Shearer v. Barnes

• Decision Date: 14 June 1912
• Docket Number: Nos. 17,511 - (117).,s. 17,511 - (117).
• Citation: 118 Minn. 179
• Parties: JAMES G. SHEARER v. JOSEPH U. BARNES and Another.<SMALL><SUP>1</SUP></SMALL>
• Court: Minnesota Supreme Court

Page 179

118 Minn. 179

JAMES G. SHEARER v. JOSEPH U. BARNES and Another.¹

Nos. 17,511 - (117).

Supreme Court of Minnesota.

June 14, 1912.

COPYRIGHT MATERIAL OMITTED

Action in the district court for Hennepin county by the receiver of the Minnesota Title Insurance & Trust Company to adjudge that from and after March 2, 1906, defendants held title to certain real estate in trust for that company, until plaintiff became receiver thereof, and thereafter held title in trust for plaintiff; that plaintiff was the lawful owner thereof; to obtain restitution of the premises and for $10,000 damages, the value of the rents and profits thereof.

The answer set up that since March 16, 1906, defendants as husband and wife had lived with their family upon the real estate in question, and claimed and occupied the same as their homestead; that defendant Joseph, as president and general manager of the trust company, had particular charge of the loans which were made by the corporation, and handled and loaned its funds with the consent and knowledge of the board of directors as he saw fit; enumerated a certain check for $2,000, and certain contracts and mortgages, which defendant Joseph had assigned to the trust company, and also deeds of certain parcels of real estate of large value which both defendants had conveyed to the trust company, for the purpose of securing payment to that company of the amounts due from defendant Joseph to

the company; and alleged plaintiff had in his hands property so deeded of the value of $150,000, in excess of any debts due from said defendant Joseph to the trust company. The answer prayed for an account of moneys received by plaintiff from sales of the properties so deeded by defendants, and that plaintiff be required to cancel and satisfy the obligation of $10,000 on account of borrowing said sum on March 16, 1906.

The reply, among other matters, admitted the conveyances to the trust company, but denied that all of the parcels conveyed were owned by defendants or either of them, and alleged that all the properties belonging to defendants which were conveyed were insufficient at a fair valuation to pay defendant Joseph's indebtedness to the company.

The reply further alleged that, upon receiving deeds to those properties conveyed in March, 1907, plaintiff took possession of the real estate and collected rents therefrom, made repairs, paid taxes, all as authorized by the court, and sold the greater part of the property; that on many properties so conveyed by defendants, there existed second mortgages at the time of the conveyance, and in some cases third mortgages, representing loans made by the trust company under these circumstances: Defendant would cause the property to be purchased in the name of a third person of no responsibility, to whom the title was conveyed; said third person would make a second mortgage upon the property to the trust company, securing a note for an amount of money which the trust company would advance, not to such third person but to defendant Joseph, which money he would use for the purchase of that and other property; that the mortgages so made on the properties so conveyed aggregated more than $64,000; that the mortgages were negotiated and the money paid thereon without the knowledge or consent of the trust company, and without the authority of its board of directors, or of any other person connected with the trust company other than defendant Joseph; that when the properties were sold by plaintiff, in order to give good title it was necessary to satisfy these mortgages without payment; that, under orders of the court, mortgages to the amount of $64,000 had been so satisfied by plaintiff without payment; that such properties

were purchased in such cases without the knowledge or authority of the board of directors; that in cases where second mortgages were given thereon to the trust company by third persons in whose name the properties were purchased, the properties were then conveyed to said defendant Joseph, subject to the mortgages so given thereon; that in all cases the money of depositors in the trust company was used to make such loans, and the loss to the trust company therefrom was $64,000, except in so far as sales of said property reduced the amount of the loss; that said sum of $10,000 was still unpaid and after giving credit for all sums to which he was entitled, defendant Joseph still owed a large sum of money.

The case was tried before Holt, J., who made findings substantially as set forth in the opinion, and as conclusions of law found that the $10,000 of the money of the Minnesota Title Insurance & Trust Company, paid by defendant Joseph on the purchase of the real estate, had been fully repaid to the corporation, and that plaintiff receiver had no title, estate, or interest therein. From an order denying plaintiff's motion for a new trial, he appealed. Reversed and new trial granted.

