Butts v. Cooper

SIMPSON, J. This was a bill filed by the appellant against the appellee, alleging that appellee ivas interested as an equal partner with one Cosby at Brantley, Ala., operating a sawmill and owning lands and timber rights and also a railroad and certain personal property connected with the business; that negotiations were pending between Cooper and Cosby, looking to the buying out of the interest of one or the other by the other partner; that Cooper was not able to make the moneyed arrangements to buy Cosby, and approached complainant, shortly before July, 1900, informing him that Cosby’s interest could be bought for |17,500, and endeav — 379 — ored to induce complainant to purchase Cosby’s interest; that complainant at first declined, but, after appel-lee had tried in vain to induce one Favors and others to buy the interest of Cosby or to furnish him the means to buy it, appellant finally agreed the appellee should buy said Cosby’s interest for appellant; that previous to this time, to-wit, in 1896, complainant was engaged in the lumber business at Columbus, Ga., under the firm name of Jones Bros. & Butts; and that, in accordance with an agreement between appellee and appellant, he had bought out the interest of his partners for appellee, taking said appellee as a partner, but making all the moneyed arrangements for him himself, and taking the title to the property in his name, said appellee joining him in a note to the bank for the money necessary to make the transaction, and the business continued on thus without any written agreement. The Columbus firm was Butts, Cooper & Co. and according to the bill the agreement was that Cooper Avas to purchase Cosby’s interest in his own name, but for Butts; the firm of Butts, Cooper & Co. assuming the payment of certain debts due by the firm of Cooper & Cosby, including about $3,000 due to Butts & Cooper, and the balance to be paid in money which Butts was to raise, all of which matters were-to be adjusted in future settlements. Butts Avas to manage the business in Columbus, and Cooper to manage the business at Brantley, Ala. It is alleged the cash was raised on the joint note, of Butts and Cooper, that the debts were assumed, and that Butts had several times asked for some evidence of his interest, but Cooper put him off till he could repurchase a fourth interest in the firm of Butts & Cooper, which he had previously' sold to one Fort. Cooper did acquire the Fort interest. A settlement of the Georgia business Avas entered upon, and before it was finally concluded Butts reminded — 380 — Cooper that the Alabama business was to he settled at the same time, and then Cooper denied that Butts had any interest in the business in Alabama, which had all along been conducted in the name of the Cooper Lumber Company. Without going into the details, these are the material allegations of the bill. The hill avers the willingness of complainant to account for Cooper’s interest in the business at Columbus, and propounds certain interrogatories to' Cooper. The prayers of the bill are, first, that a receiver be appointed to take charge of said partnership business, composed of plaintiff and defendant,' and that Cooper be required to turn over all assets heretofore belonging to said firm of Cooper & Cosby, and which have since been bought with partnership funds; second, that it be decreed that complainant became a purchaser of the Cosby interest in said partnership, and, if it appears that said Cooper took a transfer of said Coshv interest to himself, then he be decreed to hold the same as trustee for complainant; and, third, that a reference he made to the register to state an account, that the partnership he dissolved and the assets sold and distributed. . The answer admits the existence of the firm of Cooper & Cosby, stating that at first Cosby had no interest in the lands, but only in the business, and afterwards acquired a half-interest in the lands, and claims that said partnership was dissolved on July 11, 1900, when respondent bought out Cosby’s interest in all of the property, real and personal, and in the business. It enters into a detail of the negotiations for the purchase of Cosby’s interest, and denies that there ever was any agreement or understanding that the complainant was to have any interest in such purchase. It admits the partnership of Butts & Cooper at Columbus, but denies some of the details as to the manner of forming it and — 381 — the amount of money put into that business by him. It denies all allegations tending to show that Butts was to have any interest in the business at Brantley, Ala., and states that the note to the bank for cash