Melms v. Pabst Brewing Co.

The following opinion was filed March 10, 1896:

PiNNey, J.

1. The statute (R. S. sec. 3914) provides that, in sales of real estate made by an executor, administrator, or guardian, the executor, administrator, or guardian making such sale, or guardian of the heir of the deceased, “ shall not directly or indirectly purchase, or be interested in the purchase of any part of the real estate so sold. All sales made contrary to the provisions of this section shall be roidS The sale to Jacob Frey, reported to the county court, of the premises in dispute, and the executors’ deed of the same to him, and which were made for the use and benefit of the executrix, Mrs. Melms, she having paid the entire consideration, fall within the condemnation of this statute. This sale was fraudulent in law, as against the creditors Of the estate and the plaintiffs as heirs at law of Charles T. Melms, deceased. The sale, in the first instance, was to Jacob Frey for $90,000; but he failed to make good his bid, and the sale was reported to the court as made for $379.50, and it was confirmed, and the executors’ deed to him was executed accordingly. Whether a deed made upon a sale thus declared void is absolutely void or only voidable, and so would pass the legal title, and whether a Iona fide purchaser for value, without notice, from the grantee in such a deed would take a valid title, is an important question and, in this state, a new one.

In McCrubb v. Bray, 36 Wis. 333, the question was suggested, but the court expressly declined to give any opinion in respect to it. In Forbes v. Halsey, 26 N. Y. 65, and Terwilliger v. Brown, 44 N. Y. 241, under a statute in the same terms, the objection was held fatal to the title as against innocent purchasers for value; but, in Roulston v. Roulston, 64 N. Y. 652, 654, it was said, in substance, that such a sale and purchase was valid as to all except those prejudiced by it, and as to them not void, but voidable. And People v. Open Board of S. B. B. Co. 92 N. Y. 98, is to the same effect. The question is whether the word void in the statute may not be fairly held, in the connection in which it is used, to mean voidable. Such a construction would seem to better accord with sound policy and the purposed of the statute than one which, for a secret defect, would defeat the title of an innocent purchaser for value; and in White v. Iselin, 26 Minn. 487, upon a statute in the same words, the word void was given only the force and effect of voidable, and this view is sustained in Boyd v. Blankman, 29 Cal. 19. The words void and voidable are not always used in statutes and reports with entire legal accuracy, and the word void is often construed as meaning only voidable. Endlich, Interp. Stat. § 270; Allis v. Billings, 6 Met. 415; Jackson v. Henry, 10 Johns. 185; Dix v. Van Wyck, 2 Hill, 522; Green v. Kemp, 13 Mass. 515; Reading v. Weston, 1 Conn. 409. If the statute should be so construed as to avoid sales by executors, administrators, and guardians on the ground stated, or for secret frauds, as against innocent purchasers for value, titles founded upon them would be so doubtful and uncertain that few would care to purchase or pay a fair price for them. "We think that the word void was used in the statute in the. sense of voidable, and that the legal title to the premises passed to Erey by the executors’ deed, subject to be questioned or impeached on the ground that his purchase was in trust for the use and benefit of Mrs. Melms, the executrix, and therefore fraudulent as against creditors of the estate whose claims had been proved, then remaining unsatisfied to the amoúnt of not less than $100,000, and as against the plaintiffs as heirs at law.

2. The evidence is wholly insufficient to show that Pabst and Schandein, at the time they purchased the premises from Mrs. Melms and Erey, had notice, in fact, of the fraud and' illegality which entered into the executors’ sale and deed to the latter, or that they had notice, in fact, that the sale and executors’ deed had been made to Erey for the use and benefit of Mrs. Melms, who was the real purchaser. Mrs. Melms was lawfully interested in this sale to the extent of her life estate in the homestead and her dower interest in the brewery property, and as to these subjects it was, in fact, for her benefit. The purchasers would naturally so understand it. Leopold Melms testifies that he explained to them that Erey held the title, and that he was Erey’s agent; that she had-a dower interest and homestead right, and had paid the interest on the incumbrances so as not to lose her dower right. But all this had no tendency to show that there was any objection existing to the title they were about to purchase. True, he adds that Pabst and Schandein “ were well informed about the matter, and had seen the attorney of the executors;” but this is a matter of conclusion or inference on his part and gave no facts of any materiality or significance. It was probably a mere surmise on his part. The fact that Mrs. Melms, as she testifies, said in their presence that Erey would give the property back to her, and he had bid it off for $90,000, was not calculated to excite suspicion or lead them to doubt Erey’s title. Pabst testifies that he ■does not remember any such, conversations. Schandein, who was present, is dead, and the transaction took place more than twenty-three years before the trial. The actual payment of what was then considered a fair price is cogent ■evidence of good faith.

