McElroy v. Lynch, 41692

• Decision Date: 11 September 1950
• Docket Number: No. 1,No. 41692,41692,1
• Citation: 232 S.W.2d 507
• Parties: McELROY v. LYNCH et al
• Court: Missouri Supreme Court

Page 507

232 S.W.2d 507

McELROY v. LYNCH et al.

No. 41692.

Supreme Court of Missouri, Division No. 1.

Sept. 11, 1950.

O. H. Swearingen, Kansas City, for appellants.

William I. Potter, Kansas City, for respondent.

LOZIER, Commissioner.

This is a suit to set aside two deeds for a six-apartment building at 4224 Harrison St., Kansas City, Mo., and for an accounting for two transactions, brought by Eugene P. Donnelly as the guardian and curator of Luella Lynch, mentally incompetent. Defendants were James Lynch, Luella's husband, his brother, Thomas Lynch, and Martha E. Treadway, executrix of the estate of Frank Farneman, deceased. Plaintiff had judgment cancelling the deeds and against James Lynch for $1845 and $375.76. The judgment also directed Mrs. Treadway to pay into court the monthly payments due upon Farneman's note to James and Luella. James and Thomas Lynch appealed. Mrs. Treadway did not. (While Thomas joined James in answering and in appealing, he did not testify. It is conceded that Thomas was a mere conduit of title. Accordingly, we shall hereinafter refer to James Lynch as defendant.) Perrin D. McElroy succeeded Donnelly as Luella's guardian and in this court was substituted as party plaintiff.

The issues are: fraud in the execution of one deed and mental incapacity and undue influence in the execution of the other; certain rights and liabilities of owners by the entirety; and the propriety of the circuit court's order impounding installment payments made on a note owned by the entirety.

In 1942 James purchased, apparently with his own money, a house at 2409 East Ninth St., Kansas City. Title to this house is not involved. He had the deed made to 'James Lynch and Luella Lynch, husband and wife or the survivor thereof.' In March, 1945, 'James Lynch and Luella Lynch, husband and wife,' conveyed the house to Farneman. Farneman signed a note for $3200, payable in installments of $45 on the 15th of each month. This note was payable to 'James Lynch and Luella Lynch,' and was secured by a deed of trust in which the beneficiaries were 'James Lynch and Luella Lynch, husband and wife, or the survivor thereof.'

Farneman later contracted to sell the house to Mrs. Anna Ross, consideration to be paid in monthly installments of $45 each. When Farneman died in June, 1945, the balance due on his note was $3053.54 and at trial time was $1691.18. After Mrs. Treadway had been named executrix of his estate, the probate court directed her to collect the $45 payments from Mrs. Ross and use them in making the $45 payments due on the Farneman note. Thereafter, Mrs. Treadway or her attorney made payments to James totaling $1845. Plaintiff had judgment against defendant for this amount.

The record does not show when James and Luella purchased the apartment property, title to which is in issue, but they had owned it long prior to the time of the execution of the deeds here challenged. This apartment building was conveyed to the Lynchs by the entirety. The consideration was $17,000. Some, if not all, of Farneman's down payment on the Ninth St. house was used to make the down payment on the apartment property. James and Luella executed a purchase money mortgage note to the vendor insurance company for $13,600. This note called for monthly payments of $136.94, $96.87 principal and interest, and $40.07 escrow deposit for taxes and insurance. By trial time the note had been reduced to $11,027.25 and there was $271.35 in the escrow deposit.

The $1845 judgment represented payments made upon the Farneman note, a note owned by James and Luella by the entirety. Cullum v. Rice, 236 Mo.App. 1113, 162 S.W.2d 342; Zahner v. Voelker, Mo.App., 11 S.W.2d 63; and Hamrick v. Lasky, Mo.App., 107 S.W.2d 201. See also Missouri cases cited in Annotations, 8 A.L.R. 1017 and 117 A.L.R. 915. This note was secured by a deed of trust covering the Ninth St. house which had been conveyed to them, and which they had conveyed, by the entirety. It is not material if no part of the purchase price for the house was paid by Luella. See Sutorius v. Mayor, 350 Mo. 1235, 170 S.W.2d 387, 171 S.W.2d 69, and Schwind v. O'Halloran, 346 Mo. 486, 142 S.W.2d 55. 'The estate by the entirety did not cease to exist upon the sale of the real estate but merely was transferred from the real estate to the proceeds derived therefrom.' Schwind v. O'Halloran, supra [346 Mo. 486, 142 S.W.2d 59], citing Frost v. Frost, 200 Mo. 474, 98 S.W. 527, 118 Am.St.Rep. 689, and Hamrick v. Lasky, supra. See also 26 Am.Jur. 702. In Craig v. Bradley, 153 Mo.App. 586, 134 S.W. 1081, a similar note, given under similar circumstances, was held to have been owned by the husband and wife by the entirety. See also Clevidence v. Mercantile Home Bank & Tr. Co., 355 Mo. 904, 199 S.W.2d 1.

