Ray v. Union Savings Bank & Trust Co.

Fish, C. J. (After stating the facts.) ■ “All persons aiding and assisting trustees of any character, with a knowledge of their misconduct, in misapplying assets, are directly accountable to the persons injured.”. Civil Code (1895), § 3200, lb. (1910), § 3784. “One who purchases from a trustee who has authority to sell acquires a.title to the property sold; and the title thus acquired is not affected by the subsequent conduct of the purchaser in knowingly aiding the trustee in a misappropriation of the proceeds of the sale, unless such misappropriation be the result of an arrangement be — 750 — tween the purchaser and the trustee before the sale is completed, or the -purchaser know that the trustee is selling for the purposé of misappropriating the proceeds. A purchaser who buys in good faith from a trustee, and subsequent^ aids the trustee in misappropriating the purchase-money, is liable to the person injured by the misappropriation; but such conduct does not invalidate his title to the property acquired under the sale by the trustee.” Tapley v. Tapley, 115 Ga. 109 (41 S. E. 235). It is contended for the beneficiaries under the trust deed from Plant to Ray as trustee, whom we will designate as the plaintiffs, that, applying the provisions of the code section above quoted and the ruling in the case cited to the facts alleged in the petition, a cause of action was set forth'against both of the defendants. The trustee, under the power given him in the deed from Plant to sell or encumber the trust property in hisdiscretion without an order of court, was not authorized to execute the mortgage on the trust property to secure the payment of the loan made by the Union Savings Bank & Trust Company to the trustee in accordance with the agreement between the company and the trustee that the money so loaned should be deposited in another bank and paid out in the satisfaction of the individual indebtedness of Ray, who was trustee, due the bank last referred to and to other creditors of Ray, who were customers of such bank and the defendant company. See Maynard v. Cleveland, 76 Ga. 52 (4); Cohen v. Parish, 105 Ga. 339 (2), 345 (31 S. E. 205). The conduct of the Union Savings Bank & -Trust Company in respect to this transaction was certainly an effort on its part to aid and assist the trustee in the misapplication of the trust property, not only with full knowledge of his misconduct, but in compliance with an express agreement with the trustee that the company should actually take part in the misapplication. Therefore, if the action of the company as to this matter eventuated in injury to the plaintiffs, the company is directly accountable to them for it. We do not perceive, however, any resultant injury to the plaintiffs from this transaction alone. The possession and ownership of the note, given by the trustee to the company for the loan which it was mutually agreed should be used n in the pa3unent of his individual indebtedness and which was so applied, as well as that of the mortgage executed by the trustee to the company to secure the payment of such note, were retained by the. company, and no effort was — 751 — cvei* made to srrbject the trust property to satisfy the same. The note and mortgage in the hands of the company were invalid as against the trust estate, and the mere giving of the same, in the circumstances, to the company by the trustee, without more, did not cause any injury to the plaintiffs. But it is alleged in the petition, that, “by reason of the fact that Cabaniss, as president of the Union Savings Bank & Trust Company, had induced Bay, as trastee, to give that company the second mortgage on the trust property, the trustee was unable to arrange -a sale of the property so as to realize a surplus above the amount due Mrs. Boush, or to borrow money with which to pay it.” In the absence of an averment that the trustee made an effort to sell the property, or to borrow money for such purpose, which was unavailing by reason of the fact that the mortgage had been given, the allegation quoted above amounts to no more than the conclusion of the pleader that the effect of the execution of the mortgage was necessarily to prevent the trustee from selling the property or borrowing money for the purpose indicated. We do hot think that such result necessarily followed, but, even if it did, we do not perceive how the trust estate was injured merely because the .trustee, by reason of the execution of the mortgage, was unable to arrange a sale of the property so as to realize a surplus above the Boush debt or to borrow money with which to pay it. If these were the only results of the giving of the mortgage — if the matter ended here, no damage to the trust estate appears. Bay’s individual debts were paid with the pioney loaned him by the company for that purpose, and he as trustee gave the company a mortgage on the trust property to secure the loan, but by this transaction alone the company did not get any of the property belonging to the trust estate, nor was any of the trust property misapplied to the injury of the trust estate. The money so borrowed was Bay’s individual money, and was appropriated to the payment of his individual indebtedness. Nor do we think that the defendant Company was bound for aiding and assisting the trustee in the misapplication of the property of the trust estate, nor that it injured