Palmer v. Welch , 171 Mo. App. 580 ( 1913 )

ALLEN, J.

(after stating the facts). — We are not concerned with, the question of the consideration for the notes involved in this suit. The trial court found that the notes were valid as between Welch, the maker thereof, and Reid, the bankrupt, and that they had not been paid; the court ordered the deed of trust foreclosed and the land sold, subject of course to the prior incumbrance of the school fund mortgage. However, the finding of the lower court was, in effect, that the trustee in bankruptcy of Reid should be estopped from asserting any claim upon these notes as against the defendants Elsberry and Goodman, and that the latter, out of the proceeds of the sale of the land, should be reimbursed for their expenditures in paying off liens and incumbrances thereon. This seems to be in accordance with the clear equities of the case.

That the trustee in bankruptcy stands in the shoes of the bankrupt, so far as the right to enforce the collection of these notes is concerned, must be conceded. The trustee is vested “by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt.” [Bankruptcy Act, sec. 70a.] He takes the title that the bankrupt had at the date of adjudication, not as an innocent purchaser, but subject to all valid claims, liens and equities. [Loveland on Bankruptcy (1912), sec. 371.] The trustee’s rights in the premises rise no higher than those of the bankrupt, and if the bankrupt by reason of any conduct on his part should in equity be estopped from asserting any claim against defendants Elsberry and Goodman, such estoppel may be invoked against his trustee in bankruptcy in like manner as it might have been invoked against the bankrupt himself.

But it is earnestly insisted by counsel for the appellant that the conduct of Reid was not such as to work an estoppel, for the reason that there was no fraud intended on his part, and no false representation or fraudulent concealment of any material fact, with intent that these defendants should act thereupon; and for the further reason that the deed of trust was of record and these defendants had constructive notice thereof.

The evidence is convincing that these defendants, in the absence of Welch, and knowing the relations that had existed between him and Reid, and for the reason also that the latter was a member of the county court, conferred with Reid in regard to protecting themselves from liability as sureties on the school fund mortgage in favor of the county; that Reid discussed the matter with them and undertook to sell the land in order to relieve them from responsibility, and failing in this, that he told these defendants, in substance, that the best thing for them to do was to buy the land for their own protection. During all of this time no mention whatever was made by Reid of these notes and the deed of trust securing the same, but on the contrary his acts and conduct in the matter were altogether inconsistent with the existence of any such lien or incum-brance on the land, and were such as may have well put these defendants off their guard, and caused them to refrain from an examination of the records or from availing themselves of other sources of information. Clearly, under the equitable doctrine of estoppel in pais, Reid should not now be heard to assert any claim upon these notes as against the defendants Elsberry and Goodman, or any lien upon the land to their prejudice; and his trustee in bankruptcy has no greater right than he would have had in the premises.

It is said that to constitute an estoppel in pais there must have been (1) a false representation or a concealment of material facts, (2) made with the knowledge of such facts, (3) to one who was ignorant of the truth of the matter, (4) with the intention that he should act upon it, and (5) that he was induced to do so. [Bigelow on Estoppel (1890), p. 570; Blodgett v. Perry, 97 Mo. 263, 10 S. W. 891; Shields v. McClain, 75 Mo. App. 636.] However an estoppel may arise from mere silence, or passive conduct on the part of one who has knowledge of the facts and whose duty it is to speak, where such silence or conduct is misleading. [Pickard v. Sears, 6 Ad. & E. 469; Gregg v. Wells, 10 Ad. & E. 90; Bigelow on Estoppel (1890), pp. 583-588; Withers v. Railroad, 226 Mo. 399, 126 S. W. 432; Guffey v. O’Reiley, 88 Mo. 418; Pelkington v. Insurance Co., 55 Mo. l. c. 178.]

It is clear that there must be something equivalent to a representation; but under the authorities it is equally clear that silence or concealment, under circumstances where one ought to speak and to reveal the truth, is regarded as being in effect a representation. On this question Mr. Bigelow says: “A representation may arise not only by way of concealment of part of the truth in regard to a whole fact, as we have seen; more than that, from total but misleading silence with knowledge, or passive conduct joined with a duty to speak, an estoppel will arise. The case must be such that it would be fair to interpret the silence into a declaration of the party that he has, e. g., no interest in the subject of the transaction. Indeed, silence, when resulting in an estoppel, may not improperly be said to have left something like a representation on the mind; for the case is this: A negotiation is going on, and the mind receives the facts brought out, and receives those facts only. Hence, everything inconsistent with them, relating to the rights of others present as well as to those of the party with whom the negotiation is going on is excluded. The effect may be considered negative, but the mind sees and may actually regard that negative; indeed, that, in large part, is the meaning of calculating the advantages of the proposal.” [Bigelow on Estoppel (1890), pp. 583, 584.]

