Heney v. Heney

Appellants herein, Mary A. Heney and Edwin A. Heney, prosecute this appeal from an adverse judgment in an action in ejectment brought by respondent to obtain possession of a tract of land in the Santa Clara Valley, and for the mesne profits thereof and damages on account of waste alleged to have been committed thereon.

Appellants are the widow and surviving son, respectively, of Richard J. Heney, Jr., deceased, a half-brother to respondent. The land in question, containing 100 acres planted mostly to vineyard, was owned by Richard J. Heney, Jr., and operated by him for the production of wine from 1882 until the date of his death in 1919, at which time his surviving wife, the said Mary A. Heney, succeeded to his interests, and thereafter and until the date of the entry of judgment herein the property was managed by the said Edwin A. Heney.

Appellants denied respondent’s asserted title as owner, and by answer and cross-complaint set up equitable defenses charging respondent with having acquired the property through actual fraud growing out of an alleged trust relationship, the substance of the allegations relating thereto being that when the foreclosure of the Wright deed of trust became evident, respondent, a lawyer of prominence and experience, sustaining toward Richard, during his lifetime, and after his death toward the members of his family, fiduciary relations founded upon mutual confidence and an affectionate family association of many years’ standing, lulled appellants into the security that with the aid of a personal friend, Mr. Rudolph Spreckels, a banker connected with the First Federal Trust Company, he would prevent a loss of the property to Mrs. Heney at trustee’s sale by obtaining a bank loan for her; and that, furthermore, on June 12, 1922, due to the trust and confidence reposed in him by Mrs. Heney, obtained from her a power of attorney, authorizing him to sell a large quantity of bonded wine which had been produced on the property, and shown by the evidence to be of the estimated worth of $40,000, one-half of which was subject to a chattel mortgage given for the principal sum of $5,000 to one Steinfeld, and with the proceeds of the sale to pay the Steinfeld and Wright indebtednesses, and any excess to Mrs. Heney; that

Respondent denied the accusations of fraud and the existence of confidential relations at the time of the impending sale. He also denied that he had practiced any deception or concealment whatever as to his intentions to acquire the property in his own interests, but alleged that, on the contrary, he had repeatedly warned appellants over a period of several months that if the Wright loan was not taken care of by them and a foreclosure sale resulted, he would be compelled, in order to protect his own rights under the second deed of trust, to borrow the money personally and bid in the property, in which event he would retain title and take possession. Regarding said power of attorney, respondent alleged that the debt secured by the Steinfeld chattel mortgage was about due and its payment was guaranteed by him; that since appellants had been unable to sell said wine his object in obtaining said power of attorney was to dispose of the same, if possible, prior to the foreclosure sale, with the hope of securing enough money to extinguish the Steinfeld and Wright indebtednesses, thereby giving his junior deed of trust priority as a first and superior lien; but being unable to sell the wine, he so notified appellants on July 22, 1922, and thereafter borrowed the money on his own account to bid in the property.

Appellants concede that in so far as the question of actual fraud is concerned, the decision of the trial court is conclusive, the findings exonerating respondent as to the allegations of specific misrepresentations being based upon conflicting evidence and therefore unassailable on appeal; but they now seek to segregate the transaction involving the execution of said power of attorney from the charge of actual fraud as pleaded by them, and again urge said transaction as the basis of a charge of constructive fraud, contending that the sole purpose of granting said power of attorney was to prevent a" loss of the property to Mrs. Heney at foreclosure sale and that therefore the effect of the execution of said instrument was to create an agency which by implication of law imposed upon respondent as agent the duty of protecting Mrs. Heney’s interests alone as to all matters connected with the sale of said property and precluded him while said agency existed from acquiring the property in his own interests or from gaining any personal advantage as a result of said sale; that during the pendency of said agency respondent, contrary to the obligation of his trust, purchased said property at foreclosure sale in his own interests, the purchase being attended by circumstances showing, as appellants claim: “(1) a grossly inadequate price; (2) a lulling of the principal into security; (3) a failure until too late to report a lack of success in securing the object of the agency, and (4) the securing of an advantage at foreclosure sale by procuring a renewal” of the debt secured by his junior deed of trust, which respondent had inadvertently allowed to become outlawed. In other words, it is claimed in substance that without having terminated said agency by any clear disclaimer and without notifying Mrs. Heney of the failure to

