Darling v. Potts

• Decision Date: 07 December 1893
• Citation: 24 S.W. 461,118 Mo. 506
• Parties: DARLING v. POTTS et al.
• Court: Missouri Supreme Court

24 S.W. 461

118 Mo. 506

DARLING v. POTTS et al.

Supreme Court of Missouri, Division No. 2.

December 7, 1893.

TRUSTS — ACCOUNTING — INTEREST — INSOLVENCY.

1. Plaintiff, coming to a strange city, placed money in the hands of defendant, whom he had known before, and in whom he had confidence, to buy lands in defendant's name. Defendant took the money, with the understanding that he should give his own notes for deferred payments. There was first no specific agreement as to compensation, but afterwards it was agreed that defendant should have half the profits realized. No provision was made for losses. Held, that the parties were not partners, but defendant was trustee for plaintiff, and the property bought should be transferred to him, he assuming the deferred payments represented by defendant's notes.

2. Stock held in trust, and assigned by the trustee as collateral to his previously contracted debt, may be followed into the hands of the pledgee without notice, by the cestui que trust.

3. An investment agent, who has assumed the position of trustee to his client, cannot, with money raised on pledge of trust profits, buy in at foreclosure trust property for his own benefit, without notice to his client, however fair the sale may be.

4. In accounting between an investor and his trustee agent as to moneys advanced by the former to the latter for speculation in real estate, the trustee cannot object to being charged with interest on the sums advanced, when he is credited with interest at the same rate on all sums paid out by him on the properties, and for their preservation.

5. The trustee should be charged with the market value of stock converted by him at the date of conversion, and interest from such date.

6. An investment agent and trustee, who, under the trust agreement, has given his own notes for the deferred payments on the investments made, is, as regards his client, the latter's surety for the debts, and can claim no credit, on an accounting between them, for notes outstanding and unpaid.

7. Such trustee and cestui que trust being alike insolvent, execution of the judgment ordering lands bought to be conveyed to the cestui que trust, and for money due him on balance of account, should be stayed until the trustee's outstanding notes for deferred payments have been satisfied by the cestui que trust, or out of the property, or until credit be given on the money judgment for the amount of said notes outstanding.

Appeal from circuit court, Jackson county; James Gibson, Judge.

Action by Adam Darling against Marcus A. Potts, Fred. E. Potts, and others. Judgment for plaintiff. Defendants Potts appeal. Affirmed.

R. O. Boggess, S. B. Ladd, and Milton Moore, for appellants. Peak & Ball, for respondent.

BURGESS, J.

The controversy arose over the disagreement of the parties as to their rights and interest in, and growing out of, five different pieces of property: (1) 267½ acres of land in Clay county, Mo., known as the "Randolph Tract," subject to a large incumbrance. (2) A one-tenth interest in 36 acres of land near the southwestern part of Kansas City, known as the "Baker Tract," subject to certain incumbrances. The owners of the land afterwards formed a corporation known as the Metropolitan Mortgage & Improvement Company, and conveyed the title to the same thereto, and stock representing the one-tenth was issued to F. E. Potts, who had bought the interest. The amount of the stock so issued was 118 shares, of the par value of $100. (3) A claim for a one-fifth interest in a tract of land in Wyandotte county, Kan., known as "Western Highlands," subject to incumbrances. This tract was conveyed to a corporation about March 7, 1887, known as Western Highlands Land Company, and stock to the amount of 600 shares, of the par value of $100, was issued, which was subject to incumbrances. (4) Certain lots of land and interests in land situated near the corner of Tenth street and Highland avenue in Kansas City, being lots 16, 17, and 18, and an undivided one-fourth interest in lots 1, 2, and 3 in block 4, Wornall's addition to Kansas City, Mo., known as the "Tenth Street Property," subject to deeds of trust. (5) A block of stock in a corporation organized for the purpose of mining for coal and the manufacture of gas in Clay county, known as the Randolph Coal & Gas Company. There were 10 shares of stock, of the par value of $100.

