Case ID: ohio-np-ns_25/html/0383-01.html
Source: Caselaw Access Project
Author: {"author": "Snediker, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ACCOUNTING WITH A MORTGAGEE OF INCOME PRODUCING PROPERTY OF WHICH HE HAD POSSESSION.
    Common Pleas Court of Montgomery County.
    Anna A. Clegg v. John M. Fitzgerald.
    Decided, July, 1924.
    
      Advances Made to Oioner of Income Producing Property — Property Mortgaged to Secure Payment and Mortgagee Placed in Possession —Debits and Credits as shown after Death of the Mortgagor Many Tears Later — Mortgagee Declared to be a Trustee from Date of Satisfaction of Advancements out of Income Received — Application of the Statute of Limitations.
    
    Where one is placed in possession of income ’ producing property as mortgagee in consideration of advances to be made to the owner from time to time as needed, such holder upon the death of the. owner long afterward becomes trustee of and chargeable with all income received, with interest, from the time when the advances had become satisfied up to the date of the entering of the decree naming the cestui que trustent, and should be credited with such repairs and improvements as a reasonable man would make on his own property, with compensation for services while acting as trustee but not while holding the property under a claim of ownership.
    
      Daniel Nevins and Hill, Tomans & Bechworth, for Fitzgerald.
    
      John Dineen, for Clegg.
   Snediker, J.

This ease is now before the court on exceptions to the decision of the referee. By á former decree in this case the court found that the plaintiff,, in pursuance of an agreement between herself and defendant’s deceased wife with respect to certain advancements then and thereafter to be made to the wife, was to be in possession as mortgagee of lot No. 803 and lot No'. 13397 on the plat of the city of Dayton by an instrument of conveyance made to her of date August 16th, 1905, by defendant and by his wife, Bertha Fitzgerald.

The evidence showed that subsequent to the delivery of the instrument last referred to, the plaintiff continued in possession of the premises described, and did on the 5th day of December, 1919, subsequent to the death of the wife, file this action in this court claiming to be the owner in fee simple of the property of which she had been thus put in possession. As a part of the decree of which we have spoken, the court directed an accounting as between the plaintiff and defendant in this case with respect to this property, having found that the defendant had a life estate therein. The 'decree in this regard was “That an accounting shall be made by the plaintiff, Anna A.. Clegg, of the rents and profits received by her since August 16th, 1905, and this- cause is referred to Rubin R. Holmes as referee, etc: ’ ’

Such proceedings were had that the referee took testimony and made his decision, which decision is excepted to by the plaintiff. The referee’s decision exhibits the transactions of the parties since 1905, and particularly shows the receipts and expenditures as to the property of which she was made the mortgagee, and the referee finds a balance dne from the plaintiff to the defendant.

One of the exceptions to the decision is that plaintiff should not be charged as a trustee. Her relation to the property is covered by the 'discussion of Perry in his work on Trusts and Trustees at Section 243. His language is:

“If one receives a conveyance of lands or other property absolute in form, but really as security for a debt, he will hold the legal title in trust for the grantor after the payment of the debt, and before a reconveyance. * *' # * And payment of the mortgage debt discharges the mortgage; but while the mortgagee is in possession, he is a constructive trustee, and he is bound to account for the rents and profits in due course of administration. ’ ’

This plaintiff during the time she controlled this property was in receipt of a large amount of money, and the record shows that any claims which she may have heretofore had under, the agreement entered into between herself and Bertha Fitzgerald were long since satisfied. From the date of such satisfaction until the decree of. this court finding a life estate in the defendant, she was a trustee and the defendant was.her cestui que trust. She assumed the management of the property at a time when she was without authority to do so, and- thereby became a trustee de son tort. ■ -. . .■

At Section 245 of his work on Trusts, Perry says:

“A person may become a trustee by construction, by inter-meddling with and assuming the management of, property without authority. Such persons are trustee de son tort * * * * During the possession and management of such constructive trustees they are subject to the same rules and remedies as -other trustees; and they cannot avoid their liability by showing that they were not in fact trustees, nor can they set up the statute of limitations. Of course, such unauthorized persons will always be liable to be deprived of the possession at the suit of those beneficially interested, and they will be liable for all the costs, expenses, and damages which their unauthorized intermeddling may have occasioned. # * # # in such cases courts of equity have power to do exact justice by decrees as to costs, compensation, and other similar matters. In all cases a person beneficially interested coming into equity must do equity.”

So that we are prepared to say without the quotation of further authority that, in the capacity which she assumed, the plaintiff was constructively a trustee for the benefit of the defendant, after the satisfaction of the claims accruing from her agreement with the wife. The accounting from 1905 was ordered by the court for the purpose of ascertaining from the decision of the referee (which decision would be made after a consideration of the dealings between plaintiff and Bertha Fitzgerald) the time from Avhich the accounting with respect to plaintiff’s liability to defendant should begin, as Avell as for the purpose of determining Avha-t if anything might be due to the defendant as an heir and distributee of his Avife’s estate. As we understand it, the estate of Bertha Fitzgerald has long since •been closed. If the decision of the referee discloses that the plaintiff received during the lifetime of Bertha Fitzgerald more money than Avas expended on her behalf or in advances to her during her lifetime or in the payment of her debts and funeral expenses after her death, then that excess ought to be paid to this defendant.