[1] It is doubtless the law, as appellants contend, that the acceptance of an agency under a power of attorney in itself establishes a relationship" fiduciary in character between the principal and agent, which holds the agent to a high standard of good faith, full disclosure and absolute disinterestedness pertaining to the particular agency created, and that a breach of the duties thus imposed amounts to constructive fraud; but it is apparent that here a case of constructive fraud cannot be predicated alone upon the asserted violation of any fiduciary duty arising by operation of law from the agency defined by the express terms of the power of attorney now before us, because that instrument merely authorized respondent to sell a quantity of wine and with the proceeds derived from the sale to pay certain debts; and since the wine was not sold it cannot be held that there has been any breach of fiduciary duty relating to the subject matter of that particular agency.

[2] Appellants contend, however, that the result of the execution of said power of attorney was to create an agency more extensive in its "cope than the one indicated by its terms—one whereby respondent, being Mrs. Heney's confidential advisor, lulled her into the security that by granting said power of attorney he would avert a loss of the property to her at said sale. It will therefore be seen that

The evidence bearing upon the questions of fact under consideration related to events covering a long period of time, the trial of the equitable issues having consumed several weeks, and although we shall endeavor to notice herein only the important features of respondent’s evidence which in our opinion tend to support the contested findings above mentioned, the relative positions of the parties at the time of the execution of said power of attorney, their feelings toward each other, and their intentions as to the enforcement of their respective rights cannot be fairly described without referring to much of the testimony.

As to respondent’s financial interest in said property, about which there is little if any dispute, the evidence shows that it arose and afterward increased in the manner following: Prom the beginning the operation of the vineyard for the manufacture of wine does not appear to have been a financial success, and soon after acquiring the prop

Prior to 1914 respondent’s personal relations with Richard and the members of his family were most affectionate and of a fiduciary character. Besides assisting Richard frequently in a financial way, respondent acted as his confidential adviser and agent. But early in 1914 a breach occurred, caused primarily, it appears, by the constant demands Richard was making upon respondent for further financial help when the latter, on account of sickness and other adversities, was unable to respond. Thereafter respondent refused to advance more money, and they dealt with each other in a formal way, each protecting his own

In 1915, respondent, then living near Los Angeles, believing foreclosure proceedings imminent under the Wright trust deed on account of default in payment of interest, made arrangements with Spreckels to bid in the property for him, conditioned- upon taking possession of the property after the purchase. A few months .-later Edwin was • informed of this arrangement when he called on respondent in Los Angeles to ask respondent to meet the payment of the delinquent interest on the Wright loan, which respondent refused to do, telling Edwin, so respondent testified, that in case Spreckels did bid in the property Edwin’s father and mother “would have to get off” the place; and, furthermore, that it was useless for Edwin or any other

In 1918, the business connected with the renewal of respondent’s security was conducted by respondent’s agent under a letter of instruction from respondent declaring Ms distrust of Richard and his family, stating that they should be dealt with as strangers whom he feared might take advantage of him, and also that he “was intending to go to San Francisco to see Rudolph Spreckels to have him buy the property in” for his, respondent’s, benefit. When shown this letter Richard was deeply affected, and during his last illness the year following expressed a friendly feeling toward respondent and a desire to see him, in response to which respondent sent Richard an affectionate message, but there appears to have been no reconciliation between them prior to Richard’s death.

