Court Opinion

ID: 6676130
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:16:05.539772+00
Date Added: 2024-06-11T16:00:42.588795
License: Public Domain

The opinion of the court was delivered by
MR. Justice MoIver.
Under the will of his father, the *345defendant, David C. Gist, held certain lands in Union County in trust for his children, Laura Gist' and others, his co-defendants, all of whom are minors. The terms of the trust are as follows: “For the use of his children, born and to be bom, and their heirs forever, with power to said trustee to sell and convey the said tract at any time before the oldest of said children reaches the age of twenty-one years, and invest the proceeds thereof for the same uses.” On November 3, 1883, the plaintiff sold and conveyed to the defendant, David C. Gist, as trustee as aforesaid, a house and lot in the city of Spartanburg for the sum of twenty-two hundred dollars, of which sum the said trustee paid five hundred and fifty dollars in cash, and executed to the plaintiff his three notes of five hundred and fifty dollars each, payable in one, two, and three years, secured by a mortgage of the premises. Upon default in payment of the first note and the interest on the other two, this action was commenced to foreclose said mortgage, the minor children of the trustee, beneficiaries under the trust, being made parties defendant.
David C. Gist put in no answer, but the minors, by their guardian ad litem-, answered, claiming that the cash payment was made with trust funds; that the land was conveyed to the trustee upon the same trusts as those declared in the will of their grandfather; that the purchase was not made for their benefit, but for the individual benefit of their trustee and as a residence for him; that said purchase was improvident and made without authority ; and if carried out will result in loss of the trust money already paid; that all these things were well known to the plaintiff at the time of the purchase, and he thereby became a participant in the breach of trust committed by the trustee. They therefore demanded judgment that the-purchase be rescinded, and the plaintiff required to refund to them the cash paid, with interest; or if a sale of the premises be ordered, that the said sum of money and interest be paid for the use of the minor defendants out of the proceeds thereof, before anything is paid to the plaintiff.
The testimony shows conclusively that the cash payment made by the trustee was made with money derived from the vents of the trust lands in Union; but there was a conflict of testir *346mony as to whether this fact was known to the plaintiff at the time of the purchase, he claiming that he was led to believe by the trustee that the money was derived from the sale of the Union lands, and not from the rents of those lands. The testimony also shows that the trustee had the means of supporting his children and providing them with a house, and hence he had no right to use their trust funds for that purpose. The manifest object of the purchase of the house and lot in Spartanburg was to obtain a family residence with access to the schools, in that city, though it appears that there was a residence on the Union lands, which had been occupied by the family, within reach of good schools, and we think it pretty clear that the real purpose of the purchase was, not so much as an investment of the trust funds, as it was to obtain the superior social and educational advantages afforded by a residence in the city.
The Circuit Judge found as a matter of fact that the cash payment was made out of the proceeds of the rents of the trust lands, but that this w'as not known to the plaintiff at the time of the purchase. And as matter of law he found that while the trustee, under the terms of the will, had the power to sell the Union lands and reinvest the proceeds thereof, or so much thereof as might be necessary for the purpose, in the purchase of the house and lot in Spartanburg, he did not have the power so to invest the rents of those lands, and such an investment was, on his part, a breach of trust; but that the plaintiff, having no notice that the cash payment was made out of the rents of the lands, could not be implicated in such breach of trust. He therefore rendered judgment that the house and lot be sold and the proceeds, after paying the costs of the action, be applied to the payment of any balance that may be due to the plaintiff on the purchase money, and that any surplus that maythen remain be held subject to the further order of the court.
From this judgment the minor defendants appeal upon the several grounds set out in the record, which need not be repeated here, as in our judgment the whole case turns upon the single inquiry whether it was a breach of trust on the part of the trustee to use trust funds in making the cash payment on the property purchased, and at the same time encumbering the property with a *347mortgage to secure the payment of the balance of the purchase money. We do not suppose that there can be a doubt that it would be a breach of trust for a trustee to invest the trust funds in lands already encumbered with the lien of a mortgage, and we are unable to perceive the difference in principle between such an investment, and one in which, at the time of investment, the property is encumbered with a lien entitled to priority of payment; for in both cases the trust funds 'are imperilled, and unless the liens are removed, may be entirely lost. We understand the rule to be that where a vendor receives trust funds, knowing at the time that they are trust funds, in part payment of land, and takes from the trustee a mortgage to secure the payment of the balance of the purchase money, he thereby becomes a trustee to the extent of such cash payment, and when he forecloses his mortgage for the unpaid purchase money he must first account to the cestui que trust for the trust funds — -the cash payment — before he can apply any portion of the proceeds of the sale of the mortgaged premises to the unpaid purchase money. Mathews v. Heyward, 2 S. C., 239; Elliott v. Mackorell, 19 S. C., 238.
The fact that the trustee in this case held other trust property — the Union lands — -by the sale of which the balance of the purchase money .might have been paid, cannot affect the result. For it may be, and the testimony seems to indicate that such would have been the fact, that it would have required a sacrifice of the Union lands, or at least a great loss on their sale, if the trustee had been forced to sell them to obtain the means of paying the balance of the purchase money due on the mortgaged premises, in time to prevent a judgment of foreclosure; and thus, to save one portion of the trust funds, another portion would be jeopardized and perhaps sacrificed. Such a proposition certainly cannot be maintained. The breach of trust consisted in the investment of trust funds in property which was at the same time encumbered with a lien ; and it was then that the plaintiff became trustee for so much of the trust funds as were used in making the cash payment, and as such must account for the same out of the proceeds of the sale of the property in which such trust funds were invested.
Under this view of the case it is wholly immaterial whether *348the plaintiff, at the time of the purchase, knew that the funds used in making the cash payment were derived from the rents or the sale of the Union lands. He knew that they were trust funds, and that was all that was necessary to affect him with the trust. We think, therefore, that the Circuit Judge erred in decreeing that the proceeds of the sale of the mortgaged premises, after payment of the costs of the action, should be applied to the payment, of the balance due the plaintiff for the purchase money, without first providing for the refunding of the trust funds used in making the cash payment, with interest thereon, to the trust estate.
The judgment of this court is, that the judgment of the Circuit Court be modified in accordance with the views herein announced.