Anglo-American Savings & Loan Ass'n v. Campbell

Mr. Justice Shepard delivered the opinion of the Court: There are several questions suggested by the facts in this case, as stated above, that, in view of the terms of the decree, do not necessarily require decision; but at the same — 598 — time, they enter more or less into the consideration of the principles upon which that decree must stand or fall, and will, therefore, be briefly considered. 1. The obligatory character of the contract of the Anglo-American Savings and Loan Association with David M. Lea to advance him the full sum of $46,500, to be paid in instalments at certain stages in the construction of his houses, and the record of the conveyance to its trustees to secure the same, before any contract by him let or entered into for the construction in any particular, gave that mortgage priority over all liens for labor and materials supplied to him under his subsequent contracts for construction. Compiled Stat. D. 0., p. 367, Sec. 3; Moroney’s Appeal, 24 Pa. St. 373; Hoagland v. Lowe, 39 Neb. 397, 407. 2. Nor is there anything in the arrangement between Lea and his vendors and the association, contemplating a scheme for the purchase of the property and the joint construction of the buildings thereon, that would justify the subordination of the mortgages of the former to the liens of the furnishers of labor and.materials, in accordance with the doctrine of such cases as Bohn Mfg. Co. v. Kountze, 30 Neb. 719, 725, and Henderson v. Connelly, 123 Ill. 98. And ■that doctrine need not, therefore, be either approved or denied. 3. Although the loan was obtained for the express purpose of erecting the houses according to plans and specifications submitted with the application therefor, there is nothing in the nature of the contract, or in its terms, that made it obligatory upon the association to see that the money advanced thereunder was applied to payments for labor and material furnished in the construction. Hence, payments made to Lea,' after, as well as before, notice of the claims due the appellees, and the filing of their liens, were in discharge of the contract of the association and brought it under no liability to them. Moroney’s Appeal, 24 Pa. St. — 599 — 373; Rogers v. Central L. & T. Co., 49 Neb. 676; Patrick Land Co. v. Leavenworth, 42 Neb. 715. 4. The right to recover the amount of money retained by the association from the last instalment can not be enforced in favor of the mechanics’ lien-holders by virtue of any declared trust, or one to be implied from the terms and con'ditions of its contracts alone. From the proposition that the association was under no obligation by virtue of its contract to see to the application of the money advanced, the conclusion necessarily follows, that from the mere promise, no matter how binding, to advance Lea the full sum of $46,500, no trust was impressed upon the part thereof retained by the association, in favor of the holders of the mechanics’ liens any more than in favor of Lea’s creditors generally. It likewise follows that the promise made to Lea of the payment of the entire sum can not be enforced in equity, upon that ground alone,.in favor of the appellees, under the doctrine enounced in Keller v. Ashford, 133 U. S. 610, 625, and explained again in Constable v. National S. S. Co., 154 U. S. 51, 74. In this last case it was said, following the Court of Appeals of New York, that, “to give a third party, who may derive a benefit from the performance of a promise, an action, there must be, first, an intent by the promisor to secure some benefit to the third party, and, second, some privity between the two, the promisor and the party to be benefited, and some obligation or duty owing from the promisor to the latter, which would give him a legal or equitable claim to the benefit of the promise, or an equivalent to him personally.” 5. It now remains to inquire whether by reason of the special” circumstances disclosed in the evidence, there is any other ground upon which the decree, enforcing the claim of the appellees against the $3,000 retained from the loan, can be upheld. — 600 — If there is, it must be by virtue of a constructive trust raised up by those special circumstances and conditions, consisting of representations and conduct upon one side, and of action founded thereon, upon the other, in accordance with established principles of equitable estoppel. The special circumstances relied on to create the trust are summed up as follows for consideration: It appears, with sufficient certainty, that the houses had been completed in compliance with the plans and specifications submitted with the application for the loan, and that they cost the sum of $46,500. If .the association liad any defense upon either of those grounds, the facts were within its knowledge, and it was its duty to prove them. It had a supervisor, charged with the duty of seeing that the building was carried on according to the, plans and specifications, and he had a watchman employed also. He was a witness, and testified that the buildings were completed December 9,. 