Preston & Stetson v. McMillan

58 Ala. 84

• Court: Supreme Court of Alabama
• Decided: December 15, 1877
• Status: Published

Opinion

STONE, J.

We think the testimony in the present record fully proves that the money and property with which the lands in controversy were purchased and paid for, were of the corpus of the statutory separate estate of Mrs. McMillan. Although she and her husband intermarried before 1848, her father, Eaulk, died about 1852; and the money and slave, which were used in paying for the lands, came to her from his estate after his death. Her husband employed the money thus received, and the proceeds of one of her slaves sold, in paying for the lands, and took the title in his own name. He and she have lived together, on the lands, ever since the purchase; about twenty years, when this bill was filed. The object of the bill, is to prevent the sale of the land under an execution against her husband — to have a trust declared in her favor, and the title decreed to her.

When the bill was filed, the defendants, Preston & Stetson, had obtained a judgment in the Circuit Court of Monroe against McMillan, the husband, and execution issued thereon was in the hands of the sheriff, for levy and collection. The defense relies on this lien, and also on staleness, and the length of time elapsing between the origin of the trust, and the attempt to have it declared.

In Goldsmith v. Stetson, 30 Ala. 167, and in Dent v. Slough, 40 Ala. 518, the husband had mingled the money assets of his wife’s statutory separate estate in his mercantile affairs; and the question was whether she could have a trust fastened on the mercantile effects, as a preferred creditor. It was ruled that she could come in only as a general creditor, without lien or priority. In each of these cases the property on which the trust was sought to be fastened, was personal goods ; had been employed in'merchandise which had been constantly changing by sales and reinvestments, and it was impossible to identify and segregate any particular articles or chattels, into which her money had entered and been converted. — See Thompson’s Appeal, 22 Penn. St. 16.

In the present case, the money and effects of the wife’s statutory separate estate were invested in lands, paying the entire purchase-money, and the title was taken in the name of the husband. Only a part — a little less than half — was paid at the time of the purchase. The residue was paid some two years afterwards, in discharge of the husband’s debt for balance of purchase-money; soon after which time the title was made. This was eighteen years before the present bill was filed.

The general doctrine on the subject of resulting trusts is, that, in the absence of an agreement, express or implied, showing a contrary intention, when the consideration money is advanced by one, and the title taken in the name of another, a trust results in favor of the party who advances the money, and the land will be held by the grantee in trust for the person who so pays the consideration money. — 2 St. Eq. Jurisprudence, § 1201, and authorities in note; Boyd v, McLean, 1 Johns. Ch. 582. But to bring a case within this rule, the money must be paid eotemporaneously with the purchase.— See Foster v. Trustees, &c., 3 Ala. 302; Danforth v. Herbert, 33 Ala. 497; Caple v. McCollum, 27 Ala. 461; Barnard v. Jewett, 97 Mass. 87; Nixon’s Appeal, 63 Penn. St. 279; Botsford v. Burr, 2 Johns, Ch. 405, And the consideration may be paid in labor or property. — Clark v. Clark, 43 Verm. 685; White v. Sheldon, 4 Nev. 280. And Chancellor Kent declares the rule to be, that where part of the purchase-money is so paid by a third person, cotemporaneously with the purchase, a trust results pro tanto. — See Botsford v. Burr, supra. See, also, Garrett v. Garrett, 1 Strob. Eq. 96; Church v. Sterling, 16 Conn. 388; Boss v. Begeman, 2 Edw. Ch. 373; Jackson, v. Bateman, 2 Wend. 570; Reid v. Fich, 11 Barb. 399; Buffalo &c. R. R. Co. v. Lampson, 47 Barb. 533; Brothers v. Porter, 6 B. Monroe, 433; Lathrop v. Gilbert, 2 Stockt. Ch. 344; Johnson v. Dougherty, 3 Green, N. J. 406; Baker v. Vining, 30 Maine, 121; McLawen v. Brewer, 51 Maine, 402; Valle v. Bryan, 19 Mo. 423; Pierce v. Pierce, 7 B. Monroe, 7.

