Hatch v. Fogerty — 33 N.Y. Super. Ct. 166

Majority

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ROSWELL D. HATCH, Executor, and ELIZA HELEN HOGAN, Executrix of the last Will and Testament of Robert Hogan, deceased, Plaintiffs and Appellants, v. JOHN R. FOGERTY, DUDLEY N. BAIN and PETER M. JORDAN, Survivors of Charles Ga Nun, deceased, Defendants and Respondents.

Headnote

Where a builder’s contract provided that if the builder neglected to complete the houses, or to diligently prosecute the work, or if he suspended the work for ten days, the owner might demand payment, and on refusal to .pay, might sell, at public or private sale, all the builder’s interest in the premises,—held, that such a sale would not foreclose all the builder’s interest, but that he might thereafter, in an action to redeem, allege and prove that there had been no forfeiture, and could thereupon be relieved from the sale.

Where an attorney employed to foreclose such a contract, resorted to a sale at auction merely, and afterwards became interested in the builder's equity, and employed other attorneys to assert such equity ; and an action was brought, whose foundation was the insufficient' title acquired under the foreclosure which the attorney had conducted, and in which action such attorney received a portion of the money obtained :—held, in an action to recover it back, that besides the high and responsible duty of an attorney towards his client, and the fidelity he owes to his interests, that he must also have sufficient learning to determine, with reasonable accuracy, upon the appropriate remedies for enforcing or securing the rights of his client, and sufficient skill to conduct the proceedings appropriate to such remedies.

It is also fundamental, in respect to the duty of an attorney towards his client, that he shall not use any information which he has derived from his client to the prejudice or injury of his client; and especially, that he shall not act in opposition to his client’s interests. The law is too regardful of the rights of persons who have fiduciary relations, to allow any betrayal of the trust and confidence.

Held, that the transaction on the part of the attorney could not be countenanced or upheld, and that the action to recover the sum received by the attorney should be maintained.

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Before Monell, Jones and Spencer, JJ.

Decided March 4, 1871.

Appeal from a judgment.

In August, 1851, Hogan, the plaintiff’s testator, contracted to sell to one Willock, certain lots in this city ; and agreed to make advances of money, to assist Willock in building ; and when the buildings were enclosed, Hogan was to convey the lots to Willock, and Willock was to execute a mortgage to Hogan, for the purchase money and advances.

The contract contained the following provision :— “It is furthermore agreed and understood, that if the said Willock refuse or neglect to complete the said intended houses, or if' the diligent prosecution of the work thereon, shall at any time after the date of these presents, be suspended for ten days, then and in such case said Hogan shall have the right to insist on an immediate repayment of all the advances he shall have made, together with interest thereon; and he also is hereby authorized, in such case, to sell at private or public sale, all the right, title, interest and estate of the said Willock in and to the said premises, and to apply the proceeds of such sale to the payment and satisfaction of the expenses of such sale, and of all claims and demands due, or thereafter to become due, which the said Hogan may have against the said Willock, for or upon account of the premises, and if any surplus should remain, the same is to be paid to said Willock. The said Hogan is, however, to give the said party one week’s notice of his intention to make such sale.”

Willock took possession of the lots and began building. Subsequently, and in December, 1852, Hogan haying claimed that Willock had broken the contract, employed, as was alleged, the defendant Fogerty, who is an attorney at law as his attorney, to acquire or ex

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tinguish Willock’s interest in the lots, under the provision contained in the contract. For this service, Fogerty, as was also alleged, was paid by Hogan. Fogerty proceeded to foreclose the contract, by a public sale, pursuant to notice to Willock, at the Merchants’ Exchange, of all Willock’s right, title and interest in the lots, held by him under the contract. Hogan became the purchaser at the sale, and entered into, and has continued in possession, claiming title under such purchase.

There was other employment of Fogerty by Hogan in controversies connected with the lots—such as evicting a person in possession of one of the lots ; resisting the claims of judgment creditors of Willock, and of mechanics having liens for work or material; and especially, Fogerty was employed by Hogan, as was also alleged, to procure for Hogan from Willock, a full release of all claims of Willock against Hogan, under the contract. Such a release was procured by Fogerty, but for purposes, as alleged by Fogerty, as hereafter stated, and for his services under these various employments, including, as was alleged, his employment to procure the release, he was paid by Hogan.

