Lewis v. Lindley

48 P. 765, 19 Mont. 422, 1897 Mont. LEXIS 61

• Court: Montana Supreme Court
• Decided: May 3, 1897
• Status: Published

Opinion

Hunt, J.

Upon the trial of the case the respondent, Lewis, gave the following version of the circumstances under which he surrendered the $19,659 note:

“On September 28, 1894, Mr. Lindley stated to me that he had finally made a settlement, or rather a compromise, with Bouse, and he went on to tell me what it was, and said, ‘I think that is better than a lawsuit, don’t you?’ I said, ‘I don’t know. ’ He said that they were working on the deed, but, in order to get that deed, — to get a deed for the property, — he would have to get the Rouse note of me. I said, ' ‘What am I to do?’ I said, ‘That is my security.’ He said, ‘Yes, I know it is; but if you will let me have the note, so I can get a deed to the property, 1 will then raise the money, and pay you off, or I will give you a mortgage to the property. ’ I said to him, ‘I would rather have the money, and I don’t like to give up my security.’ Then he said it looked to him that, once he had the property in his own name, he ought to be able to raise that amount of money on it at a less rate of interest. I said, ‘If you can get it at all, you certainly ought to get it for less interest;’ and he then said, ‘If I can’t raise the money, I will then give you a mortgage on the property, and your security will be just as good then as it is now.’ I said to him: ‘If you will do that, I will get the note, and give it to you. The note is in the bank. I will be down in half an hour, and bring it to your office,’ — which I did, relying upon his word that he would raise the money, and pay me, or give me a mortgage on the property. I went down town to his office, and he was not in, and I went out on the sidewalk, and handed the note to him on the sidewalk in front of his office, and then I went home. There was nothing said at all about my waiving any lien whatever. He said that he had compromised with Rouse, and had agreed to let him have some acreage property and one little cottage, and that he could not perfect that without this note. He would have to have the note to turn over to Rouse as consideration for this deed of this property from Rouse to himself. He stated that he had made the compromise, and allowed him to reserve certain parts of the property included in the $19,659 mortgage, to save the expense of foreclosure and sheriff’s sale under the mortgage. We had no agreement that I was to relinquish any security I had on the property. The agreement was that, if I would surrender the note to him to get the deed from Mr. House, he would raise the money, and pay me, and, in case he failed to do so, he would then give me a mortgage, and that my security would continue and be just as good then as it was now. This mortgage was to be on the same property that was included in the §19,659 mortgage given by Mr. and Mrs. House to J. M. Lindley. I had the §19,659 note in the bank, pinned to the §4,100 note, with some other papers, for safekeeping. I had a box in the bank.5 ’

The appellant Joseph M. Lindley gave substantially the following evidence upon the same matter:

“The contract and arrangement I made with Mr. Lewis when this §19,659 note was surrendered in substance was that I was to receive a deed from Mr. Rouse and wife, and surrender his note for §19,659, and that I was to make it satisfactory to him in some way. This was with Mr. Lewis. I don’t know that there was any contract that I was to pay him, or give him a mortgage on this property which secured the §19,659 note. The arrangement was that I was to secure the note in some way or get the money. He wanted the money. * * * I had frequent conversations with the plaintiff about the matters in controversy. We had a good many conversations; among other things, that he had surrendered all the security he had, and that my wife should sign the note. That was the substance of the last • conversation. I know he said, ‘I have surrendered all the security I have, and I want your wife to sign this note. ’ That is the note he held against me. He repeatedly said that he had surrendered all the security he had on the note. The demand he made was that my wife sign the note. ’ ’

On cross-examination appellant testified:

“This demand that she sign the note with me was after I had deeded her the property; not before that. We had frequent conversations as to whether I would be able to pay the money, or have to give a mortgage. I don’t remember of telling him on the 7th of November that I was afraid I would have to give that mortgage. Possibly I told him so. I don’t know that I ever did. Still I emess it is so. He did not want the mortgage. He would rather have his money. The original agreement was that he preferred the money to the mortgage. I have no distinct recollection of what was said at the time the note was surrendered. I was to give him a mortgage, or satisfy him in some way. I don’t know that he asked that before he surrendered the note. Before he surrendered the note, I told him it would be necessary to have the note before I could get the deed, and that if he would do it I would either give him the money or give him a mortgage. ’ ’

Now, when we scrutinize the facts as pleaded in the statement of the case given above, and the evidence of Lewis and Lindley, we find these essential facts:

