Union Mutual Life Insurance v. Spaids

Mr. Justice Scholfield delivered the opinion of the Court: In the view we take of this case, we do not regard it of controlling importance whether, at and prior to the conveyance in trust for the use of Kate, Louise and Susie E. Spaids, the property in controversy was, in good faith, the property of their grandmother, Susan M. Harris, or whether, in fact, it was held by her in secret trust for Talmadge E. Spaids; for, assuming the latter, and regarding him as the real owner, those who were then his creditors are not here complaining. There is no proof that he was then insolvent, and there is affirmative proof that all the debts he then owed have long since been paid, and' there is no proof of collusion and fraud to deceive subsequent creditors. Hone others have a right now to complain that he then made a voluntary settlement upon his daughters. Moritz v. Hoffman, 35 Ill. 553; Mixell v. Lutz, 34 id. 382; Wooldridge v. Gage, 68 id. 157; Phillips v. North, 77 id. 243; Sweeney v. Damron, 47 id. 451; MeLaurie v. Partlow, 53 id. 340. There is no proof that appellant’s agent, in making the loan to Talmadge E. Spaids, was induced to believe, and did believe, that he had a legal interest or title in the property different from that disclosed by the deed of trust. Indeed, it affirmatively appears that deed was shown him and left with him, for the purpose of convincing him of the authority of Spaids to mortgage the property, and whether, therefore, there was a secret trust between Mrs; Harris and Spaids, did not, in fact, have the slightest influence upon the obtaining of the loan, and the acceptance of the deed of trust or mortgage of Spaids to secure it. Spaids, throughout that transaction, assumed to be acting as trustee, and not as owner, and was so dealt with by appellant. The case, in our opinion, turns upon the question whether appellant is chargeable with knowledge that the loan effected by Spaids was for his own personal benefit. The power in the deed of trust authorizes (Spaids to borrow money with which to pay the principal due on money secured by trust deed on the property, and to secure the payment of the money thus borrowed, with interest thereon, “by trust deed or mortgage on said premises.” But this has reference, obviously, to money, the payment of which was secured in that way when the deed of trust was executed, and the removal of which, consequently, was necessary to the protection of the trust property. At that time this lot, and also lot three in the same block, were incumbered by trust deed of date July 11, 1868, executed by Susan M. Harris to appellant, to secure an indebtedness of $20,000 from her to it. But it is recited by the agreement of the 20th of October, 1871,- between appellant, through its agent, Levi D. Boone, of the first part, Susan M. Harris of the second part, and Talmadge E. Spaids and Henry Hopson of the third part, that it was the intention, and was agreed by and between the first and second parties, “ that each of said lots was to be subjected to a lien or incumbrance of one-half of said $20,000, or $10,000, and interest thereon, and the said party of the first part did agree to the release of said lot two from the lien and incumbrance of such trust deed; and the said Susan M. Harris did agree to and with the said third parties that she would pay and discharge the said sum of $20,000, and interest, from the proceeds of the sale of said lot three and the appurtenances, so as to release the said lot two from the incumbrance of said trust deed, and secure the same unincumbered for the use of the said Susie E. and Kate Louise, according to 'the trust declared in the deed of conveyance of the said lot by the said party of the second part to the said party of the third part.” And the evidence shows this indebtedness was paid off, discharging that deed of trust or mortgage some time before Talmadge E. Spaids effected the loan and executed the deed of trust or mortgage, in controversy. There are, however, these further clauses in the power: “And also to do any and all things with the said property, and in or about and concerning the premises, in his own discretion, which he could or would were the title to the property vested in him absolutely.” And further: “Also to sell and dispose of the said property' for such price and upon such terms as to him shall seem meet for the interest of the said Susie E. and Kate Louise, but he shall hold the said pro-' ceeds, and all property in which they or any part thereof shall or may be invested, upon the same trust and for the same purposes in, for and upon which said premises are hereby conveyed to him ; and he may, from time to time, sell and dispose of any such property, and the proceeds again invest from time to time, etc.; * * * and the said party of the third part may, at any time during his life, if he shall think fit so to do, pay over any and all moneys to the said Susie E. and Kate Louise, an equal amount to each, which shall come into his hands in any way from said premises hereby conveyed, either from the rents, issues and profits, or from the proceeds of the sale thereof,” etc. And it is contended that," under these clauses, there was clearly power to mortgage, and that appellant, in view of such an unlimited discretion, was under no obligation to see to the application of the purchase money — that is, to see that the money borrowed was, in good faith, applied to the use of the eestuis que trust. AVe may, for the purpose of argument, concede all this to be true, and yet it will not be conclusive of the present ease. It is well settled that where a trustee sells to pay his own debt, under a general power to sell for the benefit