Mastin v. Noble

• Decision Date: 06 November 1907
• Docket Number: 2,448.
• Parties: MASTIN et al. v. NOBLE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

157 F. 506

MASTIN et al. v. NOBLE et al.

No. 2,448.

United States Court of Appeals, Eighth Circuit.

November 6, 1907

Frank Hagerman, for appellants.

Charles W. Baker, for appellee Ellen O. Schmuck et al.

Edward E. Sapp, for appellee Gabriel Schmuck.

Before VAN DEVANTER and ADAMS, Circuit Judges, and RINER, District judge.

ADAMS Circuit Judge.

This was a bill in equity brought by the executor and sole devisee under the will of John J. Mastin, deceased, to set aside a lease and deed made by the testator in his lifetime to two of the defendants, Ellen O. Schmuck and Robert O. Kirby conveying to them 15 acres of mineral land in Galena, Kan and for an accounting concerning the rents, usufruct, and profits thereof. The lease was made September 1, 1894, for a term of 10 years, for the consideration of $5,000 paid on delivery, as well as for royalties reserved, and conferred upon the lessees an option to purchase the land outright at any time during the first year of their tenancy by paying an additional sum of $5,000. It was charged in the bill that defendant Noble was the testator's confidential agent and possessed more knowledge of the character, quality, and value of the land in question than was possessed by his principal; that, while he was acting as such agent, he combined and conspired with the above-named defendants through their agent, the defendant Gabriel Schmuck, to defraud his principal by inducing him to dispose of the land on the terms stated, when in truth and in fact it was worth much more; that in the execution of their purpose complainants' agent was at the outset corrupted by the other defendants by a promise on their part in whose name the title was to be taken to give him, Noble, one-fourth interest in the land for the exercise of his influence with his principal to bring about the sale; that pursuant to such iniquitous compact and understanding the agent falsely represented that the tract of land in question contained only 10 acres, when in fact it contained 15, depreciated and understated to his principal the value of the land, and in other ways actively and effectively persuaded him to make the conveyance. The defendants denied all forms of combination and conspiracy as charged, and particularly denied that the testator's agent was ever promised any interest in the land or ever had any such interest. The case was altogether one of fact. The result depended upon conclusions to be reached on issues of fact alone. It was referred to Clifford Histed, Esq., as special master, to take the testimony and report the same, together with his findings of fact and conclusions of law, to the court. The evidence was taken, and the special master found the facts adversely to complainants and recommended that the bill be dismissed. The Circuit Court reviewed the findings so made, examined the proof, and concurred in the result reached by the master and entered a decree dismissing the bill. From this decree complainants appeal.

The reference to the special master to find the facts and conclusions of law was not made by consent of the parties. Accordingly his report is not clothed with that presumption in its favor which attends reports made on reference by consent. The trial court could not of its own motion abdicate its proper function or delegate it to any other person. The report, therefore, could be treated, as the record clearly shows the Circuit Court did treat it, as advisory only. Kimberly v. Arms, 129 U.S. 512, 523, 9 Sup.Ct. 355, 32 L.Ed. 764; Oteri v. Scalzo, 145 U.S. 578, 12 Sup.Ct. 895, 36 L.Ed. 824; Davis v. Schwartz, 155 U.S. 631, 15 Sup.Ct. 237, 39 L.Ed. 289; Blythe v. Thomas (D.C.) 45 F. 784. However this may be, we cannot overlook the intrinsic and persuasive value of the report. It shows unusual attention and thoroughness of consideration, and doubtless was of considerable aid to the court. The record also shows that the trial judge patiently heard the case de novo on exceptions to the report, and reached an independent judgment on the proof. There was no pro forma action on his part. We have, then, the deliberate judgment of the trial court on the disputed facts of the case. Under well-settled authority, this must be taken as presumptively correct, and should be followed, unless an obvious error has occurred in the application of law, or a serious and important mistake has been made in the consideration of the proof. Warren v. Burt, 7 C.C.A. 105, 58 F. 101; Stearns-Roger Mfg. Co. v. Brown, 52 C.C.A. 559, 114 F. 939; Hussey v. Richardson-Roberts Dry Goods Co., 78 C.C.A. 370, 148 F. 598, and cases cited.