On September 28, 1894, the defendant and appellant Joseph M. Lindley owed this respondent, Lewis, $4,100, abalance due upon a debt which had been owing to Lewis since September, 1888; and from ' that. last-mentioned date to September 28, 1894, the property involved in this controversy had been held by Lewis under a mortgage lien for the security of that debt. The debt was due, and the legal title to the property which had secured the debt was in persons by the name of Rouse, subject to Lewis’ lien upon it. On September 28, 1894, there was a debt in favor of Mrs. Lindley against her husband for money loaned him ten and twelve years before. Prior to September 28, 1894, Mr. Lindley had made an agreement with the legal owners of the property which secured his debt to Lewis which was of advantage to him, but to perfect that contract it became necessary to put the evidence of Lewis’ lien upon the realty into the possession of the Rouses, the holders of the legal title. In order to permit Lindley to take advantage of the benefit to accrue to him by the perfection of this transaction with the Rouses, the plaintiff surrendered to Lindley the evidence of his lien, upon the conditions that, in consideration of Lewis’ surrendering to him (Lindley), for delivery and surrender to the Rouses, the $19,659 note, plaintiff’s lien should be continued, and remain security to plaintiff for his said debt of $4,100, and, immediately upon the. .legal title being secured to said property in Lindley, he would raise the money upon the security of the real estate, and pay the debt to Lewis; or, if he could not do that, he would execute to Lewis a mortgage on the realty as security for the note.

The testimony, therefore, satisfies us that the findings of the court in relation to the surrender, and the conditions attached thereto, of the $19,659 note are amply sustained by the evidence.. In leed, a reference to the statements of appellant Lindley confirms the view taken by the district judge, for Lindley’s statements are not substantially at material variance with the account given by Lewis. He admits that the evidence of the lien of Lewis was to be relinquished to him (Lindley), and in consideration therefor he was to try and raise the money to pay Lewis by a mortgage on the property, and that Lewis was to assist him in effecting such a loan, and that, if the money could not be raised, he was to secure the plaintiff’s debt in some way satisfactory to him; but that the property should be secured in his (Lindley’s) hands, so that he could carry out and make the loan upon it for the purpose of paying the $4,100 due to Lewis.

Furthermore, it is plain from the testimony that Lewis gave up the $19,659 note to Lindley, and Lindley gave it to the Eouses in order to perfect the title in himself of the property embraced in the mortgage, and which was security for the lien held by Lewis; and that it was by reason of the surrender of the $19,659 note that Lindley was enabled to and did procure the legal title to the property. But very soon after this was done, assuming that up to this time Lindley had been acting in good faith, and meant to be honest in his dealings towards Lewis, he conveyed all the' property which had been so transferred to him by the Eouses, and all the other property which he owned, to his wife, to pay to her a stale claim, which was not alone invalid, under the laws of Montana territory at the time it was contracted for, but the payment of which she never had demanded of him before, and which was not secured in any manner whatsoever, and besides was confessedly barred by the statute of limitations.

Under all of these conditions and circumstances we are led to inquire whether (1), there is an equity in Lewis’ favor against Joseph M. Lindley which will be upheld against the Rouse property conveyed to Mrs. Lindley through Osborne; and (2), if there is, may it be enforced against the property as a prior lien to any interest conveyed to Mrs. Lindley by her husband through the Osborne transfer ?

We think there is the equity, and it can be enforced. We believe it would be a fraud upon Lewis to deny him relief, and the rules of law and equity do not prevent a court from so finding.

The position of the appellant, as we understand it, is that-no fiduciary relation existed between plaintiff and respondent, when respondent, Lewis, under the verbal arrangement, surrendered the $19,659 note to the appellant J. M. Lindley; that no fraud or deceit is charged or proved to have existed .on Lindley’s part in the procurement of the note from Lewis; hence, that no resulting or constructive trust could have arisen, or did arise, under which Lewis could enforce the verbal agreement, without doing violence to the statute of frauds. (Fifth Division Compiled Statutes of 1887, § 217). .

It must be remembered always that Lewis consented to the surrender of the evidence of his lien to enable Lindley to avail himself of the advantageous proposition made to him by the Rouses. He sought and obtained the confidence of Lewis to execute his plan. With faith in Lindley’s honesty, and relying upon his promises to pay the debt due Lewis, or secure it by mortgage, Lewis surrendered the note, but without any intent to change his position as the holder of the first lien upon the property which had been embraced in the mortgage connected with the $19,659 note. Lindley therefore assumed and took upon himself a fiduciary relation towards Lewis, in consideration of the benefits which he might obtain for himself by consummating his negotiations with the Rouses.

There are two familiar principles which should govern a court of equity in exercising its remedial j urisdiction, both of which become applicable in this case. One is, when one, through the influence of a relationship of a fiduciary nature, acquires title to property or obtains an advantage which he should not conscientiously retain, in order to prevent the abuse of the confidence, equity will grant relief. Another is that the statute of frauds will not be permitted to be used as an instrument of fraud.