payment on the purchase money was merely signed by Butts as his security, and that the debts assumed by the Columbus firm were only for the mutual convenience of both firms, as the Brantley firm was shipping lumber to the Columbus firm, and that.when said debts of Cooper & Cosby were paid the amounts were charged to either Cooper & Cosby or to the Cooper Lumber Company. In fact, the answer to the bill and to the interrogatories of the hill, pleads the statute of frauds and demurs to the bill. While the prayers of the bill are for receivership, and a dissolution of a partnership, yet it is manifest that the burden rested on the complainant to show that a partnership existed, as it is denied by the respondent. So the second prayer of the bill is that it be decreed that complainant “became .the purchaser of the interest of said Cosby in said partnership in his own right, and thereby became entitled to share equally with said Cooper in the profits thereof, and is chargeable with a like proportion of the debts of said partnership,” and that said Cooper “be decreed to hold the same as trustee for orator.” While it is true, as remarked by appellant’s counsel, that this is not a bill “to compel the formation of a partnership,” yet it is a bill praying that a partnership be declared to exist between complainant and defendant, and it bases that prayer on the allegations that, when Cooper bought the Cosby interest in the late firm of Cooper & Cosby, he bought it for the complainant, and that thereby complainant became a member of the new firm which was to be organized between complainant and defendant. He certainly did not become a member of the firm of Cooper & Cosby, for that — 382 — firm was dissolved when Cosby’s interest was purchased. Then what firm did he become a member of? It is evident that the most that coukl be claimed is that by the purchase the complainant became the owner of that part of the assets of the firm which belonged to Cosby, and, if any other firm was constituted, it would have to be either by a subsequent agreement, or by an agreement previously intered into between the members of the new firm. No subsequent agreement is claimed to have been made. Then, if Butts became a member of any firm with Cooper, it could be only by virtue of an agreement made before the purchase, and that agreement, according to complainant’s contention, was that Cooper was to purchase Cosby’s interest, take the title in his own name, and then Butts and Cooper were to be partners in the business. The agreement, then, necessarily involved the acquiring and holding of real estate in the state of Alabama, and it was not in writing. Appellant insists that as, in equity, the lands of a partnership held for partnership purposes are treated as personal property, the statute of frauds has no application to agreements for the purchase of an interest in a partnership consisting in part of lands. This equitable doctrine is only a principle of equity when dealing with the partnership assets, for the purpose of applying the same to the payment of the debts of the firm, and for other special purposes. It does not change the tenure by which the land is held, nor interfere with the principles of law in regard to the conveyance of real estate for other purposes than for the payment of the debts of the firm. The same formalities are required in the conveyance of partnership real estate as that of individuals.— Duncan v. Duncan, 93 Ky. 37, 18 S. W. 1022, 40 Am. St. Rep. 159; Davis v. Christian, et al., 15 Grat. (Va.) 11; Parsons on Partnership (4th Ed.) § 272; Andrews — 383 — Heirs v. Brown’s Adm’r, et al., 21 Ala. 437, 56 Am. Dec, 252; Davis v. Smith, 82 Ala. 198, 2 South. 897; Rovelsky v. Brown & Smith, 92 Ala. 522, 528, 9 South. 182, 25 Am. St. Rep. 83; Lang’s Heirs v. Waring, 25 Ala. 625, 640, 60 Am. Dec. 533. It is clear that the partnership Avas not formed when the agreement was made, for it could not exist until the interest was purchased. So it ivas simply a yerbal agreement to purchase an interest in a partnership involving title to lands, and such agreement is violative of the statute of frauds. — Raub v. Smith, 61 Mich. 543, 28 N. W. 676, 1 Am. St. Rep. 619; Hale v. Henrie, 2 Watts (Pa.) 143, 27 Am. Dec. 289, 291, 292; Clancy, et al. v. Craine, 17 N. C. 363; Lancaster Bank v. Myley, 13 Pa. 544, 549; McCormick’s Appeal, 57 Pa. 54, 98 Am. Dec. 190, 195; Tillis v. Treadwell, et al., 117 Ala. 445, 448, 22 South. 