Another exception to the decision is that the accounting, as had, dates more than six years from the answer of the defendant in this case. In other words, the plaintiff claims that the statute of limitations runs against such accounting. In a case which was afterwards affirmed by the Supreme Court, the Circuit Court of Cuyahoga county analyzed the law with respect to the statute of limitations as applying to constructive trusts. This case is Larwill v. Burke et al., 10 O. C. C. Reports, page 513. Reading from the body of the opinion which is lengthy and able, we find Judge Caldwell using the following language:

“It is useless to quote authorities in extenso upon this subject. They are very numerous, and the holdings seem to be quite uniform throughout the courts of the different states and of the United States; and they are to the effect that if the relation between the trustee and the cestui que trust is denied, is ended, is terminated, no matter what becomes of the fund, where it remains or where it goes, thereafter, the relation ceases to that extent that cestui que trust is called upon to proceed either at law or in equity to establish his rights, and such a proceeding under our statute is a civil action, and is not subject to the exemption provided for in the statutes; and unless the cestui que trust prosecutes his action within the time required by the statute of limitations, he is barred.”

Wliat the court here refer to (“the exemption provided for in the statutes”) is found in that section which reads “that the limitations herein shall not apply to continuing and substituting trusts.” We do not remember any evidence in this case showing or tending to show that the true relation in which the plaintiff held and controlled this property was ever denied by her until she filed her .petition in this action. It was from that date then that the statue of limitations began to run against this defendant.

Plaintiff by her exceptions also objects to the report because of the fact that she is denied her claims for services in the management and care of the property.

In the ease of Stone pro ami v. Farnham, 22 R. I., page 227, the court say:

- “Where one denies a trust he renders no service in the capacity of a trustee, even though he may keep a fund safely. If he claims it as his own he precludes himself from also claiming compensation as a trustee, for he thereby denies his relation as a trustee. Moreover, the claim of ownership has caused litigation to establish the title to the fund. One cannot take the chances of claiming the fund as his own, or failing in that, to have compensation for his services.” , .

In the 105 Wis. Reports, at page 235, the Supreme Court say:

‘! A trustee while denying the trust and claiming all the property as his own, is in no position to charge the cestuis que, trustent or their property with his own service, or that of his- agents or attorneys, in respect to the property.” ... .

But if we are to find that plaintiff first denied her true relation to the property at the time of filing her petition, then she would be entitled to reasonable compensation for services.

Another objection to the decision of the referee is that it denies the claim of the plaintiff for improvements made by her on the real estate.

We are here regarding the plaintiff as a trustee. She is entitled to the benefit of what that capacity carries with it. Where repairs and improvements are reasonably necessary for the maintenance and profitable conduct of a trust estate, the trustee is regarded as having implied power to máke them. ■ •'

In the 114 Iowa at page 562, the court says:

“A trustee cannot ordinarily make improvements and charge the costs thereof to the beneficiary unless clearly authorized by ‘the instrument creating the trust * * * * He - will, however, be allowed for repairs when such repairs, are necessary to the preservation of the estate.”

And it has been stated by another authority:

■ ,‘,‘A trustee should consider the value of .the trust property, the probable length of the trust, and the effect of the repairs iipon the income of the trust property. If in view of these considerations á reasonable man in the conduct of his own business would repair the property, the trustee has implied power so to do.” ■ ’• . , , .

Therefore, for whatever repairs or improvements were made by Anna A." Clegg which come within the principle we have just quoted, she is entitled to have credit.

There was some discussion with respect to interest being charged against Mrs. Clegg. Equity has adopted the following rule:

“Where the cestui que trust pursues the remedy of recovering a money judgment or decree against the trustee, interest is included as a part of the amount to be paid. The trusteee has deprived the cestm of the' use of trust property or its proceeds, and the value of that use is estimated by interest. The sole object of allowing the cestui que trust interest is to make him whole, to place him in the position he would have been in if the trustee had performed his duty.”

Another objection of the plaintiff is that the report denies her credit for advances made to Bertha Fitzgerald. We have found as hereinbefore stated that the conveyance was made to plaintiff to secure her with respect to advancements which she then and thereafter made to Bertha Fitzgerald. By advancements, we here intend money of the plaintiff expended for the benefit of Bertha Fitzgerald. Any expenditure of this kind or amount given Bertha, ought to be credited to the plaintiff in this accounting, and we include the expense of her funeral.

Another objection to the decision is that it dénies the claim of the plaintiff for money paid by her to reimburse Laura Gaul for advances made to the defendant and to Bertha Fitzgerald. For any advances or money paid on behalf of Bertha Fitzgerald to Mrs. Gaul, plaintiff is entitled to credit. This exception ought to be made more specific. There is some controversy here as to the amount.

It is ordered by the court that this case be re-referred to the referee with instructions to follow this opinion, and to exhibit to the court a summary of his finding in pursuance thereof. It is our idea that this summary should be short and to the point. Counsel for plaintiff are requested to present to the referee whatever they desire before he makes his next findings and decision.