1896, and no question was asked him regarding the character of that completion, or the cost of the entire construction. The evidence shows that the appellees, particularly Campbell, looked to the fund to be advanced under the contract for the loan as a means ,of obtaining payment for their labor and materials. . The written contract with Campbell shows the times of his payments corresponding vutli those of the advances to be made to Lea. They knew the details of the loan contract and say that they relied upon it as the basis of the credit extended to Lea. That they did so, and did not rely upon the individual capacity of Lea, or their right to a last lien upon the premises, is supported by every reasonable inference deducible from the surrounding circumstances. Lea was engaged in building upon land for which he had not paid, and that was under mortgages to secure at least two-thirds of the purchase money. The existence of these mortgages emphasized the incapacity of Lea to build without a pre-arranged loan, that was attested by the — 601 — contract with the association for the express purpose of building. It appears, moreover, that the loan could not be obtained without giving the mortgage for its security priority over the second purchase-money mortgage. It requires very little testimony, therefore, to produce the conclusion that, without confidence in the payment to Lea of the full amount of the loan contracted for, the appellees would not have extended him credit for their labor and materials. The reasonableness of such expectations on their part ought, naturally, to have suggested itself to the association. Engaged in the business of lending money to enable owners of city lots to improve, the association must have known, in the ordinary course of such transactions, that the consummated contract for the money to be advanced to Lea as the building progressed, under a mortgage taking priority over the statutory liens available to those contracting with.him, would constitute a material inducement to them in supplying him with labor and materials. Charged with this knowledge it contracted to advance Lea the full sum of $46,500. It is true, as we have before said, that this contract with Lea did not bind the association to see that he actually applied the money, when advanced, to the payment of his contractors. Payment into his hands was all that it was bound to make, and Lea’s creditors had, therefore, no legal right to ask anything more. Had he received all of the money and then failed to pay them, they would have no remedy against the association, for its obligation would have been completely discharged. Notwithstanding this, it appears, as if in express recognition of the reasonable expectations of Lea’s contractors, that the practice in making payments was this: When the time for a payment arrived, a draft payable to Lea’s order was sent by the association to its attorneys in Washington. Lea at once endorsed it to them and they collected the draft and disbursed the money. Claimants of money on account of — 602 — the buildings often notified them of the same, and they, in turn, notifying Lea’s sureties, were sometimes directed to pay them, and did so. All that remained was .then delivered to the sureties on the bond given by Lea to indemnify the association; among other things, against mechanics’ liens. It was, of course, to their interest, as such sureties, to see that the money went to the contractors of Lea, and it would seem, from the failure of others to intervene in the suit, that the contractors were paid as long as the association continued to make the advances. But when the time for the payment of the last instalment arrived, the association, for its own advantage and without justification shown in the conditions of the contract, or by the evidence in the cause, withheld the sum of $3,000, which, imputing common sense to Lea’s sureties, and to him common honesty and an intention to fulfill his obligations to the appellees, would have been paid over to them. If any presumption is to be indulged in respect of this it ought to be in favor of honesty and right doing. Be that as it may, however, the association would be entitled to no benefit from any lack of certainty on that point if it acted wrongfully as to the appellees in retaining the money and giving Lea no opportunity to discharge his obligations with itf Angle v. Chicago, etc., Railroad Co., 151 U. S. 1, 12. Conceding, as has been done, that there was no intention on the part of the association to create a trust ip favor of Lea’s contractors, by the terms of the contract, and granting that the contract made it no wrong, actionable on behalf of the appellees, to withhold the money, does not, in our opinion, answer the conditions presented by the special facts and circumstances stated above. Equity will impress a trust contrary to the intention and will of a party where a fund has been obtained by him in violation of his duty to another. In order to raise this duty as the foundation of a constructive trust there need be neither a promise for the bene — 603 — fit of another, nor express fiduciary relations between them. It may be raised by representations, conduct, and the like, that have been relied upon by another under such circumstances as create an equitable estoppel upon one to pursue thereafter an opposite course for his own advantage. To create such an estoppel it is not always essential that some special representation be make to a particular person at the time. In this case the representation was made, in the first place, to all persons likely to come into contractual relations with Lea in the construction of his buildings; but when acted upon by one of them in good faith it became as if made personally to him. Horne v. Cole, 51 N. H. 287, 293. That the representations in respect of the