US SUPREME COURT DECISIONS

Where the title of one claiming ownership of real estate in bad faith is openly questioned and attacked in actions of ejectment, neither he nor his mortgagee are entitled to an equitable lien on the property for moneys expended thereon.

One loaning money on real estate the title to which has been, to his knowledge, attacked in an equity suit which has been dismissed without prejudice and not on the merits, takes the risk of the title, and his knowledge extends chanrobles.com-red

Page 204 U. S. 273

to all property described not only in the declaration, but also in amended declarations, notwithstanding the failure of the clerk, without any fault of the party filing them, to properly index the amended declarations. Knowledge of the president of a local board of directors and of the local attorney of a building and loan association in regard to a matter coming within the sphere of their duty and acquired while acting in regard to the same is knowledge of the association, and the fact that they have committed a fraud does not alter the legal effect of their knowledge as against third parties who have no connection with, or knowledge of, the fraud perpetrated.

While one claiming to own real property cannot stand by in silence and see another expend money in improving it, he fulfils his duty by notifying the person spending the money and claiming ownership, and, in the absence of knowledge that such person is insolvent, he is not bound to ascertain whether he is making the improvements with money realized by mortgaging the premises and notify the mortgagee also.

22 App.D.C. 368 affirmed.

This suit was brought in the Supreme Court of the District of Columbia by the appellant, who is the ancillary receiver for the New South Building & Loan Association of New Orleans, Louisiana, hereinafter called "the company," against the owners of the real property described in the bill, to establish an equitable lien upon the property for the value of improvements placed thereon with money which the company loaned to one Bradshaw for that purpose, Bradshaw claiming to be the owner at the time. After hearing, the bill was dismissed on its merits by the trial court, and the decree of dismissal was affirmed by the Court of Appeals of the District. The opinions of both courts are to be found in 22 App.D.C. 368. The receiver has appealed here.

The title to the property, which consisted of certain numbered lots in Square Number 939 in Washington, had been in dispute some time prior to 1891. During the year 1889, 1890, or 1891, one Aaron Bradshaw, acting, as alleged, as agent of one John H. Walter, who claimed to have acquired the title of George Walker, entered upon and took forcible possession of the lots in question and proceeded to erect a small brick structure on the corner lot, whereby to continue to hold possession. chanrobles.com-red

Page 204 U. S. 274

The respondents herein claim to be the owners of these lots, and in the latter part of 1891 they or their grantors commenced four actions of ejectment in the Supreme Court of the District to recover possession of separate and undivided interests in the designated "ink-lot" number 1, and subsequently, by proper amendments, other lots in the same square, comprising the property involved herein, were included in the declarations in those actions. A statement of facts regarding the title to these various lots may be found in Bradshaw v. Ashley, 14 App.D.C. 485, and in this Court, upon review of that decision, in 180 U. S. 180 U.S. 59, 180 U. S. 60, where the expression "ink-lot" is explained as referring to certain ink numbers on a map of the lots in square 939, on file in one of the public offices of the city, and which also had pencil numbers on it, which were different. In that litigation, the Ashleys, the respondents herein, finally established their right to the possession of the property and obtained judgment to that effect against Bradshaw, defendant in the ejectment actions, in the Supreme Court of the District sometime in 1897, and in this Court in 1901. These respondents were thereupon placed in possession of the property, including these lots.

While the litigation in these ejectment actions was pending, and some years before judgment therein, Bradshaw, while defending them, became a stockholder in the company in order to obtain a loan from it, and succeeded, in October, 1893, in borrowing $20,000 from the company, secured by a deed of trust upon the property in litigation in the actions in ejectment other than ink-lot 1, above mentioned. The deed was duly recorded, and the money was to be used for the construction of buildings, which were subsequently placed on these lots. The money was advanced to Bradshaw by the company in installments, the last being in April, 1894.

It was obtained from the company by means, as alleged, of a fraudulent combination between Bradshaw and one Walter, the president of the local board of directors of the chanrobles.com-red

