Atkinson v. Atkinson , 225 N.C. 120 ( 1945 )

Seawell, J.

This appeal, as argued, poses the single question whether there was error in taking the case from the jury and entering judgment as of nonsuit on defendant’s demurrer to the evidence. G. S., 1-183.

There are, it seems to us, certain inconsistencies in the theories of recovery presented, to which attention will be called in due course. But since plaintiff was entitled to go to the jury upon any cause of action sufficiently stated in the complaint and supported by evidence, we have examined the record in that light.

The exchanges between the parties covering the subject in controversy are in writing, and manifest no ambiguity which would require resort to extrinsic evidence, or the consideration of disputed fact. Their construction is, therefore, for the court. Drake v. Asheville, 194 N. C., 6, 138 S. E., 343.

By way of elimination, we observe that even had appellant laid the basis for such a claim in his complaint, he does not now contend that the written offer of Dr. Wade H. Atkinson, its acceptance, and the transfer of land and personalty made in pursuance thereof, as appearing-in the evidence, constitute an express trust, or give rise to a resulting-trust, as such trust is understood in this jurisdiction. In fact, there are provisions in the proposal and expressions in the deed which negative that theory. The appellant does contend that Dr. Atkinson and the defendant acquired title to the property in dispute, and that the defendant now retains it, under circumstances that should constrain the court to declare the defendant trustee of a constructive trust for his benefit, arising ex maleficio. Such a trust is a remedial device, not referred to the intent of the parties, but imposed upon the wrongdoer in invitum, often contrary to the intent, to prevent the consummation of the fraud or unconscionable practice. Pomeroy, Equity Jurisprudence, 5th Ed., 1044; Lefkowitz v. Silver, 182 N. C., 339, 109 S. E., 56. It is contended that since title to the property was conveyed to the wife by the entirety, she was a party or privy to the wrongful acquisition of the property by her husband, or at least took an interest in the land in dispute without consideration, and with notice of plaintiff’s equity — an interest which later ripened into the sole title by virtue of her survivorship; and that she will be unjustly enriched if she is not compelled to make restitution with respect to the property thus acquired and held.

While the theory of recovery is definitely based on fraud, actual or constructive, fraud, in terms, is not alleged in the complaint. Counsel say that the facts upon which fraud is predicated are set out in the complaint, and no more is required. They regard as unique in this respect instances where the equity of redemption is conveyed by the mortgagor to the mortgagee, since in such case the law presumes fraud upon a showing of the facts. Cole v. Boyd, 175 N. C., 555, 95 S. E., 778; compare Ghormley v. Hyatt, 208 N. C., 478, 482, 181 S. E., 242; 19 Am. Jur., Equity, sec. 233. The validity of this contention may be questioned, particularly so with regard to other conduct of the parties outside of the suggested trust relation which appellant would have us consider as engendering inferences of fraud. However, the rationale of our decision does not require us to pass upon these questions of technical procedure.

The appellant rests his case on the following propositions: (a) That certain promises were made at the time the property was acquired, the failure or refusal to perform which must be held at least as constructively fraudulent, vitiating.the transaction ah initioj (b) that Dr. Atkinson and wife, the defendant, acquired plaintiff’s equity of redemption in the bulk of the lands transferred to them while the relation of mortgagor and mortgagees existed between them — a transaction presumably fraudulent on the part of the grantees and requiring the defendant to show that the transaction was free from fraud or oppression, and that the price paid was fair. Cole v. Boyd, supra,; McNeill v. McNeill, 223 N. C., 178, 25 S. E. (2d), 615.

It is to be questioned whether the acquisition of the equity of redemption while the grantees held the Land Bank mortgage, if established in fact and made effective in legal principle, would not rather result in a situation foreign to the nature of a constructive trust, or at least inconsistent with the more summary remedy afforded by that device,serving merely to reactivate or restore the previously existing trust under the mortgage. ¥e pass this for the moment to consider whether in the other respects mentioned the plaintiff’s appeal is meritorious vel non.