the plaintiffs, the beneficiaries of such estate, by purchasing the property at the sale made by -Mrs. Boush, under the power given her- in the security deed executed by the trustee. As one who purchases in good faith from a trustee who has authority to sell acquires the title to the — 752 — property sold, it must follow that where a trustee is authorized 'to encumber property by executing a deed thereto for the purpose of securing a loan with which to discharge a prior encumbrance on the property, a sale duly made by the grantee, upon whom such power was conferred in the security deed, was legal, and the purchaser under such sale acquired title to the property sold, in the absence of fraud on his part.' The defendant company -was not charged with any fraud in purchasing the property under the Iioush sale, it being merely alleged that under a parol agreement between the trustee and the company the latter purchased the property for the benefit of the trust estate; that is, that the company agreed in parol to purchase the property for the protection of the trust estate, and that it might be redeemed within a reasonable time by the trustee; that the company purchased the property at the sale for $2,669.96, being the balance of the purchase-money due Mrs. Roush for the property by the trustee, and took a deed from her to the property which was then worth $5,000. There is no allegation that this agreement between the trustee and the company was collusive and made for the purpose of misapplying the property of the trust estate, or in any way injuring the cestuis que trustent. In fact there was no misapplication of the proceeds of the sale, for they went to pay the debt due by the trust estate to Mrs. Roush. There was no averment of any offer by the trustee to redeem; and even if there had been, the company was not legally bound to comply with its oral agreement to allow the trustee to redeem the land or to reconvey it to him upon the payment of the amount the company had paid for it at the sale, as the contract was for the sale of, or concerning,, land. Civil Code. (1895), § 2693 (4) ; lb. (1910), § 3222 (4) ; Lyons v. Bass, 108 Ga. 573 (34 S. E. 721). The defendant got a legal title to the land under the sale. The proceeds of the sale were not misapplied, and the company was not legally bound to reconvey the property to the trustee. This being tru<% we do not perceive' how the company, in the absence of any fraud in the transaction, can be made liable, on the theory of aiding and assisting the trustee in the misapplication of trust funds, for the difference between the real value of the land at the time of the sale and the amount at which it was bid off. Was a canse of action set forth by the allegations, that, after — 753 — the defendant company had purchased the land at the Roushvsale in December, 1898, in March of the succeeding year the company and the trustee conspired together to defraud the trust estate by entering into an agreement by which the company “was to take, hold, and use said trust property as its own, at and for the agreed price of $5,000.00, the payment of which consisted in the Roush debt, including interest and expenses, the sum of $2,759.65, leaving a balance of $2,240.35, which was appropriated as a credit upon” the note of $2,500, which had been given by Ray, as trustee, on April 22, 1898, for the loan with which to pay his individual debts, and the giving to the Exchange Bank of Macon, by Ray, the trustee, of his individual'note for the balance, viz., $468.50, which agreement was carried out, and a subsequent sale of the property made by the company to an innocent purchaser? As we have seen, the bank had a legal title to the property, and therefore could dispose of it as it pleased. There was no allegation that the agreement last referred to constituted any part of the agreement between the trustee and the company that the latter should purchase the property at the Roush sale, nor is there anything in the petition tending to show that the trustee and the company intended, at the time of such sale, that this last agreement would be entered into. As we have said, the legal title to the property was in the company, and it could have sold and conveyed it to any one without allowing any credit on the note given by Ray, as trustee, for the loan with which to discharge his individual debts. The allowing of the credit on such note was therefore a mere gratuity on the part of the company. Our conclusion is that there was'nothing in this last transaction which constituted a misapplication by the bank of the trust property, nor anything showing that the company aided or assisted the trustee in the misapplication of trust funds ■ or property. There was nothing in the petition going to show that the three transactions therein set forth, and which we have discussed, constituted a scheme between the trustee and the defendant company to defraud the trust estate; but it appeared, so far as the petition showed to the contrary, that such transactions were separate and distinct; nor was the property of such estate thereby misapplied by the trustee, with the aid or assistance of the defendant company, and to the injury of the plaintiffs. ■ It follows, — 754 — therefore, that the petition did not set forth a cause of action and that it was properly dismissed on general demurrer. Judgment affirmed. Beck, J., absent. The other Justices concur..