Migliaccio v. Continental Mining & Milling Co. ( 1952 )

MURRAH, Circuit Judge.

This is an appeal from a judgment of the District Court of Utah, rescinding a lease and option' agreement for the purchase of mining claims in Emery County, Utah, by the appellee from the appellant, and awarding the appellee compensatory damages. The lease and option agreement was entered into on April 8, 1950, to supersede a sale and mortgage of the same property signed by the parties on January 9, 1950.

The lease and option provided in substance that the appellant would convey all of his right, title and interest in and to Vanadium King Claims 1 to 7, situated in Emery County, Utah, in consideration of the sum of $250,000.00, $5,000.00 of which was to be paid upon delivery of the said lease and option, the remainder to be paid in stipulated installments. The agreement recited that the appellant holds and controls the described mining claims, subject to. the paramount title in the United States, and also subject to certain adverse claims and demands of Frank Davis in an action entitled “Migliaccio v. Frank Davis” (referred to in the trial and here as the Davis case) ; and various other adverse claims or pretended claims of both the plaintiffs, and certain of the defendants in an action then pending in the District Court of Emery-County, entitled “Frank Hanson, Moroni Hunt, Loran Hunt, Elma E. Hunt and John Burton, plaintiffs vs. Jessie 'Bitterbaum, F. B. Hammond, et al., defendants,” (referred to in trial and here as the Hunt case). -As a part of the consideration for the lease and option, appellee agreed “to take over, handle, conclude, prosecute and/or defend to final determination all legal matters affecting said mines, mining claims and mining properties, at its own cost and expense” and also to reimburse the appellant for all sums, not to exceed $10,000.-00, to which he might become indebted to Frank Davis on an accounting sought by him in the Davis case, said sums when paid to be credited on the purchase price.

The gist of this suit to cancel the lease and option is that appellant made certain false representations concerning the interest owned and conveyed in the lease agreement, upon which. the appellee relied. In particular, it was alleged that the appellant represented to the appellee that he owned the mining claims in question, subject only to the judgment in favor of Frank Davis in the Davis case-, and the adverse claims of the plaintiffs and certain defendants in the Hunt case, both of which appellee undertook to prosecute and defend to final determination. It is alleged that on or about February 2, 1950, before the lease and option was consummated, the officers of appellee were informed that counsel for the appellant’s predecessors in title had, on May 5,. 1942; in an action pending in the District Court of Emery County, Utah, “C.. A. Gibbons et al. vs. J. B. Davis et ah”, (referred to in the trial and here as the Gibbons case), entered into a stipulation, under the terms of which the appellant’s predecessors in title, Davis et al.,had agreed to accept an undivided 5 per cent interest in and to the claims in Question in compromise of the litigation between the parties in that case over the title to the claims; that when asked about this stipulation, appellant falsely represented to the appellee’s officers that he knew of- his own knowledge that the plaintiffs in the Gibbons' acnon had abandoned the mining - claims, and the suit was therefore without foundation; that in any event,- the stipulation on behalf of his predecessors in interest by their attorney of record was entered into without authority. -It is said that relying upon this representation, they entered into the lease and option agreement to learn soon thereafter that" a judgment had been entered in the Gibbons case upon the stipulation, under the terms of which the appellant could have only 5 per cent interest in the claims covered by the lease. A recitation of the history of the litigation is essential to a proper consideration of the-question involved.