In Stewart v. Shelton, 356 Mo. 258, 201 S.W.2d 395, 398, we said that an estate by the entirety was the same as such an estate at common law, and that its essential characteristic was that 'each spouse is seized of the whole or entirety and not of a share, moiety or divisible part.' And see Schwind v. O'Halloran, supra.

James and Luella did not each own an undivided one-half interest; each owned the whole note. See Davidson v. Eubanks, 354 Mo. 301, 189 S.W.2d 295, 161 A.L.R. 450. Defendant had had possession of this note since its execution. All of the payments made by Mrs. Treadway's attorney, other than those made by mail, were made to defendant personally at such attorney's office except one made to Luella. These payments were proper as they were made to those in possession of the note at the time they were made. Secs. 3032 and 3103, Mo.R.S.1939 and Mo.R.S.A.; and Pierpoint v. Prudential Ins. Co. of America, 350 Mo. 629, 167 S.W.2d 64. After plaintiff was appointed Luella's guardian and curator, Mrs. Treadway's attorney made one payment to him. Such payment was improper as plaintiff did not have possession of the note, and such payment deprived James of the right to apply it on the insurance company note. The payments made by Mrs. Treadway (under the probate court's order to pay to 'James Lynch and Luella Lynch') were paid to James properly and not 'inadvertently' as suggested by plaintiff. James, as one of the payees, was entitled to receive the payments and Mrs. Treadway's payments to him, a co-obligee, was a legal discharge. Hamrick v. Lasky, supra.

Defendant pleaded that his receipt of the payments on the Farneman note and his application of such payments upon the insurance company note were by agreement with Luella. He so testified and there was no evidence to the contrary. But whether or not there was such an agreement, James in fact used these payments in making payments upon the principal and interest of the purchase money note for the apartment property. Though this property was 'owned by the entirety,' their note was not 'owed by the entirety.' Liability of both James and Luella was joint and several and each was obligated to pay the entire amount. Linders v. Linders, 356 Mo. 852, 204 S.W.2d 229. The payments discharged Luella's individual obligation as well as James' obligation or their joint obligation, and were for her benefit as well as his. Linders v. Linders and Schwind v. O'Halloran, supra. And see Annotation, 142 A.L.R. 371.

The effect of the judgment against defendant for this $1845 was: to deprive James of any interest whatever in the Farneman note and to change its ownership from one by the entirety to one by Luella as her separate property; and to require James to reimburse Luella's estate for amounts paid (in discharge of her legal obligations incurred in the transaction which gave her ownership of the apartment property by the entirety) out of the proceeds of a note owned by the entirety. We have concluded that this result should not be approved.

It follows that the trial court's order directing Mrs. Treadway to deposit in court the payments on the Farneman note should also be disapproved. Defendant asserts that, because of the probate court's directions to Mrs. Treadway, the circuit court was without jurisdiction to make this order. However, this is an equity case originating in the circuit court. See In re Bartels' Estate, 238 Mo.App. 715, 187 S.W.2d 348 (where the circuit court's equity jurisdiction was derivative), and cases cited.

The order impounding the payments, though erroneous, was consistent with the principles applied in the cases cited by plaintiff, viz.: That a court of equity may give relief different from that prayed. Abramsky v. Abramsky, 26Sec. Mo. 117, 168 S.W. 1178, cited by plaintiff, is inapplicable. There the propriety of the husband's management of the entirety property was the sole issue. Plaintiff here did not seek an accounting of defendant's management and the trial judge neither required such accounting nor appointed a receiver. Defendant's handling of the apartment property was not in issue. We sustain defendant's assignment on this point.

An entirely different situation exists as to the $375.76. This judgment against defendant was based upon the showing that he had received this sum as Luella's share of the proceeds of the sale of Kansas land in which she had inherited an interest. On August 28, 1947 (the date of the apartment property deeds hereinafter described), James and Luella executed a deed for Luella's interest in the Kansas land to Thomas Lynch, and on November 17, 1947, Thomas and his wife joined in a deed conveying this land to a bona fide purchaser. The check for Luella's share was made payable to Thomas, who cashed it and turned over the money to James. According to James, he used this money to make a payment on the principal of a loan he had secured upon his life insurance policy in which Luella was beneficiary.

This $375.76 was Luella's individual property. She had acquired her interest in the Kansas land by inheritance. Such interest and its sale proceeds were her separate estate under Kansas law and the proceeds were still...