Stanwood v. Wishard

McPHERSON, District Judge (after stating the facts as above).. The rights of a client as against his attorney are involved in this case. Opposing counsel are practically agreed as to the general rules. These rules are quite generally kno-wn by the profession. The purpose of the-courts is to enforce them in all the cases if the facts warrant. The opinion of Judge Sanborn in the recent case of Trice v. Comstock, 121 Fed. 620, 57 C. C. A. 646, before the Circuit Court of Appeals for this circuit, states the rules as .recognized by the profession generally. While that case was one between principal and agent, the rules, in a measure, are those which govern the relations between client and attorney. The only difference is that an attorney is held to a higher degree of accountability than is an agent. This is so because of the superior knowledge the attorney has as to the matters connected with the litigation. And in so many ways the attorney has the client and his interests in his grasp if he is disposed to make use of his power. So that the attorney must not only at first advise the client of his rights, but must keep on advising him. What the attorney knows about the situation, and the status of the litigation from time to time, the client must know. The attorney must not purchase or obtain an interest in the property the subject of litigation, adverse to the interest or rights of the client. And the fact that the attorney furnishes the money with which to make the purchase does not lessen the rights of the client. In short, the attorney must keep hands off in every sense, excepting to faithfully inform and represent the client, and in all respects conserve the interests of the client. And whether during the time he is acting as an attorney or after such relations have ceased, and whether with his client's money or with his own money, he purchases or acquires an interest in the property in any way the subject of litigation, a court of equity'will decree that he holds such interests as trustee for the client. The cases are uniform upon the subject. Harper v. Perry, 28 Iowa, 57; Polson v.. Young, 37 Iowa, 197; Phillips v. Blair, 38 Iowa, 649; Reickhoff v. Brecht, 51 Iowa, 633; Lynn v. Morse, 76 Iowa, 665, 39 N. W. 203; Insurance Co. v. Perry, 65 Iowa, 709, 22 N. W. 937; Prouty v. Bullard, 77 Iowa, 47, 41 N. W. 559; O'Dell v. Rogers, 44 Wis. 136-178; Moore v. Bracken, 27 Ill. 23; Stockton v. Ford, 11 How. (U. S.) 246, 13 L. Ed. 676; Baker v. Humphrey, 101 U. S. 500, 25 L. Ed. 1065, The rule was as well stated in the 28 Iowa case as can be found: “The application of this rule forbids the attorney to purchase, against the-interest of his client, property sold, in the course of litigation in which he [503] is retained: and such .«ales will bo held void, or the attorney will be hold as the trustee' of Ins client, and required to account as such.” Perry on Trusts, § 202, is to the same effect. And an attorney must keep his client advised of what is being done, to the end that the client can attend sales and give directions in the business affairs of the litigation, and at judicial sales0 become a purchaser, and at private sales buy in outstanding titles or liens, to either perfect his title or make his claim. This phase of his duties is well stated by Justice Nelson in Stockton v. Ford, above cited, as follows : "There is another ground of defense sot up in the pleadings, and supported by tlio proofs, which has not been satisfactorily answered. And that is that the plaintiff was the attorney of Pryor in the judgment against Ford, employed, to enforce its collection; and while holding this relation to him, and after the assignment of .Tones to the latter, he became the purchaser in his own name, without communicating the fact to ills client, and obtaining his consent. Holding this relation to Tones at the time of the purchase, it was his duty to have advised him of the seizure and sale, so as to have enabled him to prevent a sacrifice of the judgment on the sale; and, having not only neglected to do this, hut having purchased the judgment himself, a court of equity will fasten upon the purchase a trust for the benefit of the client.” And the duty of an attorney to report to his client and keep him advised of the facts is illustrated and enforced in Insurance Co. v. Perry, 65 Iowa, 709-711, 22 N. W. 937. Ft is to be seen whether, under the recitals of the bill and the plea, Wishard holds this property in trust. From the bill it has been seen that the trust company owned the property, subject to liens of about $33,000. It was turned over to Wishard in trust, which burdens were soon practically all lifted. From the time the trust company became the owner of the property until the present, Wishard has been in .possession of it, receiving the rents, until he has received sums sufficient to discharge all incumbrances and burdens, excepting $20,000 of the Kennedy mortgages, and has received most of that $20,000. While attorney for complainants, he acquires the legal