Prior to 1940, a group referred to throughout the trial as the Gibbons-Bitterbaum Group, located twenty-eight mining claims in Emery County, Utah. In January, 1941, John B. Davis and others located seven mining claims, known as the Vanadium King Claims 1 to 7. These claims overlapped some of the Gibbons-Bitterbaum Claims, and after the filing of the Vanadium King Claims, the Gibbons-Bitterbaum Group instituted a quiet title action against John B. Davis and his associates. On May 15, 1942, Therald Jensen and Duane Frandsen, representing the Gibbons-Bitterbaum Group, and F. B. Hammond, -representing Davis et al., entered into a stipulation, under the terms of which the Gibbons-Bitterbaum Group agreed to .accept an undivided 85 per cent interest in the 28 mining claims, and Davis and his associates agreed to accept 7y2 per cent. The other 7y2 per cent was set over and given to A. L. Tomlinson. This stipulation covered all of the GibbonsBitterbaum Claims, including the 7 Vanadium King Claims. Hammond received 2% per cent interest in Davis’ per cent and 2% per cent of Tomlinson’s interest. A journal entry of a judgment upon this stipulation was signed on the, sanie day, May 15, 1942, but it was not-filed of record and apparently no formal judgment was entered at that time.- The, date of the journal entry was later changed to August 11, 1948, and finally filed of record on April 18, 1950. Meanwhile, on May 27,1942, Davis'having acquired the interest of his ' associates by quitclaim, quitclaimed all of his interest to the-appellant. There was testimony to the effect that after , acquiring Davis’ interest in the property, appellant collaborated with attorneys Jensen and Hammond in an effort to sell the mining claims, and that from the execution of the stipulation until 1948, all notices of intention to hold the mining claims covered by the stipulation were filed by attorney Jensen for the purpose of protecting the interest of all the parties, including the appellant as successor in interest to John B. Davis; that the appellant otherwise recognized and ratified the stipulation and the interests provided therein by agreeing to a lease of the property to other Darties who operated it in 1948; and that he took a sublease from these lessees on certain of the claims and operated the- properties thereunder during the year 1948. In 1948, the Hansen-Hunt Group filed claims over the claims in question, and then instituted an action to quiet title against all of the parties to the Gibbons suit, and in addition, made the appellant a party defendant. The latter case is referred to as the Hunt case in the lease and option agreement, and one which appellee undertook to defend.

A third suit was instituted by appellant against Frank Davis, who claimed some interest in the property through his brother, John B. Davis, from whom appellant also derives his title. This suit -resulted in a judgment decreeing Frank Davis to be the owner of 37V2 per cent interest in the Vanadium King Claims, and the appellant 621/2 per cent interest. This case is referred to as the Davis, case, and one which the ap-pellee specifically undertook to prosecute in the -Supreme Court of Utah.

The lease and option agreement did not mention the Gibbons suit, which resulted in the stipulation, and the gist of the claimed fraud revolves around the representations made by the appellant respecting the force and effect of this particular stipulation, under which appellant, as successor to John B. Davis, ultimately received an undivided S per cent interest in the claims in question.

As to this matter, the trial court found that when confronted with the stipulation on -February 2, 1950, appellant falsely represented to the appellee that it was entered into-by counsel of record without authority; that the Gibbons-Bitterbaum Group had abandoned the claims; and that he further falsely represented that he had been in continuous possession of the claims since 1942, had performed exploration work thereon, and had resumed possession of the claims and actively developed them since 1948. The court further found in effect that from the appellee’s examination of data available to it, it had a right to rely upon such representations, and did so; that instead of getting a lease on claims subject only to the Davis and Hunt litigation, it got a lease on only 5 per cent of such claims in accordance with the stipulation, to which the appellant was in privy, and which he had recognized and ratified. After rescinding the lease, the court awarded appellee damages for the $5,000.00 paid under the terms of the lease agreement, and $3,263.54 expended 'by appellee in connection with defense of the lawsuits mentioned in the lease option agreement. Thereafter appellee filed a partial satisfaction of judgment for $1,-013.54, as not being supported by the evidence.

On appeal, appellant concedes that no reference was made in the option agreement to the Gibbons litigation, or to the stipulation therein. He does earnestly suggest, however, that the appellee, through its president, secretary-treasurer and legal counsel, had actual and constructive knowledge of the stipulation, and was therefore chargeable with all of the facts bearing upon it and its legal consequences as well. He does not deny discussing the stipulation with appellee’s officers before entering into the option agreement. He does strenuously deny that they relied upon any representations he made concerning it, and says that having knowledge of the stipulation, they made an independent investigation concerning it and entered into the agreement after satisfying themselves that it was of no legal efficacy. Finally it is said that any representations made by him to the corporate officers were merely expressions of opinion concerning the legal force .and effect of the stipulation, as to which he is not chargeable in fraud.

