Milhous v. Dunham

STONE, C. J. When this case was before us at a former term — Dunham v. Milhous, 70 Ala. 596 — we laid down certain rules from which we have no wish to depart, unless the facts are so changed as to require the application of different principles. The bill, it will be seen by reference to the report of the former decision, was filed by Mrs. Milhous, to foreclose a mortgage on real estate, executed by Mrs. Blackwell. The mortgage was executed to secure the payment of certain notes, being the credit installments promised in the purchase of the lands the bill seeks to have sold. We declared, that certain trust funds of the estate of W. P. Dunham, deceased, had become invested in the lands in controversy, and that under the will of said Dunham, his daughters, Mrs. Texana Weeden and Miss Willie P. Dunham, had only'a life interest in said- fund secured to their sole and separate use, with remainder in default of issue to the survivor during life, and remainder in absolute right to a person or persons not yet ascertained. The facts may be briefly summarized as follows: Dunham, having a good estate, directed that from the income and profits his children should be maintained and educated; any surplus of income and profits to be invested, and the interest accruing therefrom, together with the income and profits of the residue of his estate beyond his widow’s share, to be paid equally to his daughters, to their sole and separate use, during life, remainder to their several children, if any — if none, to the survivor during life — and then to their next of kin. Neither daughter has had issue, and it can not now be known who will take in ultimate remainder. It will thus be seen, that the corpus of the estate left by Mr. Dunham, and the principal of the fund, surplus of the profits, that should be invested under the will, was placed beyond the power of the daughters to consume, or dispose of, and'that the same was to be preserved for those in remainder. The executors, or such of them as might act, and the administrator with the will annexed, were made trustees to administer the fund. Pending the administration of the trust, and before the children attained to lawful age, to-wit, about the year 1860, the trustee loaned to one Hill eleven thousand dollars, secured by mortgage on real estate. He also loaned to one Davis two thousand dollars of the same fund, secured by mortgage on the lands in controversy in this suit. The guardian of Anne E. Milhous, complainant in this suit, also loaned to Davis three thousand dollars of his ward’s money; and the mortgage made to secure the Dunham loan, equally secured the Milhous loan. In a suit instituted for the purpose of subjecting the Davis lands — 55 — to the payment ®f a junior mortgage, a decree was rendered, ordering their sale, and directing the application of the proceeds pro rata to the Dunham and Milhous debts. The sale was made in November, 1871, and Ií. Y. Weeden bid off the lands at the sum of the two decrees, less a small payment derived from other sources. He caused Mrs. Sallie Blackwell, his mother-in-law — the widow of Mr. Dunham — =to be set down as the purchaser. The purchase was in fact made for the benefit of Texana Weeden, nee Dunham, who had become the wife of H. Y. Weeden. II. Y. Weeden was then the administrator with the will annexed of the Dunham estate; but Mrs. Weeden had chosen for himself another trustee, under the powers conferred by the will. When this case was formerly before us, wm held that the two loans to Hill and Davis came under the operation of Mr. Dunham’s wall, and were subject to the trusts therein created. That trust, as we have shown, was, that only the income, or usufruct, was payable to Mr. Dunham’s daughters, the primary beneficiaries, during their lifes; the corpus, or principal, was 'reserved for those in remainder. Now, although these debts for money borrowed were secured by mortgages on real estate executed by Hill and Davis, the loans were not investments in real estate. The trustee or trustees had no authority to invest in real estate. Their authority under the wall was limited to investments in “good stocks,” or loans “secured amply by good bond and mortgage.” These claims were only personalty, as W'e said on the former appeal. Being only dioses in action' representing money, the trustee had no authority. to turn over the corpus, or principal, to the life-tenants. The principal should have been preserved, and only the interest paid over. — Mason v. Pate, 34 Ala. 379. H. V. Weeden was administrator of the estate, clothed with the powers of the will, and on him was cast the duty of preserving the principal of these funds. Before the negotiation was entered upon, which led to the agreement the present suit