The plaintiff asks that a constructive trust be declared to prevent the unjust enrichment of the defendant at his expense. Scott on Trusts, sec. 462; Bogert on Trusts (Hornbook), ch. 6, p. 194, sec. 55; Restatement, Trusts, sec. 1. Since the theory of unjust enrichment, with its broad implications, is so largely featured in the brief of appellant, we think it proper to say that an approach to the theory of constructive trusts via the doctrine of unjust enrichment should be made with caution, or at least with strict regard to the doctrinal limitations through which that subject angles back to beaten paths. The doctrine cannot be invoked, through the rather socialized connotations usually attending its expression, to broaden the basis of equity jurisdiction or to bring within its cognizance situations which have heretofore escaped the comprehension of its long recognized rules. As a matter of administration, courts are not, of course, concerned with formal classifications of trusts made by textwriters for convenience in treating the subject, so long as emphasis is permitted to remain on the factual situations out of which the trust arises or upon which it may be declared.

The plaintiff in a matter of this sort must find his cause of action in the invasion of a property right. Equity takes hold at that point, and proceeds as far as it may within the power and practice of the court to restore the parties to the status quo ante injuriam.

Not attempting in one impossible definition to put a fence around all instances where the court may, with propriety, declare- a constructive trust, we think it safe to say that where it is predicated on fraud in the acquisition of property, or upon fraud, actual or constructive, which, if found, the law will refer to such acquisition, the basis of jurisdiction is the continuance of the equitable interest of the aggrieved person in and to the property of which he has been fraudulently deprived — an interest which survives the fraud and persists despite the outward forms of legality under which it is held and under which the true ownership has been submerged.

“A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.” Judge Cardozo, in Beatty v. Guggenheim Exploration Co., 225 N. Y., 380, 386, 122 N. E., 378.

What are the circumstances which should arouse “the conscience of ■equity” and merit remedial action — their character, significance and pertinency — is the subject of anxious inquiry by the court, guided by precedent and established principles. Transactions which the law has regarded as the most solemn in which men may enter, the vast majority of which are honestly undertaken, cannot be lightly set aside upon an arbitrary or capricious view on the part of the chancellor that the proceeding was unfair. The fraudulent conduct which demands correction or frustration through equity must be substantial, tangible and of definite import, and must strike at the root of the transaction.

UNPERFORMED Promises: We think a preliminary statement with regard to the statute of frauds will clarify the discussion on this point and lead to a better understanding of some cases cited to us under misapprehension, we think, as to their significance — at least as to the nature of the promises with which this branch of equity is concerned. The seventh section of the English Statute of Frauds relating to the creation of trusts has not been enacted in this State. Peele v. LeRoy, 222 N. C., 123, 126, 127, 22 S. E. (2d), 244; Anderson v. Harrington, 163 N. C., 140, 79 S. E., 426; Riggs v. Swann, 59 N. C., 118. Here, in appropriate cases, a so-called parol trust is imposed upon the legal title upon an oral promise of the grantee to hold in trust, made in contemplation of the conveyance or concurrently therewith, as a condition of the passing of the title and its acceptance by the grantee. In some states of the Union, where the English law requiring the creation of a trust to be manifested in writing, or some substitute statute of a similar nature, is in force, it has been held that the fraud involved in the violation of the promise is sufficient to take the situation out of the statute of frauds and afford relief by the creation of a constructive trust; and in this State, in some situations involving the violation of an established fiduciary relationship, equitable intervention may be referred to the fraud rather than to enforcement of the parol promise ex proprio vigore, and may result in a constructive trust. McNinch v. Trust Co., 183 N. C., 33, 110 S. E., 663. But no matter upon what principle the equity is worked out, the promises involved are similar. Tbe cases cited in appellant’s brief, and scores of others of similar import, throw a distinguishing light upon the character of the promises with which this particular equity is concerned. Upon examination they will be found to refer uniformly to one kind of promise, although varying in form: a promise to hold the lands in trust or to preserve to the grantor, or other person, some estate in the lands conveyed inconsistent with the full beneficial interest of the holders of the legal title. Peele v. LeRoy, 222 N. C., 123; Speight v. Trust Co., 209 N. C., 563; Boyett v. Bank, 204 N. C., 639; McNinch v. Trust Co., 183 N. C., 33; McFarland v. Harrington, 178 N. C., 189; Ballard v. Boyette, 171 N. C., 24; Brogden v. Gibson, 165 N. C., 16; Smiley v. Pearce, 98 N. C., 185 ; Burns v. McGregor, 90 N. C., 222; Blount v. Carroway, 67 N. C., 396. See Pomeroy, Eq. Jur., sec. 1055. If distinguished from the other cited cases, Burns v. McGregor, supra, merely presents the familiar principle of equity that neither coverture nor infancy will serve as a shield or mask for the perpetration of fraud, or prevent equity from restoring the parties to the status quo.