amount and purposes of the loan were not made to defraud anyone at the time, is apparent; but this is not essential; Nor is it necessary that the arrangement with Lea, who was in no condition to be specially concerned at the time, for the detention of a portion of the money, should have been made for the purpose of defrauding the appellees. Horne v. Cole, 51 N. H. 287, 292; 2 Pom. Eq., Sec. 803. Notwithstanding that the association was under no legal obligation to see that Lea paid the money, when advanced, to the appellees, it was under a moral obligation to them, at least, to pay over to him all that it had contracted to advance to enable him to pay for the construction of the houses. Having, by its conduct, induced or contributed to induce the appellees to contract with Lea, and with their materials to increase the security for its own debt, it would be inequitable and unjust to permit the association to withhold the money upon which they relied for reimbursement. The foundation of equitable estoppel is justice and good conscience. “Its object is to prevent the unconscientious and inequitable assertion or enforcement of claims or rights which might have existed and been enforceable by other rules of the law, unless prevented by the estoppel; and its practical effect is, from motives of equity and fair dealing, — 604 — to create and vest opposing rights in the party who obtains the benefit of the estoppel.” 2 Pom. Eq., Sec. 802. Upon these equitable considerations, we conclude that the court did not err in decreeing the enforcement of a constructive trust in favor of the appellees upon the fund withheld from the loan to Lea. The researches of counsel, likewise our own, have failed to discover a decision directly in point to guide us in reaching the conclusion at which we have arrived in this case; but we are none the less satisfied that its facts, though novel, bring it within the application of the well-established equitable principles that have been stated. There is, however, a decision of the Supreme Court of the United States in an analogous case, within the governing principle of which, this case, in our opinion, is clearly included. See Angle v. Chicago, etc., RR. Co., 151 U. S. 1, 26. In that case it appears that Angle had a contract with a railway corporation called the Portage Company, to construct a certain part of a railway that was to be completed to earn a grant of lands from the State of Wisconsin. The Portage Company arranged with a trust company for the advancement of the necessary money to complete the road, and Angle entered upon the performance of his contract with a large and sufficient force. He had no contract entitling him to a lien upon the Portage Company’s land grant, but that formed the chief inducement of the credit that it had arranged for. Whilst the work was being diligently prosecuted by Angle, the Chicago, St. Paul, Minneapolis and Omaha Railway Company (called the Omaha Company), by bribery of the Portage Company’s officers secured the control of that company and forced the suspension of the work. Its conduct caused the trust company to withdraw its promised aid. The Omaha Company, then, by fraudulent representations, induced the legislature of the State to, repeal the grant to the Portage Company and bestow the land upon it, in — 605 — stead. Angle recovered a judgment against the now insolvent Portage Company for the work done by him, and then filed his bill against the Omaha Company to subject the aforesaid land grant thereto. His bill was dismissed, and that decree was, upon his appeal, reversed. In the course of the opinion delivered by Mr. Justice Brewer for the majority of the court, it was said: “While no express trust attached to the title to these lands, either in the Portage or in the Omaha Company—while it may be conceded that when the legislature resumed the grant it took the title discharged of any express trust or liability in favor of the creditors of the Portage Company, and might have transferred an absolute title to any third party beyond the reach or pursuit of the Portage Company, or its creditors, yet it is still true that the lands were given to the Portage Company, as they had been given by Congress to the State in the first instance, for the purpose of aiding in the construction of the road; that a part of the work necessary for such construction had been done, and there is, therefore, an equity in securing, to the extent to which the work had been done, the application of these lands in payment thereof. And when the Omaha Company, by its wrongdoings, secured the full legal title to those lands, equity will hold that the party who has been deprived of payment for his work from the Portage Company, by reason of their having been taken away from it, shall be able to pursue those lands into the hands of the wrongdoer, and hold them for the payment of that claim which, but for the wrongdoings of the Omaha Company, would have been paid by the Portage Company, partially, at least, out of their proceeds. While no express trust is affirmed as to the lands, yet it is familiar doctrine that a party who acquires title to property wrongfully may be adjudged a trustee ex maleficio in respect of that property. . . . The property was in the Portage Company for the purpose of aiding in the construction of this road ; work was done by the plaintiff in that direction. Equity — 606 — recognizes a right that that property should be applied in the payment for that