Within one of the divisions of trusts are the resulting and constructive species. Pomeroy, in his Equity Jurisprudence (section 155), speaks of both kinds as properly described by the generic term ‘ ‘implied trusts, ’ ’ and thus defines them:

“Resulting trusts arise where the legal title is disposed of ór acquired, not fraudulently, or in the violation of any fiduciary duty, but the intent in theory of equity appears or is inferred or assumed from the terms of the disposition, or from the accompanying facts and circumstances, that the beneficial interest is not to go with the legal title. In such a case a trust ‘results’ in favor of the person for whom the equitable interest is thus assumed to have been intended, and whom equity deems to be the real owner. Constructive trusts are raised- by equity for the purpose of working out right and justice, where there was no intention of the party to create such a relation, and often directly contrary to the intention of the one holding the legal title. All instances of constructive trust may be referred to what equity denominates ‘fraud, ’ either actual or constructive, including, acts or omissions in violation of fiduciary obligations. If one party obtains the legal title to property, not only by fraud or by violation of confidence or of fiduciary relations, but in any other unconscientious manner, so that he cannot equitably retain the property, which really belongs to another, equity carries out its theory of a double ownership, equitable and legal, by impressing a constructive trust upon the property in favor of the one who is in good conscience entitled to it, and who is considered in equity as the beneficial owner. ’ ’

Washburn on Real Property (volume 2, p. 530) says that, properly speaking, ‘ ‘constructive trusts are such as are raised by equity in respect to property which has been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds the legal title. ’ ’

Spence, the learned English writer on Equitable Jurisdiction, on star page 511, expressly includes in his definition of constructive trusts those arising where property has been fairly and properly acquired, but it is contrary to some principle of equity that if should be retained by the party in whom it is vested, — at least for his own benefit; and to exemplify his text he cites the case of Dyer v. Dyer, 2 Cox, Ch. 93, where Lord Chief Baron Eyre stated that, where a purchase is made by a man or by his directions, and with his own' money, the conveyance being in fact taken in the name of another, the trust of the legal estate has been said to ‘ ‘result’ ’ to the man who advances the money. (See, also, Beach, Mod. Eq. Jur. § 226).

When these controlling rules are applied to the facts in the case at bar, and to the premises assumed by the learned counsel for the appellants, all those portions of his argument which proceed upon the hypothesis that Lindley did not acquire towards Lewis a relation of trust and confidence from the time of the agreement and the surrender of the note, fall, and with them go the citations to the cases which eliminate consideration of circumstances like those in this case; while, on the other hand, if we accept — as we do — the clearly established fact that there was a relationship of trust and confidence which Lindley violated, and that fraud is an element of the case, authorities are abundant in support of the view that Lindley held the legal title subject to Lewis’ lien thereon. (Reagan v. Hadley, 57 Ind. 509; Nickerson v. Meacham, 14 Fed. 881).

‘ ‘It is an established rule of equity that, where trust and confidence are reposed by one party in another, and such other accepts the confidence or trust, equity will convert him into a trustee whenever it is necessary to protect the interest of the party so confiding and do justice between them.” (Foote v. Foote, 58 Barb. 262).

Indeed, we do not understand the learned counsel to contend that, if a constructive trust did arise, equity will deny respondent relief; that is to say, he does not dispute the general rule that the creation of constructive trusts is not affected by the statute of frauds, because there is no evidence of intention to create a trust, for ‘ ‘where there is no evidence of intention it could not be expected that a declaration of intention in writing, properly' signed, would be made or could be produced. ” (Perry, Trusts, § 124.)

Here, in our opinion, the effect of plaintiff’s prayer is not to create a trust by parol in real property, under conditions not authorized by the statute, but to have the defendant Lindley declared a trustee ex maleficio, because of his conduct, and, as such trustee, holding the title to the property obtained by the Rouse deed, and conveyed to Mrs. Lindley, subject to the lien of plaintiff, Lewis. (Beach, Mod. Eq. Jur. §§ 227, 233).

Lindley has violated his agreement. He cannot cling to the results, yet deny its legal efficacy. His position was that of a trustee with relation to the property deeded to him by the Rouses, and which he claimed to own when he deeded- to his wife.

Finally, we pass upon the attitude of Mrs. Lindley. It has been decided by this court in Bank v. Gagnon, 19 Mont. 402, 48 Pac. 762, that the transferee of negotiable paper as. collateral for a pre-existing debt may be a hona fide holder under the rules of commercial law. The reason for the rule in such cases palpably lies in the interest of ordinary mercantile transactions; and, while authority is to be found generally in support of a like doctrine as applicable to the purchase of land, still, in such cases, whether an antecedent debt is a valuable consideration within the rule of a hona fide transaction, is not necessary to be considered in this case, and, until called upon to examine the many conflicting views, and to lay down a rule upon that point, we shall reserve our decision thereon.