But the question we have been considering, is one of simple resulting trust, where there is no other relation between the person by whom the money is paid, and the person in whose name the title is taken, than that which the circumstances of the transaction itself impose upon them- — where there is no relation of confidence or trust between the parties, except that A advances the money, and B takes the title. In the case we have in hand, the purchase was made by, and the title taken in the name of the husband, while the purchase price was paid with money and property which were of the statutory separate estate of the wife, of which he was trustee.

The Code of Alabama, § 2705, declares that “ all property of the wife, held by her previous to the marriage, or which she may become entitled to after the marriage, in any manner, is the separate estate of the wife, and is not subject to the payment of the debts of the husband. — § 2706. Property thus belonging to the wife, vests in the husband as her trustee, who has the right to manage and control the same. . . . . § 2707. The property of the wife, or any part thereof, may be sold by the husband and wife, and conveyed by them jointly by instrument of writing.

§ 2709. The proceeds of such sale is the separate estate of the wife, and may be reinvested in other property, which is also the separate estate of the wife.”

When the purchase is made, or the money paid with trust funds, such as the statutory separate estate of the wife, is the rule different ? and if so, to what extent is it different ? We have seen above that to constitute a resulting trust in ordinary form, the money must be paid at the time of the purchase ; and if it be paid afterwards in extinguishment of a debt previously created, no trust results. But if the money thus paid be trust funds, what is the rule ? The husband inay reinvest the proceeds of the wife’s property, sold by them, in other property; and such other property becomes “also the [statutory] separate estate of the wife.” If he reinvest such proceeds, and take the title in his own name, has she any remedy, and if so, against whom ?

In Perry on Trusts, § 836, it is said, “ If the trustee invests the trust funds, or its proceeds, in other property, the cestui que trust may follow the fund into the new investment, so long as he can identify the purchase as made with the trust property or its proceeds, although the trustee may have taken the title in his own name, or in the' name of any other person with notice of the facts.”

§ 837. “ If a trustee purchases an estate partly with his own money and partly with trust money, it can not be predicated that any particular part of the estate was purchased with money of the cestui que trust, but he will have a lien on the whole estate for the amount of the trust fund that was misemployed.”

§ 832. “ If a trustee loans the trust funds in breach of the trust, and the borrower has notice of the trust and the breach, he becomes a quasi trustee; and he can not separate the loan from the trust, nor insist that the statute of limitations, which bars a loan as a loan, also bars the remedy for the trust fund in his hands.”

So, if a trustee misapply trust funds, and pay them out for a purpose not authorized by the trust, and the person to whom he pays them has knowledge that they are trust funds, this is a breach of trust in each, and the person receiving the fund under these, circumstances, becomes a trustee, liable for the performance of all the trust duties which rested on the lawful trustee. — Perry on Trusts, §§ 810, 814, 835, 836, 840, 841. “ Where the trust fund constitutes a part only of the purchase-money of an estate, the court usually gives a lien on the land only for the amount of the trust fund invested and interest.” — Perry on Trusts, § 842. See, also, Meth. Epis. Ch. v. Jaques, 1 Johns. Ch. 450.

The case of Day v. Roth, 18 N. Y. 448, was the investment of trust funds in part purchase of real estate, the title to which was taken in a third person. Speaking of the agreement to invest, under which the money was received, the court said: “ It would impress the fund itself with the characteristics of a trust, and the impression would go with it into his hands, or into his estate. The plaintiff would have a right to follow and claim it so long as she could trace its identity into whatsoever hands it might be transferred, and to charge it upon any man’s estate in which she might find it invested, unless the owner of the estate could claim that after such investment be purchased the estate in good faith, and acquired the legal title.”

