
    LARKIN’S CASE. Rachel and Frank O. Larkin, Representatives of Thomas O. Larkin, v. The United States.
    
      On the Proofs.
    
    
      The collector of customs at Benicia, California, becomes joint owner with one TFat-rous of a building in Benicia, which is used as a custom-house. Afterward, on the written recommendation of the collector, a lease of the premises is entered into between the Secretary of the Treasury and the attorney-in-fact of Walrousfor the term of five years, stipulating to pay a yearly rent of $6,000 for the first two years, and for Ike remainder of the term such sum as should be designated by referees chosen by the respective parlies, not to exceed the sum of $6,000 per annum. Three months after the date of Che lease, the collector and Watroas, joint and equal owners, convey the premises so leased to the intestate of the claimants for the sum of $8,000. The deed to the collector of one-half of the premises was duly recorded before the execution of the lease, and the building ivas unsuitable in location and construction for a custom-house. A new. collector is appointed, and on his report the lease is annulled and the premises vacated. Damages are claimed for the non-payment of the rent after the premises are vacated.
    
    
      I. A lease is fraudulent and void when entered into by the Secretary of the Treasury at an extravagant rental, on the recommendation of an officer of the Government, who is a joint owner of.the premises leased, without disclosing his interest, and the premises are unsuitable in location and construction for the purpose for which they are leased.
    II. The assignee of a fraudulent lease, when the facts indicating its fraudulent character are matters of observation and record, cannot maintain an action for rent under it.
    
      Mr. Caleb Cushing and Mr. W. W. Boyce for claimants :
    On tlie 27tb clay of January, 1853, Mr. Corwin, the then Secretary of tlie Treasury of the United States, leased from Charles Watrous a certain lot of laud, with the building thereon, for use by the Government as a custom-house, at the city of Benicia, in the State of California, which had then, by recent law, been made a port of entry. The lease was to run for five years from its date, and stipulated an annual rent of six thousand dollars ($6,000) for the first two years, and after that period a rent to be determined upon a valuation by referees ; and on the part of the United States the lessee — being the Secretary of the Treasiuy — specially covenanted and agreed that the rent so stipulated should be paid during the whole term of five years, save in the sole contingency that Benicia should cease to be a port of entry, or that a custom-house should be built there by the United States before the expiration of the term; in either of which events the lease was at once to cease and determine.
    The lot and building in question had been occupied as a custom-house by Gallaer, the collector at that port, for about two years immediately preceding the date of the lease. On the 9 th of April, 1853, while the lease was in full force and the building in use by the collector as a custom-house, Mr. Guthrie, the then Secretary of the Treasury, addressed a letter to the newly appointed collector at. Benicia, informing him “that the lease above referred to is evidently not binding on the Department.” Thereupon, on the 13th of July, 1853, the collector gave notice to Larkin, to whom the lease had then recently been assigned, and to whom at the same time the property leased had been sold, that the Government of the United States would consider the lease as null and void; and that in two days thereafter, that is, on the 15th day of July, 1853, the premises would be vacated, and tlie rent cease to be paid. The assignment of tlie lease and the sale of the property to the present claimant, Lar-kin, were made on the 1st day of Jane, 1853, some weeks before the date of the notice to him that the Government had determined to quash the lease.
    The only material facts are considered to be the making of the lease, the occupancy by the Government under it, the repudiation of the lease by the Government, the termination of its occupancy, and the consequent total loss by the claimant of all the rent accruing to him under the stipulations for the unexpired portion of the term, being about four years and nine months.
    The main question in the case arising upon these facts is, whether the lease, as entered into by Mr. Secretary Corwin, and faithfully complied with by the lessor and his assignee, the claimant, was a valid instrument. If this question be determined affirmatively, then the repudiation of the lease by the Government, and the refusal to pay rent according to its stipulations, were unlawful acts, for which the claimant has a right to his remedy in this court.
    Upon this question the following points are submitted:
    I. The lease entered into by Mr. Secretary Corwin, when declared null and void by Mr. Secretary Guthrie, was a valid instrument, obligatory upon the Government according to its tenor.
    
