United States Mortgage & Trust Co. v. Crutcher

• Decision Date: 28 June 1902
• Citation: 69 S.W. 380,169 Mo. 444
• Court: Missouri Supreme Court
• Parties: UNITED STATES MORTGAGE & TRUST CO. v. CRUTCHER et al.

69 S.W. 380

169 Mo. 444

UNITED STATES MORTGAGE & TRUST CO. v. CRUTCHER et al.

Supreme Court of Missouri, Division No. 1.

June 28, 1902.

FRAUD — PRINCIPAL AND AGENT — ACTIONS — PARTIES — APPEAL — HARMLESS ERROR.

1. Under Rev. St. 1899, § 865, providing that a judgment should not be reversed for any error unless it materially affects the merits of the action, errors in the trial of an action resulting in a judgment for defendant will not authorize a reversal if the plaintiff is not the proper party plaintiff.

2. A loan broker, who was fraudulently induced to make a loan of $9,000 on property not owned by the borrower, was authorized to submit applications to a trust company, subject to its approval, which was the method pursued in making the loan in question, the borrower being paid with the proceeds of a draft drawn on the company. The fraud was discovered before the draft was paid by the company, and the latter notified, and it refused payment. It was agreed that the question of responsibility for the loss should be arbitrated, and the trust company paid the draft to enable it to sue defendant, who had been instrumental in securing the loan by representations to the broker, but not to the trust company. The broker deposited $5,000 to await the adjustment of the controversy between him and the trust company. Held, that the trust company could not maintain such suit, it not having adopted the act of the broker, or paid out its money on the faith of defendant's representatives.

3. A principal cannot deny his liability to his agent for a loss occasioned by a fraud perpetrated on the agent, and at the same time sue a person participating in the fraud for the loss.

Appeal from circuit court, Jackson county; Edward P. Gates, Judge.

Action for fraud by the United States Mortgage & Trust Company against Edwin R. Crutcher and others. From a judgment for defendants, plaintiff appeals. Affirmed.

This is a common-law action of fraud and deceit to recover $8,670 damages. There was a verdict and judgment for the defendants, and plaintiff appealed. The case is quite unusual. It grows out of a novel and successfully worked swindle. The details read more like a diaphanous plot of a dime novel story than like a real transaction of the twentieth century. The defendants, Crutcher & Welsh, are among the largest real estate agents in Kansas City, and it is conceded that they are men of high standing and excellent business qualities and reputation, and that they were honest and innocent, and acted in perfect good faith in all their acts connected with the transaction. The plaintiff is a New York corporation, and was engaged in lending money in Kansas City and elsewhere. J. and W. C. Mackenzie are extensively engaged in business as loan agents in Kansas City, and it is also conceded that they are men of high standing and excellent business qualities and reputation, and that they were honest and innocent, and acted in perfect good faith in all their acts connected with the transaction. They were not the general agents of the plaintiff, but whenever they found a customer who wanted to borrow money they caused him to make out an application to the plaintiff for a loan, they examined the security offered, and forwarded it to the plaintiff, with their recommendation. If the plaintiff accepted the application, it notified them, and they prepared the mortgage, and caused the borrower to execute it to the plaintiff, and then drew a draft on the plaintiff in favor of the borrower for the money, and caused the borrower to indorse the draft. Sometimes, — as was done in this instance, — instead of waiting until the draft was forwarded to New York and collected, the Mackenzies would give the borrower their individual check for the money, and deposit the draft to their own credit. The Mackenzies usually got their pay from the borrowers, but on several occasions the plaintiff paid them for extraordinary services. L. P. Wiel lived in California, and owned a building on Sixth and Walnut streets, in Kansas City, which was rented to Philip McCrory, and used by him for store, saloon, and hotel purposes. Wiel's brother-in-law, Joseph Nachman, a grocer in Kansas City, looked after the property and collected the rents. These are the honest parties connected with the transaction. The dishonest conspirators, who worked the swindle upon the honest parties, were, first, J. W. Kline (now in the penitentiary for his part in the swindle), who operated under the name of L. P. Wiel, and later as H. Watts; second, James M. Kline, whose real name was William Hill, and who was a professional confidence man; and, third, Philip McCrory, the tenant, John McGovern, and James Pryor, who were the general conspirators in the case. The following statement of the defendants fairly and fully sets out the facts adduced at the trial as to the manner in which the swindle was perpetrated:

