Burroughs v. Gaither

Miller, J., after stating the case, delivered the opinion of the Court. There is no difficulty as to the construction of the trust created by the will of Richard D. Burroughs, and the codicil thereto. It is plain that his son, the trustee named in the will, took no beneficial interest whatever either in the trust property itself or the income therefrom. He held the property in trust for, and was hound to apply all its income to, “ the maintenance, education and advancement ” of his children, and'to do this until the youngest child attained the age of twenty-one years. Hor can there be any doubt as to its being a trust over which a Court of equity had jurisdiction. Such a Court could assume the entire control and management of the property whenever its interposition was invoked by proper proceedings on the part of either the trustee or the cestuis que trust. It could remove the trustee for misconduct and appoint another in his place, or fill the vacancy in case of his death. ■ Such control was assumed in this case by — 184 — the order of the 19th of January, 1880, appointing receivers. All the parties in interest were then before the Court under the cross-hill and answers thereto, the minor children having their mother as their guardian ad litem,, and it is conceded this order was duly and regularly passed. From its terms it is apparent the receivers were not appointed for a temporary purpose merely, hut were to-continue to act so long, at least, as the then.trustee should retain his position. .It gave them full power to take possession of the estate, to manage it, and to receive and disburse its income, under the orders and direction of the-Court, and they were directed to account for the same at least yearly or oftener if required. Before the receivers took possession, the whole real estate consisting of a large farm of eight hundred and thirty-nine acres, with a dwelling-house and other improvements thereon, and worth at least $15,000 or $18,000, had been sold by the tax collector for about $1100, - for taxes in arrear. This sale took place on the 5th of April, 1819, and had been reported to and confirmed by the Court. The purchasers were parties who had no interest, legal or equitable, in the trust estate. By the tax laws tlie owner has the right to redeem within twelve months from the date of sale by paying to the purchaser the purchase money with interest thereon, at the rate of fifteen peícent. from that date. Act of 1814,' ch. 483, sec. 55. More than nine months of the time for redemption had expired when the receivers entered upon the discharge of' their duties, and they found no funds on hand or available from the income wherewith to redeem the property from this tax sale. They thereupon reported these facts to the Court, and asked for authority to sell or mortgage a part of the property in order to enable them to effect this redemption, which the Court granted by its order of the 29th of January, 1880. Acting under this express authority the receivers negotiated the loan and executed the mort — 185 — gage over which the present controversy arises, and we shall now consider the objections that have been made to it. 1st. Its validity is assailed, and to this point most of the argument at bar was addressed. The appellants contend that as the will confei’red upon the trustee no power to sell or mortgage the trust property or any part of it, but simply gave him the power to receive the income and apply it for the benefit of his children, neither he nor the receivers, who were merely his temporary successors in the management of the estate, and the receipt and disbursement of its income, had any authority to execute this mortgage, and no such authority could be lawfully conferred upon them by the Court. It is doubtless true, as a general proposition, that where the powers and duties of a trustee are limited and defined by the terms of the instrument creating the trust, neither he, nor the Court under whose administration the trust is carried on, can exercise any others. It is also true that this will devoted the whole income to the children, and made no provision as to the payment of taxes. But it must be remembered that the testator had no power to exempt his property from taxation, and that taxes are by law made a lien upon land, and that this lien which may be enforced by a sale, overrides every incumbrance which the owner may place upon it, and is independent of any disposition he may make of it by will or otherwise. It was therefore part of the duty of the trustee to pay the taxes out of the income, even in the absence of any provision on the subject. In fact the terms “ rents, issues and profits,” as used in this will, must be understood to mean such income as arises after taxes, as well as the necessary expenses of cultivating the farm and managing the trust, have been paid. When the Court therefore, upon assuming control of the trust, found that all this large real estate had been sold for taxes, for a sum merely nominal in comparison with — 186 — its value, and that the title to it was about to pass to strangers, the effect of which would he to break up the trust, it became its duty to act at once for the' benefit of the cestuis que trust, most of whom were then minors, and take advantage of the privilege of redemption secured by the tax laws. Under such circumstances, and where there was no other means of raising the necessary funds, we are of opinion the Court had the power to sell or mortgage a part in order to rescue the whole or as much of it as possible from this impending vis major. It was a power derived from the necessity of the case, and one which every prudent owner would use if he found his property in such a dangerous position. These cestuis que trust were the equitable owners of the property, and a Court of equity was managing it in their interest and for their benefit, and in such an emergency, and for such a purpose, we think the Court was clothed with all the powers of absolute ownership. The Court thus having the power could unquestionably exercise it as well through the agency of the receivers as of the trustee. Authority was expressly given and the receivers borrowed the money by means of this mortgage, and applied it just in time to prevent the tax title from becoming absolute