Pacific Royalty Company v. Williams

Citation227 F.2d 49
Decision Date12 December 1955
Docket Number4828.,No. 4827,4827
PartiesPACIFIC ROYALTY COMPANY, a corporation, Appellant, v. Carl H. WILLIAMS; John W. Williams; Mrs. John A. Cline, Jr.; John A. Cline, Jr.; Mrs. F. S. Hollebeke; F. S. Hollebeke; Paul Eugene Williams, Jr.; Lottie May Treas; Robert M. Treas; Byron Leslie Williams; Marvin Lester Williams; Ruby Leona Williams; Jessie R. Williams; Edith Lillian Williams, single, who is incompetent and who brings this suit by her next friend; and Carl H. Williams, Appellees. Johnstone BATES and William Rufus Bates, Cross Appellants, v. PACIFIC ROYALTY COMPANY, a corporation, Cross-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

COPYRIGHT MATERIAL OMITTED

Ross L. Malone, Jr., Roswell, N. M. (J. D. Atwood and Charles F. Malone, Roswell, N. M., were with him on the brief), for appellant and cross-appellee.

William A. McKenzie, Dallas, Tex., and J. R. Modrall, Albuquerque, N. M. (Simms & Modrall, Albuquerque, N. M., Wynne & Wynne, Dallas, Tex., were with them on the brief), for appellees and cross-appellants.

Before MURRAH and PICKETT, Circuit Judges, and SAVAGE, District Judge.

PICKETT, Circuit Judge.

The plaintiffs, who are the heirs at law of Lester L. Williams and Gertrude A. Bates, have joined together in this action to quiet title to the minerals underlying 320 acres of land in Lea County, New Mexico, and alternatively to establish a trust in the minerals, to procure an equitable accounting, and to rescind the deed through which the appellant Pacific Royalty Company claims the minerals. In 1919, Lester L. Williams received a patent on a homestead entry to the land in question, and almost immediately thereafter he mortgaged it to the F. B. Collins Investment Company to secure an indebtedness of $900.00. This mortgage was thereafter assigned to Gertrude A. Bates, who resided in the State of Michigan. Williams then sold the land to William C. Stoneman but later it was deeded back to Williams. The questions in this case arise from the transactions surrounding the collection of the note and mortgage beginning in 1926.

During that year the Williams mortgage was delinquent and it was forwarded to Union Mortgage Company of Dallas, Texas, a corporation wholly owned and operated by J. E. Whitehead, an attorney, for the purpose of collection. The Union Mortgage Company handled real estate mortgages, including the servicing and collection of mortgages owned by others. After foreclosure proceedings had been instituted on the Williams mortgage, Whitehead obtained a deed from Williams and his wife in which C. H. McKinney was named as grantee. Whitehead, using a deed which had theretofore been signed in blank by McKinney and his wife, conveyed the lands to a third person and reserved the mineral rights. By the same method the mineral rights were conveyed to the defendant Pacific Royalty Company, which was another corporation owned by Whitehead. The Williams heirs contend that the deed to McKinney was void because of fraud by Whitehead and because there was no delivery and acceptance of the deed by McKinney. The claim of the Bates heirs is based upon the trust relationship that existed because of Whitehead's position as an attorney for Bates in collecting the note and mortgage. The Williams heirs and the Bates heirs through a crossagreement and transfer, each claim an undivided interest in any recovery.

Pacific appeals from an adverse judgment quieting title to the minerals in the Williams heirs, granting them an accounting for monies received from the minerals, and denying Pacific's cross-action to quiet its title in the minerals. The Bates heirs cross-appeal from a judgment denying them any recovery. The trial court reserved decision as to the right of the Bates heirs to participate in the Williams' recovery under their crossconveyance.