It is claimed that Pabst and Schandein had notice of the facts from an inspection by Pabst of the account rendered to Mrs. Melms by Leopold Melms, showing that she paid the consideration for the executors’ deed, and received the proceeds of the sale after paying certain sums on the incum-brances; but the evidence leaves it extremely doubtful .whether he examined the account with sufficient care to ascertain what it showed in these respects. A conclusive answer to this claim is that the account was not made up, nor was it shown to Pabst, until several months after the sale was completed and the rights of the parties had become fixed. It came too late.

The only other ground for imputing notice to the purchasers, requiring consideration, is that the attorney who had theretofore acted for the executors and executrix aud Jacob Erey in making the executors’ sale to Frey, reporting it to the court, and getting it confirmed, and in the preparation and execution of the executors’ deed, and who was clearly cognizant of the illegality of the. same, was chosen by Pabst and Schandein to act for them in the matter of the completion of the sale to them by Mrs. Melms and Fi’ey, and to examine the title to the premises, with the understanding that he was to represent the latter in the same manner. Each party paid one half of his charges for such services. It is argued that the knowledge which such attorney had acquired of the illegality of the executors’ sale and deed to Frey, while he had so acted for the executors and executrix and Frey, is to be imputed to Pabst and Schandein, and rendered them purchasers mala fide.

Notice to an agent or attorney is notice to his principal or client in regard to the matter in "which he is engaged; ■and where a purchaser employs the same attorney as the vendor, he will be affected with notice of whatever such attorney acquired notice of, in his capacity of attorney for ■either vendor or purchaser, m the transaction in which he was so employed. Notice to the attorney which will bind the client must be notice in the particular transaction in which the client has employed him. So, where one of two ’matters transacted by the same attorney, though the former was for another client, follows so soon after the other that it clearly appears that the earlier transaction cannot have ■been out of the mind of the attorney when engaged in the latter, there is no ground for restricting the notice to the ■client to the second transaction, but he will be affected with notice of both. The authorities bearing' upon this proposition are considered in Brothers v. Bank of Kaukauna, 84 Wis. 395, where it was held that, if an agent acquires his knowledge of a prior transaction so recently as to make it .incredible that he has forgotten it, his principal will be affected by it, although not acquired while transacting the business of his principal. In the case of Constant v. University of Rochester, 111 N. Y. 607, 611, the modification of the rule to the effect stated, as recognized in the case of The Distilled Spirits, 11 Wall. 356, was quite fully considered, •and it was held that “ the farthest that has been gone in the way of holding a principal chargeable with knowledge •of facts communicated to his agent, where the notice was not received or the knowledge obtained in the very transaction in question, has been to hold the principal chargeable upon clear proof that the knowledge which the agent once had, and which he had obtained in another transaction and •at another time and for another principal, was present to his mind at the very time of the transaction in question.” Slattery v. Schwannecke, 118 N. Y. 547; Constant v. University of Rochester, 133 N. Y. 642.