seeks to enforce, there had been an agreed division of what is known as the Hill debt, or loan, between the two sisters, Texana and Willie P. The debt, with accrued interest, had then reached sixteen or eighteen thousand dollars. The one half which Willie P. Dunham was allowed to control, she either collected, or traded to Hill, the mortgagor. .This was sanctioned and approved by H. Y. Weeden, the administrator; for, on the 21st day of January, 18 \ 1, he renewed and extended the Hill liability, by accepting the three notes of Hill, Jr., in the aggregate sum of eight thousand dollars, due severally at one, two, and three years, with interest from date, secured by mortgage on the same lands which had been conveyed as security of the original debt. By force of this arrange — 56 — ment, the Iiill debt which remained subject-to the control of Weeden, the administrator and trustee, was reduced to eight thousand dollars. Before the register’s sale of the Davis lands ■— November, 1871 — there was an agreement between Weeden and the guardian of Miss Milhous, that he, Weeden, would purchase the lands at the gross sum of the two decrees; that he would pay two thousand dollars of Miss Milhous’ claims, and secure the residue of her decree by a mortgage on the lands. Weeden desired to have the purchase made in the name of his wife Texana; but Milhous, the guardian, objected to having the title put in a married woman. Thereupon, Mrs. Blackwell, her mother, was substituted as the .purchaser, she acting in the premises as the mere- conduit of the title to Texaua, for whom the lands were bought. Weeden’s reliance to meet the two thousand dollars cash payment, was on the first note of Hill, then soon to mature. Hill, however, could not meet his note, and Weeden could not pay the money. Milhous, the guardian, was a commission-merchant in Mobile, and Hill was one of his patrons. It was thereupon agreed between the three, Hill, Weeden and Milhous, as follows: That Weeden would enter a credit of two thousand dollars on the note of Hill first due, and in consideration thereof Hill was to execute to Milhous his note for said sum, with interest, due November 1st, 1872, and sesure it by crop-lien and mortgage on' the crop to be grown by him, Hill, during the year 1872. This arrangement Milhous was to treat as payment of the two thousand dollars cash payment on the Weeden-Blackwell purchase, and to look alone to Hill for its payment. It was carried into effect January 10th, 1872. On that day, Weeden entered the credit of two thousand dollars on the note of Hill, leaving the unpaid balance from him six thousand dollars, with some interest. On the same day Hill executed to the firm of commission-merchants, of which Milhous was a partner, his note and crop-lien and mortgage, as agreed on ; and Milhous debited himself with the two thousand dollars, as received on the Davis mortgage for the benefit of his ward. Now, although no money changed hands on that occasion, its legal and binding effect -were the same as if Hill had paid Weeden, and Weeden had paid the money to Milhous. Each step in the transaction was based on a valuable consideration of benefit received, or liability incurred. Weed-en’s claim on Hill was reduced two thousand dollars, in consideration that Hill had procured Milhous to allow' Weeden a credit for that sum. Hill’s promise to Milhous was binding, because, in consequence of it, Milhous had procured his discharge from two thousand dollars of the debt he owed to Weeden. Weeden was discharged from the cash payment — 57 — promised to Milhous, guardian, because he, Weeden, in consideration that Milhous would regard the money as collected, and look to Hill for repayment, had discharged Hill from so much of the debt due from .him. Milhous was bound to account to his' ward -for so much money received, because, on a valuable consideration, to-wit, Hill’s note and crop-lien, he had discharged Weeden, or Mrs. Blackwell, from the payment of that sum, which belonged to his ward. The failure of Hill to pay thé two thousand dollars to Milhous, if fail he did, could not in the least impair the conclusive force of this transaction, between any of the parties, except themselves. Between all the other parties the contract was executed. In the opinion rendered on the former appeal, we charged Miss Milhous with notice that the two thousand dollars, cash payment in the Weeden-Blacltwell purchase, was trust funds, because her guardian had knowledge of it, being a party to the arrangement. It is now contended, that this principle should not apply in this case, because the guardian had ceased to be such before the arrangement was consummated. The precise form the argument takes, is this : ■ On the 24th of January, 1872, Miss Stilhous was