The rule that concurrent findings of fact by two lower courts
will not be disturbed unless clearly wrong is here applied in
support of findings of fraud and breach of fiduciary duty resulting
in a trust.
Defendant, as receiver of a national bank, contracted on its
behalf, with the approval of the Comptroller of the Currency, for
the purchase of certain realty, used some of the bank's money in
payments on the price, and, under apparent authority from the
court, sold and assigned the contract for cash paid the bank. The
assignee acted secretly for the defendant in taking the contract,
and thereafter assigned it secretly to him as an individual.
Defendant resigned as receiver, and subsequently the contract was
fully performed and the real property became vested in a
corporation whose shares for the most part were issued to the
defendant. In a suit brought by his successor to regain the
property for the bank,
held: (1) that the transaction was
a gross breach of defendant's duty as receiver; (2) that he was
estopped to claim that the purchase of the property was beyond the
powers of the bank,
Case v. Kelly, 133 U. S.
21, distinguished; (3) that delay of the suit for
sixteen years after the making of the contract and fourteen years
after defendant's resignation as receiver was not laches in view of
the finding
Page 243 U. S. 115
that his successors in the receivership had no knowledge or
equivalent notice of the fraud.
The seven year statute of limitation of Washington, Remington
& Ballinger's Ann.Codes and Stat., § 789, does not apply when
the claim of title accompanying possession is not made in good
faith.
221 F. 322 affirmed.
The case is stated in the opinion.
MR. JUSTICE DAY delivered the opinion of the Court.
This is an action by John W. Schofield, as receiver of the
Merchants' National Bank of Seattle, Washington, insolvent since
1895, against Charles H. Baker, receiver of the bank from 1895 to
1899, and others, seeking a decree declaring the defendants to be
holders of certain real property in Seattle in trust for the
plaintiff, and asking a conveyance thereof to the plaintiff.
The property in controversy is Block 430 of Seattle Tide Lands,
a tract of some twelve acres, and the leasehold of the harbor area
lying in front of that block. In conformity with the provisions of
the state law, the Merchants' National Bank had, prior to its
failure, made application to purchase these lands. After the
failure and the appointment of Charles H. Baker, receiver, this
application was accepted by the State Board of Land Commissioners,
and upon January 12, 1897, a contract was entered into between the
State of Washington and the bank, through the receiver, by which
the state agreed to sell and the bank to purchase Block 430 of
Seattle Tide Lands for $1,488, payable in ten annual installments,
subject
Page 243 U. S. 116
to all liens for filling, and all taxes and assessments that
might be levied or assessed on the land, and with a forfeiture
clause in case the bank should fail to pay any of the amounts,
either principal, interest, taxes, or assessments, when the same
should become due and for six months thereafter. Permission to make
this contract was obtained by the receiver from the Comptroller of
the Currency, and thereafter partial payments were made upon the
contract.
Upon October 6, 1897, by order of the United States circuit
court, upon the receiver's petition to that effect, he was
authorized to sell at private sale certain doubtful personal assets
of the defunct bank, and thereafter, Baker, as receiver, assigned
to S. G. Simpson the contract above mentioned for the consideration
of $198.30, the transfer being approved by the Commissioner of
Public Lands.
The assignment authorized the State of Washington to receive
from Simpson, or his assigns, the performance of all covenants and
agreements specified in the contract to be performed by the bank,
and upon such performance to execute to him a patent for such tide
land. By virtue of the ownership by Simpson of the contract to
purchase Tide Lands block No. 430, he became entitled, under the
laws of the State of Washington, to the preference right to lease
certain harbor area adjacent and appurtenant to block No. 430. Upon
the purchase by Simpson of the contract to purchase the Tide Lands,
there was issued to him by the State of Washington a certain lease,
designated "harbor lease No. 181," covering the harbor area
appurtenant to the block.