The case of Turner v. Petigreio, 6 Humph. 438, was the purchase of slaves by a guardian at administrator’s sale, and afterwards, a payment of the debt with the ward’s effects. The ward- claimed the slaves. The court said: “ The reception of his own debt by the guardian, as a portion of his ward’s distribution, from the administrator, and this debt having been contracted for a purchase of their negroes, makes as strong a case against him, as if he had actually paid out the money of h'is wards. It, so far as their interests and rights are concerned, places them in the same position; and, inasmuch as"it is tne appropriation of the money that raises the equity, it can make no difference whether these appropriations be made at the time of the contract of purchase, or afterwards in payment thereof.” The plaintiffs recovered the property. — See, also, Barker v. Barker, 14 Wis. 131; Hammett’s Appeal, 72 Penn. St. 337; Beck v. Ulrich, 16 Penn. St. 499; Seaman v. Cook, 14 Ill. 501; Stow v. Kimball, 28 Ill. 93; White v. Drew, 42 Mo. 561; Wallace v. Duffield, 2 Serg. & E. 521; Freeman v. Kelly, Hoffm. Ch. 90; Lee v. Fox, 6 Dana, 171; Pugh v. Pugh, 9 Ind. 132; Bancroft v. Causen, 13 Allen, 50; Williams v. Hollingsworth, 1 Strob. 103; Harrisburg Bank v. Tyler, 3 Watts & Serg. 373; Moffit v. McDonald, 11 Humph. 457; Oliver v. Pyatt, 3 How. U. S. 333, 401; Caplinger v. Stokes, Meigs, 175.

So, in Tilford v. Torrey, 53 Ala. 120, this court said, “It is a well established principle in courts of equity, that if a trustee invests the funds he holds in a fiduciary capacity, in the purchase of lands, taking the conveyance of title in his own name, the cestui que trust may, at his election, charge the trustee personally, or may follow the money into the land, and claim the purchase as having been made for him. The principle applies when a purchase is made by a husband, with the proceeds or accumulations of the wife’s separate estate. If a part, only of the purchase money is paid with trust funds, a resulting trust will be created to the extent of the payment; or the cestui que trust may charge the lands with the repayment to him of the sum so paid.” — See, also, Kavanaugh v. Thompson, 16 Ala. 817; Perry on Trusts, § 127.

It follows, from what is said above, that there is a notable difference between the cases of simple resulting trusts, and investments by a trustee of trust funds in his own name. In the former case, the payment must be made at the time of the purchase, to confer an equity on him whose money is used, to have a trust declared in his favor, of the entire estate or a proportionate part of it, as be has paid the entire purchase-money, or only a part of it. After payments have no such effect, and confer no equitable rights in the land.

But when a trustee invests trust funds, or trust effects in property, and takes the title in his own name, or that of a stranger, no matter whether paid at the time of the purchase or afterwards, so long as such trust funds can be traced into specific property, the cestui que trust can claim the entire property, if entirely paid for with his funds; and can also assert a lien upon the property for reimbursement, to the extent his moneys were so misapplied. — See Tilford v. Torrey, supra. This right, however, exists only against the trustee, against persons who stand only in his right, and against purchasers from him with notice, actual or constructive. The right of the cestui que trust is only an equity; and tona fide purchasers from him who has the legal title, without notice of the violated trust, and without knowledge of some fact or circumstance sufficient to put them on inquiry, will acquire a good title. Only those who have notice of the breach of trust, and acquire the trust funds or their proceeds, notwithstanding such knowledge, forfeit their plea of bona fide purchase, and are charged in invitum with the burden of the trust. This scarcely can be called a resulting trust.

That what we have said may not be misunderstood, we feel it our duty to say that the rules laid down above do not apply, when a husband, as trustee, invests all or any.part of the corpus or product of his wife’s statutory separate estate, and takes title in her name. The statute authorizes him to do that.' — Code of Alabama, § 2709; Marks v. Cowles, 53 Ala.; Pylant v. Reeves, 53 Ala.; Sterrett v. Coleman, December term, 1876.