The evidence further demonstrates that following Richard’s demise the strained family relations were not relaxed, but that, on the contrary, respondent evinced a stronger determination to enforce his rights under the deed of trust on account of the equitable interest held therein by his sisters. With respect thereto the proof shows that in the fall of 1920 negotiations were being carried on between Wright and Edwin to refinance the property, and respondent agreed to accept $18,000 within forty days in full settlement of his demands. In the letter extending the option, which was sent to Wright, respondent said: “If this proposition is not accepted and fully consummated within .the period specified herein, I shall be forced to take steps immediately thereafter to clean the matter up, as my three sisters, who are the equitable owners of more than half the

During the latter part of the year following, 1921, owing to Wright’s threats to foreclose because of default in payment of interest and Steinfeld’s demand for payment of his loan, respondent held three conferences with Edwin in San Francisco to ascertain if the latter was taking any measures to raise the money to pay the debts mentioned. According to respondent’s testimony he demanded at these conferences, as he had done many times before, that Edwin sell the grape crops, which were bringing big prices, and thereby pay off the loans, instead of continuing to manufacture wine as Edwin had been doing in anticipation of an early modification of existing prohibition laws, finally telling Edwin, so he claims, that unless the grapes were marketed instead of making them into wine he would proceed to sell the property under the terms of his security, adding: “You know what that means, Ed, you are going to lose the vineyard; your mother is going to lose it.” Although Edwin promised at first to comply with respondent’s demand, he subsequently declared his intention to manufacture wine, which he did,

Coining dowh to the year 1922, the evidence offered on behalf of respondent was to the following effect: On April 6th respondent forwarded to the county recorder for filing a notice of his intention to foreclose, assuming that Wright had filed a similar notice, and which respondent afterward learned had been filed the preceding month. He immediately notified Edwin by letter of his action, stating that it was necessary for him to be in a position to sell at the time of the Wright sale, and inquiring as to what effort Edwin was making to raise funds to avoid a loss of the property. Edwin replied that Wright thought he would be able to take up the loan himself if given a little time, and that he would let respondent know as soon as he heard further from Wright. Subsequently, and on May 1st, at a meeting between Edwin and respondent in San Francisco, respondent learned of the nature of Wright’s proposition, which he declared unsatis-' factory, and he again warned Edwin, according to his testimony, that if Edwin did not succeed in paying the Wright debt and respondent was required to borrow the money to buy in the property at a foreclosure sale, he “would take possession of it as owner” and that “Edwin’s folks would have to get off, ’ ’ stating further in this regard: “Now, Ed, keep this in mind, there is only one way for you to save the vineyard for your mother, and that is by you and Seth selling this wine in time to pay off Wright, because if I have to borrow enough money to buy this place in, I am going to buy it for myself and my sisters; and you folks will have to get off.”

On June 6th, having received a letter from Steinfeld demanding immediate payment of his loan, respondent notified Edwin by mail of that fact; also that under the notice given by Wright it was legally possible for Wright to sell the vineyard on or after July 12, 1922, stating: “Under these circumstances it is necessary for us to make haste if your mother is not to lose the vineyard, and if I am not to lose all that is owing to me.” In this letter suggestion was made as to the granting of the power of attorney in question, respondent saying in this regard that when in San Francisco last Spreekels informed him that if he secured-a power of attorney from Mrs. Heney authorizing respond

On the morning of July 22d respondent visited the vineyard for the first time since 1914, and meeting Edwin, told him, according to respondent’s testimony, of the failure to sell the wine, of Wright’s unsatisfactory proposals, and of his application for the bank loan. Respondent’s, testimony regarding the conversation was as follows: “I said, ‘I am going to buy this property in at the sale; if the First Federal Trust Company doesn’t loan me the money I am going to try and borrow it from my friends and buy it in to protect myself and your aunts. ’ I asked him what his reply to that was, and it was an assent. He made no objection to it, and no criticism of it. I told him that if he and Seth would sell the wine before the sale day for enough to pay Wright that I would be willing to have a first lien on the property, but that if I had to borrow any money to buy that property in, I was going to buy it in for myself, and that I would not take second place, because I had had experience enough on that with the first mortgage creeping up in amount on me, so that my security gradually got less. ’ ’

The bank authorized the loan, and respondent and his wife executed the necessary documents therefor at the bank on . August 4, 1922. On that same day respondent held an extended conference with Seth regarding the effect of the consummation of the loan. Although it appears that Seth had been taking an active interest in his mother’s behalf, the evidence fails to show that he was authorized to represent her the same as Edwin was, and therefore the conversations held with him may be disregarded.