983; Larkin’s v. Rhodes, 5 Port. 195; Latta v. Kilbourn, 150 U. S. 524, 546, 14 Sup. Ot. 201, 37 L. Ed. 1169; Smith v. Burnham, 3 Sumner, 435, 459-471 (an able opinion by Judge Story); Bird v. Morrison et al., 12 Wis. 138. Appellant claims that the transaction in question comes AAdthin the exception in our statutes. The statute is: “No trust concerning lands, except such as results by implication or construction of laAv, or which may be transferred or extinguished by operation of law, can be created, unless by instrument in writing, signed by the party creating or declaring the same, or his agent or attorney authorized thereto in writing.” — Code 1896, § 1041. Says Pomeroy: “A broad distinction separates all express trusts from those which arise by operation of law. In the former class the trust relation is rightful and permanent. In the latter there is no such element of right and permanency. Even if the trust relation is not AAdiollv wrongful, resulting from fraud or other un-conscientious act, still a certain antagonism between the — 384 — cestui que trust and tbe trustee is involved in tbe very existence of tbe trust.” — 3 Pomeroy’s Eq. Jur. (3d Ed.) p. 1892, § 1030. Without noticing trusts resulting to tbe donor wbicb would be inapplicable to this case, a resulting trust is a trust wbicb arises by operation of law, where tbe consideration is paid by one party and tbe title is conveyed to another. Says Pomeroy: “In order that this effect may be produced, it is absolutely indispensable that tbe payment should be actually made by tbe beneficiary, or that an absolute obligation to pay should be incurred by him, as a part of tbe original transaction of purchase, at or before tbe time of tbe conveyance.” — 3 Pomeroy’s Eq. Jur. (3d Ed.) p. 1992, § 1037. Resulting trusts arise by implication of law, and cannot grow out of a contract to bold tbe title for a third person who advances tbe purchase money. — Potter v. Clapp, 203 Ill. 592, 68 N. E. 81, 95 Am. St. Rep. 323. Neither do tbe allegations nor proof show that tbe cash payment wbicb went into the purchase of tbe Cosby interest was tbe money of Butts. On tbe contrary, eliminate tbe testimony as to tbe verbal agreement, and it would be difficult to find anything from wbicb to conclude that tbe consideration moved from Butts. Tile evidence is clear that Cooper applied to tbe bant first on bis own account to get tbe money, offering mortgage security, and that after some negotiations tbe money was loaned to him on a note signed by him as principal and Butts as surety. Tbe money was placed to bis credit at tbe bank, and drawn out on bis check. The fact that Cooper agreed with Cosby that certain debts should be paid through tbe firm of Butts & Cooper, of wbicb be was a member, was a mere private agreement between Cooper and. Crosby, and could not be construed into a payment of that part of tbe purchase money by that firm — 385 — even — much less by Butts. It results that the evidence fails to establish facts which would establish a resulting trust in the property. It remains, then, to consider whether or not the court would have been authorized by the facts in evidence to declare a constructive trust in favor of Butts. Constructive trusts arise “where there is no express or implied, written or verbal, declaration of the trust.” A constructive trust arises when one person, occupying a fiduciary position, or having placed himself in such position in relation to another that good faith requires him to act for the other and not himself, acquires the title to the property in himself,. in place of in the cestui que trust. These cases involve fraud, or a breach of trust in acquiring the title to the property in himself. — 3 Pom. Eq. Jur. (3d Ed.) p. 2007 et. seq., § 1044;; Sanford v. Hamner, 115 Ala. 406, 414, 414, 415, 22 South. 117; Waller, Adm'r. v. Jones, et al., 107 Ala. 331, 341, 18 South. 277; Kent et al. v. Dean, 128 Ala. 601, 609, 614, 30 South. 543. In the case now under consideration there is no pretense that there was any violation of any trust or duty in taking the title to the Cosby interest in himself by Cooper. On the contrary, the complainant alleges that the agreement was that the title was to be vested in Cooper, and the only contention is that Cooper was to hold the title for him. This is a parol trust, pure and simple, in violation of the statute. — Oden v. Lockwood, 136 Ala. 514, 33 South. 895. The cases of Smith v. Burnham and Bird v. Morrison, supra, are very instructive as to all the points in this case. We will add that, even if these legal principles could be declared inapplicable, we do not think that the complainant’s contention is proved with that clearness and conclusiveness — 386 — which authorize the establishment of any kind of a trust in real estate by parol proof. The decree of the court is affirmed. Tyson, C. J., and Haralson and Denson, JJ., concur..