It was alleged by Fogerty, and was found as a fact by the court, in regard to the release, that Fogerty was employed by Hogan, with the concurrence and assent of Willock, to take such proceedings as would be necessary to extinguish the claims of the creditors and lien-holders of Willock, against the property, and for that purpose only, and not otherwise, he did procure the release from Willock, and that it was procured upon the express condition, that the same should not at any time be delivered to Hogan, and that it should not in any manner affect the claim or interest of Willock to the premises, or against Hogan upon the contract.

Hogan continued in the undisturbed possession of

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the premises, under his purchase, from December, 1852, until some time in June, 1859, a period of nearly seven years, when an action was commenced against Hogan, by or in the name of Willock, by Ga Nun, Jordan & Bain, his attorneys, in which action, Willock demanded a deed from Hogan of the premises, pursuant to the terms of the contract, and an accounting by Hogan, of the rents or profits of the premises, during .the nearly seven years he had held possession.

The ground upon which that action was founded, was, that the sale at the Merchants’ Exchange, which had been conducted by Fogerty, had not extinguished Willock’s interests in the premises or his rights under the contract.

Hogan appeared in that action by John H. Hedley, his attorney, and set up in his answer as a defense, the foreclosure sale which had been conducted by Fogerty, and also the release, which it was claimed, that Fogerty had procured from Willock to Hogan, of all his, Willock’s, interest in the premises, and of all claim against Hogan under the contract, and which sale and release, he claims, was a bar to Willock’s action.

Pending that action, and before there had been a trial of the issues, Hogan died, and the action was afterwards' continued in the name of his executor, and sent to a referee to be by him heard and determined.

On the trial of that action, Fogerty was examined as a witness, for and on behalf of Hogan, and amongst other things, testified to the purpose, as found by the court, in respect to the release from Hogan, namely, that it was procured for the purpose of defeating the claims of judgment and lien creditors of Willock, to the premises, and for no other purpose, and was not intended to be delivered to Hogan, or in any manner to affect the rights of Willock to the premises or his interest under the contract.

Fogerty, upon that examination, made no disclosure

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of any interest in himself, in that action, and it was not then known to the plaintiff in this suit, that Fogerty at that time, and even before the commencement of that action, had a large interest in the result of the action.

In ignorance of any such interest, and influenced by the testimony Fogerty had given, of the purpose of the release, the plaintiff, in May, 1862, compromised and settled that suit, paying to Gra Hun, Jordan & Bain, the attorneys, the sum of three thousand dollars, in satisfaction of the claims.

After such settlement had been effected, Fogerty commenced an action, in Ms own name, as plaintiff, against Gra Hnn, Jordan & Bain, in which he alleged, that he had retained and employed them, to prosecute the action of Willock against Hogan, and that they had collected, in such action, a sum of money, over and above their costs, which they had refused to pay to the plaintiff, Fogerty.

Upon the trial of that action, by a referee, it was proven, and the referee, in accordance with such proof, found as a fact, that the defendants, Gra Hun, Jordan & Bain, were retained by Fogerty to prosecute the claim of Willock against Hogan. That previous to such retainer, Willock had agreed, that Fogerty should receive two-tMrds of the amount recovered. That Gra Hun, Jordan & Bain, took the claim to prosecute, upon the retainer of Fogerty, with full knowledge of his agreement with Willock, and had received the sum of three thousand dollars upon a settlement of the suit. And the referee gave judgment in favor of Fogerty and against Gra Hun, Jordan & Bain, for eight hundred and sixty-six dollars and sixty-six cents, being •the balance in their hands after deducting their costs and charges, and seven hundred dollars which had been paid by them to Willock.

For a report of that case see 2 Robt. 319.

