United States v. Dunn

• Decision Date: 13 April 1925
• Docket Number: No. 120,120
• Citation: 268 U.S. 121,69 L.Ed. 876,45 S.Ct. 451
• Parties: UNITED STATES v. DUNN et al
• Court: U.S. Supreme Court

268 U.S. 121

45 S.Ct. 451

69 L.Ed. 876

UNITED STATES

v DUNN et al.

No. 120.

Argued March 13, 1925.

Decided April 13, 1925.

Messrs. W. A. Ledbetter, of Oklahoma City, Okl., and W. W. Dyar, of Washington, D. C., for the United States.

Mr. Geo. S. Ramsay, of Muskogee, Okl., for appellees Dunn and others.

Mr. Wm. G. Davisson, of Ardmore, Okl., for appellees Gillam.

[Argument of Counsel from pages 122-125 intentionally omitted] Mr. Justice STONE delivered the opinion of the Court.

This is an appeal from the United States Circuit Court of Appeals for the Eighth Circuit from so much of its decree as affirms a decree of the District Court of the United States for the Eastern District of Oklahoma dismissing the bill of the plaintiff—the appellant here. 288 F. 158.

Suit was begun to cancel an oil and gas lease of 40 acres of land, given to appellees Dunn and Gillam, by Thomas, guardian, and signed by Eaves, curator of Allie Daney, a minor full-blood Choctaw Indian. Both Thomas and Eaves claimed the right to represent the minor and to lease her land. Eaves was appointed curator of the minor by the United States Court for the Southern District of the Indian Territory in November, 1905, and on admission of the territory of Oklahoma and the Indian Territory to statehood as the state of Oklahoma that court transmitted the curatorship record to the county court of Love county. Thomas was appointed guardian by the county court of Le Flore county in July, 1911. On August 18, 1913, Eaves executed a lease of the premises in question to one Mullen, which lease was approved by the county court of Love county. On the same day Thomas, as guardian, executed a lease of the same premises to Dunn and Gillam, which lease was approved by the county court of Le Flore county. The two leases came to the Indian superintendent for his recommendation for approval by the Secretary of the Interior at about the same time. This developed a controversy between Mullen, on the one hand, and Dunn and Gillam, on the other, as to whether Thomas or Eaves properly represented the minor and had legal authority to enter into a lease of the minor's lands. A compromise was finally effected between the contesting parties, whereby Eaves added his signature as curator to the lease which had been given by Thomas to Dunn and Gillam and acknowledged it. At the same time the Bull Head Oil Company, a corporation and one of the defendants, was organized. The Thomas lease was assigned to it, under an agreement that the lessees would take for their respective interests in the leasehold equal shares of stock. The capital of the Bull Head Oil Company was fixed at $18,000, of which 8,000 shares of the capital stock of the company, having a par value of $8,000, were issued to Mullen, the lessee under the Eaves lease, and 8,000 shares were issued to Dunn, as trustee, for account of the lessees under the Thomas lease and those claiming under them. The remainder of the capital stock was reserved and issued for other corporate purposes.

The bill of complaint joined as defendants the Bull Head Oil Company, Dunn and Gillam and their wives, and Mullen and others, who were stockholders of the company. It charged that the Thomas lease was voidable because, as alleged, Thomas, the guardian, had been induced to execute the lease by a secret agreement with Dunn and Gillam to the effect that a one-fourth interest in the lease was to be transferred by them to a third person for the personal benefit of Thomas. The bill prayed that the minor, Allie Daney, be decreed to be the owner in fee of the lands described in the Thomas lease; that the defendants be adjudged to have no interest therein, and that they be required to account for the oil and gas taken from the land and for the money received by them as the proceeds of the oil and gas so taken, and in the alternative, if for any reason the court should adjudge that the lease of the premises could not be canceled, then that the defendant stockholders be adjudged the holders of said stock respectively in trust for the minor, and that the plaintiff be awarded the custody thereof for her use and benefit, and that the defendants who are or at any time have been stockholders of the Bull Head Oil Company be required to account for all money received by them respectively either as dividends or as proceeds of sale of their stock.