It results from the principles above declared, that Mrs. McMillan has made out her claim to relief, if there be nothing else in this record to deprive her of such right.

The very long delay in asserting her claim has been urged in defense. Permitting title to remain in her husband, was certainly calculated to give him credit; and to allow her now to intercept the process of the law, and thus prevent the enforcement of his debts, would work a great oppression to his creditors. The title being in him, the possession would be referred to his title; and the public was justified in treating him as the owner. — 1 Brick. Dig. 806, §§ 39, 40. See, as to staleness, Hutton v. Landman, 28 Ala. 127; Garrett v. Garrett, 29 Ala. 439.

As we have stated above, Preston & Stetson recovered a judgment against W. H. McMillan, the husband, April 22d, 1874. Execution upon this judgment went into the hands of the sheriff of Monroe county — the county in wbicb the lands lie — May 8th, 1874, and was returned by him October 13th, 1874. An alias execution on said judgment was received in office by said sheriff December 1st, 1874, was levied on the lands in controversy December 2d, 1874 — and on the 4th day of January, 1875, said lands, less a homestead of 160 acres claimed by her husband, were sold and conveyed by the sheriff to Preston & Stetson. The bill in this cause was filed November 13th, 1874. The record does not show when summons was issued or served, but the answer of defendants was filed February 1st, 1875. There is no averment or proof that Preston & Stetson, or those from whom they acquired the note which is the foundation of the judgment, had notice of Mrs. McMillan’s equity, other than what appears above as to the filing and answer of the bill.

The case of Daniel v. Sorrells, 9 Ala. 436, was as follows: Title to the lands had been in John Sorrells, but in January, 1842, he conveyed by deed to Smith, under whose title defense was made. This deed was placed in the proper office for registration August 25th, 1842. Plaintiff made title under a judgment rendered against John Sorrells July 25th, 1842, execution thereon August 5th — and sale by the sheriff, and purchase by him, under an alias execution properly issued, made February, 1843. Judgments were then liens on lands, from the date of their rendering. This court said, “ The effect of the judgment was to give to the plaintiff therein a lien upon the real estate of the defendant, of which he was the legal proprietor, or of which he had been, and has not so disposed of the property against creditors, as to free it from liability against debts. * * Whether the purchaser from the sheriff was informed of the existence of the unregistered deed, after the rendition of the judgment, is not at all material. For we have seen that he may invoke the lien of the judgment creditor, to perfect his title.” — Jordan v. Mead, 12 Ala. 247, is to the same effect. See, also, Governor v. Davis, 20 Ala. 366; De Vendell v. Hamilton, 27 Ala. 156. The principle of these authorities is, that the right of the purchaser dates from the time the lien accrued, under which he acquired title; and that want of notice in the judgment creditor, at the time his lien accrued, is, by relation, want of notice to the purchaser under such lien. These decisions overturn the older case of Avent v. Read, 2 Stew. 488.

But this principle, according to the general doctrine on the subject, as declared in most of the States, is confined to that class of counter claims which, under the registration laws, are required to be recorded, as a means of giving notice of their existence. Hence, it is said to have no application to equitable rights wbicb are not required to be recorded. And judgment creditors are held not to be purchasers, within the principle above set forth, as against trusts implied by law. 'Such judgment creditors, and purchasers at execution sale, take, as against such trusts, only such title as belonged to the debtor, with all encumbrances thereon. — See 2 Sto. Eq. Ju. § 1503 b, and note 2, as expressing the general doctrine on the subject. See, also, 2 Lead. Oa. in Eq. pt. 1, pages 89 et seq., 4th Amer. ed., for a very full collation of authorities, and discussion of this principle; Brace v. Duchess of Kingston, 2 P. Wms. 491; Lappington v. Oeschli, 49 Mo. 244.

