United States v. Dunn

Background

A minor, Allie Daney, owned forty acres of oil and gas land. Two men claimed the right to lease it: Thomas, appointed guardian by a county court, and Eaves, appointed curator earlier. On the same day in 1913 Thomas signed a lease to Dunn and Gillam, and Eaves later signed a competing lease to Mullen. The competing interests were settled by a compromise: Dunn and Gillam added Eaves’ signature or otherwise adjusted titles and then transferred the Thomas lease to the newly formed Bull Head Oil Company for company stock. Some of the stock later was sold to an innocent buyer.

Reasoning

The Court addressed whether Dunn and Gillam could keep the gains from a lease procured by a fraudulent secret agreement with the guardian. The Court found that where a fiduciary’s power is abused, those who profit become constructive trustees (trustees ex maleficio) and must hold the property or its proceeds for the beneficiary. The Court applied longstanding equity rules that allow a beneficiary to follow trust property or its proceeds into the hands of those who received it, unless the transferee bought for value without notice. The Court rejected the argument that the plaintiff’s compromise or abandonment of parts of the appeal barred recovery of proceeds from Dunn and Gillam. It reversed the lower courts as to Dunn and Gillam (and their wives), and remanded for accounting; it affirmed the decision for other defendants covered by the government’s agreement.

Real world impact

The ruling lets the minor seek money or stock proceeds from people who knowingly profited from a guardian’s fraud. Innocent purchasers who bought shares for value are protected. The case returns the matter to the trial court to calculate what Dunn and Gillam must repay.