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Under these circumstances, the plaintiff in this action, as the executor of Hogan, brought this action against Fogerty, to recover the amount he had received from Ga Hun, Jordan & Bain, in his suit against them, on the ground, that his relation to Hogan, as his attorney and counsellor in foreclosing Willoclc's rights and interests under the contract with Hogan, and also in obtaining the release from Willock, would not allow of his becoming, or being interested, in an adverse claim of Willock against Hogan, growing out of the contract he had undertaken to foreclose, and which claim had not been extinguished by the foreclosure proceeding.

Fogerty alleged in his answer in this action, and the court found as facts:—

That after the making of the contract, Willock entered into possession of the lots, and proceeded with the erection of the buildings mentioned in the contract, and that Hogan made certain advances' to Willock, as provided for by the contract. That the defendant Fogerty, then was and ever since had been, and then was an attorney and counsellor at law, in the courts of this State, licensed and authorized as such to practice in the courts of this State, and so holding himself out to the world to practice as a regular profession, and as such was employed and retained by Hogan to do and perform certain acts in regard to said contract and said premises. That from the fall of the yean.’ 1852, Fogerty had also been the attorney and counsel of Willock. That at the time last mentioned, Fogerty was employed by Hogan with the concurrence and assent of Willock, to extinguish the claims of one Hamilton Hesbitt, and of certain lien-holders in and to the premises, and did so extinguish the same, and for that purpose, and not otherwise, did procure from Willock the release mentioned and set forth in the complaint, but the said release was executed by Willock, upon

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the express condition that the same should not be delivered to Hogan, or affect the claims or interest of Willock in or to the premises, or as against Hogan, and Fogerty was not employed or retained by Hogan, to extinguish the claims or interest of Willock, for any purpose other than as above stated, and in accordance therewith, and not otherwise, Fogerty took the proceedings mentioned and set forth in the complaint.

It was further alleged in the answer, and found as a fact by the court, that in April, 1859, Willock was indebted to Fogerty in the sum of twelve hundred dollars, for services theretofore rendered by Fogerty to and for Willock ; and Fogerty did thereupon in full payment of said indebtedness, take from Willock two-thirds of Willock’s claims against Hogan; and thereupon in consideration thereof, did wholly remit and satisfy the said indebtedness of Willock.

It was further found as a fact, that Fogerty did not, .in violation of his duty and obligations, as such attorney and counsel for Hogan, or in contempt of the court, or of the obligations imposed on him as an attorney and counsellor of the court, give to Willock advice, or purchase or take from him an interest in his claim against Hogan, or in or to the premises, or instigate Willock to bring said action, or make the purchase from Willock, with intent of prosecuting the said action against Hogan, for his own gain and advantage, or in violation of the statute in that case made and provided. •

Upon these facts the judge rendered judgment in favor of the defendant.

The plaintiff having excepted to the findings of law and fact, appealed.

Mr. E. P. Cowles, for the appellant.

Mr. William Fullerton, for the respondent.

Upon the argument of this appeal, the appellant’s counsel was understood to rest his right to recover, not exclusively but chiefly, upon the ground, that the delicate and confidential relation of attorney and client, which had existed between these parties, would not allow the respondent to take or receive any interest in, or benefit from, any claim which Willock might have or assert, under his contract with Hogan, which had its foundation in the insufficiency of the proceedings instituted and conducted by Fogerty for his client.

The counsel, however, was not understood to abandon the ground, that the benefit which the respondent had derived from the Willock suit against Hogan, was in consequence of his own lack of skill and correct judgment, in instituting and conducting the proceeding, he was employed to institute and conduct, to extinguish the rights and interests of Willock under the contract.

The mode adopted by the respondent to extinguish such rights and interests, was by a public sale, after notice, in pursuance of the provisions of the contract.

It is certainly very questionable whether such a sale, although authorized by the contract, was or could be made effectual to foreclose the contractor’s interest. The question is left open and undecided in the case of Chace v. Hatch, 4 Robt. 89, which was upon a similar contract, but with an intimation that the contractor is not shut out by such a sale, and may, upon a sufficient excuse, be relieved from the forfeiture.

The contract in this case provided, that if Willock refused or neglected to complete the houses, or to diligently prosecute the work, or if he suspended the work for ten days, Hogan might demand payment of his advances, and upon. refusal to pay, might sell at public or private sale, all of Willock’s interest in the premises.

