Cole v. Hawley , 95 Conn. 587 ( 1920 )

All of the paragraphs of the defendants' motion to expunge parts of the complaint, except those numbered 3, 4, 5 and 8, attempt to raise issues of law, and are repeated in the demurrer, where they properly belong. The excepted paragraphs practically cover the whole complaint, and allege in effect that every one of its essential allegations is immaterial and irrelevant. For that reason the motions were properly denied.

Paragraphs 1, 2, 4, 6 and 9 of the demurrer assert, in various forms, the proposition that the whole complaint is insufficient because the written contract, Exhibit L, printed in the footnote,^* contains no promise by any of the defendants to pay the amount, therein admitted to be due, to the plaintiff on account of moneys advanced for the purposes of the trust. True, it contains no express promise of that kind, but the other allegations of the first count make it clear that these advances were made by the plaintiff out of his own funds to the defendant Mrs. Hawley at her request. The complaint also alleges an express promise that the plaintiff might reimburse himself for these advances out of subsequently accruing income of the trust property. The trial court has found that no such express promise was made, but, without it, the law would imply a promise on Mrs. Hawley's part to repay to the trustee advances made to her at her request out of his own funds.

On April 30th, 1915, the trustee resigned, and on the same day Exhibit L was executed, which contains an acknowledgment by Mrs. Hawley and the prospective life tenants that the sum of $2,078.45 is due the plaintiff for advances made by him for the purposes of the trust, and an agreement by the plaintiff that he would accept payment in the form of monthly instalments without interest. By executing the instrument the defendants assented to this proposed arrangement. In consideration of their acknowledgment and assent, the plaintiff released the life tenants, and also his own successors in the trust, from all claims and demands of every kind. Considering the circumstances surrounding the execution of Exhibit L, and also the release of the incoming trustee, the document points exclusively to the life tenants as the persons who were expected to pay the agreed indebtedness in instalments, and its execution by Mrs. Hawley was in effect a tacit promise on her part to do so.

The fifth paragraph of the demurrer assumes that the plaintiff's cause of action is based on his own violation of the trust, and also that all the payments sought to be recovered were voluntary overpayments and therefore not recoverable. Fanning v. Main, 77 Conn. 94,98, 58 A. 472. It is, however, clear that the advances made by the plaintiff out of his own pocket, at Mrs. Hawley's request, were neither voluntary payments nor payments in violation of the trust, but loans made by the plaintiff as an individual. As this ground of demurrer is addressed to the complaint as a whole, it was properly overruled. Whether it would have been good if addressed to the second count only, is a question which was not presented to the trial court for decision.

In another paragraph, the demurrer attempts to set up the bar of the statute of limitations. Assuming that the complaint purports to state, by way of anticipation, the plaintiff's whole defense to a possible plea of the statute of limitations, so that it is permissible to present that issue by demurring to the complaint (O'Connor v.Waterbury, 69 Conn. 206, 210, 37 A. 499; Radezky v.Sargent Co., 77 Conn. 110, 114, 58 A. 709), the demurrer on this ground is also bad because it runs to the whole complaint, and because Exhibit L, dated September 30th, 1915, contains a new acknowledgment of the indebtedness on which the first count is based. For the same reasons the demurrer, on the ground that Exhibit L releases all claims and demands against the defendants, is bad, for it is plain that it was not intended to release the very indebtedness which is acknowledged therein. The other grounds of demurrer call for no special mention, and there was no error in overruling them.

We take up next the motions to strike out certain defenses set up in the defendants' answer. We are of opinion that there was no error in granting these motions, except as to the second defense to the second count, which was struck out on the theory that the effect of Exhibit L as a release of the claims stated in the second count had already been passed on in overruling the demurrer. This was a mistake. As already stated, the only issue of release raised by the demurrer was whether Exhibit L released all the claims stated in the complaint. Whether it released the particular claims alleged in the second count, is another and a different question; and it should not have been summarily struck out on motion. The effect of this erroneous ruling will be hereafter considered.

It is unnecessary to discuss the rulings sustaining the demurrer to the sixth defense to the first and second counts, because the matters therein alleged were afterward set up by way of counterclaim by Mrs. Hawley, and the issues arising thereon have been found in favor of that defendant.

The motions to correct the finding are denied. They relate principally to the finding, made on conflicting testimony, that at the time of the plaintiff's appointment as trustee the defendant Mrs. Hawley requested him to advance her from current income the sum of $250 a month, whether the net income of the trust estate was sufficient to meet such advances or not; and to other findings, to the effect that she knew from time to time the aggregate amount of the advances which the plaintiff made out of his own funds and which are the subject of the first count. These findings are supported by the testimony that the trustee rendered her monthly statements in addition to his annual accounts, and by her final acknowledgment of indebtedness in Exhibit L, which corresponds exactly in amount with the trustee's final account.

Coming, now, to the litigated issues. It will be apparent from what has been said that the plaintiff was entitled to recover under the first count. We have already held that Exhibit L does contain a promise on Mrs. Hawley's part to pay the indebtedness therein acknowledged to be due the plaintiff; and we need only add that the finding shows that Mrs. Hawley herself put the same construction on Exhibit L, by paying to the plaintiff four of the instalments provided for.