In Guffey v. O’Reiley, supra, the court said: “Upon this evidence the point to be determined is whether an equitable estoppel has arisen in this cause. Lord DeNmaN, who had delivered the opinion in the earlier case of Pickard v. Sears, 6 Ad. & E., 469, when he came to deliver the opinion in the later one of Gregg v. Wells, 10 Ad. & E. 98, stated that the doctrine in the former case might be stated even more broadly than it was there laid down: ‘A party,’ said he, ‘who negligently or culpably stands by and allows another to contract on the faith and understanding of a fact which he can contradict, cannot afterwards dispute that fact in an action against the person whom he has himself assisted in deceiving.’ In Niven v. Belknap, 2 Johns. 588. which was a bill in equity regarding land, the court said: ‘There is an implied, as well as an express assent; as where a man who has a title, and knows of it, stands by and either encourages or does not forbid the purchase, he and all claiming under him shall be bound by such purchase. [1 Fonb. 161.] It is very justly and forcibly observed by a writer on this subject (Roberts, 130), that there is a negative fraud in imposing a false apprehension on another by silence, where silence is treacherously expressive. In equity, therefore, where a man has been silent, when in conscience he ought to have spoken, he shall be debarred from speaking when conscience requires him to be silent.’ Treating on this subject, Judge Story says: ‘In many cases a man may innocently be silent, for, as has often been observed, “Aliud est tacere, aliud celare.” But in other cases a man is bound to speak out, and his very silence becomes as expressive as if he had openly consented to what is said or done, and had become a party to the transaction; ’ and after giving instances of a man standing by and encouraging, or not forbidding, a sale of his property, or sees another person selling his land as grantor, and signs the deed made as a witness, the learned author, after stating the invalidating effect of such conduct on the title of the party guilty thereof, concludes by saying: ‘ For in cases where one of two innocent persons must suffer a loss, and a fortiori, in cases where one has misled the other, he who is the cause or occasion of that confidence by which the loss has been caused or occasioned ought to bear it. Indeed, cases of this sort are viewed with so much disfavor by courts of equity, that neither infancy nor coverture will constitute any excuse for the party guilty of the concealment or misrepresentation.’ [1 Story, Eq. Jur. (13 Ed.), secs. 385, 387.]” And this language is quoted approvingly in Withers v. Railroad, 226 Mo. l. c. 339, 401, 126 S.W. 432.

There is no doubt that Reid had knowledge of the fact of the existence of these notes and the deed of trust securing them. It is wholly immaterial whether he actually had them in mind or not at the time of his conversation with these defendants prior to their purchasing the land. . His knowledge of their existence will be presumed, and his failure, under the circumstances, to disclose the fact of their existence, even though it be through negligence on his part, is tantamount to an active concealment in that it-will raise an estoppel. [Guffey v. O’Riley, supra; Withers v. Railroad, supra; see also, Bigelow on Estoppel (1890), pp. 612-614.]

There can be no doubt that defendants Elsberry and Goodman were ignorant of the fact of the existence of the notes and the deed of trust, prior to their purchase of the land. And it may well be inferred from the evidence that they relied upon the conversations had with Reid and the impressions gained thereby, knowing the latter’s close business relationship with Welch, who held the legal title to the property and who had removed from the State, and assuming, as they evidently did, that Reid had complete knowledge of the condition of the title to the property and that it would be safe for them to act in the premises without availing themselves of other sources of information. They may well thereby have been put off their guard, and, relying upon the knowledge thus gained and the impressions thereby received, refrained from examining the records as to the title to the property.

Although one’s title to real property is of record, nevertheless an estoppel will arise against him, if by representations he has misled another with respect thereto, whereby the latter has been induced to act to his injury. [Clark v. Edgar, 84 Mo. 106; Bailey v. Smock, 61 Mo. 213; Keifer v. Roger, 19 Minn. 32; David v. Park, 103 Mass. 501.] The principle is said to be that “a clear and positive representation of the facts may be acted upon, though the person'to whom -it was made had ample means of knowing the fact— indeed though he had legal notice thereof, as distinguished from knowledge, as e. g., by the due registration of an instrument.” [Bigelow on Estoppel (1890), p. 627.] There is, however, no distinction in principle between a case in which an actual representation has been made, and one where silence or culpable negligence of a party is, under the circumstances of the case, tantamount to an actual representation. And in such case the silent or guilty party will be likewise estopped, even though his title be a matter of record. [Olden v. Hendrick, 100 Mo. l. c. 538, 13 S. W. 821; Evans v. Forstall et al., 58 Miss. 31.] “Mere standing by in silence will not bar one from asserting a title to land, which has been spread upon the public records, so long as no act is done to mislead the other party. [Big. on Estoppel (5 Ed.), 594.] But the very statement of the rule shows that the fact that the title is of record is no justification for an act which does mislead the other party.” [Olden v. Hendrick, supra.]