of his cestui que trust, and the purchaser at the time has notice of the fact that this is his object, he will take but a voidable title. Eland v. Eland, 4 My. & Cr. 427; Rogers v. Skilbein, Ambler, 189; Lloyd v. Baldwin, 1 Vesey, 173; Walker v. Smallwood, Ambler, 676; Clyde v. Simpson, 4 Ohio St. 446; Shaw v. Spencer, 100 Mass. 382. Appellant had notice of the terms of this trust. The deed was left with its agent when application for the loan was made, and the existence of the trust is expressly acknowledged by it in the instrument of the 20th of October, 1871, —and having such notice, ample as it knew the discretion vested in Spaids to be, it had notice that he had no right to mortgage or sell the property for the purpose of using the proceeds in his own business. Did it have notice that such was the object of Spaids in effecting this loan ? Spaids testifies that he told Boone, (whose act's and knowledge, as appellant’s agent, are to be taken and regarded as its acts and knowledge,) when he applied for the money, that he wanted it to use in his starch factory, — and it is not controverted that he did so use it. Boone, in his testimony, says: “He (Spaids) said that the former indebtedness on the property had been taken up by himself, either with his own money or money belonging to the starch company, — I don’t remember which, — and that he now wanted the money to replace that in the business; that was in the course of the conversation when the question of the propriety of making the loan, when that trust deed was in existence, was under consideration.” This, in substance, is several times repeated. Boone, it is to be remembered, had long been the general agent of appellant, and it was from him, as such, that the $20,000 loan, secured by trust deed on this lot and lot three, had been obtained by Mrs. Harris, which loan and trust deed are the subject of the agreement of October 20, 1871. He knew by that agreement that the former indebtedness on the property was to be paid by Mrs. Harris out of the proceeds of the sale of lot three, “so as to release the said lot two from the incumbrance of said trust deed, and secure the same unincumbered for the use of the said Susie E. and Kate Louise,” so that if Spaids came forward, and out of his own means .or those of the starch company paid off that indebtedness, his recourse must be on Mrs. Harris, and not on lot two. But Boone does not say that Spaids intended to invest this money in the stock of the starch factory for the benefit of his cestuis que trust, nor does he use the language of the counsel for appellant, and say that he desired to substitute it for money that had been used to take up the former indebtedness, but simply that the former indebtedness had been taken up by himself, either with his own money or money belonging to the starch company, and that he now wanted the money to replace that in the business. This is but equivalent to saying that he wanted the money for his own use, giving the reason why he needed it. Spai'ds says he told him he wanted to use the money in the starch factory, not to invest it, but to use it, thus implying that it was for himself. So, on this point, there is no substantial disagreement between them. Boone should have known that this prior indebtedness was satisfied from the proceeds of the sale of lot three. The fact is in proof that it was so satisfied near three years before, and Boone had made himself a party to an agreement whereby it was to be so satisfied. Under that agreement there was no authority for Spaids to pay off the indebtedness, either with his own money or with that of the starch factory, and execute a new trust deed or mortgage to secure a loan to replace such money. So much of the original power as may have authorized such a transaction was revoked and cancelled by the effect of that agreement, and this Boone must be charged with knowing. If he did not, in fact, know it, it was his duty to have known it, and the result is the same. Boone further testified, that Spaids, at the time of applying for the loan, said, iu substance, that the property was his, “and that it was placed in Mrs. Harris’ name for convenience sake,” — something to that effect. He also referred to the provisions of the trust deed at the same time, showing his right to manage it as though it were his, and to “sell it or dispose of it in any way he thought best, as though it were his.” Spaids denies that he told Boone that the property was his, but says, in another conversation, and as to another lot, he did so state; but he agrees with Boone, that he did try to convince him that the trust deed conferred power upon him to effect the loan and secure it by deed of trust or mortgage on the property. He says that he and Boone were old acquaintances; he had negotiated other loans for Mrs. Harris of him, which had all been paid, and he showed Boone the trust deed, so he knew what its terms and conditions were. It is quite probable, indeed we think the most reasonable view of all the evidence, that Boone trusted to the general terms of the power, incorrectly supposing them to be comprehensive enough to justify any disposition whatever that Spaids might choose to make of the property, and to the ability and fidelity of Spaids as a business man in protecting his paper. It seems, also, that he reserved to himself $500 as compensation for his services in this transaction, and it is possible that his anxiety to obtain this may have, (it may be, insensibly to himself,) in some measure, allayed his watchfulness, and impelled his judgment to a wrong conclusion. We are not satisfied, on the whole, that the court below erred, and its decree will, therefore, be affirmed. Decree affirmed.