There is very strong reason for holding, from the facts and circumstances of the case, that all the facts within the knowledge of the attorney, acting in the present instance for both parties, and acquired about five months before while acting as the attorney for the executors and the vendors, in respect to the illegality of the executors’ deed, were present to his mind when acting for Pabst and Schandein, though there is no direct evidence on the subject; but the rule under consideration is subject to a most material qualification decisive of the present case. The rule itself is based upon the duty of the attorney or agent to disclose to his client or principal all knowledge and information he possessed at the time, in relation to the subject matter of the employment or agency, and the presumption is that he communicates it accordingly; but he cannot be expected to communicate what he has forgotten, or what it would be his legal duty to conceal, or information which, from his relation to the subject matter or his previous conduct, it is certain that he would not disclose. "Whatever knowledge the mutual attorney had acquired in respect to the character- and validity of the executors’ deed and sale five months before was acquired under circumstances which would render-it a breach of professional confidence to disclose it to another,, or to take advantage of such knowledge to serve or promote the interests of another client; and therefore such second client would not be affected or bound by it. Wade, Notice, § 692; Mechem, Agency, §§ 721, 722. As was said by Mr. Justice Beadlet in the case of The Distilled Spirits, 11 Wall. 367: “ When it is not the agent’s duty to communicate such knowledge, when it would be unlawful for him to do so, as, for example, when it has been acquired confidentially as attorney for a former client, the reason of the rule ceases, and in such case an agent would not be expected to do that which would involve the betrayal of professional confidence, and his principal ought not be bound by his agent’s secret and confidential information.” Hood v. Fahnestock, 8 Watts, 489; Bracken v. Miller, 4 Watts & S. 111; McCormick v. Wheeler, M. & Co. 36 Ill. 116; Innerarity v. Merchants' Nat. Bank, 139 Mass. 333; Allen v. S. B. R. Co. 150 Mass. 205, 206; Herrington v. McCollum, 73 Ill. 476; Ford v. French, 72 Mo. 250; Martin v. Jackson, 27 Pa. St. 504; Cave v. Cave, 15 Ch. Div. 639, 644. This limitation of the general rule was declared in Kennedy v. Green, 3 Mylne & K. 699; and in Waldy v. Gray, L. R. 20 Eq. 252, Bacon, Y. C., said: “ I take it to be very clearly established that if a person employed as a solicitor has done things which, if disclosed, would prevent the perfection of the security on which he is-engaged, which would show that a good title does not exist to that which he is the instrument of conveying to the purchaser, it is not to be expected or inferred that he would communicate what he has done to his client.”

The whole doctrine of imputed notice to the client or principal rests upon the ground that the attorney or agent has knowledge of something, material to the particular transaction, which it is his duty to communicate to his principal. Wyllie v. Pollen, 3 De Gex, J. & S. 601. And notice of it will not be imputed to the client where it would be a breach-of professional confidence to make the communication; and where the interest in, or the relation of the attorney to, the previous transaction is such as would be, sufficient to induce-him to withhold the information, the presumption of its-communication is rebutted. The client will not be charged with notice of a fraud or wrong to which his attorney was a party while employed by another, and which it is quite-certain he would conceal. Kettlewell v. Watson, 21 Ch. Div. 707. The object of the executors’ sale and deed to Erey for the use and benefit of Mrs. Melms was to secure to her the brewery property or its proceeds as against the rights of creditors and heirs of her deceased husband, and the scheme would have been utterly defeated if, upon the eve of sue-■cess, the attorney for the vendors had disclosed the real nature of the transaction which he had conducted for the ■executors and such vendors. To impute to the purchasers, under such circumstances, notice of the real nature of that transaction, through the same attorney then acting for them ■as well as the vendors, would be gross injustice.

We hold, therefore, that Pabst and Schandein were Jjona fide purchasers for value, without notice of any fraud or illegality in the executors’ sale, and that the claim of title ■of the plaintiffs cannot prevail.

3. We think that, under the facts and circumstances disclosed, the relief sought by the plaintiffs was properly denied for the reason that they had been guilty of laches in failing to investigate and bring forward their claims within ■a reasonable time. This property was subject at the time to incumbrances and to the claims of creditors, allowed .against their father’s estate, amounting in all, with accrued interest, to not less than $175,000, all of which would have to be paid before they could obtain any part of the estate. Their rights, therefore, as heirs, were technical rather than •substantial, and they had no rational hope of realizing anything in due course of administration, because the estate was hopelessly insolvent. While, in contemplation of law, the executors’ sale and deed to Erey for the use and benefit •oE their mother, executrix, etc., was fraudulent and voidable as to them, it is evident that the creditors were the parties intended to be, and who were really defrauded. The transaction, however, resulted indirectly for the benefit of the plaintiffs, as it was probably intended it should, in securing to their mother, out of the estate, the means to rear, support, and educate her children; and they have thus received from the estate benefits which could not have been •secured to them by a legal and complete administration. Although, upon their technical legal title as heirs, they would have been entitled, within the authorities, to a resale of the property at executors’ sale, irrespective of the question whether it would have resulted in a price which would have secured to them any really substantial benefit, still these facts are entitled to consideration on the question of acquiescence and laches.

