Palmetto Lumber Co. v. Risley

• Decision Date: 02 August 1886
• Parties: PALMETTO LUMBER COMPANY v. RISLEY.
• Court: South Carolina Supreme Court

25 S.C. 309

PALMETTO LUMBER COMPANY v. RISLEY.

Supreme Court of South Carolina.

August 2, 1886.^[1]

1. An allegation in the complaint of the corporate existence of the plaintiff is no part of the cause of action, and is therefore not put in issue by a general denial.

2. Where the president of a corporation takes a deed of conveyance to himself in settlement of a debt due to the company by the grantor and erects improvements thereon at the expense of the company, afterwards charging his own account with such debt and expenditures, a trust in such property results to the company.

3. A reference as to counsel fees to plaintiff's attorneys, is a mere order of inquiry, and not legal error, whether the counsel fees are allowable or not under the authority of the court.

Before FRASER, J., Georgetown, May, 1885.

The appeal in this case was from the following Circuit decree:

The action has been brought by the plaintiff as an incorporated company. The defendant, David Risley, does not distinctly admit or deny the fact of incorporation, but in his answer several times refers to plaintiff as " said company." The organization with officers was that of an incorporated body, and not that of a partnership, and the testimony nowhere discloses the names of the partners, if there were such, but all persons referred to as interested in the property of the company are referred to in such terms as are entirely consistent with the idea of their being stockholders in a company. I therefore conclude that the plaintiff is, as alleged, an incorporated company. The defendant, David Risley, was its president, and had the management of its affairs at the mill at Georgetown.

On April 21, 1881, Francis S. Parker, Eliza T. Parker, and others, conveyed to David Risley a certain parcel or lot of land described in the complaint, and called the " Parker lots." The consideration on which the said conveyance was made was that it was in payment of certain accounts due on the books of said company by James R. Parker, Rutledge Parker, and Arthur M. Parker, amounting in all to five hundred and ninety-six 88-100 dollars.^[1] After the conveyance was made David Risley erected on the " Parker lots" a large number of tenement houses, with material and labor furnished and paid for by the company. The account of these transactions was kept and charged to the " Parker lots," and all rents credited on the same account. On June 11, 1883, the amount of balance against the " Parker lots" was $4,199.76 and this amount was then charged, by order of David Risley to his own individual account.

According to the manner in which this account was kept, it does not when compared with other accounts, indicate with any certainty whether they were kept as the individual account of David Risley, or of the company. In my view it is not important. The account of David Risley, amongst other things, shows that on August 31, 1880, an amount of $5,831 16-100 was credited to him. The deed for the " Parker lots" was made on April 21, 1881, and on June 30, 1882, the same amount of $5,831.16, covering the same items, was, by David Risley's consent, charged against him in his account. There was a crisis in the affairs of the company June 11, 1883, and after this entries were made on the account of David Risley, including $12,076.19 " interest on stock," and other large items to his credit, by which there is a large apparent balance in his favor.

I have come to the conclusion, however, that at no time during which these funds were being drawn from the company assets for the purchase and improvement of the " Parker lots," was there any legitimate balance in favor of David Risley, which he had a right on his own volition to draw and appropriate to his own use. If it be admitted that King and other officers of the company knew that David Risley was making these investments for his own use and benefit, which I think has not been established, it cannot give validity to the transaction. There has been no act of the company which authorized it, so far as appears in the evidence, nor has there been any authority conferred by any corporate act on any of the officers to make such use of the assets. It does not appear who are the copartners or stockholders, whether Risley, Lloyd, and King, or whether a much larger number. Whoever or how many there may be, there should in my view have been some act of the corporation as such to authorize such use of its assets.

I therefore find that David Risley, president of the company, used the assets of the company to purchase and improve the " Parker lots," not having a right so to use the said assets, he being in debt to the company at the time, and not having the authority of the company to use the assets for the purchase of property for his own use.

Having come to the conclusion that the Palmetto Lumber Company was not a partnership, but an incorporated company, it is not important to consider what would be the effect of the withdrawal by one partner of all or a part of his interest in the assets, and the investment of it in property in his own name, without the consent of the other members of the firm. We must consider the case of the president and business manager of a corporation, who invests its assets, by his own will, in property in his own name and for his own use, and the effects of such transaction on the property thus purchased. Whether the practice, which seems to have been a common one with this company, of allowing its officers, and perhaps its stockholders, to use the funds and accounts for the ordinary expenses of living, and perhaps as a substitute for money, was a proper one, cannot affect the question here.

The general and well-settled rule is, that when one person furnishes, at the time of the purchase, the consideration, and another takes the title, it is a question of intention whether or not there is a resulting trust. If the title is made to certain relatives, the presumption is that it is a gift. If the title is made to a stranger, the presumption is that there is a resulting trust in favor of him who furnishes the consideration. In either case, however, it is a question of intention on the part of the person who furnishes the consideration, an intention which may, notwithstanding the presumption, be shown by parol testimony. There is, however, a large class of trusts, constructive trusts, which do not in any way depend on intention, and are declared and enforced by the court contrary to the express intention of the party who took and holds the title. It is perhaps too narrow a view to say that in all cases the court gives relief on the ground of fraud.

Besides other cases, " a constructive trust arises" whenever another's property has been " wrongfully appropriated and converted into a different form. If one person having money or any kind of property belonging to another in his hands, wrongfully uses it for the purchase of lands, taking title in his own name; or if a trustee or other fiduciary person wrongfully converts the trust funds into a different species of property, taking to himself the title; or if an agent, or bailee, wrongfully disposes of his principal's securities, and with the proceeds purchases other securities in his own name; in these and all similar cases equity impresses a constructive trust upon the new form or species of property, not only while in the hands of the original wrong doer, but as long as it can be followed and identified in whosoever hands it may come, except into those of a bona fide purchaser for value and without notice; and the court will enforce the constructive trust for the benefit of the beneficial owner or original cestui que trust , who has been thus defrauded." Pom. Eq. , § 1051. It seems to me that the facts bring this case clearly within the principle thus laid down, and that there is a constructive trust in favor of the plaintiff in the Parker lots, and the improvements put upon them since the purchase.

Under this view of the case the judgment of the defendant, Mrs. Risley, whether bona fide or not, should not be enforced against the property.

It is therefore ordered and adjudged, that the defendant, Mrs. Georgie H. Risley, be perpetually enjoined from enforcing in any way against the said Parker lots her judgment against her co-defendant, David Risley. It is further ordered and adjudged, that the plaintiff is entitled to a constructive trust in the said Parker lots, and that the same be, and is hereby, established and declared. It is further ordered that the sheriff of Georgetown County do proceed to sell, & c.

From this decree the defendant, David Risley, appealed upon several exceptions raising the points decided by this court.

Mr. Richard Dozier , for appellant.

Messrs. Walter Hazard and Simonton & Barker , contra.

OPINION

MR. JUSTICE MCGOWAN.

This was an action in the nature of a bill in equity, instituted by the plaintiff company against David Risley and his wife Georgie H. Risley, to set up a resulting trust in certain parcels of land known as the " Parker lots," and to enjoin the sale of them as the property of David Risley under a judgment confessed by the said Risley to his wife, Georgie H. Risley. The plaintiff alleged that the " Palmetto Lumber Company is a body corporate under the laws of this State," doing business in Georgetown in the manufacture and sale of lumber; that about the year 1881, one Parker, being indebted to the corporation in the amount of $600, made an arrangement with the company, by which certain parcels of land known as the " Parker lots," were to be conveyed to them in payment of the debt; that David Risley was then the...