Lombard v. La Dow

MORROW, Circuit Judge, after stating the foregoing facts, delivered the opinion of the court. The purpose of this action was originally twofold: (i) To partition the entire property in controversy between the complainant and the defendant the North American Trust Company; (2) to quiet the title to a portion of the property as against the claim of title asserted by the defendant Letitia Lombard. By some arrangement between the complainant and the North American Trust Company a decree of partition has been rendered unnecessary, and that question has been eliminated from the case. The only controversy remaining is the claim of title asserted by Letitia Lombard to the lot in question. This title is based upon the proceedings in the county court of Umatilla county, Or., resulting in the guardian’s sale of complainant’s interest in the property to one Charles B. Isaac. The prayer of the bill of complaint is that these proceedings in the county court be decreed to be null and void. The judgment of that court is thus directly attacked upon allegations that the proceedings were fictitious and unreal; that there was no actual controversy and no matter tried or considered by that court; that the whole proceedings were a sham and a pretense, executed in form, but designed to circumvent the law of the state regulating the management of the minor’s estate by his guardian. This so-called judgment of the county court was before the Supreme Court of the state in Conklin v. La Dow, 33 Or. 354, 54 Pac. 218. That action was brought in the circuit court of the state to foreclose a mortgage given by the guardian upon the real property of the complainant. The execution of this mortgage was the real transaction behind the proceedings taken by the guardian in the county court for the sale of the same property. The Supreme Court, speaking of these latter proceedings, said: “It is next claimed that this is a collateral attack upon the judgment and proceedings of the county court for fraud, and for that reason must fail. But as between the plaintiff and the defendant Lewis McArthur La Dow these proceedings are not entitled to the force and effect of the dignity of a judg [124] ment They were purely fictitious, instituted for the purpose of evading a wholesome rule of law, were a fraud upon the court, and cannot, therefore, be treated as a judicial proceeding.” Then, after citing a statement made by Solicitor General Wedder-burn in his argument in Duchess of Kingston’s Case, 20 How. St. Trials, 355, 478, adopted ,by Lord Brougham in the subsequent case of Earl of Bandon v. Becher, 3 Clark & F. *479, *510, and the opinion of Lord Brougham in Shedden v. Patrick, 1 Macq. 619, 10 Chi. Leg. News, 234, the court says further: “The proceedings in the county court were purely fictitious, gotten up, not for the purpose of obtaining any real decree or order of such court for the sale of the property belonging to the contesting defendant, but to facilitate the accomplishment of an entirely distinct and separate purpose. It was not intended that any questions should be submitted to the court for adjudication, or that it should perform any office in the matter except to approve in a formal way what the parties had already agreed upon. The whole scheme was a pure fiction, by which the court was led to believe that it was adjudicating and determining real questions, properly within its jurisdiction, when in fact the parties had themselves settled and agreed upon just what should be done, and had no intention whatever to abide by or be governed by its decree or order. The machinery of the court was simply used by them to cover up the real truth, and to accomplish something entirely different from what the proceedings on their face purported to be. It would be an anomalous doctrine if, in a suit to foreclose a mortgage upon the property of a minor, he could not question its validity because, in order to facilitate its execution, resort had been had to a pretended sale of his interest to the ostensible mortgagor, under some fictitious proceedings of the councy court.” It was accordingly held that as between the plaintiff in that case and the defendant Lewis McArthur La Dow the proceedings of the county court were an absolute nullity, and the mortgage in question was void. The defendant Letitia Lombard was a party to that action, and her defense in that case, as in the present case, was that the proceedings of the county court, being regular and valid on their face, imported absolute verity in her favor as a subsequent innocent purchaser for value. The court held that this issue was not involved in that case, and could not be tried therein, and it was therefore not determined. Nevertheless, the bill of complaint in the present case alleges an estoppel against the defendant Letitia Lombard and in favor of the complainant, by reason of the fact thqt the conveyance made by the guardian to Isaac pursuant to the order of sale of the county court, and under which Letitia Lombard claims title, was executed subsequent to the execution of the mortgage, and therefore subject to its conditions, and that any and all right, title, and interest which she had or could have had in the property was foreclosed by the judgment in the foreclosure proceedings. The view we take of this case upon the merits renders it unnecessary to pass upon the question. We shall have occasion, however, to consider the facts alleged in this behalf as tending to sh'ow that Letitia Lombard had notice of the fraudulent character of the guardian's sale, and that she is therefore not in a position to claim title as an innocent purchaser for value without notice. To determine the validity of the guardian sale, reference must be had to the proceedings leading to it, and the facts upon which those proceedings were based; and, the claim of [125] fraud in those proceedings having been set up, the court of necessity admitted evidence aliunde the record. From that evidence it was impossible to decide otherwise than as decided by the court below, and by the state