Alabama Water Co. v. City of Anniston, 7 Div. 172.

• Decision Date: 26 October 1933
• Docket Number: 7 Div. 172.
• Citation: 151 So. 457,227 Ala. 579
• Parties: ALABAMA WATER CO. et al. v. CITY OF ANNISTON.
• Court: Alabama Supreme Court

151 So. 457

227 Ala. 579

ALABAMA WATER CO. et al. v. CITY OF ANNISTON.

7 Div. 172.

Supreme Court of Alabama

October 26, 1933

Rehearing Denied Dec. 14, 1933.

Appeal from Circuit Court, Calhoun County; R. B. Carr, Judge.

Bill for specific performance of a contract by the City of Anniston against the Alabama Water Company and the Central Union Trust Company. From a decree for complainant respondents appeal.

Corrected and affirmed and remanded.

BOULDIN J., dissenting.

Cabaniss & Johnston, of Birmingham, and Knox, Acker, Sterne & Liles of Anniston, for appellants.

James Fouche Matthews, of Anniston, for appellee.

THOMAS Justice.

The several decisions in this case are reported as City of Anniston v. Alabama Water Co., 207 Ala. 497, 93 So. 409; Alabama Water Co. v. City of Anniston, 215 Ala. 120, 110 So. 36; Id., 217 Ala. 271, 116 So. 124; Id., 223 Ala. 355, 135 So. 585.

We take judicial knowledge of the proceeding of that case in this court. Cogburn v. Callier, 213 Ala. 38, 104 So. 328, Catts v. Phillips, 217 Ala. 488, 117 So. 34.

This appeal is from a decree on the merits and before the reference and report of the register as a guide to that official on the accounting.

A question that is again urged on this appeal is the premature filing of the bill by the city. We adhere to the former holding on this phase of the case, Alabama Water Co. et al. v. City of Anniston, 223 Ala. 355, 360, 135 So. 585, 590.

After the last decision, the appellee, on August 8, 1931, amended its bill, basing the municipality's rights on the original contract of June 20, 1910, by Anniston Water Supply Company, as supplemented and modified by the written agreement of June 3, 1920, and presented in the answer.

In that last consideration the majority of the court modified the opinion, saying:

"An accounting is the first step to obtain knowledge of the amount to be issued and to advise the electorate of the subject-matter upon which they should speak in an election. We hold such procedure was contemplated by the parties as a part of the contract, and such contract may be specifically enforced, as others.

"A decree first ascertaining the amount payable, followed by a decree fixing a reasonable time for compliance, which should include a sufficient time for holding an election and marketing the bonds, if approved, with a provision finally foreclosing complainant, on failure to comply, is the natural procedure in contemplation of the parties. This is the effect of our decisions on former appeals, supra.

"The accounting should include extensions, replacements, and betterments on the plant as a unit down to the date of the final decree. We are dealing with property devoted to a public service. While operated by respondents, it was and is under the supervision of the Public Service Commission, subject to the option rights of the city. No interruption of service was contemplated, no cutting off of any customers entitled to such public service, no junking of any part of the plant required for such service. It is contemplated the city shall step into the shoes of the water company as owner and as a public service agency.

"Enlargement to meet the water service requirements of a growing city has been a clear duty of the water company during the ten years this litigation has been pending. It appears the city has been itself a party to some of these enlargements, such as better and more extended fire protection, etc.

"Respondents are not to be dealt with as trustees ex maleficio from and after July 1, 1920, nor after September 30, 1920."

Mr. Justice Brown concurred, saying: "* * * The decree of the circuit court, in so far as it granted relief on the basis of the original contract of 1910, was correct, but that appellants should have been required to account on equitable principles, not as trustees ex maleficio, and that the contract should be construed as embracing the entire system as within the contemplation of the parties, and that the decree of the court should be so modified as to protect the interests of both parties." (Italics supplied.)

On rehearing this opinion was modified, and the application for rehearing was overruled.

