Burnham et al. v. Layton et al, 209 F.2d 237 (10th Cir. 1953)

The Laytons brought this action against the Burnhams for an accounting of moneys and property received from transactions growing out of the purchase, operation and sale of a ranch in Blaine County, Idaho, known as the Cove Ranch. It was alleged that Clifton B. Layton entered into a written contract to purchase the Cove Ranch; that after an interest in the contract had been assigned to Jack B. Layton, the Burnhams advanced substantial sums of money to complete the purchase and took fee title to the ranch and personal property thereon to secure the repayments of the advances; and that the Burnhams had received income from the operation and sale of the ranch over and above that advanced and expended for its maintenance and operation. An accounting was ordered following which a judgment for $82,375.10 was entered in favor of the Laytons. The Burnhams were also directed to convey to the Laytons certain real and personal property. This appeal is from that judgment.

On July 23, 1953, an opinion was filed by this court reversing the judgment of the trial court with directions to enter judgment for the Burnhams. A petition for rehearing was granted and that opinion is hereby withdrawn.

For determination of the questions presented, it is necessary that the facts be set forth in detail. On November 22, 1946, Clifton B. Layton entered into a contract with the owners to purchase the Cove Ranch, together with water rights, Taylor Grazing Permits and shares of stock in the Sawtooth Grazing District. The purchase price was $70,000. It was payable $20,000 on or before January 1, 1947, and $50,000 within one year from January 21, 1947, with interest thereon from and after August 1, 1946. Edsell Christensen and Ray Rosebraugh represented the owners of the ranch and held an option to purchase the same. In connection with the execution of the contract, Clifton B. Layton and his wife gave Christensen and Rosebraugh their promissory note for $10,000, secured by a mortgage on the ranch. Clifton B. Layton was without sufficient funds to make the initial payment on the contract. The Burnhams advanced $17,000 for this purpose. When the balance of the purchase price became due, Layton was unable to raise the money and the Burnhams advanced an additional $46,102.25 and took title to the property in their name. At this time the total advances amounted to $71,655. Prior to the acquisition of the title to the ranch by the Burnhams, Clifton Layton had assigned the contract of purchase to his son, Jack B. Layton and his wife. This assignment allegedly was made to strengthen the son's credit at the bank and to defeat the Christensen and Rosebraugh mortgage.

After the Burnhams had acquired the ranch, they gave Jack Layton and his wife a contract, dated January 1, 1948. In substance, the contract provided that any time within six months after the Burnhams had acquired the ranch, they would make, execute and deliver a contract of sale of it to Jack Layton and his wife. It provided that the conditions set out in the contract of January 1, 1948, should be incorporated in the purchase contract; that the purchase price of the property should be $71,655, one-half thereof payable within one year and the balance within two years, together with interest. It provided that upon proper execution of deeds from the owners of the Cove Ranch to the Burnhams, they should take immediate possession, control and management of the ranch, provided however that Jack Layton should remain on the ranch and operate it under the direction and supervision of the Burnhams. The contract contained other provisions with respect to what should be included in the contract of purchase, should one be executed.

Jack Layton took possession of the ranch and operated it under the contract. The second contract contemplated by this agreement was never entered into.

Early in 1948, the ranch property was listed for sale with a real estate broker who produced three Randall brothers as prospective purchasers. In April of that year, Clifton B. Layton negotiated with the Randall brothers, and a price of $150,000 for the ranch, livestock and equipment was discussed. The Burnhams continued these negotiations. A contract was executed whereby the Randalls agreed to pay $140,000 for the ranch, livestock and equipment, $70,000 of which was to be paid within two years, and the balance in six equal annual installments. It was agreed that to secure the $70,000 payment, each of the Randall brothers would execute a promissory note in the sum of $25,000, secured by real estate mortgages. Clifton Layton objected to the taking of the three notes and mortgages for the down payment, and he testified that the Burnhams said that they would treat the notes as a cash item.