James D. Shearer and John N. Berg, for appellant.

Lind, Ueland & Jerome, for respondent.

PHILIP E. BROWN, J.

This is an action wherein the plaintiff, as receiver of the Minnesota Title Insurance & Trust Company, a corporation, seeks to impress a trust upon certain real property in the city of Minneapolis, the legal and record title whereof stands in the name of the defendant Joseph U. Barnes. The plaintiff, as such receiver, claims that this property was purchased largely with the funds of the corporation while it was a going concern, and that therefore he is entitled to judgment adjudging that as receiver he has a pro tanto interest in the property, and also in the rents and profits thereof since its purchase. The cause was tried to the court without a jury, and findings were made in favor of the defendants. This is an appeal from an order denying the plaintiff a new trial.

The facts are practically undisputed. It appears, substantially as found by the trial court, that the Minnesota Title Insurance & Trust Company was duly organized as a corporation in the year 1885, under Laws 1883, p. 133, c. 107, as amended. It transacted a title insurance, banking, abstract, and trust business, from the year 1885 to March 26, 1907; its principal place of business being in Minneapolis. The defendant Joseph U. Barnes became the president and manager of the corporation in the year 1888, and so continued until March 26, 1907, on which date this plaintiff, at the instance of the state public examiner, was duly appointed receiver of the said corporation, with full power and authority, and he was directed by the court appointing him to take into possession and control all of the property and assets of the said corporation, and to convert and distribute the same pursuant to law. The defendant Mary L. Barnes has been the wife of the said Joseph since the year 1905.

On March 2, 1906, the said Joseph U. Barnes purchased from one Emma P. Benton lots 3 and 4, in block 1, of Dayton's subdivision of blocks 4 and 5 of J. T. Blaisdell's Revised addition to Minneapolis, being the property in controversy in this action, and took a contract for the purchase of the said property for the agreed price of $28,000, and it appears that it was worth at least that much, of which he paid, pursuant to such contract, on or about March 2, 1906, the sum of $2,000, and thereafter, and on or about March 16, 1906, he paid on the said purchase price $10,000, and received a deed to the said property, in which he was named as grantee. The same was duly recorded in the office of the register of deeds of Hennepin county on March 17, 1906. The remainder of the purchase price was secured by a purchase-money mortgage on the said property, executed by the defendants, for the sum of $16,000. Barnes obtained the $10,000 referred to by drawing drafts as president of the corporation against its funds in the Security Bank of Minnesota. This transaction was never submitted to or considered by the board of directors of the said Trust Company, and at the time this money was obtained by Barnes the board neither consented to nor had knowledge of it.

At the time of the obtaining of this $10,000, Barnes drew his check on the Trust Company for $2,000, and delivered it to the company. His account with the company was then overdrawn, and the amount of the check was added to the amount of the overdraft. The account continued to be so overdrawn until December 29, 1906, at which time all of Barnes' overdraft was paid. To secure the remaining $8,000, so taken, Barnes caused to be executed and placed with the corporation assignments of two contracts for the purchase of valuable properties in the said city, in which contracts he was named as vendee, and which required deferred payments before a deed to the said properties could be obtained, all of which was done without the knowledge of any other officer of the corporation. These contracts came into the hands of plaintiff, with other property of the receivership, at the time of his appointment.

Prior to and at the time the plaintiff became such receiver, Barnes owed the Trust Company a large amount of money, and shortly before the receivership he, his wife joining therein, conveyed to the company, at the instance of the public examiner, a large amount of real property which stood of record in his name, (which conveyance also included the equities under the contracts above mentioned, but did not include the property in controversy,) and was made to the corporation to secure all debts owing from the defendant Joseph U. Barnes, and to increase its assets. The receiver took possession of all the property so conveyed to the Trust Company, and has since sold most of the same and converted it into cash, most of which he has duly distributed among the creditors of the said company. The property included in the contracts assigned to the Trust Company at the time the $10,000 referred to was taken from it by the defendant Joseph was sold by the receiver for several thousand dollars more...