The petition states, in substance, that in the latter part of 1886, or the early part of 1887, the plaintiff and defendant M. A. Potts entered into an agreement for speculating in lands about Kansas City, upon these terms, to wit: That plaintiff should furnish money for the cash payments on purchases made under the agreement; that Potts should take title in his own name, give notes for the deferred payments, take care of such notes in case they matured before the property was disposed of, and provide means for protecting the property; that, upon sales of such property, plaintiff should be repaid the amounts advanced by him, with interest at 8 per cent.; that after each had received in return the amounts advanced, with interest at 8 per cent., the balance of the proceeds should be equally divided between them; that $33,100 were so advanced by Darling to Potts for these purposes. The petition also alleges that Darling was led to believe that he was interested in a one-fifth interest of the Western Highlands under the agreement; that about $14,000 was paid therefor, and that plaintiff advanced about $9,000 of that amount; that the Western Highlands was incorporated; that 590 shares of the capital stock were issued as the share of the joint interest; and that said M. A. Potts "corruptly" caused this stock to be issued to himself, and that $14,000 of this stock was afterwards transferred to the plaintiff. The petition also states that $3,754 of the Darling fund was paid on the purchase of the Baker tract; that this interest was represented by a declaration of trust which was issued to Potts; that this declaration was subject to a certain indebtedness and assessments; that afterwards to meet such indebtedness and assessments, said declaration was pledged for the sum of $2,970; that afterwards said Potts caused said declaration to be sold by the pledgees, and it was bought through one Morgan by said M. A. Potts, in the name of F. E. Potts; that the same was paid for with proceeds of sale of certain stock of Western Highlands Land Company, "righteously" the property of Darling; and that, said Baker tract having been conveyed to the Metropolitan Mortgage & Improvement Company, said Potts caused 117 shares of the stock representing said interest to be issued in the name of F. E. Potts, and 1 share to defendant M. A. Potts. The petition further alleges that certain amounts of Darling's money were paid on the remaining tracts, which had been conveyed to defendants Talbott and Wright, trustees. The petition then prays an accounting and other relief.

The answer of M. A. Potts is: (1) A general, in which all the allegations in the petition contained are denied, excepting that which in the answer is afterwards specifically admitted. (2) The answer admits that in the latter part of 1886, or the early part of 1887, the defendant M. A. Potts and the plaintiff entered into an agreement for speculating in lands in and near Kansas City, but alleges that such investments were to be made on these terms, namely: That Darling should furnish the money therefor; that Potts should take title to all purchases in his own name, and give notes for the deferred payments, but that the deferred payments should be taken care of by Darling; that for his services in the premises — that is, taking title to the purchases, executing notes for the deferred payments, and giving his attention to the properties — he was to have one-half of the net proceeds. Alleges that Darling was interested in but one-tenth of the Western Highlands. Alleges that Darling failed to take care of the notes given for deferred payments, and that he was compelled to raise money and carry the properties; that about March, 1888, including these transactions, all matters of difference between him and Darling were submitted to J. V. C. Karnes, as arbitrator, who in due season made his award, which is set out in the answer, and to which reference is made; that said award provided all moneys advanced by Potts, with 8 per cent. interest, should be repaid out of the proceeds of the sale of the property before mentioned, then the advancements made by Darling should be repaid him, with like interest, and the balance equally divided between the parties, and that all the properties bought under the agreement before mentioned should be conveyed to Messrs. Talbott and Wright, as trustees, for sale as directed by the award; that said award was ratified and adopted by the parties thereto, and pursuant thereto Potts conveyed all of said properties to said trustees. The answer contains an itemized statement of all moneys invested and advanced, and the property in which same were invested. The answer alleges that Potts had raised and employed a large amount of money in the preservation of the property after the Darling fund had been exhausted. It prays that the properties be sold, and the funds divided according to the awards of Karnes. Answer of F. E. Potts admits buying the Baker tract, and denies all other allegations.

The trial court made an order of record appointing J. McD. Trimble referee to hear and determine the matters at issue in the cause, with directions that he report all proceedings had by him as such referee, together with his findings therein. The referee, after hearing the case, made report of his proceedings and findings, which, leaving off the formal parts, is as follows:

"The evidence shows that the plaintiff came to Kansas City in the latter part of 1886, or the early part of 1887, a stranger, possessed of about $40,000 in cash, which he was...