relieved of the disabilities of minority by act of the legislature. After that, she entered satisfaction of the decree in her favor, on the Davis- mortgage. The contention is, that the money did not come to her till then, and therefore, notice to her former guardian was not sufficient, but should have been traced to her. We do not so understand the record. The payment to Milhous, the guardian, as we have shown, was made January 10th, 1872, while he was confessedly the guardian. The testimony' shows he allowed himself to be charged with it in his settlement, and the testimony of Miss Milhous herself .shows that, in this, her first business transaction, her signature to the paper was almost, if not cpiite, perfunctory. It is also contended that, inasmuch as the two thousand dollars paid by Hill was only a partial payment, this, under the statute, must be first applied to the extinguishment of the accrued interest ; and a calculation is submitted, on which it is claimed that the entire corpus, or principal of the debt, was left in the hands of Hill, the mortgage debtor. On this hypothesis, it is contended that only the usufruct, and no part of the corpus of the trust fund, has gone into the purchase of the Davis tract. The statute invoked- — Code of 1876, § 2091 — has reference to the computation of interest, when there have been partial payments. It declares a rule of computation, as. between debtor and creditor. It admits of grave doubt, whether that rule can be applied, when one person is entitled to the principal, and another to the interest, and there is realized only a partial satisfaction, But we need not decide this question. The principal, — 58 — or corpus, which was lent to Hill, was eleven thousand dollars. This entire sum it was the duty of Weeden, administrator and trustee, to preserve for those in remainder. He had permitted the fund to be drawn out, until there remained only eight thousand dollars. This was entirely corpus. If he had permitted Willie P. to use more than her share, being one half of the accrued interest, that was a breach of trust, of which his wife, Texaria, might complain. It afforded no justification for further encroachment on the corpus, already reduced below the true sum.- It is further contended for appellant, that even if the above rules of law be correctly laid down, there is a failure of proof in this record, that Frank L. Milhous, the guardian of Miss Milhous, at the time he made the tripartite agreement, knew the source from which the fund was derived. The Davis mortgage, securing alike the Dunham and Milhous debts, showed on its face that the claim which Weeden asserted, and was seeking to collect, was the property of the Dunham estate ; and Weeden was claiming the right to recover it, solely on the title he had as administrator. Milhous, as guardian, was necessarily a party to the litigation, and aiding in its conduct. ' The proof shows that he had the entire direction of the litigation, so far as the interests of Miss Milhous were concerned. The mortgage being made to the administrator of Dunham, as such, and to the guardian of Miss Milhous, as such, and the rights of each arising out of the same instrument, and asserted in the same suit, this was as much notice to Milhous that the Weeden claim belonged to the Dunham'estate, as it was that the claim he was asserting belonged to his ward. Each was a trust fund, and each was asserted as such. So, the papers from Hill to Weeden showed on their face that they were given to secure a debt to the Dunham estate. The testimony of Mr. Ward, strongly corroborated by Mrs. Blackwell and other witnesses, proves fully that Milhous knew the two. thousand dollar cash payment was to, and did come from the Hill debt to the Dunham estate. In fact he was party to the entire arrangement by which two thousand dollars of the Dunham trust fund, secured by the Hill mortgage, was applied by Weeden in part purchase of the Davis land, and came to his hands for his then ward, Miss Milhous. This, we have shown, was done and completed on the 10th day of January, 1872, before Miss Milhous was relieved of the disabilities of minority. It is thus shown that, as to both the trust funds — -the two thousand dollars principal due from Davis, and the two thousand dollars collected on the Hill debt, — Milhous knew the sources from which they came, and that they were of the estate of W. P. Dunham, of which Weeden was the administrator. They were being used, — 59 — as Milhous knew, not for purposes of the trust, but for personal purposes outside of the trust. Knowing they were trust funds, so attempted to be used, this was enough to put him on inquiry, which, if instituted and followed up, would have led to the discovery that the trustee had no power