In June of 1947, the Laytons vacated the ranch and the Randalls took possession. One of the Randalls was unable to furnish the mortgage contemplated by the contract and some of the cattle were taken back by the Burnhams in lieu of this mortgage. It soon became apparent that the Randalls would be unable to perform the conditions of the contract and in March of 1949, they expressed a desire to cancel the contract and return the property. The Burnhams and the Laytons were dissatisfied with the operation of the ranch by the Randalls and were desirous of withdrawing from the transaction and obtaining possession of the property. After a conference between the Burnhams and the Laytons, both parties authorized their attorney to cancel the contract and settle the matter entirely upon the payment of $10,000 cash or security approved by one of the Burnhams, together with the settlement of a claim of a real estate broker and the replacement of all personal property which had been removed from the ranch. This settlement was to include a cancellation of the obligations created by the three $25,000 notes. The settlement made by the attorney was for the surrender of possession of the ranch and a note for $6,000, payable within one year. The Laytons made some complaint about the settlement but apparently accepted it. The $6,000 was paid at a later date. During the time that the Randall matter was being settled, another sale, known as the Baird Transaction, was negotiated. A contract was entered into wherein the Burnhams agreed to sell the ranch to Baird and associates for $100,000, of which $5,000 was received in cash. Jack Layton was present when the Baird contract was executed and later met with the Burnhams and received $3,299 of the $5,000 payment.

In the meantime, a suit was brought in the State Court of Blaine County, Idaho, to foreclose the Christensen and Rosebraugh mortgage. The Laytons and the Burnhams were all made defendants in this action and they joined in the defense.

In separate answers, filed March 21, 1949, the Laytons alleged that the Burnhams acquired the ranch by purchase and that they were then the owners in fee of the property. The Idaho court found that the mortgage created a lien upon the ranch property, subject to the claim of the Burnhams, and ordered the property sold under foreclosure. The Burnhams were the purchasers at the foreclosure sale for approximately $80,000. The Laytons then negotiated a sale of the property to Albert E. Reid and his wife for a consideration of $100,000. The Burnhams received $81,085.74 of the purchase price and the Laytons, $12,275.40. The Laytons quitclaimed all of their interest in the property to the Reids, and the Burnhams agreed to convey a sufficient certificate of redemption covering the ranch and appurtenances. Of the original ranch property, the Burnhams still held title to 160 acres of land and 100 shares of stock in the Sawtooth Grazing District which was not included in the mortgage foreclosure.

Upon these facts the trial court held that the advances to the Laytons were loans and that the Burnhams took title to property, including livestock and other personal property, as security for the repayment of these loans. It concluded that throughout all of the transactions the Laytons were the equitable owners of the ranch properties, and that the Burnhams should be required to account to them for all funds which they received over and above the advances which they had made to the Laytons and expenditures in connection with the maintenance and preservation of the property. In the accounting it was held that the Burnhams accepted the three $25,000 notes from the Randalls as cash and in full payment of all amounts then owing to them by the Laytons and that all rights of the Burnhams in the property ceased at the time of the execution of the Randall contract. The Burnhams were required to account for all money received by them after the execution of the Randall contract in May, 1948. The court allowed certain expenditures and payments made to the Laytons and for their use and benefit after the Randall transaction.¹  From the evidence and from their conduct, it appears to us to be conclusive that from the time the Burnhams took title to the property until the final disposition to the Reids, they recognized and understood that the Laytons had rights which could be exercised by paying to them the amounts which they had advanced and paid out for the operation and maintenance of the ranch. It was equally conclusive that, before and after the Randall sale, the Laytons recognized and understood that their rights were subject to the payment of the Burnham claims. Up to the final sale to the Reids, they made no contention to the contrary.