In view of this observation, we may note that a trustee ex maleficio is one who, being guilty of wrongful or fraudulent conduct is held by equity to the duty and liability of a trustee, in relation to the subject-matter, to prevent him from profiting by his own wrong. Black's Dictionary of Law; Bouvier's Law Dictionary. This is the statement, or effect, of the text of Mr. Pomeroy quoted in Kent v. Dean, 128 Ala. 600, 609, 610, 30 So. 543, 546, and Parrish v. Parrish, 33 Or. 486, 54 P. 352, to the following effect: "Such trusts, termed ex maleficio or ex delicto, are, as Mr. Pomeroy says, practically without limit, and in general, are properly applied, 'whenever the legal title to property, real or personal, has been obtained through actual fraud, misrepresentation, concealments, or through undue influence, duress, taking advantage of one's weakness or necessities, or through any other similar means or under any other similar circumstances which render it unconscientious for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one who is truly and equitably entitled to the same, although he may never perhaps have had any legal estate therein; and a court of equity has jurisdiction to reach the property in the hands of the original wrongdoer, or in the hands of a subsequent holder, until a purchaser of it in good faith and without notice acquires a higher right, and takes the property relieved of the trust.' 2 Pom. Eq. Jur. §§ 1053, 1055; 1 Story Eq. Jur. § 187; Manning v. Pippen, 86 Ala. 357, 5 So. 572 ; Moore v. Crawford, 130 U.S. 122, 9 S.Ct. 447, 32 L.Ed. 878."

See, also, Butler v. Watrous, 185 Ala. 130, 139, 64 So. 346; Manning v. Pippen, 86 Ala. 357, 364, 5 So. 572, 11 Am. St. Rep. 46; Christy, Rec'r, v. Sill, 95 Pa. 380; Huxley v. Rice, 40 Mich. 73; Dray v. Dray, 21 Or. 59, 27 P. 223; Moore v. Crawford, 130 U.S. 122, 9 S.Ct. 447, 32 L.Ed. 878; Jones v. Van Doren, 130 U.S. 684, 9 S.Ct. 685, 32 L.Ed. 1077; Lincoln v. Wright, 4 De Gex & Jones's Rep. p. 12.

The rule of liability on a decree of specific performance and recovery in equity for such trustee is thus stated: "Every act of the trustee in holding, managing, investing, or otherwise dealing with the trust property as though he could retain it, is itself a violation of his paramount obligation to the beneficiary. If the trustee refuses or delays to convey the property to its beneficial owner, and retains it, derives benefit from its use, and appropriates its rents, profits, and income, he must account for all that he thus receives, and pay over the amount found to be due to the cestui que trust, as well as convey to him the corpus of the trust fund. The beneficiary therefore, being the true owner, may always, by means of an equitable suit, compel the trustee to convey or assign the corpus of the trust property, and to account for and pay over the rents, profits, issues, and income which he has actually received, or, in general, which he might with the exercise of reasonable care and diligence have received. In such a suit the plaintiff is also entitled to any additional or auxiliary remedy, such as injunction, cancellation, accounting, which may be necessary to render his final relief fully efficient. No change in the form of the trust property, effected by the trustee, will impede the rights of the beneficial owner to reach it and to compel its transfer, provided it can be identified as a distinct fund, and is not so mingled up with other moneys or property that it can no longer be specifically separated." 3 Pomeroy's Equity Jurisprudence (4th Ed.) § 1058.

Would this rule be harsh in its application to a case like that for decision-to account for rents, income, and profits from the filing of the plea of non est factum on June 16, 1922, though that plea was withdrawn on December 13, 1928? Each case must be adjudged by its own facts. This is of general recognition, and in the note to 3 Pomeroy's Equity Jurisprudence (4th Ed.) § 1058, Professor John Norton Pomeroy observes: "There are instances, where the trustee has acted in good faith, in which a court of equity would only hold him accountable for what he had actually received, and would not charge him with proceeds or profits which he might have received, nor with compound interest, etc. See Barnes v. Taylor, 30 N. J. Eq. 7; Greenwood's Appeal, 92 Pa. 181."

In Greenwood's Appeal, 92 Pa. 181, 184, 185, the court said "The case was disposed of by the master, and the court below upon the theory that the defendant being a trustee ex maleficio, was liable, to account, not for what he received for the oil, but for what he might have received for it. No authority was cited for this proposition, except those referred to by the plaintiff's counsel before the master, and which do not apply. They were cases of technical trusts, or of the conversion of stocks deliverable upon a particular day. The distinction between such cases and the one in hand is manifest. The defendant was lawfully operating a well in which he had a joint interest with the plaintiff. It was his duty, as settled by the former decree of this court, to account to plaintiff for the proceeds of half the oil. Under such circumstances there is no rule of law or equity which would make him responsible for the highest market price of the oil upon the days on which it was turned into the pipe lines. In the absence of fraud or bad faith in the sales, neither of which is pretended, the true measure of damages would be the actual...