title by foreclosing and bidding in under the Kennedy mortgages. The plea, which goes to the entire bill, recites many facts, some of which are not in avoidance, but which, so far as material, conduce to a single point. And that is that this and other property were sold at a receiver’s sale under the direction of the state court, and the purchaser paid S12,000 for this and other property, the benefits of which were enjoyed by the complainants. The allegations that such purchaser obtained a title, and that such title is still outstanding, and that such purchaser in some court is asking for a decree for the property, are utterly immaterial. There is no denial in the plea that Wishard owns the legal title, and no claim by him but that lie does in fact own the property, and that he acquired the title in the way charge'1 And he does not admit that the purchaser has any right to or interest in the property. This matter merits but a brief argument. It is not apparent what such purchaser ever acquired. Lie has never been in possession, and has never received a farthing in rents, nor been at mi expense of a cent on account of taxes, repairs, insurance, or other burdens. He only acquired a paper title,, and then not any title the [504] trust company had, but Wishard’s title, as is to be seen from the deed set forth in the plea. He did not receive the title of the trust company. The title Wishard then had was one in trust for the trust company. Suppose that was cut off ? And suppose complainants did receive benefits therefrom? The title complainants are now seeking to have declared a trust is the title he acquired later on by purchase at foreclosure’’ sale. The insufficiency of the plea is apparent from the transactions and the dates thereof. Wishard took the property in trust for the trust company in October, 1895. The receiver for the trust company was appointed in March, 1896. The trusteeship of Wishard appeared from the books, and the receiver from the first recognized it, and it was specifically decreed in October, 1896. The plea is silent, but it is evident that Wishard filed petitions on some of complainants’ claims in 1896, as they went to judgment in January and June, 1897. The deed, bill of sales, and assignments by the receiver to the receiver’s suit, and “other property” was made July 6, 1897. The Kennedy or prior mortgages were taken by Wishard in March, 1897, and he took a decree thereon in June, and a sheriff’s certificate of sale in July, 1897, and a deed in July, 1898. From which it appears at the times he was representing complainants against the trust company he was wrecking the company by “bearing” it, and for personal gain buying up its assets. But it is said that Marquis paid $12,000 for this and other property. How much did he pay for this property? How much of the $12,000 did complainant receive? How much of the $12,000 was on account of this property? The plea is silent as to all these questions. The bill charges that Wishard placed complainants’ claims in judgments, and that no part of them have ever been paid. And in the light of such allegations, which stand as verities, it is difficult to see how complainants have been benefited by the receiver’s sale. The plea retites that the receiver sold the. property to himself. This was done with the approval of the court. It may be supposed, therefore, that the sale should be treated as if the sale had been made to a stranger. But the complainants resided far away. They were in ignorance of what was going on. The plea’does not recite that Wishard did not know all. By inference, at least, it can be said he did know. And the plea only recites that such purchaser of “this and other” property was the highest bidder. It is not alleged that the bid was adequate. No reason is pleaded why Wishard did not bid for his clients, and no reason is pleaded why his clients were not advised, to the end that they for .themselves, or for themselves with others in like interests, could bid. The paper title of the purchaser at the receiver’s sale was cut off by the foreclosure of Wishard, and Wishard now has the title and is in full enjoyment of the property. And there need be no discussion as to whether the judgments of complainants were at any time a lien on the property, for the reason that it was in the custody of the state court. That is not material. The property, subject to certain burdens, belonged to complainants and others, as creditors of the trust company. It was once theirs, and now it is in the name and hands of their attorney, without cash by him, other than his efforts to preserve it, and remove the liens, all of which has been done [505] with the profits from the property. That is the whole story. This had been brought about by shuffling the liens and mortgages and the title, which, if allowed, gives forms greater force than substantial rights. And this is what a court of equity, as between clients and attorneys, will not and should not allow to stand. Therefore the plea is wholly insufficient, and is overruled.