In order to raise the estoppel, it is said that the representation must have been made with the intention, either actually or reasonably to be inferred by the person to whom it was made, that it should be acted upon. It has been held however that there need be no intention to deceive. [Galbraith v. Lunsford, 87 Tenn. 89, 9 S. W. 365; Raley v. Williams, 73 Mo. 310.] And while it is frequently said that fraud is an essential element of estoppel, this must be taken to mean fraud either actual or constructive. “The element of fraud is essential either in the intention of the party estopped, or in the effect of the evidence which he at-temps to set up.” . [Bales v. Perry, 51 Mo. l. c. 453; Hequembourg v. Edward, 155 Mo. l. c. 522, 56 S. W. 490.] Indeed it is said that “negligence when naturally and directly tending to indicate intention will therefore have the same effect in creating the estoppel as actual intention.” [Bigelow on Estoppel (1890), p. 631 and eases there cited.] In the case before us it is clear that Reid intended that the defendants Els-berry and Goodman should act upon the theory that the land in question was subject only to incumbrances and liens other than the deed of trust. It is not necessary therefore that Reid actually intended to deceive or defraud these defendants.

It is clear that the defendants Elsberry and Goodman acted upon what we may call the representations of Reid with respect to the property. The latter had endeavored to sell the property at a price sufficient to pay the incumbrance against the same, other than the deed of trust. Failing in this, in course of conversation with them he advised that they purchase the land for their own protection. Relying upon what they believed to be the true state of facts, and induced by Reid’s conversations with them, they purchased the property. So that there can be no question but that these defendants were led to act as they did by Reid’s conduct in the premises.

It is unnecessary to discuss at length the other questions raised. It is insisted by appellant that by the language of the clause in question, in the deed from Welch to Elsberry and Goodman, the latter assumed all incumbrances on the land, and that this cannot be varied or modified by parol. While parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument, nevertheless the writing “should be read in the light of surrounding circumstances, in order the more perfectly to understand and explain the intent and meaning of the parties.” [Laclede Const. Co. v. Tie Co., 185 Mo., l. c. 62, 84 S. W. 76, 87.] It plainly appears from the facts and circumstances in evidence that the parties really intended for the grantees in this deed to assume merely the school fund mortgage with interest thereon and the levee and other taxes and interest and penalties on the same. The defendants Elsberry and Goodman knew of no other incumbrances and it is perfectly clear that they thought that these were the only liens to which the land was subject, and that this was all that they were assuming. Welch testified that he wrote this clause in the deed after it had been sent to him for execution, not having in mind the deed of trust, but for the reason that the deed would otherwise, as he said, leave him liable for the mortgage and taxes which the defendants Elsberry and Goodman were to pay. Under the circumstances of the case it would manifestly be inequitable and unconscionable to hold that these defendants assumed the payment of the indebtedness secured by the deed of trust, and. it would be clearly contrary to the actual intention of the parties. And it is not a case where anyone has relied upon this clause in the deed, or acted thereupon to his injury and damage. On the contrary the action is by the representative of one whose conduct was such as to estop him from enforcing any claim against these defendants arising upon their supposed assumption of the indebtedness secured by this deed of trust.

The decree properly requires that the defendants Elsberry and Goodman be reimbursed for the moneys expended by them in paying the interest on the school fund mortgage, and the levee and other taxes. Their right to be subrogated to the rights of the original payees of this indebtedness is perfectly clear; and the estoppel here raised against the plaintiff altogether precludes him from asserting any lien upon the land to the prejudice of these defendants, or any right to the proceeds of the sale thereof until they have been fully reimbursed. For this reason, also, it is unnecessary to notice the point that has been raised to the effect that the deed of trust was a lien prior to the levee taxes. The plaintiff being estopped from asserting the lien of the deed of trust as against these defendants, we are in no wise concerned with this question of priority as between the deed of trust and the levee taxes.

Neither are we concerned with the failure of the lower court by its decree to reform the deed from Welch to Elsberry and Goodman. The latter are not here appealing from that decree, and in view, of the estoppel against plaintiff no reformation of the deed is necessary in order that complete equity may be done between the parties to this record.

It is also urged that the defendants Elsberry and Goodman had possession of the land in question for two or three years, and received some two hundred or two hundred and fifty dollars from crops grown thereon and cord wood cut therefrom, for which they should be made to account. The evidence however discloses that this was done under a lease from Welch to them, and that they had settled with Welch therefor long prior to the transaction here in question. Plaintiff, being estopped to assert any lien upon the land as against these defendants, is in no position to raise this question.

The decree of the lower court, so far as it goes, is manifestly correct. No personal judgment can be had against defendant Welch, as he was a nonresident of the State, and personal service was not had upon him in this State. The judgment of the lower court, however, should go farther than it does, in that judgment should be entered for the defendants Elsberry and Goodman upon plaintiff’s demand for a deficiency judgment against them, in order that this issue may thereby be definitely concluded.

For the reasons given above the judgment of the circuit court should be affirmed, and the cause remanded with directions to that court to add thereto its further judgment in favor of the defendants Els-berry and Goodman upon plaintiff’s demand for a personal judgment against them; and the costs of this appeal should be taxed against the appellant. It is so ordered.

Reynolds, P. J., and Nortoni, J., concur.