      (a.) Being a lease for a custom-house, and not for a warehouse, it was not affected by any of the acts designating collectors as the proper officers to lease warehouses or public storehouses.
    (&.) The source of that authority in that officer is not doubtful. By the statute of 2d September, 1789, creating his office, the Secretary of the Treasury is charged with the duty of superintending the collection of the revenue. Such superintendence necessarily included both the authority and the duty to provide suitable office accommodations, where other provision for such offices has not been made by the Government.
    II. The statute of the 1st May, 1820, which, in its sixth section, provides that no contracts shall hereafter be made by heads of Departments, “except under law authorizing the same, or under an appropriation adequate to its fulfillment,” does not affect or impair the lease in controversy, because, as we have seen, there was statutory authority in the Secretary of the Treasury to make the lease, and because the permanent appropriation for the expenses of collecting the revenue of the country was properly chargeable with the rent due for the use of such a leased custom-house at Benicia.
    III. Upon the assumption, then, that the lease was valid, it is respectfully submitted that the judgment of this court should make good to the claimant the loss which he has suffered from the refusal of the Government to pay him rent according to its stipulation.
    
      Mr. Assistant Attorney General Talbot for defendants:
    Early in 1851, Win. W. Gallaer went to Benicia, as collector of customs. About the same time one Charles Watrous arrived at Benicia, purchased a lot, and built a house. He and Gallaer had' an understanding that when. the house was finished it should be rented by Gallaer for a custom-house. The house seems to have been completed about the 1st of May, 1851, because the lease of it for the second year is from May 1, 1852. Before the house was built, to wit, on the 17th of March, 1851, Watrous conveyed one-half his interest in the premises to Gal-laer. This is the reason Gallaer rented the house and'paid one thousand dollars a month for it.
    After the Government had occupied the house nearly two years, when Gallaer’s second lease was about to expire, and when a change in the administration was about to occur, Gal-laer recommended, and no doubt induced, the making of a new lease for five years. lie was still half owner of the premises.
    The testimony is very full upon the fact that the building and the wharf attached were absolutely unfit for the purposes for which they were rented, and that the rent paid before the lease of 1853, and the rent agreed to be paid by that lease, were largely in excess of what was just. All that occurred prior to the making of the lease in question in this case was a gross fraud upon the Government, perpetrated by Watrous and Gal-laer ; and the procurement of this lease was simply a continuation of the same fraud.
    The lease, therefore, was void ab inüio, and no claim under it can be sustained.
   Casey, Ch. J.,

delivered the opinion of the court:

In 1851, William W. Gallaer was United States collector of customs at the port of Benicia, California. Early in that year Charles Watrous purchased a lot in Benicia and built a house thereou, which was completed in May, 1851, and was leased to the collector as a custom-house. It was occupied as such for about two years and two months after the 1st of May, 1851. On the 27th January, A. D. 1853, a new lease for the premises was entered into between the attorney-in-fact of Watrous and the Secretary of the Treasury, for the term of five years, commencing on the first day of March, 1853, at the yearly rental of $6,000 for the first two years, and for the balance of the term such sum as should be designated by referees to be chosen by the respective parties; but which in no event was to exceed the sum of $6,000 per annum.

This lease ivas entered into by Mr. Corwin, Secretary of the Treasury, on the written recommendation of William W. Gal-laer, the collector of customs at this port. Before the building* ivas erected, viz: on the 17th of March, 1851, Watrous had conveyed one undivided half interest in the lot and premises to Mr. Gallaer, the collector, and he became thus a joint owner of the premises with Watrous, and so continued until they, by their joint deed, conveyed the premises to Thomas O. Larkin, the claimant, on the first of June, 1853, for the sum of $8,000.

The deed from Watrous to Gallaer for one undivided half of the premises was duly recorded on the fourth day of February, A. D. 1852.

