Kelly v. Fairmount Land Co. , 97 Va. 227 ( 1899 )

Riely, J.,

delivered the opinion of the court.

For the purposes of this decision, it may be conceded, as claimed by counsel for the appellee, that the money secured by the deed of trust which is the subject of this controversy, together with the work of grading undertaken by Clay, constituted the purchase price for the lots which the Fairmount Land Company contracted to convey to him; from which it follows that Kelly, although he has completed the grading, cannot demand a clear title to the lots until the deed of trust has been satisfied, unless the company is estopped to claim the benefit of it.

Clay not having obtained a deed to the lots at the time Kelly was considering the propriety of accepting them, along with other lots in the city of Richmond, in satisfaction of his judgment against Clay, Kelly was put upon inquiry as to the state of Clay’s right to the lots. It was incumbent upon him to ascertain from the Land Company what was necessary to be done or paid in order to obtain a clear title. If he omitted to make due inquiry, he could only acquire the lots subject to any encumbrance or burden upon them in favor of the company.

Recognizing this obligation, the counsel of Kelly applied to the company for information as to the state of Clay’s right to the lots, and was informed by its secretary and general manager that Clay had not completed the payment for the lots, but that there was about fourteen hundred dollars’ worth of grading still to be done before the lots would be fully paid for. The contract between the company and Clay with respect to the purchase of the lots, and the payment therefor in grading was shown to the counsel, at his request, and examined by him, but the deed of trust was not shown to him, nor was he then told of it.

The secretary deposed that he discussed the deed of trust on divers occasions with the counsel, but could not recollect whether it was before or after Kelly had accepted the conveyance of the lots. It is made very clear, however, by the testimony of the counsel that he first learned about the deed of trust from the secretary, but that the latter did not inform him of its existence until several months after Kelly had agreed to accept the Fair-mount lots and the Richmond lots in satisfaction of his judgment, received and recorded the conveyance, and marked his judgment satisfied.

It was further testified by the secretary, on his direct examination, that Kelly, before consummating the transaction as to the lots, talked with him about the state of Olay’s right to them, and that they conversed about the deed of trust, of the existence of which Kelly seemed to be fully informed. Kelly denied positively that the deed of trust was mentioned or that he had any knowledge of it, and deposed that he first learned from his counsel, and with much surprise, of its existence. The testimony of the secretary upon this point is greatly impaired by the statement made on his cross-examination, when being pressed as to the knowledge of Kelly as to the deed of trust, that “ Kelly may not have known of the existence of this trust deed.” His testimony shows that knowledge of the deed of trust imputed by him to Kelly was rather an inference by the secretary from the fact that Kelly told him that Olay had promised to repay out of money he was getting from the company an amount Kelly had lent to Clay. It does not appear, however, that Kelly knew, or that the secretary informed him, upon what terms, or upon what security if any the company was letting Clay have money.

Clay testified that Kelly was aware of the deed of trust, but it is apparent, upon considering his whole testimony, that he made no distinction between a knowledge by Kelly of a simple indebtedness of Clay to the company, and a loan to him by it secured by a deed of trust on the lots. ILis testimony is entitled to very little weight in the effort to fasten upon Kelly actual notice of the deed of trust, and all mention of it to him by Clay was denied by Kelly.

Mr. Bryant, to whom Clay, on his failure, made an assignment, was informed of the deed of trust, and testified that he went, into a calculation with Kelly when the latter was considering the question whether he would accept-the lots in Rairmount and Richmond in satisfaction of his judgment against Olay, to ascertain the value of Clay’s interest in the property, there being a number of liens on the Richmond lots, and was positive that the Bairmount property was embraced in the calculation, and that the amount of grading still to be done, and the deed of trust, were both considered. Kelly, in Iris testimony, admitted that he understood from Bryant that the Bairmount Land Company had some claim against ('lay, but never understood him to say anything about a deed of trust. The whole negotiation with Bryant, in regard to the acceptance of the lots by Kelly in discharge of his judgment against Clay, was conducted by Collins as counsel for Kelly, and the latter testified that he acquainted his counsel fully with all the information he possessed in regard to the matter. Collins was positive that Kelly never mentioned to him the deed of trust, and that when he learned from the secretary of the company of its existence and informed Kelly of it, the latter was greatly surprised. Collins also testified that in all his negotiations as counsel for Kelly with Bryant in regard to the lots, the latter never mentioned to him the deed of trust. BTor did Bryant testify that he did so.

"While it was the duty of Kelly, as Clay had no recorded title to the lots, to inquire of the Land Company what was necessary to be done or paid in order to obtain a clear title, or he would take them at his peril, it was no less the duty of the' company, when inquired of, to make a full and frank disclosure. Honesty and fair dealing required that this be done. When Collins, as counsel for Kelly, asked to see the contract between the company and Clay in regard to the lots, and it was shown to him by the secretary, and he inquired what was the balance of work to be done in order to complete the contract on the part of Clay, the deed of. trust not being a part of the original agreement, nor referred to in the contract, it was plainly the duty of the company, through its secretary, to inform him of it. Where a purchaser has knowledge of any fact or circumstance sufficient to put him upon inquiry as to the existence of some riv-ht or title. in conflict with that which he is about to purchase1, and makes the inquiry suggested by such fact or circumstance, and anything detrimental to the right he is about to acquire is concealed or withheld from him, he cannot afterwards be charged with notice of it, or be .affected by an undisclosed encumbrance or latent equity. 2 Devlin on Deeds, sec. 745; and Massie v. Greenhow, 2 P. & H. 255.

In the case at bar due inquiry' appears to have been made, but the evidence is far from satisfactory that the unrecorded deed of trust, the existence of which should have been frankly-disclosed, was made known to Kelly or his counsel, or that either of them knew of it. Upon a consideration of all the testimony, our conclusion is to 'the contrary. The effect of want of notice of the deed of trust was to mislead Kelly and his counsel. It induced him to -accept property in discharge of his debt-, which he testified that he would not have thought of doing under any circumstances, if he had known of the deed of trust, and which his counsel testified no less positively that he could have never thought of advising. If the company were now allowed to enforce the deed of trust, then Kelly accepted property for valuable consideration, which is wholly without value to him. Under the circumstances shown by the testimony, it would be inequitable to allow the deed of trust to be enforced. The loss must be borne by the company, to whose conduct and omission of duty it is due.

The lots in Fail-mount, though valued at $4,160 when Clay contracted with the Land Company for them, were worth when Kelly took them, according to the great preponderance of the testimony, scarcely over, if at all, half that amount; so that although Kelly completed the grading for $1,200, the cost of the lots would greatly exceed their value, if, in addition to the completion of the grading, he- had also to discharge the deed of trust for $1,855. In such case, the interest of Clay in the lots was of no value whatever, and there could have been no possible inducement to Kelly to accept them in payment of his judgment. The testimony shows that their market value was particularly inquired into by the counsel of Kelly before advising his client to consummate the transaction, and it is inconceivable that with the knowledge he had acquired as to the value of the lots he could have advised Kelly to take them, or that Kelly would have accepted them along with the lots in Richmond in discharge of his judgment.

The decree appealed from must be reversed, and this court will enter such decree as the lower court ought to have entered.

Reversed.