Stanwood v. Wishard

• Decision Date: 02 March 1902
• Parties: STANWOOD et al. v. WISHARD et al.
• Court: U.S. District Court — Southern District of Iowa

128 F. 499

STANWOOD et al. v. WISHARD et al.

United States Circuit Court, S.D. Iowa, Central Division.

March 2, 1902

Charles A. Clark, for plaintiffs.

J. M Read and W. L. Read, for Wishard.

This action is by bill in equity. Defendant Wishard has filed a plea, now for determination. The bill is as follows:

For many years prior to 1896 the defendant the Des Moines Loan &amp Trust Company, of Des Moines, Iowa, was engaged in loaning money on real estate security in Iowa and other northwestern states, and in selling notes, bonds, and securities to parties in the East. Defendant Wishard, of Des Moines, for many years has been a practicing lawyer in the United States and state courts of Iowa, and from 1892 to 1896 was president of the said trust company.

Prior to 1896, complainants, residing in the East, relying on Wishard's professions of friendship, and his full knowledge of the condition of the trust company, were induced by him to loan large sums of money to the trust company, and to purchase securities from, indorsed and guaranteed by it. January 1, 1896, Wishard retired from the trust company, but continued in the practice of law. A few months thereafter the district court of Polk county, Iowa, appointed a receiver of the trust company because of its insolvency, and to conserve its assets, and for winding it up. Therefore Wishard, both claiming to have and having full knowledge of the affairs and conditions of the trust company, and still professing friendship for complainants, and his ability to fully and promptly collect the sums due them, undertook said duties they wholly relying on his efforts. Wishard put their claims in judgments against the trust company, which as yet are wholly unpaid. He acted in like capacity for others, and obtained judgments, and for those who may join brings this action.

While Wishard was still president of the trust company, at his instance the company made an agreement with one Kennedy by which Kennedy became the owner of a large portion of the assets of the company, including more than 5,000 acres of land, and the trust company became the owner of valuable real estate in Des Moines. But in making this exchange Kennedy conveyed the legal title of the Des Moines property to Wishard, but in trust for the trust company. Wishard had been in possession of this property ever since receiving said conveyance, in September, 1895. This property has been covered by buildings of high earnings or rentals, far exceeding the taxes and other charges. Wishard took this property under a writing with the trust company to hold the property in trust for the payment of certain indebtedness of several parties, creditors of the company, of $7,500, and for such sums as the company then or thereafter might be owing to him, and to indemnify him by reason of a bond he had signed for the company. Prior thereto Kennedy had given mortgages thereon aggregating $33,000. Prior to April 30, 1896, the trust company had paid off all indebtedness for which Wishard held the property in trust, excepting $754.16, which, as he claimed was owing him for services, and $1,000 of said mortgage indebtedness, which he had guaranteed, and a contingent claim on a bond which he had signed; but that during or prior to March, 1897, the rents of the property had fully wiped out all sums for which he took the property in trust. The mortgages referred to aggregate $33,000, as follows: One for $2,000, one for $6,000, one for $25,000. The largest one was to the defendant Des Moines Savings Bank. These three mortgages rested on separate pieces of property. Wishard's duties as attorney for the complainants required him to preserve the property from foreclosure, and to establish complainants' claims as liens on and against the Des Moines real estate referred to. But, to prevent complainants from participating in the rents and collecting the sums due them, and to cut them off in their claims to said property, Wishard undertook to and did purchase the mortgages of $2,000 and $6,000, and had them assigned to himself; and with a like fraudulent purpose he, as attorney for complainants, and also as attorney for the savings bank entered into a contract with the bank by which the bank assigned to him the $25,000 mortgage. Wishard undertook in his own name, but for the joint benefit of himself and the bank, to foreclose the three mortgages, and thereby cut off complainants from participating in said rents, and from asserting claims or liens against any of the property, both Wishard and the bank being charged with knowledge and knowing of complainants' rights, and that said contract with the bank was in violation of Wishard's duties to complainants. In 1897 said foreclosure suits were brought, and soon thereafter they went to decrees in his (Wishard's) name. No one of complainants were made parties thereto, excepting Annie W. Stanwood. She was induced to appear, but made no defense by Wishard, her attorney, he advising her that she had no rights therein, and he filing her answer for her, she wholly relying upon him to protect her rights, and she being wholly ignorant of her rights in the matter. The decrees were for more than $33,000, an amount in excess of what was owing by him to the mortgagees. Under special executions the property was sold; Wishard receiving certificates of sales, he paying no money, but crediting the judgment for the amount of the sales. July 31, 1898, there being no redemption, Wishard received sheriff's deed for all the property. All of these things were done by him in violation of his duties to complainants, and in hostility to their interests. August 10, 1898, Wishard gave to the bank a mortgage on all the premises to secure $20,000, due July 1, 1903, still unsatisfied of record, and yet held by the bank. This mortgage was in pursuance to the plan engaged in by Wishard as against complainants and the trust company as to the title of said premises, in violation of his duties toward complainants, as both he and the bank knew, as he still held the title in trust, and the mortgage of the bank is junior to complainants' rights. Since July 31, 1898, Wishard has received $25,000 in rents from the property in excess of the taxes and other charges, which should be credited as against sum required to make redemption. Complainants submit that they have their election at final decree to have Wishard account for said rents to them, or to have their claims established as a first lien against the property. Wishard, holding the legal title to the real estate, was not competent to take assignments of the three mortgages; and in the foreclosures he did not disclose his trusteeship, and the decrees do not purport to and do not cut off his right as trustee. But then, and at all times since, the bank well knew that Wishard held the property in trust. By reason of his bad faith he can assert no just claim for fees or compensation in and about the matter. Complainants are willing to pay to Wishard what may be due him on an accounting by reason of any liens prior to theirs. Florence G. Wishard is the wife of Edward S. Wishard. The prayer is that Wishard and wife be decreed to have no interest in the property other than that Mr. Wishard holds it in trust until the sums justly due him are paid; that he be required to account for said rents and profits; that his attorney's liens on their judgments be declared void; that they be allowed to redeem the said premises from the foreclosure proceedings; that the amount to redeem be fixed, on payment of which Wishard be required to convey the legal title to them; and a prayer for general and equitable relief. Such, in a general way, is the bill in so far as it is now for consideration.

Defendant Wishard's Plea.

In effect it is that by virtue of certain proceedings complainants are barred from a recovery herein. The plea when summarized, is as follows: The insolvency and proceedings resulting in the appointment of a receiver for the trust company are recited. The legal title to the real estate in controversy, at the instance of the company, was placed in him, by virtue of a resolution of the board adopted in October, 1895, to be by him held in trust for the payment of certain investors with claims against the company aggregating about $7,300, for what the company then or thereafter might owe him, to pay him for the care of the property, and to reimburse him on account of what he might pay out by reason of being on its bonds and obligations; upon the payment of said claims the property to be that of the company. And there was a contract between him and the company of the same date to the same effect. Said debts thus provided for had not been paid when said receiver was appointed, and said trusteeship and said matters and the ownership of said property all appeared on the books of the company, and were known by its officers and the receiver, who filed his report June 1, 1896, setting forth...