and indefeasible. No objection has been urged to the order appointing the receivers, but looking to the character of this trust, and the averments of the cross-bill, and the admissions in the answer of the trustee, we think the Court should hav§ removed him, and appointed a practical farmer or man of business in his place, instead of retaining him and appointing two lawyers as receivers, to do the work of managing this farm for an indefinite period. Such appointment seems to us to have imposed an unnecessary burden upon the estate. But had this order been brought up on appeal and reversed, this Court would not have allowed the reversal to affect this mortgage, or any rights of the mortgagee thereunder. So far, therefore, as its validity — 187 — depends upon the power of the Court, and the fact that the Court authorized it to he executed by the receivers instead of the trustee, we have no difficulty in sustaining it. 2nd. It is further insisted that this mortgage is invalid because the order which authorized it, was irregularly and unnecessarily passed. The grounds upon which this objection rests, are stated in a motion to vacate the order made by one of the children after the mortgage had been executed and the money applied by the receivers, and they are, 1st, that it was obtained without any notice to the parties interested, and 2nd, that it was unnecessary for the reason that the parties who bid in the property at the tax sale, would have willingly quit-claimed and conveyed all interest they might thereby have acquired for the benefit of the children interested. In our opinion neither of these objections, even if we should assume that such objections or any irregularity in the passage of the order, could affect the validity of the mortgage, can be sustained. It is true the order was passed on the same day the report of the receivers showing the perilous condition of the estate, and applying for the necessary authority to save it, was made. It is also true that it was passed without any preliminary order, setting the application down for hearing, and requiring notice to be given to the cestuis que trust, or otherwise bringing them in to show cause against the application. In ordinary cases such preliminary order would be proper if not essential. But here the facts that the tax sale had taken place on the 5th of April, 1879, and that it had been reported to and ratified by the Court, were well known to the parties interested, and were not only undisputed but had been charged in the cross-bill and admitted in the answers thereto. On the 29th of January, 1880, when the application was made, less than three months of the period of redemption remained, and according to the usual chancery practice such a prelimi — 188 — nary order with service of notice, would have taken a large part of this time, and the interposition of any objection, even the most frivolous, would have necessitated a hearing, while one which would have required the taking of testimony would have postponed the passage of the order still longer. Time was pressing, and was therefore an important element to be considered by the Court. It was essential, the receivers should have ample opportunity to negotiate the loan, and in point of fact they succeeded in obtaining the money only seventeen days before the period of redemption expired. If the course now insisted upon by the appellants had been pursued, it would, in all probability, have resulted in a defeat of the important object sought to be accomplished. We are clearly of opinion that under the circumstances no preliminary order was necessary, nor would it have been either advisable or safe. The Court was bound to act promptly in order to save the trust and the trust property, and we approve its action in this respect. As to the other objection, we find that it does not state how the purchasers became the trustees of Mrs. Burroughs, or how they or she could have been compelled to convey their interests to the children. It is true that she was their mother, but she took no interest under the will, and was a stranger to the trust. But suppose these parties were not only willing but had actually made this transfer; what would have been the result? Unquestionably the breaking up of the trust for the children would thereby have become at once the absolute owners of the property by a paramount title. It was the duty of the Court, however, to preserve the trust as the testator had created it. By providing for its continuance until the youngest child attained majority, he manifested his intention that all of them should receive the same benefit from the income. It may be that it would have been for the interest of the adult children who had received their education out of the income, to have the trust broken up, so — 189 — that they could come at once into full possession of their share of the estate, hut clearly such was not the interest of the minor children, and those of tender years, whose education had not yet been begun or completed. But at all events the duty of the Court to see that the trust was preserved, was plain and imperative, and we approve its refusal to heed this objection, if it was ever-considered. 3rd. But it is said the mortgage is tainted with usury. Ho usury is apparent on its face, and all the interest notes, both original and renewal, are at the legal rate of six per cent. The report of the receivers however states that they negotiated the loan at seven per cent. The extra one per cent, amounting to $78, was retained by Temple-man as premium, and is the first item in the statement of the sums aggregating $176.90, which accompanied the receivers’ report of the transaction. This was unquestionably usury and in an ordinary case between individuals would, if properly relied on, and at the proper stage of the foreclosure proceedings, he eliminated from the mortgage debt. A commission of two and a half per cent, on the $2600, amounting to $65, was also retained by Templeman, and a like sum was paid to him as agent of Gaither, when the mortgage was renewed. It is manifest that he was acting throughout the whole transaction simply as the agent of Gaither, and that it was the latter’s money that was originally loaned. He assigned the mortgage to Gaither only five days after it was executed and before