The building, both in its location and construction, was unsuited to the purposes for which it was leased, and the rent stipulated to be paid by the United States was unreasonable and extravagant. A new administration came into power on the 4th of March, 1853. A new Secretary of the Treasury was appointed, and a new collector for the port of Benicia. Upon the report and recommendation of the latter, the Secretary of the Treasury gave notice of the annulment of the lease, and directed the premises to be vacated and surrendered to the owners, and this was done. Mr. Larkin brings this suit to recover damages for the non-payment of the rent by the United States.

The United States defends on several grounds, but mainly that tbe lease was procured by misrepresentation and fraud, and that the United States is not bound by it.

The evidence clearly establishes these facts:

1st. That Gallaer, the collector, was a joint owner of the premises with Watrous, and as such received the benefit of the jirevious leases made by himself.

2d. That the premises were unsuited to the purposes for which they were leased to the United States.

3d. That the lease in question was entered into by the Secretary of the Treasury on the representations made by Gallaer, as collector of the port, without disclosing his interest in the premises.

4th. That these facts were matters of observation and record, and as such the claimant had notice of them at the time of his purchase.

And upon the finding of these facts, we hold that Mr. Guthrie, the Secretary of the Treasury, was justified in annulling the lease, and in surrendering the premises, and that the claimant has no just ground to recover any damages therefor against the United States. And the petition is therefore dismissed.

Peck and Milligan, J. J., concur.

Nott, J., took no part in the decision.

Losing, J.,

dissenting:

It was not claimed in this case that the petitioner was chargeable with any direct complicity in the fraud of Watrous and Gallaer, and all that is claimed is that there were such laches on his part as should defeat his title $ and that I think is the question here.

And I understand the rule of law for subsequent purchasers as to implied or constructive notice, to be that stated by Ld. Oh. Cranworth, in the case of Ware v. Egmont, 3 Myl. and Keen, 719, and repeated in Montifiore v. Brown, 7 H. of Lords, ca. 241,269, and made the text of Mr. Sugdon ,(pp. 755,782) in his 10th edition of his treatise on vendors and purchasers. And the rule was stated by the Ld. Oh. thus: “The question, when it is sought to affect a purchaser with constructive notice, is not whether he had the means of obtaining, and might by prudent caution have obtained, tbe knowledge in question, but whether the not obtaining it was an act of gross or culpable negligence.”

And I think the result is that the law does not require that purchasers for value should be suspicious or sagacious or diligent, but only that they should be honest; and that they are liable only for that gross and culpable negligence which the law makes equivalent to fraud and evidence of it.

And the rule is laid down as to prior incumbrances or mortgages only, facts existing without fraud, and against which no presumption arises, and certainly no stricter rule as to inquiry can be laid down, when fraud is to be inferred from circumstances, for fraud is to be presumed against by individuals as well as courts.

The particular fraud in this case committed against the United States by Gallaer and Watrous consists of two circumstances: 1st, that Watrous and Gallaer obtained the lease by Gallaer’s fraudulent representations in his letter to the Secretary; 2d, by the suppression of Gallaer’s ownership of half the premises.

As to the first, there is nothing in the evidence indicating that the claimant had any knowledge of Gallaer’s letter to the Secretary, or of its contents, and it was not claimed at the trial; it was disclaimed. The letter, therefore, and its fraudulent representations are to be laid out of the case.

Then as to the second fact, the suppression of Gallaer’s title. The claimant knew that Gallaer did not sign the lease, and that the deed from Watrous conveying to him the title of half the premises was on the public record. But he knew also the fact, shown by the evidence here, that the deed was on the record, and had been for nearly a year, when the lease to the United States was made; and the suppression of a title is not to be inferred from its being put upon the public records.