court, in the foreclosure proceedings, that the guardian sale was illegal and void. The testimony of Isaac himself, the purchaser at the guardian sale, is an unqualified admission that he paid nothing for the property, and had no interest in it whatever, other than to go through with the form of purchasing it in order to enable the property to be mortgaged, and then to convey it back to the original owners. It is not questioned that the parties instituting the proceedings for the sale of the property, in order to mortgage it, acted in the belief that they were promoting the best interests of all concerned; nevertheless their purpose was illegal, and the transaction was void and against the rights of the plaintiff herein. The evidence is conflicting as to whether or not the defendant Letitia Lombard had actual knowledge of the infirmity of title, consequent upon the invalidity of the guardian sale, at the time she purchased the property in controversy. But there can be no question that the state of the record title at the time of her purchase was such as to put her upon inquiry as to the real condition of the title. The title she acquired was derived from the proceedings in the county court resulting in the guardian’s sale of the property on November 14, 1889, to one Charles B. Isaac. The sale was confirmed by the court on January 8, 1890. The deed of conveyance was executed January 11, 1890, and was witnessed, sealed, and acknowledged so as to entitle it to be recorded, and was filed for record on January 20, 1890. There was then of record a mortgage upon the same property executed by Mattie A. La Dow, widow, Frank E. La Dow, and Charles B. Isaac, to secure to the mortgagees the payment of $17,350. This mortgage was acknowledged and filed for record on September 27, 1889, and again acknowledged (to cure a defect in the acknowledgment) and filed for record on November 22, 1889. This mortgage was illegal under the laws of the state so far as it affected the interest of the minor heir Lewis McArthur La Dow. But further than this at the time this mortgage was executed and filed for record Isaac had no interest in the property. What,’ then, was the significance of this illegal mortgage with respect to the title to property in which Isaac, one of the mortgagors, had no interest? It was, of course, notice that there was some substantial irregularity in the mortgaging of the property, and, the transaction being so closely connected in point of time with the proceedings for the guardian sale, it was notice sufficient to put a prudent person on inquiry as to the real condition of the title. Moreover, the sale of a half interest in the entire property by Howard and wife to B. M. Lombard in 1895, and the sale of the remaining half interest in the lot in controversy by Howard and wife to Letitia Lombard in 1896, were made subject to this mortgage. It appears that the purchase was made for Letitia Lombard by B. M. Lombard, her son, who handled her property absolutely, having her power of attorney for that purpose. The knowledge of B. M. Lom [126] bard then was the knowledge of the. defendant Letitia Lombard. B. M. Lombard testifies that he examined an abstract of the property when he made the purchase, and had no other knowledge than was contained in the abstract, and no knowledge or intimation that any one had any equity or claim to the property, other than that of the Jarvis-Conklin mortgage. James A. Howard, who purchased the property with B. M. Lombard, and later deeded to Letitia Lombard, testifies that at the time he and B. M. Lombard arranged to purchase the property they discussed the matter of Lewis McArthur La Dow having some equity in the property, and how that equity could be satisfied when young La Dow came of age. C. M. Wade, cashier of the First National Bank at Pendleton, testifies to conversations had with B. M. Lombard and Howard together, when they were endeavoring to negotiate a loan upon this property if they purchased it, and states that according to his recollection “a part of the consideration and trade and the understanding throughout was that when this [the mortgage] had been settled up that Lewis La Dow was to get the back lots.” According to Mr. Wade’s understanding, Lombard and Howard were to assume the mortgage, and pay no other consideration for the property, but that when Lewis La Dow came of age they were to deed back to him certain lots, and that they considered they were getting the property cheap on those terms. The testimony of Lombard and Howard is not clear as to the consideration paid. It appears to have been connected with several trades of property, so that it was a difficult matter to separate the particular consideration given for this property. Howard does not appear to have paid anything whatever, and Lombard but little, if anything. It is certain thát Howard purchased with knowledge of Lewis La Dow’s equity, and the inference to be drawn from all the testimony is that B. M. Lombard also had such knowledge at the time he purchased; that, though he may have relied upon the record title, he had knowledge that the mortgage was placed on the property before the purchase at the guardian sale was completed, and was therefore charged with sufficient notice of its invalidity to place him upon inquiry, independent of any other knowledge he may have acquired from other sources. These facts bring the case squarely within the rule that a court of equity will set aside the sale of an infant’s lands fraudulently made by his guardian under authority derived from a court having jurisdiction of the subject, and will grant such relief therein as is consistent with equity proceedings. Arrowsmith v. Gleason, 129 U. S. 86, 9 Sup. Ct. 237, 32 L. Ed. 630, citing Johnson v. Waters, 111 U. S. 640, 4 Sup. Ct. 619, 28 L. Ed. 547. See, also, Bergin v. Haight, 99 Cal. 52, 33 Pac. 760. There are no substantial equities in support of appellants’ claim of title, and we see no reason for disturbing the decree of the court below. The decree of the Circuit Court is therefore affirmed.