Shearer v. Barnes
| Decision Date | 14 June 1912 |
| Docket Number | 17,511 - (117) |
| Citation | 136 N.W. 861,118 Minn. 179 |
| Parties | JAMES G. SHEARER v. JOSEPH U. BARNES and Another |
| Court | Minnesota Supreme Court |
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.
Constructive trust.
Where the president and manager of a trust company appropriated a portion of its funds, taking the same in the form of a loan, but without the knowledge or approval of the board of directors, and applied the same upon the purchase price of real property, taking the title in his own name and for his own personal use and benefit, a pro tanto constructive trust arose in favor of the trust company.
Constructive trust -- intent of officer immaterial.
In view of R.L. 1905, § 3045, prohibiting trust companies from lending their funds to any director, officer, agent, or employee thereof, and providing that, if any such officer, director, agent or employee shall become indebted to the company by overdraft, promissory note, account, indorsement, guaranty, or any other contract, he shall be guilty of larceny of the amount of such indebtedness, the intent of the president and manager of a trust company in appropriating its funds to his private use by purchasing property in his own name therewith, and the form and mode of procedure by which such appropriation was made, are immaterial upon the issue as to whether such transaction gave rise to a constructive trust in the property in favor of the company.
Constructive trust -- partial repayment.
The provisions of this statute likewise rendered immaterial upon such issue the fact that such officer, immediately after such appropriation, returned a portion of such funds to the corporation by means of a check upon his already overdrawn deposit account with the company; nor did the formal repayment of a portion of the funds diverted, by means of such overdraft, lessen the proportionate interest which the company acquired in the property by reason of the investment of its funds therein.
Constructive trust.
A constructive trust in land is an estate therein, having its inception contemporaneously with the acts upon which it is predicated.
Election of remedy.
The beneficiary of a constructive trust may elect either to follow the property with a mere charge or lien or may pursue the res as such.
Waiver -- burden of proof.
Where, in an action to impress property with a constructive trust, the original existence of the trust is established, the burden of proving a waiver thereof by an election to follow the property with a mere lien, or by acceptance of a return of the misappropriated funds, is upon the defendant.
Election by receiver -- conduct -- evidence.
The evidence of an election against a constructive trust by the beneficiary's receiver must be clear and convincing; and where such election is predicated upon the acts and conduct of the receiver, it must appear that he acted with full knowledge of the facts, or the equivalent thereof, as distinguished from mere notice.
Balance due to trustee.
Proof of a balance due the trustee ex maleficio from the beneficiary upon general account does not of itself affect the existence of the trust.
Evidence insufficient to show election.
Evidence, in an action by a receiver of a trust company, to impress a constructive trust upon real property purchased by the president and manager of such company with its funds, the title thereto being taken in his own name, held insufficient in show an election by such receiver against the trust.
Election.
The institution of such action was itself an election to pursue the res as such.
Revocation of election -- evidence.
Evidence held insufficient to show a withdrawal or revocation of the election evidenced by the institution of the action to recover the property.
Officer of corporation.
Corporate officers holding positions of trust should be held to strict accountability for any and all breaches of their trust and disobedience of the law, and the law must be so administered that they will never be allowed to profit by disobeying it.
Exclusion of evidence.
Where in an action by a receiver of a trust company to impress a constructive trust upon property purchased by the president and manager of such company with its funds, the title thereto being taken in his own name, the defendant was allowed, in defense thereto, to show a deposit of certain securities by such corporate officer in the corporation's vaults, at or about the time of the misappropriation of its funds by him, the said securities being claimed to be the property of the said officer, and to have been so deposited as security for the funds so misappropriated, and the defendant was also allowed to show the receipt of such securities by the receiver and the latter's subsequent conversion and distribution thereof as assets of the corporation, the receiver should have been allowed to prove that, in equity, such securities really belonged to the corporation, by reason of having likewise been acquired with its funds; and the exclusion of such evidence when offered by the...
To continue reading
Request your trial