In March, 1899, the contract between the bank and the State of
Washington for the purchase of block No. 430, together with the
harbor lease, was transferred by Simpson to Baker in his personal
capacity, the record title continuing in the name of Simpson. On
August 11, 1905, Simpson, acting for and on behalf of Baker,
assigned the
Page 243 U. S. 117
contract for the purchase of Block No. 430, together with harbor
lease No. 181, to one Norton, the consideration named being $1.
This assignment contained the same authorization as to the patent
to be issued by the state as was contained in the assignment to
Simpson. On October 16, 1905, the State of Washington issued to
Norton a patent covering Block No. 430, with the exception of a
strip of land, 30 feet wide, which had been granted to a railroad
company. In August, 1907, there was organized under the laws of the
State of Washington the Seattle Water Front Realty Company. Upon
incorporation of this company, Norton conveyed to it Block No. 430,
together with harbor lease No. 181, in payment for the issue of its
capital stock of $250,000. About 95 percent of the stock was issued
to Baker, or to others, who held for him.
In April, 1899, and a month after receiving the assignment from
Simpson, Baker resigned as receiver, whereupon A. W. Frater was
appointed receiver. On February 12, 1913, Frater resigned, and the
present plaintiff was appointed receiver in his stead, and this
suit was immediately begun.
Under this state of facts, the district court entered a decree
adjudging that the assignment by Baker to Simpson was fraudulent,
and was made for the sole use and benefit of Baker, and that the
assignment of the contract to the defendant Norton by Simpson, and
the conveyance of Norton to the Seattle Water Front Realty Company,
were null and void. The decree provided that the Realty Company
should execute and deliver to the clerk of the court below, for the
benefit of the plaintiff, as receiver, a deed covering its interest
in Block No. 430 and the assignment of harbor lease No. 181, and
the receiver was directed to pay to the clerk of the court, for the
Realty Company, the sum of $10,977.13, being the amount of the
payment, with interest, made by the defendants to the State of
Page 243 U. S. 118
Washington under the contract for the purchase of Block No. 430,
and upon the harbor lease, and for taxes. 212 F. 504. Upon appeal,
this decree was affirmed by the Circuit Court of Appeals for the
Ninth Circuit. 221 F. 322.
Both the district court and the circuit court of appeals found
that the sale from Baker to Simpson was only colorable, and that
Simpson purchased the property for Baker. Our consideration of the
evidence must be governed by the well settled rule in this Court
that, when two courts have reached the same conclusion on a
question of fact, their finding will not be disturbed unless it is
clear that their conclusion was erroneous.
Stuart v.
Hayden, 169 U. S. 1,
169 U. S. 14;
Baker v. Cummings, 169 U. S. 189,
169 U. S. 198;
Towson v. Moore, 173 U. S. 17,
173 U. S. 24;
Hy-Yu-Tse-Mil-King v. Smith, 194 U.
S. 401,
194 U. S. 412;
Dun v. Lumbermen's Credit Association, 209 U. S.
20,
209 U. S. 23;
Texas & Pacific Ry. Co. v. Railroad Commission,
232 U. S. 338,
232 U. S. 339;
Washington Securities Co. v. United States, 234 U. S.
76,
234 U. S. 78;
Gilson v. United States, 234 U. S. 380,
234 U. S. 383.
The concurrent decisions of the courts upon the establishment of a
trust is a question of fact, which will be followed unless shown to
be clearly erroneous.
Brainard v. Buck, 184 U. S.
99.
The various defenses urged in the court below and involved in
the points argued in this Court for the appellants must be
considered, in view of this finding of fact as to the nature of the
transfer of Baker, as receiver, to Simpson.
That the secret arrangement between Baker and Simpson was
fraudulent and a gross breach of the receiver's duty is too plain
to require detailed consideration.
Michoud v.
Girod, 4 How. 503,
45 U. S. 555;
Magruder v. Drury, 235 U. S. 106,
235 U. S.
119.