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The forfeiture under this contract on the part of Willock, and the right on the part of Hogan to rescind, rested wholly upon the ten days' delay. If the delay in fact occurred, Hogan could at once sell. But in what manner or by whom was that fact to be determined ? Could Hogan’s saying or claiming that it had occurred, be sufficient, and would that conclude Willock, and for ever preclude his disputing the fact ? Assuredly not. The right to sell was unquestionable; but it was, necessarily, a sale at the risk of being set aside, if it should afterwards be made to appear, that there had in fact been no default; or, that it had become impossible to perform, either by the act of Grod, or of the law, or for any other sufficient reason.

The sale, therefore, under the power contained in the contract, was effectual only so far as it put Willock out and Hogan in possession of the premises, and then cast the burden upon Willock of showing, if he could show it, that there had not been a default, or of excusing it if there had been. But it left it competent for Willock, at any time afterwards, to apply to the court to be relieved from the forfeiture consequent upon it. From such an application Willock would not be, and was not precluded by the sale ; nor could he be precluded in any manner, short of a judgment in an action to foreclose his rights and interests under the contract.

Besides the high and peculiarly responsible duty of an attorney towards his client, and the fidelity which he owes to his cause and his interests, he is required to be learned and skillful in the practice of his profession. He must have sufficient learning to be able to determine, with reasonable accuracy, upon the appropriate remedies for enforcing or securing the rights of his client, and sufficient skill to conduct the proceedings appropriate to such remedies.

If an attorney fails in any of these respects, he may, and sometimes does, not only forfeit all claims for com

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pensation, but renders himself liable to his client for any damage which he may thereby sustain.

But the question of any supposed lack of learning or of skill on the part of the respondent, in conducting the proceedings for his client, is not, necessarily, much involved in the consideration of the questions now before us. Indeed, if this were an action by the respondent against Hogan’s representative, to recover his compensation for his services in those proceedings, it is doubtful if we could say that he should not be paid, upon the mere ground that such proceedings produced no beneficial result (Bowman v. Tallman, 40 How. Pr. 1 ).

But the decision must be placed upon another and different ground—a ground which involves, not the skill nor the learning, but the fidelity of an attorney to the interests of his client; and which forbids his trafficing, in the smallest degree, with such interests, by collusion or otherwise, with persons, who in respect to such interests, have occupied an attitude of hostility towards his client.

Some facts stand out prominently in this case. One is, that the respondent employed the attorneys to bring the action of Willock against Hogan. Another, that he was interested, to the extent of two-thirds, in the result of that suit, having acquired such interest directly by assignment from Whillock. Another, that the foundation of the action was the insufficient title Hogan had acquired under the foreclosure proceeding, which the respondent had himself conducted for Hogan. And another, that he did receive in that suit, and in consequence of it, a portion of the money which had been obtained by a settlement of it, and which settlement was made in consequence of of the adverse testimony of the respondent on that trial.

I am aware, that the fact has been found by the

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court at special term, that the respondent was employed by Hogan, with the concurrence and consent of Willock, to extinguish the claim of certain lien-holders on the premises, and for that purpose, and not otherwise, he made the sale of the premises, under the power contained in the contract, and procured the release from Willock.

So much of this finding of fact as relates to the purpose of the release, is probably sustained by the evidence ; but I "do not find any evidence sufficient to sustain the remainder of the finding; and a careful examination of the testimony shows, I think, that the respondent’s employment by Hogan was to extinguish all of Willock’s rights and interests under the contract; and that whatever motive the latter may have had, in concurring in, and consenting to, the foreclosure proceeding—whether to defeat, and thereby to defraud his creditors who had obtained liens upon the premises, or otherwise, it is very evident that Hogan’s intention and desire was, to rescind the contract, and put an end to all claims and rights of Willock under it.

