateral to the main inquiry, and which, under some circumstances, would be legitimately connected with it. The proofs render such full discussion and decision wholly unnecessary.

In 1889, the Empire Land & Canal Company held title to a part of section 18, township 36, range 10 E. This company likewise owned a canal which supplied water to irrigate this and other lands. On the 7th of December, the corporation gave its note to the Colorado Securities Company for $3,500, due the 1st of December, 1894, with interest at 7 per cent. To secure this note, the canal company gave a deed of trust on the land, and conveyed by an independent instrument five water rights subject to certain conditions. Henry J. Aldrich was the grantee in the trust deed, and took title for the benefit of the beneficiary. He was at this time president of the Colorado Securities Company, and acted for it and in its behalf. In 1890 the securities company borrowed $5,000 of the Jefferson County Bank, a corporation doing business in Golden. To secure the payment of this note, the company indorsed the note of the Empire Land & Canal Company, wrote a guaranty on the back of it, and delivered it to the bank. From time to time some payments were made by the securities company on their note, and, at the time of the commencement of this suit, $3,400 was due on the four notes then outstanding, which were secured by the indorsement of the other paper. No further recital of the situation, debt, and claim between the securities company and the bank is necessary, either to the decision of the case or to the apprehension of the litigation. The note and the trust deed were delivered to the bank, and remained in its possession up to the time of the trial. In May, 1894, Aldrich, in the execution of a fraudulent scheme, attempted to foreclose this trust deed, given by the Empire Land & Canal Company. The note had not matured, and the bank did not request Aldrich to enforce the security. What he did was in the execution of his fraudulent purpose, without authority of the holder of the note, and, so far as the record discloses, without the request or direction of the securities company, the original beneficiary. Aldrich advertised the property for sale, according to the requirements of the deed, in the Antonito Ledger, published in the county where the land was situate. On the day named for the sale, the property was put up and bid off by him on behalf of the Colorado Securities Company. This fact is perhaps not immediately and directly established, but it is satisfactorily proven. Aldrich then prepared and executed a deed to the securities company. After executing the deed, he went before a notary, and acknowledged it, took it to the company's office, and there held it among the company's papers. By the sale, if it were valid, his powers as trustee were exhausted, and, if any rights were acquired thereunder, whatever he did thereafter he did as the president and general manager of the Colorado Securities Company. This consideration, with the evidence, clearly establishes the fact that the deed thus executed and acknowledged passed into the custody of the securities company, and became and was a transfer to that corporation so far as any title can be said to have passed by the transaction. Some three or four days more or less after this sale, and in the further execution of his fraudulent purpose, Aldrich sent a clerk out on the street to find some irresponsible person who would execute papers which would enable him to carry out his preconceived fraud. The clerk found a convenient tool in the person of Andrew B. Duffy. As the transaction is stated by the clerk who found this party, he went on the streets, ran across Duffy, and asked him to execute some papers. Duffy agreed. The clerk promised to give him $10 for his part in the matter, which was satisfactory to Duffy. The clerk then went to the office, prepared a warranty deed of the land from Duffy to Wilcox, and a trust deed thereon to secure $4,000, evidenced by Duffy's promissory note for that sum, with coupons attached, went to the public reading room of the Markham Hotel, and met Duffy, who executed all of these papers. The papers were then taken to the office of the securities company, and thereupon, by direction of Aldrich, the clerk took the deed which had been executed by Aldrich with the securities company as grantee named, erased the name of the securities company, and inserted the name of Andrew B. Duffy. This deed and these papers were afterwards recorded, together with the proof of the foreclosure.

The trust deed and notes were then sent East, and, through the representative of the securities company in New York, sold to the appellant, Kenney, who paid value therefor. The notes were properly transferred. If out of this transaction a lien passed to Kenney superior to the one held by the bank, Kenney has a good case, and the decree is wrong.

When the paper was first offered to Kenney, he declined to buy it. On further solicitation by Goodrich, the agent in New York, he was induced to purchase. According to his testimony, he made no investigation respecting the circumstances of the sale, the character or the value of the property, other than an examination of the abstract furnished him, and the inquiries he made of the securities company. The land was represented to him to be worth from twelve to fifteen thousand dollars, and an adequate security for the amount of the Duffy notes. The foreclosure proceedings were said to be entirely regular. Mr. Kenney never looked at the records, and never saw the papers, and made no other investigation about it. The so-called "abstract" of title was simply a memorandum of the grant by the government to the state, from the state to the Empire Land & Canal Company, from that company to Aldrich as trustee, and the sale and conveyance by the trustee under foreclosure to Duffy. The abstract exhibited nothing but the names of the grantor and the grantees, the dates of the transfers, the description of the property by section, township, and range, with the number of acres conveyed. Under the head of "Remarks" there are some notations of the names of persons by whom the deeds are signed, and the purposes for which they were given. Under the head of "Conveyance to Aldrich as Trustee" the fact is recited that the promissory note is due December 1, 1894. The nature and character of the foreclosure, the circumstances under which it was made, or whether at the request of the holder or otherwise, is not recited; nor is there anything in the abstract to advise the purchaser respecting the details and history of the sale. The considerations of the various conveyances are not stated, although the record shows that the deed to Duffy was for the consideration of $25. Kenney was, of course, chargeable with notice of this fact, and bound to know that the transfer to Duffy was made for a nominal sum, and conveyed property which was worth, according to his information, twelve or fifteen thousand dollars. Duffy's deed to Wilcox was not mentioned in the abstract, although it had been recorded at the time Kenney purchased the paper. Kenney made no further investigation, and relied entirely on this memorandum abstract, and on the statements of Goodrich and the letters from Aldrich. He insisted that the Empire Land & Canal Company should make a quitclaim deed to further insure his title under the foreclosure proceedings. This was not delivered to him until some time afterwards, although he was assured by Aldrich that the deed had been made and would be sent on when recorded. It was clearly established by the testimony of the president that the bank had no knowledge of the foreclosure; that it was wholly unauthorized by it; and that it had never requested Aldrich to enforce the security. The record does not show any request by the securities company. That corporation had nothing to do with it, except as it might be bound by what Aldrich did, who was at the time the president and general representative of this company. Since he had knowledge, the company must be presumed to know what was done.

The proof of the circumstances attending the sale, the execution and delivery of the deed, its alteration, and the substitution of Duffy's name in the instrument, with the evidence respecting his connection with the transaction, was objected to by the appellant. The exception is urged as error. We have grave doubts whether the objection ought to be available under...