It is urged that the contract of purchase was
ultra
vires the corporate powers of the bank. The court of appeals,
in deciding this point, referred to the decisions of this Court
which have held that objections to the passing of title in
Page 243 U. S. 119
conveyances to national banks, although made in excess of any
legal authority given the bank by the law, can only be made by the
government in a direct proceeding, and will not defeat the vesting
of the title in the bank when it takes a conveyance in good faith,
for a valuable consideration.
Union Nat. Bank v. Matthews,
98 U. S. 621;
National Bank v. Whitney, 103 U. S.
99;
Reynolds v. First Nat. Bank, 112 U.
S. 405;
Thompson v. St. Nicholas National Bank,
146 U. S. 240;
Schuyler Nat. Bank v. Gadsden, 191 U.
S. 451.
But, without questioning the correctness of this conclusion, we
are of opinion that the authority of the bank to make this
purchase, or of the Comptroller to approve of it, or of the court
to order the sale of this asset upon the petition of Baker, as
receiver need not necessarily be considered in determining the
right to recover in this proceeding.
Upon the plainest principles governing the relation of the
parties here, in view of the finding that there was a secret trust
in Baker's favor in the transfer to Simpson, Baker could not be
heard to question the authority by which he acquired the property
ostensibly for the benefit of his trust, but in reality for
himself, in breach of his trust. To sanction this would be to
permit Baker to take advantage of his own wrong. It is not for him
to say that he can acquire title in fraud of his trust because the
bank could not legally acquire it, or the Comptroller approve or
the court authorize its sale. As the facts are found, Baker assumed
to act upon the understanding that the bank owned the contract of
purchase, and, under an order invoked by him, he undertook to sell
it for the benefit of the trust, but in reality conveyed it to one
who secretly held it for him. Under such circumstances, the trustee
can take nothing by his wrongful act, and can be compelled to
restore the property to the authorized representative of the trust
estate.
Page 243 U. S. 120
Plaintiff relies greatly upon
Case v. Kelly,
133 U. S. 21, where
certain officers of a railroad had procured conveyances of lands
intended to be used in the construction of the road, and had taken
title to themselves personally, and the railroad was seeking to
recover the lands, although forbidden by its charter to take and
hold title to such lands. In this case, Mr. Justice Miller,
speaking for the Court, said:
"We need not stop here to inquire whether this company can hold
title to lands, which it is impliedly forbidden to do by its
charter, because the case before us is not one in which the title
to the lands in question has ever been vested in the railroad
company, or attempted to be so vested. The railroad company is
plaintiff in this action, and is seeking to obtain the title to
such lands. It has no authority by the statute to receive such
title and to own such lands, and the question here is not whether
the courts would deprive it of such lands if they had been conveyed
to it, but whether they will aid it to violate the law and obtain a
title which it has no power to hold. We think the questions are
very different ones, and that, while a court might hesitate to
declare the title to lands received already, and in the possession
and ownership of the company, void on the principle that they had
no authority to take such lands, it is very clear that it will not
make itself the active agent in behalf of the company in violating
the law, and enabling the company to do that which the law
forbids."
But the present case is not so. Here, the state has parted with
its title, and made the contract to convey to the bank at the
instance of the receiver, who now seeks to hold the title for his
own benefit, in breach of his trust.
As to the defense of laches, both courts below found that the
facts show entire want of knowledge on the part of the present
plaintiff or his predecessor in office of the secret arrangement by
which Baker acquired the title to
Page 243 U. S. 121
the contract of purchase. Until knowledge of this fraudulent
transaction, or facts equivalent thereto, was brought home to those
authorized to act, there could be no laches in the failure to
prosecute the suit.
Nor do we find merit in the contention that the seven-year
statute of limitations (Remington & Ballinger's Annotated Codes
and Statutes of Washington § 789) in favor of persons in the actual
and notorious possession of lands, under claim of title in good
faith, has any application here. Under the facts found, Baker does
not come within the class protected by this statute.
Other points are urged, but it is enough to say that we find no
error in the decree of the circuit court of appeals, and it is
Affirmed.