Equity acts in personam, but it also acts in relation to the res. Speaking now strictly of the theory of unperformed promises, and not of other conditions which might result in the creation of a constructive trust, it is manifest that a court of equity will not declare a constructive trust upon the nonperformance of an incidental promise made in connection with the purchase of land, which has no hearing upon the nature of the title or interest intended to he conveyed, although such a promise indeed may constitute a part of the consideration.

Amongst the promises made by Dr. Atkinson in the preliminary agreement, the alleged nonperformance of which is presented by plaintiff as raising an inference of fraud, may be mentioned the promise to pay to plaintiff annually one-half the net proceeds of the farm and mill, to pay him one-half the profits of the timber cut from the lands, and the offer couched in the following terms: “Further you may purchase the entire place mill & all any time you can & wish with a reasonable profit.”

These promises do not, in themselves, indicate that they are intended as conditions upon the passing of the full beneficial title by the deed subsequently to he executed, and which itself makes no reference to them. Even if we exclude from consideration the deed itself, no reasonable construction we can give to the letter of Dr. Atkinson containing his offer is consistent with the view that the grantor was to have any further equity in the subject of the conveyance, and there is no suggestion in them of a promise that the land should be held in trust for any such purpose.

Whatever the nature of the agreements brought about by these offers, and their implied acceptance, and however they may be enforced, and against whom, if at all, the promises themselves are not of such a character that their breach will justify the court in declaring a constructive trust and thus, indirectly, make the forfeiture of the estate a sanction to their performance.

The plaintiff here is not suing for the enforcement of these promises, but asking that a constructive trust be declared because of their nonperformance, and that an accounting be had incident to that remedy.

We examine two of the promises relied upon as involving inferences of fraud upon which a constructive trust might be declared; the promise that the plaintiff should have one-half of the net profits of the farm and mill and the promise that he should have one-half the net proceeds of timber cut upon the premises. First, we observe these promises are contractual in character and in their setting not only presuppose, but for their performance directly depend upon the full enjoyment by the promisor of the beneficial estate in the granted lands. Their maturity gives rise to money demands which cannot be converted into equitable causes of action. In their legal aspect, there was and is an adequate remedy at law for their enforcement against the promisor as contractual obligations, or, for that matter, against any other person shown to be privy to them in the sense of legal liability. The plaintiff has, we think advisedly, refrained from suing to recover any amount due by reason of these promises or damages for their breach, since this would be inconsistent with the remedy to which he considers himself entitled; and the Court cannot, ex mero motu, assert for him such a cause of action upon the complaint as drawn, and as the parties are constituted.

The accounting demanded by plaintiff has no reference to any sum supposed to be due him by reason of these promises, but is strictly incidental to his theory of trust, which the enforcement of the promises would destroy.