The recovery on the second count stands on a very different footing. The sums recovered under this count were not loans made by the plaintiff out of his own funds. They were payments made to Mrs. Hawley by the trustee out of trust funds in excess of the net income to which she was entitled, and to that extent they were unauthorized misapplications of trust funds by the trustee. There is no allegation or finding that Mrs. Hawley knew, at the time these payments were made, that she was receiving anything in excess of the net income. On the contrary, the finding is that up to the time of his last account there was no information given by Cole of any overpayments made to her in excess of $1,142.39, which was Cole's credit balance (for advancements out of his own funds) in the account next before the last one; and that she never had any other information, either orally or otherwise, except such as the accounts furnished. When the plaintiff's final account, dated September 17th, 1915, was filed, Mrs. Hawley was for the first time informed by it that the taxes on the list of 1914 had not been paid; but the fact that the trustee had not made the annual payment of $1,000 on the principal of the mortgage indebtedness, never appeared in any account, except by its omission, until after he had resigned and his successor had been appointed. It is, however, found that at the time of the plaintiff's final accounting, that is, sometime between September 17th, when the account is dated, and September 30th, 1915, when it was accepted, it was well known to Mrs. Hawley and to her counsel that neither the 1910 instalment on the mortgage indebtedness, nor the taxes on the list of 1914, had been paid. That is to say, all the facts alleged in the second count as having occurred up to that time, were known to both parties when Exhibit L was executed on September 30th, 1915.

Exhibit L purports to be a settlement of accounts between Mrs. Hawley and the plaintiff, accompanied by mutual general release under seal, and its apparent legal effect is to release and discharge all claims then known and then in existence which either had against the other. It is argued that the plaintiff's claim against Mrs. Hawley, in respect of the overpayments out of trust funds, did not arise until he was compelled by decree of court in 1917 to make them good out of his own pocket; and was for that reason not released by Exhibit L. We think, however, that on the record before us the only foundation for any liability on Mrs. Hawley's part to reimburse the plaintiff for these overpayments, must be based on the finding that at the time of the appointment of the plaintiff as trustee Mrs. Hawley requested him to advance her, from the current income of the trust, the sum of $250 per month, which amount she said she needed for her support, notwithstanding that the net income was insufficient to sustain such advancements. In the absence of such a request, it is at least doubtful whether overpayments of income to the life tenant, without any knowledge on her part that they were overpayments, could be recovered.Fanning v. Main, 77 Conn. 94, 58 A. 472; Ferguson v.Yard, 164 Pa. 586, 595, 30 A. 517. On the other hand, the authorities hold, on familiar principles, that advances of trust funds, made to a life tenant pursuant to his request, may be recovered by the trustee. 2 Perry on Trusts (6th Ed.) § 485; Raby v. Ridehalgh, 7 DeGex, M. G. 104; Oellien v. Galt, 150 Mo. App. 537,131 S.W. 158. But they also hold that the right to reimbursement arises when the advances are made, and that the trustee may protect himself by withholding net income to make good any deficiency created thereby, without waiting until he is compelled to make the deficiency good out of his own funds. 2 Perry on Trusts (6th Ed.) § 485; Oellien v. Galt, supra. That must be so, for it is the duty of the trustee to be diligent in making good any temporary deficiency in the trust fund, which he may have been overpersuaded into creating. We are of opinion that the trustee's claim against the net income of the trust, for the purpose of making good the deficiencies set forth in the second count, arose when the advances which created the deficiencies were made; and the plaintiff's intention to release all claims against net income, as well as all claims against Mrs. Hawley personally, is evidenced by the inclusion of his successor and successors in trust in the release contained in Exhibit L.

It is also contended that Mrs. Hawley is estopped from setting up Exhibit L as a release, because she has claimed in her counterclaim, and has been credited on the judgment with, secret discounts and commissions received by the trustee, amounting to $1,722.98; and has thus repudiated her release of the trustee. The validity of this contention depends on the claim that Mrs. Hawley knew of these secret discounts and commissions when Exhibit L was executed. It is found that she knew of such discounts to the amount of $121.67, for which the trustee accounted in his final account, but there is no finding that she knew of the discounts claimed and recovered under her counterclaim; and in view of the fact that the trustee in his answer to the counterclaim denies that he had received such discounts, and did not claim that they had been released by Exhibit L, although he did claim that he had been discharged by the acceptance of his final account not appealed from, we can find no basis for any inference that she must have known of them when Exhibit L was executed.

It is found that at some time, not otherwise identified than at the time of the plaintiff's final accounting, it was understood and agreed between the plaintiff and the defendants that the unpaid items of taxes and mortgage indebtedness "would be repaid from the net income by the succeeding trustee." This agreement was made before Exhibit L was executed, and was apparently superseded by Exhibit L, which on its face purports to contain a comprehensive settlement of the entire subject-matter.

The vice of this record is that the defendant Mrs. Hawley was stripped of her defense of release of the cause of action stated in the second count, by the erroneous ruling of the court in summarily striking out that defense on motion.

In the finding, the amounts of money found due to the plaintiff under the first and second counts are separately stated, as well as the amount found due the defendant Mrs. Hawley under her counterclaim; and the conclusions we have reached lead to the result that the judgment for the plaintiff on the first count, for $2,529.44, and the judgment for the defendant on the counterclaim, for $1,722.98, were correct; and that the judgment for the plaintiff on the second count, for $3,904.21, was erroneous.

There is error, the judgment is set aside and the cause remanded with direction to enter judgment for the plaintiff for the balance of $806.46, due the plaintiff after setting off the judgment on the counterclaim against the judgment on the first count. A new trial is ordered on the issues arising under the second count.

In this opinion the other judges concurred.