Dibert v. D'Arcy

• Decision Date: 15 March 1913
• Parties: JOHN DIBERT v. EDWARD D'ARCY, Trustee of THE F. H. SMITH LUMBER COMPANY, Appellant
• Court: Missouri Supreme Court

154 S.W. 1116

248 Mo. 617

JOHN DIBERT v. EDWARD D'ARCY, Trustee of THE F. H. SMITH LUMBER COMPANY, Appellant

Supreme Court of Missouri, First Division

March 15, 1913

Appeal from St. Louis City Circuit Court. -- Hon. Matt G. Reynolds Judge.

Reversed and remanded (with directions).

George L. Edwards for appellant.

(1) The trial court erroneously decided the case on questions of res adjudicata and estoppel in pais, not raised by the pleadings or entered into at the trial. A defense of estoppel or of res adjudicata must be pleaded. Sanders v. Chartrand, 158 Mo. 161; Bray v. Marshall, 75 Mo. 327; Tyler v. Hall, 27 Am. St. 344; Noble v. Blount, 77 Mo. 235; Avery v. Railroad, 113 Mo. 561; Throckmorton v. Pence, 121 Mo. 50; Cockrill v Hutchinson, 135 Mo. 67; Bank v. Doran, 109 Mo 40; Spurlock v. Sproule, 72 Mo. 503; State v. Muench, 217 Mo. 124; Hudson v. Railroad, 101 Mo. 30; Nichols v. Stevens, 123 Mo. 96; Notes to Duchess of Kingston's Case, 2 Sm. Lead Cas. (8 Ed.), p. 951. Even where evidence of a defense not pleaded, improperly gets in, it will not be considered. Borkenhagen v. Paschen, 72 Wis. 272; 3 Hughes Grounds & Rudiments, 51; Van Stewart v. Miles, 105 Mo.App. 247; Cromwell v. County, 94 U.S. 351. Even had this defense been pleaded, the proof would not sustain the plea. Jones on Pledges (2 Ed.), secs. 657, 659; Jenkins v. Bank, 111 Ill. 462; Colby v. McOmber, 71 Iowa 469; Burlingame v. Parce, 12 Hun (N.Y.), 149; Wells v. Wells, 53 Vt. 5; 22 Am. & Eng. Ency. Law (2 Ed.), 899, n. 4. (2) Where a trustee, though strictly honest, buys "for himself an estate from his cestui que trust and then should sell it for more, according to the rules of a court of equity, from general policy, and not from any peculiar imputation of fraud, he would be held still to remain a trustee to all intents and purposes, and not be permitted to sell to or for himself." Michoud v. Girod, 4 How. 556; 1 Story Com. on Eq. (2 Ed.) 317; Fox v. Mackreth, 2 Bro. Ch. R. 400; Davoue v. Fanning, 2 Johns. Ch. 252; Thornton v. Irwin, 43 Mo. 168; Boardman v. Florez, 37 Mo. 559; Charleville v. Chouteau, 18 Mo. 493; Grumley v. Webb, 44 Mo. 444; Hardwick v. Jones, 65 Mo. 54; Euneau v. Rieger, 105 Mo. 659; Tuggles v. Callison, 143 Mo. 536. (3) Trustees have no right to deal with trust property for their own benefit; if the trustee does purchase property with the trust funds and takes title in his own name, a trust results for the benefit of the trust estate and the funds may be followed into the property in which they have been invested. Patterson v. Booth, 103 Mo. 413; Bent v. Priest, 86 Mo. 482; Newman v. Newman, 152 Mo. 398. And especially is this true where there are suspicious circumstances, like inadequacy of consideration, lack of notice, subsequent reconveyance to the trustee, etc. Smith v. Isaac, 12 Mo. 106; Stine v. Wilkson, 10 Mo. 76; Thornton v. Irwin, 43 Mo. 163. (4) The rule applies strictly to pledgees. They must act in the interest of the pledgor. Hagan v. Bank, 182 Mo. 319; Bank v. Richardson, 156 Mo. 270. (5) It matters not that the sale was made under judicial authority, where the circumstances are such as to raise a trust. Michoud v. Girod, 4 How. (U.S.) 553. No matter how great the profits realized by the trustee on a resale, they all belong to the beneficiary. Ex parte Lacey, 6 Ves. 627; Ex parte Bennett, 10 Ves. 394; Herbert v. Hanrick, 16 Ala. 581; Buell v. Buckingham, 16 Iowa 284; Hannah v. Carrington, 18 Ark. 85. (6) The morality and policy of the law makes void a sale effected by the intervention of persons who are nominal buyers of the property for the purpose of conveying it to "the trustee." Such a transaction carries fraud upon the face of it. Michoud v. Girod, 4 How. (U.S.) 553; Warwick v. Vernon, 4 Ves. Jr. 411, 14 Ves. Jr. 504; Smith v. Isaac, 12 Mo. 109. The New Orleans sale was therefore void for the reason that the bonds were sold by the pledgee per interpositam personam, and the title taken in the name of W. A. Mysing, a broker. And the respondent Dibert knew of this. Trevelyan v. Charter, 9 Bev. 140; Charter v. Trevelyan, 11 C. & F. 714; Lewis v. Hillman, 3 H.L. Cas. 607; Walsham v. Stainton, 1 DeG. Jo. & Sm. 678; M'Pherson v. Watt, 3 A. Cas. 254. (7) "It is generally true where the pledge remains in the possession of the pledgee after an invalid sale, he continues to hold it is as a pledge, subject to all of the rights of the pledgor identically as before the invalid sale." Tennent v. Ins. Co., 133 Mo.App. 354; Hagan v. Bank, 182 Mo. 343; 22 Am. & Eng. Ency. Law (2 Ed.), 892; Jones on Pledges (2 Ed.), sec. 741; Schaaf v. Fries, 90 Mo.App. 111; Sharp v. Bank, 87 Ala. 644. (8) The words of a contract of pledge are to be given a reasonable intendment in favor of the pledgor. Bank v. Richardson, 156 Mo. 270; Hagan v. Bank, 182 Mo. 319; Basye v. Ambrose, 28 Mo. 41. And the utmost good faith is required of the pledgee in exercising his rights, and consequently in interpreting them. (9) Had Dibert given express notice to the Lumber Company's trustee, that he proposed to act for himself only, he might thereby have relieved himself from his trust. Not having done so, he went into the bidding as appellant's trustee. Plucker v. Teller, 174 Pa. St. 534.