"On July 1, 1898, defendants received through the mail in the ordinary course of business a letter from L. P. Wiel, dated Omaha, Nebraska, specifically describing a building owned by him, its tenancy, saying he had seen their advertisement, and asking what commission would be charged for its sale, saying he would sell for $40,000, perhaps $36,000. On July 6th Crutcher & Welsh answered the letter in detail, giving their opinions as to the prospects of sale and the commission which would be charged if a sale were made, suggesting, however, that the entire charge of the building and its rentals should be given them, as it would aid them in finding possible purchasers. On the same date Wiel again wrote them, calling attention to his former letter, suggesting that it had probably miscarried, and making similar inquiry. On July 10th Wiel wrote, giving detailed information as to rentals and insurance, saying he did not want to secure an agency for the rental of the building, but only wished to put it on the market, and thought possibly they could get a buyer. To this letter defendants, on July 12th, replied that they would do what they could to get a buyer. On July 19th Wiel wrote, adroitly suggesting that he personally had been offered a trade for some property by James Kline, who might give $8,000 to $10,000 to boot, and asking, if he sent Kline to them, would they negotiate the trade, charging a commission only on the `$8,000 to $10,000 given to boot,' and saying otherwise he would go to Kansas City and attend the trade himself. Defendants, taking the bait, on July 20th wrote Wiel that they would accede to his conditions. July 22d Wiel wrote, authorizing a trade with Kline for $7,000 to boot if no more could be obtained, authorizing the procuring of an abstract if sale was made, and saying he would give Kline a letter of introduction to them. July 23d Wiel wrote a letter of introduction to Kline, directing defendants to show him the property and carry on negotiations with him. Negotiations were entered into, and Kline was shown the property; all of which finally resulted in his offering to trade his Omaha property for Wiel's Kansas City property and give $8,000 in cash to boot, which offer Crutcher & Welsh at once communicated by letter and wire. Wiel answered, authorizing a sale if Kline would assume taxes, telling defendants to draw on him for the cost of abstract, or to take it out of the purchase price with the commission, and to send him deed for execution by himself and wife, saying, the latter being sick, he wanted to take her to California as soon as possible. On July 28th defendants wrote that they had, as instructed, arranged with Kline, who was to obtain a loan of $8,000 on the property in order to pay him cash. At Kline's request Crutcher & Welsh called up several loan agencies to see if they would make to Kline a loan on the property which he was purchasing, so as to enable him to pay the $8,000 to Wiel. Among these agents were Mackenzie Bros., who looked at the property, and undertook to make the loan, Welsh stating to them that Kline represented he was trading with Wiel for the property upon which he wanted to make the loan. Welsh took Kline to Mackenzie, who filled up a written application to the mortgage company, which he required Kline in person to sign, Welsh being asked to sign nothing. This application was actually in writing, giving the minutest details, and signed by Kline, who stated at one place therein he was `going to purchase' the property, and at another he was the `owner.' There was indorsed on this application a report of J. and W. C. Mackenzie to the company, going into detail, saying, among other things, that Kline had a warranty deed, that his claim was not adverse to the owner, and that `we think Mr. Kline will be a good borrower, as all his other property is free of debt.' The date of these papers was July 28, 1898, and on that date the Mackenzies wrote the mortgage company, inclosing the application, and saying, `This is a first-class loan, and we trust that it will meet the approval of the directors.' Welsh prepared a deed, and sent it to Wiel for execution, writing on July 30th, inclosing the deed. He also ordered an abstract of the property, and had it sent to the Mackenzies. Upon the return of the deed, Mr. McLeod, Mackenzie's lawyer, found some technical objections, and it was sent back, the letter returning it being dated on August 5th. August 4th Wiel wrote defendant that he had closed with Kline for the Omaha property, and nothing remained but for Crutcher & Welsh to close the transaction and collect the $8,000 at Kansas City. On August 4th the mortgage company wired Mackenzies that the Kline loan was accepted. On August 5th Kline executed the notes and mortgage, acknowledging the latter before E. B. Nelson, an employé of Mackenzies, whose certificate of acknowledgment states that Kline was to him `known to be the person described in and who executed the foregoing instrument.' On August 6th Wiel wrote the defendants, inclosing the deed, which...