it was recorded, and it was obviously given in his name merely for convenience, whether such commissions paid by a borrower to a real estate agent or broker who negotiates the loan from the real mortgagee or whether any of the other items in the statement submitted to the Court by the receivers with their report, are to he regarded as amounting to usury, or whether they all properly come within the terms “ expenses attending the — 190 — negotiation of the said mortgage,” in the original order, or the terms “ commissions and expenses of negotiating the said mortgage ” in the renewal order, are questions which, in the view we have taken of the case, need not be now decided. The question before us is can these appellants rely upon usury in this case ? The Court acting in their behalf was the mortgagor in the same sense in which it is the vendor of property sold by a trustee under its decree. This contract of loan was made by the Court through its officers on the one side and the lender on the other. The latter had the right to rely upon the presumption that, the receivers would perform their duty and report the transactions to the Court, and if the Court disapproved the terms of the bargain, that his money would at once be returned to him. This report was promptly made by tbe receivers, and all the facts fully disclosed. Nothing whatever was concealed, and the Court approved their action. This approval was not by any direct order to that effect, but is clearly to be inferred from all the subsequent orders in the case which were passed after the terms of the contract had been repeatedly called to the attention of the Court, and we find nothing in the record to induce us to decide that such approval should, under the circumstances, have been withheld. There is no proof that the money could have been obtained on better terms, or that either the receivers or the mortgagee acted otherwise than in good faith. He said-to the receivers, in effect, the Court can have my money for the purpose of redeeming this land from a tax sale, but can have it only on these terms, and if they are not satisfactory the money must be returned. If then the Court acting in behalf of these oestuis que trust thought it would be for their benefit to accept the terms and did so, we think it very clear that tbey cannot now interpose tbe objection as against the mortgagee that he has exacted usury from them. The — 191 — Court was abundantly able to protect their interests and such was its duty. The case therefore is not one in which a needy borrower has submitted to the exactions of an unscrupulous usurer. 4th. Some minor objections remain to be noticed. It is said the receivers exceeded their authority by borrowing more than was necessary, and that the mortgagee is chargeable with notice of this, because of the reference in the mortgage to the order, under which they acted. The mortgage simply recites that an order had been passed in this cause, dated the 29 th of January, 1880, authorizing the receivers “ to mortgage a part of the lands described in said cause for the purpose of raising money to redeem the said lands from a tax sale.” We do not think this reference made it the duty of the mortgagee to examine the original order, and read over all the proceedings in the case for the purpose of ascertaining when and for how much the land was sold, and then to go to the tax collector in order to find out how much it would take to redeem it, or that it made him chargeable with notice of what such an investigation would have disclosed, ox-imposed on him the obligation to determine whether $2423.10, would be more than the receivers needed to accomplish the purpose of the order. There is no proof that the receivers ever told him of the exact sum they would have to pay the tax collector, and in our opinion he had the right to rely upon their judgment as to the sum they required. There is no force in the further objection that what has been called the second or renewal order, authorized a “new mortgage,” and did not in terms authorize a renewal or extension of time for the payment of the old one. Such renewal however was a substantial compliance with the order, and was certainly much less expensive to the estate than the negotiation of a new loan, and the execution of a new mortgage, would have been, while it accomplished the same purpose. Besides, if the old mortgage had not been renewed it would still remain — 192 — in force. It is scarcely necessary to say that the complaints in the answer that the receivers paid the taxes for the year 1819, out of the proceeds of the loan, and that they retained or were allowed too much for their services, can in no wise effect the mortgagee. He was not hound to see to the application of the money. (Decided 10th December, 1886.) It follows from what has been said that the mortgage is valid and can he enforced. We have thus disposed of these questions because they have been fully argued by counsel on both sides, and in. order to save the parties from the expense and delay of another appeal, but we are of opinion that the motion to dismiss this appeal must prevail. The order appealed from is not a decree for a sale of the mortgage property. It does not decree a sale unless the money is paid by a given day. Nor is it an absolute order for the payment of money, nor yet an order determining a question of right between the parties, and directing an account to be stated on the principles of such determination. Appeals in such cases are allowed by sec. 21, Art. 5, of the Code. This order commands the defendants or some of them to bring the money due on the mortgage, into Court on or'before a given day, “otherwise a decree will he passed” for a sale of the mortgaged premises. This amounts to nothing more than a threat to pass a decree for a sale thereafter if the money is not paid by the given day. It leaves the Court perfectly free to abandon the threat, or change its mind or intentions at any time thereafter. There is no provision of any statute which allows an appeal from such an order, and this appeal must therefore be dismissed. In thus deciding the questions argued, and at the same time dismissing the appeal, we have followed the course adopted by our predecessors in the similar case of Phillips vs. Pearson, 27 Md., 242. Appeal dismissed.