Respondent offered other evidence to show that following the sale he exercised acts of ownership over the property and that appellants recognized him as the owner. Immediately after the sale he notified Edwin by letter that he would assume personal control of the property, which he did by harvesting the grape crop, negotiating the sale thereof, and selling it. He also asserted title to the proceeds from the sale of the prune crop which Edwin had sold. Further

As opposed to the evidence contained in the foregoing narrative appellants offered much proof, but apparently no useful purpose can be accomplished by setting it forth in detail herein, because at most it does no more than raise a conflict on the vital issues under discussion. Said proof consisted largely of testimony of witnesses who gave entirely different versions as to the substance of the conversations in which respondent claims to have warned appellants of his intention to acquire the property in his own interests at the foreclosure sale. But in that state of the record the question of determining which of the two versions represented the truth was one exclusively within the province of the trial court. Appellants also point out that Edwin assisted in obtaining the loan by locating the abstract of title and forwarding it to the bank, and that on August 1st, at respondent’s request, he obtained from his mother a written acknowledgment of respondent’s outlawed debt, neither of which services, appellants argue, would he have likely performed if he had known of respondent’s intention to acquire the property in his own interests. Moreover, attention is called to the fact that respondent never did notify Mrs. Heney personally of his intention to acquire the property to her exclusion, notwithstanding that on July 31, 1922, he met her at her home for the first time since the breach in the family relations in 1914, greeted her affectionately, and that the social intercourse was most cordial; also that on the day of the sale respondent conveyed Mrs. Heney to San Jose in his automobile for the purpose of having her acknowledge before a notary public a second document relieving his debt from the effect of the operation of the statute of limitations. Furthermore appellants draw certain inferences from portions of respondent’s letters herein-above alluded to, written during the progress of the loan and the power of attorney transactions, showing, as appellants claim, that Mrs. Heney was lulled into the security that respondent was acting in her interests and not in his own. But conceding the force of the facts and circumstances just related, and of others of like character but of

[3] Finally, on this point it may be stated as a legal proposition that the mere execution of a power of attorney does not prohibit an agent from dealing with the subject matter of the agency, providing he shows affirmatively that he acted in good faith, fairly, and honestly, and made full disclosure of his intentions (Hemenway v. Abbott, 8 Cal. App. 450 [ 97 Pac. 190 ]; Curry v. King, 6 Cal. 568 [ 92 Pac. 662 ]); and therefore in the instant case, even assuming that the execution of the power of attorney of itself created the agency contended for by appellants, out of which a fiduciary relationship between the parties necessarily arose, respondent was not thereby precluded from acquiring the property in his own interests, having, as the trial court found and as the evidence shows, acted in good faith and fairly, after having made full and seasonable disclosure of his intentions to do so.

Regarding the contention that respondent acquired the property for a grossly inadequate price, and would be allowed also, if the judgment be affirmed, to continue in force against Mrs. Heney the obligation to pay the balance of the debt secured by his junior deed of trust, it should be observed that appellants, in making this contention, do not take into consideration the trial court’s finding to the effect that ever since the forelosure sale it “has been his (respondent’s) bona fide intention to forgive Mary A. Heney her said indebtedness to him and to refrain from ever attempting to collect the same.” The balance due on said indebtedness, after giving credit for the proceeds received from the sale of the grape crop, if added to the amount already paid at foreclosure sale, would bring the total amount of the purchase price to nearly as much as the value of the property as fixed by appellants. But assuming, as appellants contend, that the statement in the finding is not legally binding on respondent, the situation is not altered, because, in the absence of fraud, the advantages complained of were such as respondent was entitled to gain as a result of the exercise of his legal rights.

[5] The issues tendered by appellants’ defenses were, in our opinion, purely equitable, and therefore appellants were not entitled as a matter of right to a trial by jury thereon. (Fish v. Benson, 71 Cal. 428 [ 12 Pac. 454 ]; Angus v. Craven, 132 Cal. 691 [ 64 Pac. 1091 ].)

For the reasons given we believe the judgment should be affirmed. It is so ordered.

Tyler, P. J., and Cashin, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on January 15, 1927, and a petition by appellants to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on February 14, 1927.