Page 204 U. S. 275

company at Washington (who claimed to have been the owner at one time of the property, but whose title, whatever it was, had been acquired by Bradshaw), together with the local attorney of the company in this District. The local attorney, in carrying out the alleged fraud, sent a defective so-called "chain of title," which, nevertheless, had been accepted by the local board of the company in Washington. It omitted certain tax and other deeds under which the respondents claimed title in themselves. This defective paper was continued by other examiners of the title, but was not revised by them. The certificate regarding the title was sent, with the defective chain of title, to the company in New Orleans by the local attorney about May 26, 1893. The certificate approved the application for the loan, but such loan was not acted upon favorably at that time. Subsequently, in October, 1893, the loan was made, the company, as is stated, relying upon the certificate of the local attorney for the period which it covered, and the certificate of the other examiner for the time thereafter passing until the making of the loan. The company has insisted that it acted at all times in good faith and made its advances upon the security of the trust deed, which it supposed was perfectly good. The trial court found that, before the money was paid to Bradshaw, upon the security of this trust deed, the company was aware, through its general attorney in New Orleans, of the fact that a suit in equity had (theretofore, in 1890, and before the ejectment actions) been brought by the Ashleys against Bradshaw, Walter, and others, in which the plaintiffs therein claimed ownership of these lots, and wherein they asked for an injunction to restrain the defendants from setting up any title to them. The bill on file in the equity suit showed a common source of title to all the lots mentioned therein, which included the lots here in question. The attorney also knew that, although the suit had been dismissed, yet it was only for want of prosecution, and was "without prejudice." The New Orleans attorney wrote to the Washington attorney, who chanrobles.com-red

Page 204 U. S. 276

then had charge of the matter, calling his attention to these facts. No notice seems to have been taken of the letter, but the certificate of title by the examiner was given after its receipt. The company insists that, during all the time it made advances to Bradshaw under the deed of trust, it was ignorant of the existence of these ejectment actions, and at any rate did not know that they covered other than the corner lot, as described in the declarations before they were amended, and the amendments they were ignorant of, because, as is alleged, the clerk of the court in which the actions were pending had not properly kept the books so as to show the amendments and their nature, although they had been filed. The corner lot was not one of the lots upon which the buildings were erected.

The trial court, in the opinion delivered, said that the complainant charged the defendants with knowledge of the advances made by the company to Bradshaw towards the erection of the buildings, but to this allegation the defendants interposed, in their answer (which was under oath) a positive denial. They admitted that, although wholly ignorant of the source from which the money came to construct the houses, yet, soon after learning that one Childs, a contractor, was engaged in their construction, they notified him in writing, January 4, 1894, that he had been represented to them as a contractor and builder of the houses for which the ground had been broken, and which houses were then in course of erection, and he was thereby notified that, if he, his agents, or employees entered upon the grounds, they would be held liable for trespassing thereon, as they (defendants herein) were the owners of the lots, and had not given him or anyone else, the right or permission to enter thereon for the erection of houses or any purpose whatever, and that, as the improvements were not made with their authority, they would not be responsible for any liability contracted by Mr. Bradshaw.

The defendants, in their answer, also allege that it was not until in or about February, 1895, that defendants, or any of chanrobles.com-red

Page 204 U. S. 277

them, learned of the advances made by the company or of the existence of the deed of trust. The trial court, in its opinion, stated that, although

"there is no evidence contradicting either of these denials, nor of actual knowledge possessed by the defendants of the matters thus denied, still it seems to me there is evidence in the record that facts might readily have been ascertained by them from which they might well have learned at an earlier time of the building and of the source from which the money employed was derived."

While not finding that the defendants had actual knowledge of the advances made by the company, the court did impute knowledge of certain conveyances made to Bradshaw, and of the existence of the deed of trust to the company at earlier dates than those assigned in the answer, February, 1895. And, in relation to an offer of compromise, the joint answer alleged that, after that time, viz., about May 31, 1895, during negotiations for the compromise of the differences between the parties, Mr. H. F. Beardsley, one of the defendants, wrote to the attorneys representing the company, in behalf of himself and his associates, offering to sell to the company the lots upon which the houses then were

"at their present market value or price, said value not to exceed the price at which similar lots (unimproved) in the same or contiguous squares are offered for sale. Upon the payment of said price or sum, we will convey our title to them by deed or quitclaim, or make a building agreement to so convey upon the determination of the pending suits, or a deed in escrow, as counsel shall advise. We will hold this offer open until the 1st of July next."

This offer was not accepted, but there is nothing stating what, if any, objections were made to it.

Bradshaw had, in 1894, defaulted in his payments of amounts due for his stock in the company, which he had taken in order to procure his loan. Thereafter, some arrangements were attempted between him and the company in regard to making his payments, but they fell through, and nothing could be done in the way of collecting anything on the mortgage or chanrobles.com-red

Page 204 U. S. 278

deed of trust for the reason that the ejectment actions resulted unfavorably. The company, in 1899, became embarrassed and went into the hands of a receiver in New Orleans, and the same person was appointed ancillary receiver in this District, and brought this with leave of the court.

The Court of Appeals held that Bradshaw was an occupant of the premises in bad faith, with the fullest possible knowledge of the rights and claims of the appellees, and that it could not be supposed that the grantee of an occupant in bad faith could have any better right than his grantor had.

Some other facts are stated in the course of the opinion. chanrobles.com-red

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