For a determination of the questions presented, a detailed statement of the facts is necessary. At the time of the trial, all of the parties, except McKinney, who had anything to do with the transactions were dead. The files of the executor of the Bates estate and of the brokers who serviced the mortgage were not available. What actually happened is difficult to determine, and it must be obtained from somewhat fragmentary correspondence and documents, most of which were obtained from Whitehead's files. A. W. Knapp & Co. of Detroit, Michigan, was a mortgage broker and it had sold the Williams mortgage to Mrs. Bates under an agreement to service it and in case of default to substitute another mortgage in good standing. After the death of Mrs. Bates, her executor, Bankers Trust Company of Flint, Michigan, and its successors, forwarded the mortgage to A. W. Knapp & Co.1 for servicing. Knapp had an arrangement with Union Mortgage Company under which it referred defaulted mortgages covering lands in that area for collection, adjustment, or for the substitution of new mortgages in good standing. The executor did not know that Knapp would forward the loan to Union for collection. It was understood between Knapp and Union that the mortgagee would be satisfied with a return of the principal and interest due on the mortgage, and that Union might make a profit for itself in handling transactions of this nature over and above the regular collection charges,2 including attorney fees for Whitehead.

Union or Whitehead had no direct connection or dealings with the Bates Estate, but handled the matter for Knapp under the existing arrangement.

Upon receipt of the Williams' mortgage for collection, Whitehead was at first unable to find Williams, and he instituted a foreclosure action. In the meantime, Whitehead located Williams and the correspondence which followed provided the basis of fraud upon which the trial court relied to cancel the deed executed by Williams and his wife. Whitehead wrote to Williams requesting that he sign a waiver of summons in order to save the cost of making service. The waiver of summons was executed and returned to Whitehead, but the enclosure letter is missing. Whitehead, upon receipt of the waiver, wrote Williams and stated that he had hoped Williams would be able to redeem his farm. The Whitehead letter indicates that Williams had advised that he was not in a position to take care of the obligation. Whitehead suggested that farm lands were not selling well, that this particular place would not bring one half of the amount against it if sold "under the hammer". He enclosed a deed with a request that Williams and his wife execute it and return it to him. He stated that this would be the best way out for all concerned, and would save the cost of foreclosure and a deficiency judgment against Williams. The grantee named in the deed was C. H. McKinney, a tenant of Whitehead. Before executing the deed, Williams wrote to Whitehead and asked who McKinney was and what his interest was in the land. He also inquired if he would be given an opportunity to redeem. Upon receipt of this letter, Whitehead wrote explaining that the mortgage belonged to the estate of Gertrude A. Bates, and that the heirs did not want to get the title to the land involved with the estate. "For that reason, we are having the deed made to Mr. McKinney, a relative, who will hold it for the benefit of this Estate. The land will be accepted in full settlement of your obligation, and if you desire you may redeem the property or buy it back, this next fall." Immediately thereafter, Williams wrote Whitehead and inquired if McKinney could get a release of the coupons that the mortgagee held against him. He stated that the last coupons which he had paid had not been returned.3

Williams and his wife executed the deed on December 11, 1926, and it was recorded on December 17, 1926. There is nothing in the record to indicate how it came into Whitehead's possession. The foreclosure action was dismissed without prejudice. The record does not disclose whether the original note was delivered to Williams but it may have been. In 1930, when Union was making a settlement with the Bates Estate, the original note could not be found and Whitehead wrote to Williams and asked if the note had been delivered to him.4 It was never found. After receipt of the deed from Williams, Union undertook to sell the property and reserve the mineral rights. This, it was able to do by 1930, and it obtained more than enough to pay the note, together with interest. The sum over and above the amount due was retained by Union pursuant to its understanding with Knapp.

Whitehead's arrangement with McKinney was unusual. The latter was known to Whitehead only through an agent named Locke. All negotiations and conversations with McKinney in 1926 on behalf of Whitehead were by Locke, who is deceased. In addition to being a lawyer, Whitehead apparently was a speculator in real estate and evidently was having financial troubles. Several tracts of land were to be conveyed to McKinney to protect Whitehead against civil judgments. McKinney executed a number of deeds in blank for the purpose of reconveying the same to Whitehead or his designee and delivered them to Locke. McKinney had no knowledge of the particular lands which were to be placed in his name. He claimed no interest in any of the lands, admitted that he was holding them for Whitehead, and testified that he had agreed to act as Whitehead's dummy or strawman. He knew that sooner or later Whitehead would divest him of the title to the lands in his name by filling in and completing the blank deeds. He testified he had no objections to Whitehead's actions in that respect. He had no knowledge of the Williams' transaction, and the deed was not delivered to him. The Williams land was conveyed to Pacific Royalty Company by warranty deed dated about a month before the Williams deed came into Whitehead's possession. This deed was not recorded until 1948.5 However, a deed acknowledged March 28, 1927, and recorded April 2, 1927,...

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