to employ for his own nse the corpus, or principal of the trust fund, but that he must preserve it for those in remainder. — Perry on Trusts, §§ 810, 814, 836, 840; Preston v. McMillan, 58 Ala. 84; Lee v. Lee, 67 Ala. 406 ; Johnson v. Thweatt, 18 Ala. 74 ; Dudley v. Witter, 46 Ala. 664. ¥e are asked to sanction the employment of the four thousand dollars, corpus of the trust fund, in the purchase of these lands, as an investment for all parties concerned. There are many reasons why we can not. do so. We mention a few. First, there are no pleadings, and could be none in this suit, which would raise the inquiry of the suitableness of such investment. Second, it is not shown that the purchase itself is such as the court could sanction. Third, other funds entered into the purchase, and a division or partition would become necessary, when the interests in remainder shall come to be asserted. We find nothing to induce us to change our views, as announced on the former appeal. We have above ascertained that the sum of four thousand dollars, corpus of the Dunham trust-fund, has been invested in the Davis tract of land. Of this sum, two thousand dollars were obtained from the Hill loan, and the remaining two thousand from the loan to Davis. The money from the Hill loan is a primary charge. The Davis loan is a charge, only in common with, and equal to, the proportion the Dunham estate debt bears to the Milhous debt. At an early stage of this suit, the Davis tract of land was placed in the hands of a receiver, and rents have accrued therefrom, the amount of which is not shown in this record. A settlement of the receiver’s accounts will disclose the sum. There are three lien liabilities, each resting on the land, and each created before this suit was brought. It is a rule of universal application, that when liens charged on land are sought to be enforced in chancery, and, as a means of making the security available and sufficient, such lands are placed in the hands of a receiver, the rents and profits realized become a primary fund, and must be first applied to the extinguishment of the liens, in the order of their precedence. — Powell v. Williams, 14 Ala. 476; Roulhac v. Jones, at present term. And next to'such rents and profits must be applied the proceeds of the sale of the lands, until the entire lien debts, and the costs taxed against the fund, are paid, or until the proceeds are exhausted. In ordering the ' sale pf the lands, and disbursement of the proceeds, infra, it is — 60 — done with the condition and direction that the rents and profits be first applied, as part of the product of this suit. The chancellor erred in his final decree, and there must be a reversal. The lands should have been, and now are decreed to be sold, alike under the prayer of the original bill, and the cross-bill of Willie P. Dunham. Of the sum of the rents and profits, and of the proceeds, after paying the costs of this suit, hereby decreed against the fund, and the costs of selling and conveying, there will be first set apart the sum of two thousand dollars, to replace that much of the Hill indebtedness, improperly invested in the land. Next; there will be set apart two thousand dollars, the principal sum of the Dunham fund lent to Davis, if the land yield enough to pay the principal sums loaned of both the Dunham and Milhous funds. If it does not yield enough to pay the principal of these two loans in full, then the fund will be' divided pro rata between them, and only such portion as falls to the Dunham estate will be passed to the trust fund. The other portion, after pro-rata division, will belong to Mrs. Milhous. Should the lands yield more than enough to replace the two thousand dollars of the Hill fund misapplied, and the principal sums lent to Davis of the Dun-ham and Millions trusts, then such surplus is decreed to Mrs. Anne E. Milhous, to the extent of her mortgage claim. Other questions will arise; notably, the claim of solicitors for services in protecting the Dunham trust fund in this suit. We leave this for decision by the chancellor, on petition to be filed for the purpose. When the sum of the trust fund of the Dunham estate is separated and ascertained, it must, under the direction of the chancellor, be securely placed, where it will be at once safe and productive; safe, that those in remainder may receive the principal, when their rights accrue ; productive, that Mrs. Milhous may en joy the income to the extent of her mortgage claim, to which she is entitled during the continuance of the life estates each of Texaua Weeden and Willie P. Dunham. Let the costs of. appeal in the court below, and in this court, be paid by Willie P. Dunham, out of the trust fund of the Dunham estate. Reversed, rendered, and remanded.