But even if the evidence did establish that the purpose of the foreclosure was to accomplish the defeat of the lien creditors, and that Hogan, Willock and the respondent, conspired to effect such purpose by a foreclosure, I am unable to see in it any justification for what has since transpired. Such a purpose need not be stigmatized, and it is enough for the present to say, that it furnishes no foundation upon which a defense can be raised. A party who has advised or assisted in perpetrating a wrong, cannot afterwards be allowed to use the knowledge he has. acquired, to secure a pecuniary benefit to himself, by an attack upon the proceeding he had devised and conducted, to consummate the wrong.

I am also aware of the fact, which has also been found by the court, that Willock was indebted to the

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respondent in a considerable sum, for professional services, and that he took from Willock a transfer of two-thirds of his claim against Hogan, in satisfaction of such indebtedness.

But such fact does not, in my judgment, change the fispect of the case, or furnish a reasonable excuse for obtaining payment out of his own client, of a debt due from Willock, by a resort to an action whose foundation was a defective and useless proceeding, which such client had employed him to conduct, and which, he had failed to make effectual.

The action instituted by the respondent in the name of Willock against Hogan, if it had no foundation in the errors which the respondent had previously committed, must have been brought for the purpose of harrassing Hogan, or vexing him into a settlement. In one or the other of those ways only could the respondent have hoped to succeed. Hogan would be advised that the sale at the Merchant’s Exchange was, of itself, no bar to the action, and the release of Willock, the respondent knew, as he afterwards testified, was no barrier.

There was reasonable ground, therefore, for supposing that the action would' be successful, or that, operating upon the fears of Hogan, it would produce a compromise and settlement of the claim.

The latter was the result, and it is enough to say that the transaction cannot be countenanced or upheld.

It is fundamental, in respect to the duty of an attorney towards his client, that he shall not use any information which he has derived from his client to the prejudice or injury of his client, and especially, that he shall not act in opposition to his client’s interests. And the rule is, as laid down in 1 Ferg. Jr. Prac, 37, that “lest any temptation should exist to violate professional confidence, or to make any improper use of informa

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tion which an attorney has acquired confidentially, as wed as upon the principles of public policy, he will not be permitted to be concerned on one side of proceedings, in which he was originally in a different in terest.”

I regret that I am obliged to differ from the conclusions of the learned justice who tried this action at the special term. He was doubtless somewhat influenced, as I have found it difficult to resist being, by the fact, that the relation of attorney and client had long before ceased to exist between the respondent and Hogan; as well as the fact, that he had, for several previous years, been acting as the attorney for Willock, and that to obtain payment of a hopeless debt for those services, he became a party, for no more improper motive, to, and instigated the action which was brought in Willock’s name against Hogan.

The law, however, is too regardful of the rights of persons who have fiduciary relations, to allow any betrayal of the trust and confidence. Trustees of all kinds are held to a strict accountability, and the interests of cestui gue trusts are watched with constant care. As was said by the late Vice-Chancellor Sahdford. in Poillon v. Martin ( 1 Sandf. Ch. 572 ), “ It is a great principle of equity, that he who bargains in a matter of advantage with a person placing confidence in him, is bound to show that a reasonable use has been made of that confidence.’

But the duties and obligations of mere trustees, whether enjoined by statute or derived from the principles of equity, do not partake of that peculiar and delicate relation which subsists between an attorney and his client. In his case there is more than a legal claim upon his fidelity. The honor of his profession and the due administration of justice is involved, and any taint upon his honor will cast its

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shadow, in some degree, upon the collective body of his associates at the bar.

Luckily, and to the credit of the profession, few reported cases are found which involve a departure from professional faith and duty. But such cases are not needed to either .illustrate or enforce so obvious a principle as condems the transaction in this case.

I will, however, refer to a single case which is somewhat analogous to the one before us. Case v. Carroll ( 34 N. Y., 585 ), was an action to compel an attorney to convey certain premises to the plaintiff, the title to which he had obtained in violation of his duty to his client, and the court say:—“The general allegation that he was the defendant’s counsel, and undertook to conduct the foreclosure suit for their benefit, is sufficient to create a trust, which a court of equity will enforce against him, by requiring him to convey the legal title to the plaintiffs.”

The judgment must be reversed, and a new trial had, with costs to the appellant to abide the event.

Cases cited

Bowman v. Tallman 40 How. Pr. 1 N.Y. p. 175