The evidente shows without much dispute that both Frawley and Elggren, President and Secretary-treasurer, respectively, of appellee corporation, were lawyers, and that Migliaccio was a pick-and-shovel miner. Frawley and Elggren knew when they commenced negotiations with Migliaccio that his title to the mining claims was involved in a morass of litigation. Before any agreement was reached in writing, they were furnished an abstract of title bearing the certificate of an Emery County abstract company dated 'August 15, 1949, containing, among other entries, the stipulation dated May 15, 1942, in the Gibbons suit. President Frawley testified that when on February 2, 1950, he and Elggren discussed the stipulation with Migliaccio, he told them that the stipulation was “immaterial” because the Gibbons Group had abandoned their claims and he had evidence to prove it; that he was in possession of the claims and was working them at the time. Frawley further testified that Elggren examined the file in the 'Gibbons case and found only the stipulation and a demurrer; that upon further investigation, he found that Migliaccio was in possession of the claims, was working them, and receiving payments from the Atomic Energy Commission for the shipments of ore. He concluded that since there was nothing to show that the issues had been joined in the Gibbons suit and no judgment entered, Migliaccio’s statement that the Gibbons Group had abandoned their claim was correct.

After the execution of the sale and mortgage agreement on January 9, 1950, and before the execution of the option agreement, the transcript of the record on appeal in the Davis litigation had been delivered to Frawley and Elggren, and by them delivered to attorneys whom they had hired to represent Migliaccio on appeal to the Supreme Court of Utah. This record contained the testimony of lawyer Hammond who had executed the stipulation on behalf of Davis, and who testified in the Davis litigation concerning the details under which it was executed. Significantly, Hammond testified to having held Davis’ quitclaim deed to Migliaccio in his files, and refusing to deliver it to him until he recorded a subsequent deed from Davis, which had the effect of recognizing Hammond’s interest in the property under the stipulation. Frawley admitted having possession of the record and delivering it to his attorneys. He did not read the transcript in detail, but relied upon Migliaccio’s statements to the effect that he owned 100 per cent of the claims, subject to the litigation referred to in the agreement.

Elggren, Secretary-treasurer of the Company, testified that before the execution of the note and mortgage in January, Migliaccio represented that he was the 100 per cent owner of the claims, subject only to the Hunt and Davis 'lawsuits. He said that he first learned of the stipulation through a Mr. Tomlinson, now deceased; that Magliaccio told them that he knew nothing about the stipulation and that it had no effect on his claims; that he personally went to the county seat of Emery County and examined all records in the three cases, that is, the Gibbons, Hunt and Davis cases; that the only instruments in the files of the Gibbons case was the stipulation and a demurrer. He testified that an investigation “led us again to believe what Mr. Migliaccio had told us, that they [Gibbons Group] had abandoned their claims.” Soon after the judgment was finally entered on the stipulation on April 18,1950, Elggren wrote Migliaccio in behalf of the Company, rescinding the agreement, stating, among other things, that “before the original lease and option was executed, we had detailed discussions and made a searching examination of all the facts concerning your title to the Vanadium King Claims and the litigation related thereto as presented to us by you. Sic Sjc * 1!

In a prospectus prepared for the federal and state Security Commissions by Frawley and Elggren, the history of the Davis litigation was reviewed in detail. It was therein stated that Migliaccio’s title to his interest in the claims was based upon the deed from John B. Davis in 1942; that his deed was delivered to Migliaccio in Hammond’s office, Price, Utah, and by him delivered to Hammond for temporary safe-keeping; that the attorney subsequently not only failed to record the instrument, but refused to deliver the same to Migliaccio; and that-at the trial of the Davis case, Hammond had testified in effect that 'he had held the deed for reasons which had no material relevancy to any of Migliaccio’s matters. The prospectus went on to recite how Frank Davis had acquired an interest from his ■brother, and how Frank Davis and Magliaccio had agreed to work the mining claims together; that a dispute followed in which Frank Davis claimed an undivided %ths interest, based upon a deed from his brother, John B. Davis. This, said the prospectus, was the basis of the Davis litigation which resulted in a district court judgment decreeing Davis to be the owner of %ths or 37% per cent interest in the mining claims, and this was the litigation the appellee undertook to prosecute in the Supreme Court with a “good opportunity to obtain a reversal.”