Joseph W. Carroll, Walter H. Saunders and Leahy, Saunders & Barth for respondent.

(1) The contract of pledge was a Louisiana contract, governed by Louisiana law, which was both pleaded and proved, and therefore, must be construed by the Missouri courts as a Louisiana contract. (2) The sale of the collateral in this case was in exact accordance with the Louisiana law, and no public advertisement of said sale was required. The cases of Bank v. Richardson, 156 Mo. 270, and Hagan v. Bank, 182 Mo. 319, are distinguished toto coelo from the instant case. (3) Should the court hold the sale of the collateral on the New Orleans Stock Exchange invalid, the most that appellant can claim by way of relief is a right to a credit on the notes of the amount realized by respondent on account of the bonds held by him at the foreclosure sale of the property in Alabama, because the bonds pledged were the bonds of the Hardwood Export Company, the pledgor, and secured by a mortgage executed by said company, the pledgor. Easton v. Bank, 24 F. 523, 127 U.S. 532. Even when the pledged property is the mortgage of a third person the pledgee may acquire an absolute title to the property at a foreclosure sale, if the pledgor is a party to the foreclosure suit, as was the case here, or if the pledgor has been put upon notice that the pledgee will act in his own interest. Bloomer v. Sturges, 58 N.Y. 168; Plucker v. Teller, 174 Pa. St. 529. (4) Even should the pledgor have the right to disaffirm a sale of the collateral for any reason, he must do so by offering to redeem within a reasonable time and his failure to do so will operate as a ratification of the sale. Jones on Pledges (2 Ed.), sec. 637; Hill v. Finnigan, 77 Cal. 267; Hayward v. Bank, 96 U.S. 611; Oil Co. v. Marbury, 91 U.S. 587; Hardwood v. Railroad, 17 Wall. 79; Patterson v. Hewitt, 195 U.S. 309; Ross v. Barker, 58 Neb. 402. (5) Even if both the New Orleans Stock Exchange sale and the foreclosure sale in Alabama did not terminate the rights of the pledgor, still the respondent and his associates would hold their stock in the Mt. Vernon Hardwood Company as collateral on the three notes and subject to redemption by the pledgor, upon payment of the full amount of the notes, principal and interest, and additional costs and expenses to which respondent and his associates have been subjected in regard to the property, and respondent would still be entitled to his dividend from the insolvent estate of the F. H. Smith Lumber Company. Smith v. Bunting, 86 Pa. St. 116. In the Hagan case the pledgee sold the stock and accepted the purchaser's note for the purchase price of $ 30,000. In the instant case no change was made in the ownership, except that the property was conveyed to a corporation in which respondent and his associates took certificates of stock. (6) In no event can the appellant in this case assert a claim against respondent. Such claim can only be asserted by the Hardwood Export Company or its trustee, neither of whom is a party to this suit. Unissued bonds are not property. Eaton v. Bank, 127 U.S. 532. The Hardwood Export Company was a distinct legal entity from the F. H. Smith Lumber Company and the contract of pledge was made by the Export Company and not by the Lumber Company. Pullman Company v. Railroad, 115 U.S. 587; Conley v. Alkali Works, 190 U.S. 406. The F. H. Smith Lumber Company was neither party nor privy to the contract of pledge, and therefore can assert no rights thereunder. Even if it had any rights, which is denied, it is expressly stipulated that the pledge was made with its "knowledge and consent." It, therefore, can claim no greater rights than the Hardwood Export Company would have. (7) The decree in the Alabama foreclosure suit is res adjudicata. The decree provided that thirty days should be given to defendants in that suit to redeem, and no redemption was attempted. This decree is entitled to full faith and credit under the provision of the Federal Constitution (art. 4, sec. 1), which was pleaded and proved by both plaintiff and defendant. This established an estoppel by judgment. Cooley's Constitutional Remedies (7 Ed.) p. 38; Hanley v. Donoughue, 116 U.S. 1; 13 Am. & Eng. Ency. Law, pp. 974, 981, 983; 6 West Mo. Dig., "Foreign Judgments," columns 9441-9442; Crim v. Crim, 162 Mo. 544; 2 Freeman on Judgments (4 Ed.), p. 959; Mills v. Duryee, 7 Cranch. 484. (8) There was an express ratification of the Alabama foreclosure proceeding by reason of the fact that the appellant participated therein and profited thereby. Martin v. Webb, 110 U.S. 7; ...