But passing the contention that she paid a valuable consideration to her husband by giving him his notes, and assuming that she did, we still think that it was incumbent upon her to establish her defense of a bona fide purchaser without notice of respondent’s equity. “It is a universal rule that if a man purchases property of a trustee with notice of the trust, he shall be charged with the same trust in respect to the property as the trustee from whom he purchased. ’ ’ (Perry on Trusts, § 217).

Section 232, Fifth Division Compiled Statutes of’ 1887, pertaining to conveyances, provides:

“The provisions of this chapter shall not be construed in any manner to affect or impair the title of a purchaser for a valuable consideration, unless it shall appear that such purchaser had previous notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor.”

It is urged that, under the foregoing statute, the burden of proof to show such knowledge was upon the respondent plaintiff. We think otherwise.

The allegation of the complaint is that both Mr. and Mrs. Lindley had full knowledge of the $4,100 note held by Lewis, and of the lien held by him as security therefor at the time of the conveyance by Lindley to Osborne and by Osborne to Mrs. Lindley. As part of her affirmative defense, Mrs. Lindley alleged that she took the deed from her husband -in absolute good faith, and for a valuable consideration, and without notice of any claim or equity in plaintiff. Inasmuch as Mrs. Lindley is the person seeking, as against Lewis, whom her husband sought to defraud, the protection of a bona fide purchaser for value, without notice, from such fraudulent grantor, it was incumbent upon her to show good faith and want of notice.

The question of burden of proof in cases like this was presented to the supreme court of Oregon in Weber v. Rothchild, 15 Or. 385, 15 Pac. 650, and it was decided that, the plaintiff having shown the fraudulent intent and purpose of the grantor in a deed, could stop, and that the grantee was then required to prove that he paid value in order to protect his title. There the defendant Rothchild — like the defendant Mrs. Lindley in this ea-e — alleged facts in his answer tending to show that he was a bona fide purchaser for value, without notice, but no evidence was offered on those issues. It is to be observed here that Mrs. Lindley did not offer any evidence at all to sustain the averments of her answer that she did not know of the equity of this plaintiff, Lewis, or of the 'mortgage in existence which secured her husband’s note to Lewis. The facts and the pleadings in the case at bar therefore are very similar to those stated in the opinion last cited, and bring the decision within the rule laid down by Judge Strahan that the plea of a bona fide purchase for value is an affirmative defense interposed by the defendant, and does not differ from other affirmative defense in respect to requiring the purchaser, who has the affirmative of the issue, 4o offer evidence to support it. (Boone v. Chiles, 10 Pet. 211.) The Oregon court applied the rule that, when a fact is peculiarly within the knowledge of a party, he must furnish the necessary evidence of such fact. This, we believe, is correct, and, on principle, where the facts go to show that a husband has executed a deed of property to his wife for the purpose of defrauding a creditor of his judgment lien, the grantee named in such an instrument and who relies on the defense that she is a bona fide purchaser for a valuable consideration without notice, must protect her title by showing that she purchased for a valuable consideration, and in good faith, without notice of prior equities. It is remarkable that the exact contents of the notes given by Mr. to Mrs. Lindley were not testified to by them, — the only persons who knew anything of them. It is strange, too, that Mrs. Lindley refrained altogether from swearing on the trial that she did not in fact know of the plaintiff’s equity, or of the §4,100 note, or of the history of the surrender of the §19,659' note to her husband, and that Lindley did not say that he had not informed her. Surely, she knew whether she had knowledge of these circumstances and facts, and it was certainly incumbent upon her to testify to them as part of her affirmative defense.

The learned judge of the district court must have consid«red all these matters in applying the law to the facts, for he assigns Mrs. Lindley’s failure to offer any evidence of lack of knowledge as a reason for his findings made that she was not a purchaser without notice, and that she had full notice and knowledge of the debt of her husband to Lewis, and his lien on the property at the time of the transfer of the same to her. We find nothing in section 232, Fifth Division of the Compiled Statutes 1887, heretofore referred to, to justify the argument that the burden of proof was upon the respondent. We think that after he had offered his evidence leading to the inference that the deed from the appellant Lindley to his wife was made with intent to defraud Lewis, the onus of proof in respect to no notice rested upon Mrs. Lindley. (Zimmer v. Miller, 64 Md. 296, 1 Atl. 858; Nickerson v. Meacham, 14 Fed. 881; Callan v. Statham, 23 How. 477.)

Finally, upon the whole case, all the equities are manifestly with the respondent, and the judgment of the district court must be affirmed.

Affirmed.

Buck, J., concurs. Pemberton, C. J., not sitting.