The plaintiffs knew that the large and valuable property in dispute, including the homestead, had been sold to Pabst and Schandein, and that they and their grantees had held, used, operated, and improved it to a considerable extent, paying taxes upon and claiming it as their own for a period of nearly twenty years before they brought their action. This, of itself, was notice to them, as heirs of their father’s «estate, to promptly investigate and ascertain, as soon as they were competent, what right, if any, they had or expected to assert to this property. The purchasers had paid $95,000 for the property, and the almost phenomenal growth and development of the city had largely increased its value. All the facts were known at the time to their mother, and between her and the plaintiffs the most intimate and affectionate relations existed and remained undisturbed, and the evidence shows that she had no secrets to keep from her children. Their uncle, Leopold Melms, knew all the facts, and had a feeling of friendship and interest in their welfare; and he seems to have been ready and willing to assist them in the recovery of the estate, ever since the question was mooted in 1881, when the powers of attorney were executed by the plaintiffs to Bechtel for that purpose. At that time a thorough investigation was had, which resulted in the production 'of documents which were sufficient to show the real character of their mother’s title to the brewery property ; certainly sufficient to induce inquiry, which could not have failed. to disclose, beyond dispute, the real nature of the transaction. Mrs. Melons had in her possession her account writh Leopold Melms, showing that she had bought the brewery property for $379.50, and that the entire consideration. received for it and the homestead and her dower right, after paying certain sums on incumbrances, was paid to her. It was set down in the account as “ Profit realized on sale of brewery sold at $95,000, less mortgages $65,000,— $30,000.” The plaintiffs testified that they did not see this account. It was where they might have seen it at any time, had they wished, though, in their great interest in the litigation, they may not have been able to remember the fact; but their mother did. It was never concealed from them. Their uncle, Leopold Melms, had a copy, which, with the checks and papers relating to it, were put into the hands of the attorneys acting under Bechtel, where they remained until almost the day when the action was commenced. All other facts appeared upon the records of the county court and register of deeds. In brief, the entire case could have been developed by a short and apparently obvious line of investigation. There was no concealment on the part of the purchasers. Indeed, it does not appear to have been understood that there was cause for any concealment. When the investigation was had under Bechtel, all the plaintiffs were of full age except two, aged nineteen and sixteen years, respectively; and when this action was commenced the youngest, who had lived continuously with her mother, was four years and three months past her majority, and an action at law for the recovery of her interest in the land would have been barred within nine months thereafter by R. S. sec. 3918. The plaintiffs appear to have been fairly well educated, and all testify that they were ignorant of the facts in the case until about the time the action was brought. Some of them testified at the trial that they did not know its real nature or the ground for it, although the action had been pending three years; that they supposed it was brought to get the property back for their mother. One of the sons, the oldest heir, had been absent on long voyages much of the time since his father’s death.

Laches and neglect are always discountenanced in equity, which always refuses relief in favor of stale demands. Long •delay, and even, sometimes, a delay of less than the period ■of limitation by statute, will be regarded as laches, and will .prevent the intervention of equity; but laches will not be imputed to one while under disability, and there must have been knowledge, actual or imputable, of the facts, which should have prompted investigation and action^ and, if there was actual ignorance, that must have been without just excuse. Beach, Mod. Eq. Jur. §§ 18, 19. This rule applies where the fraud is known or ought to have been known, where the facts and circumstances are such as to have made it the duty of a reasonably prudent person to investigate, and which, if pursued, would have led to a discovery. Pom-eroy, Eq. Jur. § 917. The entire subject was fully considered in Rogers v. Van Nortwick, 87 Wis. 414, where a failure to act with reasonable diligence, upon knowledge of facts and circumstances which would have led to a discovery of the facts, was held to have amounted to laches such as would bar relief. The failure or delay to investigate must have been blamable, and what constitutes a reasonable time within which the action must be brought depends upon the facts and circumstances of each particular case; the court applying the rule of laches according to its own ideas of right and justice. Wood v. Carpenter, 101 U. S. 140, 141; Brown v. Buena Vista Co. 95 U. S. 157, 160; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587.