These promises were made by Dr. Atkinson. There is no evidence connecting the defendant with them, except such inferences as might arise from her connection with the title. Whether they are promises running with the land we need not now stop to inquire, as it would have no bearing upon the case as now constituted in the complaint, or the theory on which it was tried in the court below. We do observe, however, that they were personal obligations of Dr. Atkinson, who, during the duration of the estate by entirety (which lasted almost to the beginning of this suit), had both the ownership and the control of the subject matter, since in law, during the existence of the estate by entirety, the rents and profits of the land belong to the husband. Bynum v. Wicker, 141 N. C., 95, 53 S. E., 418; Greenville v. Gornto, 161 N. C., 341, 77 S. E., 222. During that period this defendant raised no objection to the cutting of the timber or anything else her husband did in regard to these promises. Not only did the plaintiff neglect to make any demand upon Dr. Atkinson with regard to the alleged breach of these promises during his lifetime and his occupancy of the premises, which lasted for upwards of ten years, but he failed to make any demand upon this defendant with respect to them after the death of Dr. Atkinson and prior to the institution of this suit. The record fails to disclose any evidence whatever that she had repudiated either of them, since their fulfillment, if an obligation of hers at all, came under her control. In other words, she has had no opportunity either to affirm or “repudiate” the alleged promises, and the central fact upon which plaintiff invokes the most drastic penalty known to equity rests upon an assumption.

It is true plaintiff testified that defendant refused to convey to him the lands and make an accounting — not an accounting for anything due upon the agreement, but an accounting, as we have said, incident to his theory of constructive trust.

Even in an action brought directly to enforce these promises, the court would not assume, without evidence on the point, that there were net profits from the farm and mill which remain unaccounted for, or that the timber transaction referred to in the evidence was not, as it appears to have been, complete.

We do not wish, however, to draw attention away from the fact that the promises themselves are not of a character which equity associates with fraud in the acquisition of the title, resulting in a constructive trust.

The offer made by Dr. Atkinson to permit the plaintiff to purchase “the entire place mill & all” is, in totidem verbis, a simple option of purchase and must stand or fall upon the law relating to that subject. It contemplates the purchase of the lands from the grantees as the beneficial owners, and equity will not enforce it by declaring a trust. In their brief, counsel for the appellant described it as “not as definite and explicit as it might be” and say that it will not serve as a basis for a suit for specific performance.

It is true, construed as an option to purchase, it lacks many essentials to validity. Time is of the essence of such an offer. "Where no definite term is set for the acceptance of the offer, it has been sometimes held to be nudum pactum. Jones’ Cyc., Real Property, Vol. 1, sec. 130; Bristo v. Christin C. & G. Co., 139 La., 312, 71 S. E., 521. Other authorities say that it must then be accepted within a reasonable time. Smith v. Baugham, 156 Cal., 359, 104 Pac., 689; Jones, supra, 135, and cases cited. But all are agreed that where the offer necessitates or contemplates a further agreement of the parties in essential matters, the option is invalid. Esselstine v. Bank, 63 Mont., 461, 208 Pac., 910. The offer obviously falls within the latter class. Certainly, neither the plaintiff herein nor this Court could determine what was a reasonable profit, nor, from any phraseology employed in the instrument, upon what that profit must be computed. The Court cannot make a contract for the parties.

But no equity arises out of the fact that it is too uncertain, vague and indefinite to be enforced; nor is any fraud to be imputed to the defendant because she declined to adopt the plaintiff’s view of the whole transaction and convey to him the property upon repayment of the expenses incident to the acquisition of the Land Bank mortgage, plus a reasonable profit. The option, whatever its significance or imperfections, was not made a condition to the passing of the full benefici-al interest in the premises to the grantees under plaintiff’s deed, and this is sufficient to prevent its indirect enforcement upon the principle of constructive trust.