"We have stated the general rule, which discriminates between those evidences of title to land which are required to be recorded, and trusts which arise by implication of law. In the Code of 1852, §§ 1321KL, Bev. Code, §§ 1590-1, Code of 1876, §§ 2199-2200, are the following provisions:

“ No trust concerning lands, except such as results by implication or construction of law, or which may be transferred or extinguished by operation of law, can be created, unless by instrument in writing, signed lay the party creating or declaring the same, or his agent or attorney, lawfully authorized thereto in writing.

“No such trusts, whether implied bylaw, or created or declared by the parties, can defeat the title of creditors, or purchasers for a valuable consideration, without notice.”

The foregoing provisions are found in Article 5, Chapter 1, Title 1, Part 2, of our Code, which treats of the construction of conveyances and trusts, and modifies many of the common law rules in regard to real property. Many of its provisions were borrowed from the New York Bevised Statutes, as we have frequently had occasion to state. — See Bev. Stat. of New York of 1829, vol. 1, pages 721 to 739 ; Part 2, Chap 1, Title 2, in four articles. Section 54, Article 2, is the only one bearing on the question in hand. Its language is, “No implied or resulting trust shall be alleged or established, to defeat or prejudice the title of a purchaser for a valuable consideration, and without notice of such trust.” It will be observed that this section provides for purchasers only, and makes no mention of creditors. The construction of their statute rightly conformed to the general rule above declared. See Sieman v. Schurck, 29 N. Y. 598, 613, and earlier New York decisions cited. See, also, Rodgers v. Bonner, 45 N. Y. 379, 387.

In the case of Sieman v. Schurck, supra, the question was whether a judgment creditor came within the statute above copied. The court, after citing section 54, supra, said : “ The defendants are not within this category for the following reasons : 1. The plaintiff’s deed was on record before the purchase at the sheriff’s sale. * * 3. William Austin and Schurck had actual knowledge before the sheriff’s sale that Youngs did not hold the deed for his own benefit. 4. Mary Austin was not a purchaser for a valuable consideration from her brother. 5. Neither William Austin nor Mary Austin, if notified before the purchase by them, of facts affecting Youngs’ title, can be protected upon the ground that they bad no such knowledge at the time of the judgment. In this particular their purchase takes effect from the time of the actual sale, and does not reach back by relation to the date of the judgment.”

Unlike the New York statute, our’s provides equally for creditors and purchasers. All will admit that bona fide purchasers without notice rvould be protected against latent equities and implied trusts. The statute, copied above, places creditors on equally elevated ground. Creditors, under this statute, are judgment creditors, having a lien. — Thomason v. Scales, 12 Ala. 309; Daniel v. Sorrells, 9 Ala. 439.

It is contended that section 2200 of the Code of 1876, protects only the tille against latent equities; and that inasmuch as creditors, as such, have no title to the property of their debtors, this clause does not reach or include them, until they have levied and sold under their lien, and thereby acquired title. The answer to this is, first, that this construction leaves no field of operation whatever to the word creditors; for. after sale, the person claiming under it, does so as purchaser, and not as creditor. The one claim or right becomes merged in the other. But, second, the next section of the Code of 1876, 2201, puts this question at rest. That section reads as follows: “ When a trust is created, or declared by any such instrument in writing, the recording thereof in the county where the lands lie, is equivalent to actual notice to every person claiming under a conveyance made, or lien created, after such recording.” The three sections, from 2199 to 2201 inclusive, relate to one subject, are explanatory of each other, and must be construed together. Thus construed, the word lien in § 2201, shows what is meant by the words, “title of creditors,” in §2200. Title here is used in the sense of right.

Under these principles, the lien of Preston & Stetson dates back, by relation, to the time execution on their judgment was placed in the hands of the sheriff. The record fails to show, or even to aver, that they then had any notice of Mrs. McMillan’s equity or claim. It follows that the chancellor erred in granting her relief.

The decree of the chancery court is reversed, and a decree here rendered dismissing complainant’s bill, at tbe cost of ber nest friend in tbe court below and in tbis court.