Besides, it was the oficial duty of the Secretary to ascertain the validity of the title he took, and what the records showed in relation to it, and for this he had plenary means; for the law gave him the services of the district attorney of the locality for the very purpose, and it was directly in the course of ordinary official procedure that he should use them; so that he could only fail to know of the recorded deed by a most unusual dereliction of duty, amounting to gross and culpable negligence on his part; and under the circumstances, and the official relations of tbe Secretary and tbe collector, I tbink it was not obligatory on tbe claimant to infer culpable negligence in tbe one and fraud in tbe other, and therefore to inquire if tbe Secretary knew of tbe recorded deed; and I cannot adjudge that tbe claimant was guilty of that culpable negligence in not doing so which should defeat bis title; for if he presumed the Secretary knew of tbe deed, and acted on that presumption, he only did what tbe law itself does.

Besides, a recorded deed is notice to everybody, and to tbe United States as well as to anybody else. And I tbink they cannot be permitted to say they did not know of a recorded deed to shift tbe consequences of tbe culpable negligence of their own agent on to tbe claimant’s failure to make inquiries as to a fraud of which be knew nothing. I suppose it is certain that a purchaser is not bound to inquire whether an individual knows of a recorded deed, because tbe law charges him with it, and I tbink tbe United States subject to tbe same rule of law.

It was strenuously urged at tbe bar that the building was unfit for its purpose, and that tbe claimant must have known this. I tbink this rests on tbe misapprehension that it was used as a custom-house warehouse, when tbe evidence shows it was not, but only for offices in tbe collection of tbe revenues. Gallaer’s letter states tbe fact that for want of warehouses in Benicia, vessels arriving there were made “ constructive ivarehouses ” of their own cargoes, and that was tbe practice. And Hayden, tbe witness who knew most about the premises, says be never knew them used bufonee for a warehouse for a single cargo; and that was in 1857, two years before tbe lease was made. Tbe claimant knew what the building was used for by bis own observation, and what it was hired for by tbe lease, and that says not a word of a warehouse, but only this: u now in tbe occupancy of, and used by, tbe United States in tbe collection of the customs of tbe port,” and that is a descrixrtion of tbe collector’s offices.

And there is nothing to show tbe premises were not fit for such offices, and quite as fit as those afterward hired by Miz-ner; because for offices no wharf was necessary for discharging, and no road necessary for transporting cargoes, for these are not carried to or from offices.

Then it was said the rent was exorbitantly high, and Hayden says that in March, 1853, it could not have been hired to an individual for more, or much more, than half the rent received. This proves the United States was made to pay higher than a private person, and that is not unusual. But better evidence of what could be then done is what others did. Mizner in July, 1853, paid $350 for two small buildings, one on a hard street, the other behind it; but this, so far as shown, gave no accommodation for the custom-house boat and its crew, which are indispensable for a custom-house, and must be provided for; and if a house for the boat and a room for her crew are to be added to Mizner’s reut, it would be little if any lower than that received. Then it is in evidence that, when the lease was made, rents were speculatively high from the fact that Benecia was to be made the capital of the State, and Hayden says that when the lease was made there was only one other building near the landing ñt for offices of any kind, and that was occupied then by himself. I do not find, therefore, in the evidence proof of that unfitness in the building, or exorbitancy of rent, that would require a presumption of fraud, or inquiry into it by a purchaser, and fix upon him culpable negligence for not inquiring.

The remaining circumstance is much more grave, and I think more suspicious than all the rest; and that is the price the claimant paid for the lease and the fee, which was $8,000, when, l)3r the lease for two years certain, at $6,000 a. year, he would get $12,000 and have the fee of the premises also. Admitting what is shown — that money in California was worth three to five per cent, a month — the price was an extreme under-price, calculated to induce suspicions as to the seller’s reasons for selling; but then this was a question as to Watrous’s motives, and it in no way indicated the particular fraud alleged here, and furnished the claimant no fact as to that leading to inquiry into it. It might, as mi under-price always may, be referred to the pressure of the vendor’s circumstances and his need of money then, or facts in his business the vendee could not know and had no right to inquire about; and therefore it is always held that mere under-price, without advantage taken of the vendor’s ignorance or inferiority, is not enough to defeat a title.

And on this whole case I cannot say that the evidence satisfies me the judgment ought to be against the claimant. And the burden of proof is on the defendants; and he who alleges a fraud or its equivalent must prove it.  