Also, it must be noted that apart from its vagueness and indefiniteness, while the offer remained unilateral and unaccepted by the plaintiff, the latter had no equity in the premises and the transfer of the property by Dr. Atkinson would involve no breach of legal duty. The same principle would apply where a complete change of ownership had meanwhile taken place — for example, through survivorship of the defendant in this case. It is also worthy of note that the plaintiff must have understood when he made the conveyance to the defendant and her husband by the entirety, such a change of ownership by virtue of the sur-vivorship would terminate his option. Assuming, for argument only, that acceptance of the offer would have made a valid contract, the Court is constrained to hold that the plaintiff did not manifest any desire to purchase the property or accept the offer within what the law would recognize as reasonable time, and the defendant violated no duty by rejecting his demand.

RelatioN oe MoRtgagoR and Mortgagee : It is argued that a fiduciary relation existed between the plaintiff as mortgagor and the defendant and Dr. Atkinson as mortgagees when plaintiff executed and delivered to them his deed, raising a presumption of fraud on the part of the mortgagees which they have not rebutted. Cole v. Boyd, supra.

While the comparative dates of the execution of the deed and the assigning of the mortgage are in doubt, under the circumstances of this case priority is of little importance. The agreement between the plaintiff and his brother, requiring the latter to acquire or discharge the mortgage, was made and completed before the deed was executed or the mortgage assigned, and at a time when they were at “arms’ length,” with no fiduciary relation of any sort between them. Both the making of the deed and the acquisition of the mortgage were, therefore, agreed upon, when no fraud or oppression could have existed or have béen practiced. Indeed, the acquisition of the mortgage, which between the parties meant extinction of the debt, was mentioned in the deed as part consideration. Under those circumstances, the legal presumption of fraud which, nothing else appearing, arises when tbe mortgagor conveys to tbe mortgagee bis equity of redemption would serve no purpose in law and does not arise, or, if it does, is rebutted by tbe very facts of tbe agreement.

Moreover, under our interpretation of tbe agreement between tbe parties, it contemplated a settlement of tbe mortgage debt by Dr. Atkinson, and under tbe agreement tbat was its effect. Tbe relation of mortgagor and mortgagees never actually existed between tbe parties, because tbe debt of mortgagor to tbe Land Bank was extinguished eo instante witb tbe assignment to tbe defendant and ber busband, and tbe mortgage could not bave been enforced by tbem. Notwithstanding tbe form of tbe transaction and tbe fact tbat tbe mortgage still remains uncanceled of record, there would bave been an equitable estoppel if any attempt bad been made to assert tbe Land Bank mortgage against plaintiff; and this was never at any time attempted. Tbe estoppel is mutual.

If there should be a doubt as to tbe application of this principle, and we think there should be none, tbe plaintiff is unable successfully to assert fraud at this late date in view of tbe plea of tbe statute of limitation made by tbe defendant. Tbe fraud of which be complains, if fraud it was, took place 14 July, 1932, according to plaintiff’s evidence; tbe facts were well known to him, and be has given no reason which would operate to postpone the running of tbe statute.

We are not inadvertent to tbe testimony of Dr. Brooks to tbe effect tbat at about tbe time of tbe transaction, but upon a date be could not recall, Dr. Atkinson said tbat “Tom was about to lose tbe farm . . . tbat be did not want tbe farm to get out of tbe family, and tbat be was taking it over for tbe time being and bolding it, hoping Tom would be able to redeem it.” It is impossible to say whether this testimony relates, in point of time, to a contemplated or to an antecedent transaction. If it bad been tbe choice of tbe plaintiff to rely on tbe establishment of an express trust, such evidence, if more definite in tbe particulars mentioned, might bave been helpful in case it became necessary, by such evidence, to modify tbe written terms of tbe deed or of tbe preliminary agreement. Tbat, however, is not tbe theory adopted by tbe plaintiff; nor did be ask for any reformation of bis warranty deed on tbe ground of fraud or mistake. Gaylord v. Gaylord, 150 N. C., 222, 63 S. E., 1028. And there is no ambiguity in tbem which tbe testimony would be useful in explaining.

Upon these considerations, we are constrained to bold tbat tbe judgment of nonsuit was proper. It is

Affirmed.