It is said in Hammond v. Hopkins, 143 U. S. 224, 250: il No rule of law is better settled than that a court of equity will not aid a party whose application is destitute of conscience, good faith, and reasonable diligence, but will discourage stale demands, for the peace of society, by refusing to interfere where there have been gross laches in prosecuting rights, or where long acquiescence in the assertion of adverse rights has occurred. The rule is peculiarly applica-t>le where the difficulty of doing entire justice arises through the death of the principal participants in the transactions-complained of, or of the witness or witnesses, or by reason of the original transactions having become so obscured by time as to render the ascertainment of the exact facts impossible. Each case must necessarily be governed by its own circumstances, since, though the lapse of a few years may be sufficient to defeat the action in one case, a longer period may be held requisite in another, dependent upon the situation of the parties, the extent of their knowledge or means-of information, great changes in values, the want of probable-grounds for the imputation of intentional fraud, the destruction of specific testimony, the absence of any reasonable impediment or hindrance to the assertion of the alleged rights,, and the like.” Halladay v. Land & R. I. Co. 18 U. S. App. 308, 338, 57 Fed. Rep. 774; Marsh v. Whitmore, 21 Walk 178; Landsdale v. Smith, 106 U. S. 391; Norris v. Haggin, 136 U. S. 386; Mackall v. Casilear, 137 U. S. 556; Hanner v. Moulton, 138 U. S. 486.

Where the question of laches is in issue, the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known by him were such as to put a man of ordinary prudence upon inquiry. Kennedy v. Creen, 3 Mylne & K. 699, 722; Erlanger v. New Sombrero P. Co. 3 App. Cas. 1231, 1280; Carr v. Hilton, 1 Curt. 390, 394; Wood v. Carpenter, 101 U. S. 141; Johnston v. Standard M. Co. 148 U. S. 370. Hence, the party in such case must state in his bill, and prove at the hearing, “ the time when the fraud, mistake, concealment, or misrepresentation was discovered, and what the discovery is, so that the court may clearly see whether, by the exercise of ordinary diligence, the discovery might not have been made before.” Stearns v. Page, 7 How. 819, 829. “ Otherwise,” as was held in Badger v. Badger, 2 Wall. 87, 95, “the chancellor may justly refuse to consider the case, on his own showing, without inquiring 'whether there is a demurrer or formal plea of the statute of limitations contained in the answer.” Tested by this rule, the complaint and case made by the plaintiffs are radically defective. There is no specific averment or proof of the discovery or time of discovery of any material fact.

The courts look with disfavor upon the claims of those who have failed to investigate and act upon sufficient cause, and have waited to decide, after large sums have been invested, when the danger is over that has been at the risk of others, to come in and claim the profit of the event; and so, too, where the delay has been great, and parties to or witnesses familiar with the transaction, as in this case, have died in the meantime. We think that the plaintiffs have been guilty of blamable delay. Knowledge of all the material facts was within their own family from the time of the purchase by Pabst and Schandein, and in 1881 we find, in the hands of the plaintiffs’ attorneys, the account between Leopold Melms, one of the executors, and Mrs. Melms, who was executrix, which clearly disclosed facts which, when taken in connection with the record and the proceedings in the county court, made out their entire case. It matters not that their attorneys failed to discover what was really quite plain. The case falls within the principles stated, and we must hold that the plaintiffs have not shown reasonable diligence in investigating their rights and bringing them before the court.

For these reasons the judgment of the circuit court must be affirmed.

By the Court.— The judgment of the circuit court is affirmed.

A motion for a rehearing was denied May 1, 1896.