On trial the court found that a part of the consideration moving Thomas, as guardian, to execute the lease to Dunn and Gillam, was a one-fourth interest in the lease transferred by them pursuant to a secret agreement with the guardian to a third person for the personal use and benefit of Thomas. The trial court further found that Eaves, as curator, by subscribing his name to the Thomas lease, with the approval of the county court of Love county and with the approval of the Secretary of the Interior, gave legal validity to that lease; that such action of Eaves was free from the legal effect of the fraud of Thomas and of Dunn and Gillam; and that by the transfer of the lease to the Bull Head Oil Company in exchange for its issue of capital stock, the full legal ownership of the lease was thereupon vested in the Bull Head Oil Company free from any legal effect of the fraud in the execution of the original lease by Thomas, the guardian. The court also found that, of the shares of stock acquired by Gillam as a result of the compromise entered into with Dunn and Gillam by Mullen, 3,266 2/3 shares, of which his wife, Mrs. Gillam, a party defendant, held 1,266 2/3 shares, were sold by them to one Hamon, a party defendant, for the sum of $75,000, and that Hamon was an innocent purchaser for value of the stock; that the defendant T. H. Dunn still retained his holdings in the stock of the company. There was also finding that certain shares of the Dunn and Gillam stock, transferred by them respectively to Mrs. Dunn and Mrs. Gillam, were so transferred without consideration. Upon the basis of these findings the court entered its decree in favor of the defendants and dismissed the case.

After the entry of the decree of the District Court, the plaintiff, acting by the Secretary of the Interior, entered into an agreement, approved by the Secretary and an Assistant Attorney General, with all the defendants other than the defendants Dunn and his wife and the defendants Gillam and his wife, whereby it was stipulated that, in any appeal which the United States should take from the decision of the District Court in this cause, 'the United States would neither ask nor insist upon a reversal of the said cause, or a recovery against the Bull Head Oil Company or against any of the defendants in said cause, save and except T. H. Dunn, N. E. Dunn [wife of T. H. Dunn], J. Robert Gillam, and Mrs. J. Robert Gillam, and that it will not insist upon any judgment impressing a trust upon any of the stock in the Bull Head Oil Company heretofore owned by J. Robert Gillam or Mrs. J. Robert Gillam and assigned to Jake Hamon, but will insist upon a money judgment against them for whatever amount the testimony may show should be awarded.'

Both the District Court and the Circuit Court of Appeals found, and the appellees do not question the correctness of the finding, that the Thomas lease to Dunn and Gillam was procured by fraud; nor can it be questioned on this record that the claim of Dunn and Gillam to rights under the Thomas lease was the only basis and consideration moving from them for the compromise agreement by them with Mullen, claiming under the Eaves lease, which resulted in Dunn and Gillam together receiving in exchange for their interest in the lease, 8,000 shares of the capital stock of the Bull Head Oil Company as the fruits of their fraudulent enterprise. Of this stock Dunn and his wife still hold a substantial amount. Gillam and his wife have converted the stock held by them into cash by sale of it to an innocent purchaser, and the leasehold itself, by the action of Dunn and Gillam, has been transferred to the Bull Head Oil Company, and has been adjudged by the decree of the District Court to be beyond the reach of the plaintiff and the plaintiff's ward, and the plaintiff in error has abandoned its appeal from that part of the decree.

There is thus presented the narrow question whether the appellees, Dunn and wife and Gillam and wife, against whom this appeal is now prosecuted, may retain the fruits of this fraudulent course of conduct, immune from attack in a court of equity. The court below rested its decision on the ground that the compromise settlement entered into with the defendants, some of whom were stockholders of the Bull Head Oil Company, other than the appellees against whom this appeal is prosecuted, had the effect of confirming the Thomas lease and if the appellant had the right to continue the litigation against Dunn and Gillam, that right is based on their alleged fraudulent conduct and is a claim for damages on account of the fraud, and since there was no evidence that the lease was granted for an inadequate return, there was no basis for an award of legal damages to the appellant.

Undoubtedly in an action at law for fraud or deceit, since the action sounds in damage, the plaintiff must prove damage to establish a right to recover. If Dunn and Gillam had retained the lease which they fraudulently obtained from Thomas, as guardian, the plaintiff could, at its option, either have brought suit in equity against them for the cancellation of the lease or for damages against the guardian, or possibly also at law for damages against Dunn and Gillam, and on familiar principles any relinquishment of plaintiff's right to cancel the lease would necessarily have limited plaintiff to a right of recovery for damages. But such is not the situation here presented. The grant of the lease by Thomas, the guardian, to Dunn and Gillam, with a secret agreement that the guardian should be jointly interested in the lease with Dunn...