Another well-established general rule governing courts of equity in cases of this kind which should be borne in mind is that the evidence adduced to set aside a written instrument for fraud must be clear, unequivocal, and convincing. Atlantic Delaine Co. v. James, 94 U.S. 207, 24 L.Ed. 112; Maxwell Land-Grant Case, 121 U.S. 325, 380, 7 Sup.Ct. 1015, 30 L.Ed. 949; United States v. Budd, 144 U.S. 154, 12 Sup.Ct. 575, 36 L.Ed. 384; Chicago, St. P., M. & O. Ry. Co. v. Belliwith, 28 C.C.A. 358, 83 F. 437. In the first of these cases the Supreme Court said:

'Canceling an executed contract is an exertion of the most extraordinary power of a court of equity. The power ought not to be exercised except in a clear case, and never for an alleged fraud, unless the fraud be made clearly to appear, never for alleged false representations, unless their falsity is certainly proved.' With these rules for our guidance, a consideration of the facts will be entered upon. There is no evidence tending to show that any actual misrepresentation was made or any active fraud perpetrated by Noble to induce his principal to make the sale. He did not, as charged in the bill, represent that the land in question contained only 10 acres. Neither did he understate or misrepresent the value of the land or exert any active, wrongful, or undue influence to bring about the sale. Accordingly in the argument before us all charges of actual fraud of that kind were abandoned. The right of recovery was placed exclusively upon the proposition that the testator's agent, Noble, was corrupted by defendants by the promise of a secret interest in the land for the exercise of his influence in their favor with his principal, and that it was under the stimulus of that corrupting promise that the conveyance was secured. If such was the fact, the contract was voidable by the principal when seasonably assailed. Whatever might have been the effect of the agent's intervention, it was a fraud upon the principal, and could have been repudiated. Michoud v. Girod, 4 How. 502, 554, 11 L.Ed. 1076; Hoyt v. Latham, 143 U.S. 553, 12 Sup.Ct. 568, 36 L.Ed. 259; Hammond v. Hopkins, 143 U.S. 224, 12 Sup.Ct. 418, 36 L.Ed. 134; Robertson v. Chapman, 152 U.S. 673, 14 Sup.Ct. 741, 38 L.Ed. 592; New York Central Ins. Co. v. National Protection Ins. Co., 14 N.Y. 85, 91, 92; City of Findlay v. Pertz, 13 C.C.A. 559, 66 F. 427, 29 L.R.A. 188; Lum v. McEwen, 56 Minn. 278, 57 N.W. 662; Alger v. Anderson (C.C.) 78 F. 729, and cases cited.

The fundamental question, therefore, is whether Noble, the vendor's agent, was to have an undisclosed personal interest in the land purchased. If so, his interest was in conflict with his duty, and the sale made by him to his codefendants was constructively fraudulent. Ellen Schmuck and Mr. Kirby were brother and sister, and will be referred to as the main defendants. They lived one in Ohio and one in Illinois. Gabriel Schmuck was brother-in-law of Ellen, and lived in Galena, Kansas, and acted as agent for the defendants, and Noble resided in Galena and acted as agent of the testator. Noble and Gabriel had been for some time before the events of this case close and intimate friends. They had occupied the same office, had been engaged in several business enterprises together, and had held real and personal property in common. In some instances title had been held in the name of Noble for both. Some time before the lease was executed the main defendants visited Gabriel at Galena, were shown over the land in question, and authorized Gabriel to secure a lease for them. He secured the lease, bearing date September 1, 1894, for the consideration of $5,000 paid down and certain royalties to accrue, and with it an option to purchase the land at any time within a year upon the payment of the further sum of $5,000. While this lease and option were taken in the name of the main defendants, there was an understanding that Gabriel might have one-half interest in both by paying one-half of the cost price. After September 1st Gabriel took possession as agent for his relatives, and began exploring for lead and zinc. This work resulted in the discovery of a valuable pocket of ore and the determination to exercise the option to purchase the land. This was consummated by deed dated December 4, 1894, conveying the fee-simple title to the main defendants. Shortly thereafter Gabriel exercised his reserved right to take an interest in the purchase, and executed and delivered to the main defendants therefor his four notes, each for $1,250, and got Noble to sign them with him as surety. In this condition of things Gabriel continued to operate the mines and distributed the net proceeds accruing therefrom, one-fourth to each of the main defendants and one-half to himself for the period of two or three years-- until February, 1897. By that time he had fully paid his notes given for the purchase price of his interest, and he then requested a deed from the main defendants for that interest. Without any conference or previous understanding with the main defendants or Noble, he prepared two deeds, one conveying a quarter interest to himself and the other a quarter...