It is quite clear that throughout all of this period the Burnhams were attempting to be made whole for their advances and expenditures, and that the Laytons were attempting to salvage something over and above the Burnham claim. It is difficult to determine whether the rights of the Laytons are those of an ordinary mortgagor, or whether their rights lie in an agreement to purchase the property for the amount of the Burnham advances. The latter was the purpose of the contract between the Burnhams and Jack Layton after the Burnhams took title to the property. The second contract contemplated by the Jack Layton agreement was never executed. This may be accounted for from the fact that the sale was made to the Randalls before the expiration of the six-months' period. In any event, it appears to us that the conduct of the parties is such as to clearly establish that the Burnhams were to be repaid all of their advances and expenditures necessarily made for the operation, maintenance and preservation of the ranch property, and that upon sale of the property the Laytons were entitled to any balance. Regardless of the theory upon which these rights are based, we think that in a court of equity the same result would be reached in this kind of a case. We therefore hold that the Burnhams are entitled to receive all advances and all expenditures necessarily made by them to operate and preserve the property, together with interest thereon from the date of each advance or expenditure. If there is a balance, either in money or property, it belongs to the Laytons.

We then reach the accounting. We think the court's conclusion that the acceptance of the three $25,000 notes by the Burnhams from the Randalls to secure the down payment of the contract of purchase was the same as cash, and constituted payment of the Burnham claim in full, is clearly erroneous. The initial payment of $70,000 on that contract was not paid, and the security taken was returned when the contract was cancelled with the consent and authority of all the parties and for their mutual benefit. The settlement was not made in accordance with the authorization, but the Laytons with full knowledge of the facts failed to repudiate it, acted upon it, and accepted its benefits. This amounts to a ratification. 2 Am.Jur.Agency, Sec. 209; Doner v. Honstead, 61 Idaho 669, 106 P.2d 868; Annotation 87 A.L.R. 794; 48 A.L.R. 925. At no time after the Randall settlement did the Laytons claim that the Burnhams had no further interest in the property. They did not object to the Baird sale. Almost a year later they alleged in their answers filed in the Christensen and Rosebraugh litigation that the Burnhams were the owners in fee of the mortgaged property. The Idaho court found that the Burnhams had a lien on the real property sold in foreclosure. During all of this time the Burnhams, without objection from the Laytons, retained possession, management and control of the property.

The trial court disallowed all items of expenditure by the Burnhams which were made after the Randall transaction except those items listed in findings 9 and 10. The Burnhams claimed expenditures totaling $23,304.76,²  most of which were disallowed upon the ground that they were made after the Randall sale and were "for the personal benefit of defendants and not for the protection or preservation of said ranch properties for the plaintiffs". Under our view of the case these were proper expenditures made in the operation of and for the preservation of the properties. They were made with the knowledge and consent of the parties and for their benefit and should be allowed, except for the expenditures of Robert O. Burnham, which appear to be expenses in connection with the receipt of the redemption money after the Reid sale and which have no relation to the properties. Other items claimed by the Burnhams and disallowed by the court were for personal travel, hotel expenses and per diem, and totaled $2,790.70.³  We are unable to ascertain from the record what these expenditures were for. If they were expenditures necessary for the operation and maintenance of the ranch properties they should have been allowed. These items are returned for further consideration and findings by the trial court.

Prior to the trial, the Burnhams sought to have Albert E. Reid and his wife made involuntary plaintiffs in the action. It was alleged that they were indispensable parties to a complete disposition of the case. There is no merit in this contention. Rule 19 of the Federal Rules of Civil Procedure, 28 U.S.C.A., provides that persons having a joint interest shall be made parties and joined, either as plaintiffs or defendants. The Reids had no interest in this accounting action and they are not indispensable, or even necessary parties, to a full determination of the rights of the parties hereto. A final judgment herein will not in any manner injure the rights of the Reids. The court did not err in refusing to make them parties. Dunham v. Robertson, 10 Cir., 198 F.2d 316; Choctaw and Chickasaw Nations v. Seitz, 10 Cir., 193 F.2d 456, certiorari denied 343 U.S. 919, 72 S. Ct. 676, 96 L. Ed. 1332.

The judgment of the trial court is reversed and the cause is remanded with instructions to proceed and enter judgment in accordance with the views herein expressed.