It is a well recognized rule that “one has a right to rely on statements of material facts or on positive statements, essentially connected with the substance of the transaction, where they are not mere general commendations or expressions of opinion, and are as to matters within the knowledge of the person making them, as to matters which he assumes to assert as of his knowledge, or as to matters which from their nature or situation are peculiarly within his knowledge.” 23 Am.Jur., Fraud and Deceit, Sec. 146, p. 949, and cases cited. But, “before any one can have relief from a claimed fraud he must show not only that he relied on the misrepresentation but also that he had the right to rely on it.” Johnson v. Allen, 108 Utah 148, 158 P.2d 134, 137, 159 A.L.R. 256.

It is settled law in Utah, as elsewhere, that whenever a grantor or vendor admits that his title is defective or encumbered, or that there is some outstanding claim or equity in the property, or makes any other communication which, unexplained would constitute an actual notice, or makes any other explanation which brings notice of such encumbrance to the grantee, the purchaser is not warranted in accepting his declaration to the effect that the defect or encumbrance has been removed or is ineffectual. The information thus received puts him upon inquiry and 'he is chargeable with the exercise of his own judgment concerning the validity of the title. O’Reilly v. McLean, 84 Utah 551, 37 P.2d 770. Knowledge which is sufficient to lead a prudent person to inquire about the matter when it could have been ascertained conveniently, constitutes notice of whatever the inquiry would have disclosed, and will be regarded as knowledge of the facts. Columbian Nat’l Life Ins. Co. v. Rodgers, 116 F.2d 705. And, Utah courts have said that “A party who has opportunity of knowing the facts constituting the alleged fraud cannot be inactive and afterwards allege a want of knowledge that arose by reason of his own laches and negligence.” Taylor v. Moore, 87 Utah 493, 51 P.2d 222, 229. A mere expression of an opinion by one dealing with real estate as to the title he purports to convey, truthfully stated or equally within the knowledge of both parties, does not constitute fraud even though the opinion is not well founded. For the plainest of reasons, an expression of an opinion as to one’s title cannot be made the basis of a charge of fraud. See 23 Am.Jur., Fraud and Deceit, Sec. 50, p. 817.

From the evidence, it is manifest that the appellant did not deliberately conceal any facts from appellee. He was not a party to the stipulation, but he was bound thereby. It was entered into in 1942, but the judgment thereon was not entered until 1950. Skidmore and Howard had performed some operations under a lease from Jensen, but the appellant had also been working the claims under an oral agreement between the parties, and had litigated his title thereto against Frank Davis, who claimed under his brother. Appellant was admittedly in possession of the claims and was receiving payment from the Atomic Energy Commission for the ore produced therefrom. These facts were ascertained and in possession of the appellee when they began negotiations. A district court had decreed Migliaccio to be the owner of 62% per cent of the claims and he was appealing from that judgment, claiming full ownership. Appellee had sufficient faith in his cause to undertake the prosecution of the appeal to the Supreme Court. These facts are consistent with his contentions and representations that he owned the mining claims subject to pending litigation. They are indeed wholly inconsistent with bad faith or an intention to deceive. The Davis litigation tells the whole story of the stipulation about which appellee claims to have -teen deceived by the misrepresentations of Migliaccio, and this story in all of its details was either known to the appellee or certainly readily accessible to it.

To us, it is clear that when the parties came to execute the option agreement, both had equal access to the same facts. Neither had peculiar knowledge, and the lawyer-officers. of the appellee were doubtless in a better position to appraise the legal consequences of those facts. .Before the agreement was consummated, the parties, with equal knowledge of the facts, came to the same conclusion concerning the legal effect of the stipulation on Migliaccio’s title, and the appellee cannot now complain of fraud if they both guessed wrong.

We conclude that the judgment of the court is clearly erroneous and it is reversed.