work. The wrongdoing of the defendant, the Omaha Company, has wrested the title of this property from the Portage Company and transferred it to itself. It has become, therefore, a trustee ex maleficio in respect to the property.” That case is not distinguishable from this because of the ■element of actual fraud found to have been practiced by the party in whose possession the property was impressed with the trust. Actual fraud, intentional as regards the party ■seeking relief, is not essential to the raising up of a constructive trust any more than an equitable estoppel. If one makes an appropriation of a fund, which, if permitted to stand, would, by reason of the circumstances attending the transaction, work a wrong' to another having an equity therein, and give him an unconscientious advantage over that other, the act will be regarded as what is called a constructive fraud in equity. 2 Pom. Eq., Secs. 1044, 1053. 6. There remain to be considered certain questions raised ■on the appeal of the sureties in the undertaking given under the permission of the statute to release the premises from the lien. The property, as appears by stipulation made part of the record, was twice sold at public sale after the bill had been filed. The sale under the second deed of trust was made to one Mitchell. That under the association’s deed of trust is recited as made to the “party secured thereby, for the sum of $45,300.” ■ It seems, however, that the conveyance of the legal title under this sale was made to Harvey T. Winfield, who filed the undertaking aforesaid with M. I. Weller and Thomas H. Pickford as sureties, and procured orders, on November 25, 1897, releasing the premises from the operation of the liens sought to be established in this suit. (1) The first contention on behalf of the sureties, is, that the undertaking is void, because Winfield,' the principal — 607 — therein, was not a defendant in the proceeding and, therefore, not within the operation of the statute. The statute provides: “That in all proceedings under this act the defendant may file a written undertaking, with two or more sureties, to be approved by the court, to the effect that he and they will pay the judgment that maybe recovered, and costs, which judgment shall be rendered against all persons so undertaking, and thereby release his property from the lien hereby created. . . . “If such undertaking be approved before the filing of the aforesaid bill in equity to enforce said lien, the said sureties shall be made parties thereto, and if, after the filing of said bill, said sureties, upon the approval of said under taking^ shall ipso facto become parties thereto, and in either case the decree of the court shall run against them as well as the principal on such undertaking.” Compiled Stat. D. C., p. 368, Sec. 11. That this undertaking may be entered into and substituted for the building before as well as after the filing of a bill to enforce the mechanics’ lien, is sufficient to indicate that the word defendant was not used in its technical sense, but with a meaning broad enough to cover the owner of the premises in whom, at the time, the title may be vested. It was" intended as a means whereby the property might be speedily unincumbered and rendered marketable, and this was necessarily for the benefit of the owner at the time. The ambiguity of the section of the statute as it now stands under the act of 1884, recited above, grows out of the broadening therein, by amendment, of the scope of Section 708 and others of the Revised Statutes of the District of Columbia, the effect of which in permitting notices of the liens claimed thereunder to be made out against the owner of the property at the time the right to assert the lien accrued instead of the owner at the time of the contract, was declared in Lefler v. Forsberg, 1 App. D. C. 36, 40. It follows that this ground of objection to the decree is — 608 — not well taken. That Winfield may have become the owner of the premises by purchase under the first mortgage, or in any other way, is immaterial; he.is bound as owner by the recital of the undertaking and the release of the lien obtained thereon. (2) The point of the second contention is well taken. No decree for the payment of the money withheld by the association, and upon which a trust was impressed, should have been rendered against Winfield and his sureties, because there was no foreclosure of the mechanics’liens set up in the bill. The decree impresses a trust, in favor of the appellees, upon the $3,000 retained by the association from the loan, and orders it paid over. It is in the nature of the decree approved by this court in the case of Emack v. Rushenberger, 8 App. D. C. 249, 254. The undertaking was not entered into to cover any liability of that character on the part of the association or of the former owner of the property. Its obligation is confined to the purpose of the statute. Upon the failure to establish the mechanics’ liens upon the premises, under the allegations and prayer of the bill, the obligation of the undertaking ceased, and it should have been so decreed. For the reasons given, the decree will be modified so as to release the principal and sureties upon the undertaking, and in all other respects affirmed, with costs to the appellees. The cause will be remanded to the court from whence it comes, with directions to modify and amend the decree in accordance with this decision. It is so ordered. Modified and affirmed.