Court Opinion

ID: 3600487
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:47:02.238101+00
Date Added: 2024-06-11T09:22:16.942447
License: Public Domain

The omission of the county clerk to state in his certificate of search the assignment of Masten to trustees for creditors, and their re-conveyance to him, does not strengthen the claim of the mortgage given to the North American Trust and Banking Company to be considered a bona fide mortgage. The constructive notice furnished by the actual recording of those instruments does not at all depend upon the manner in which the clerk discharged his duty, when he was employed to make searches and furnish *Page 29 
the proper abstracts. His certificate of a recorded instrument of course conveys actual notice to the party to whom it is delivered; but without any such certificate, or even with a false certificate, the record itself is in judgment of law notice, and equal in its result to actual knowledge.
There can be no doubt, however, that the North American Trust and Banking Company was a bona fide mortgagee for any purpose material to the present case. We must impute to that company knowledge of the assignment in trust, and of the re-conveyance to Masten. But there was nothing on the face of these deeds to impeach the title of Masten at the time he gave the mortgage. The re-conveyance by the surviving assignees declared explicitly that all the trusts had been executed. That fact being true, it was their duty thus to re-convey, and the re-conveyance would re-vest a good title in the author of the trust. If these instruments, therefore, had been brought under the actual inspection of the Trust and Banking Company, the facts communicated thereby would have had no tendency to impeach the good faith of the mortgage. The re-conveyance being in its nature one authorized by the trust, the company was not bound to know whether it was an abuse of the trust. They were not put on inquiry to ascertain whether all of the express trusts contained in the assignment had been in fact satisfied. They had a right to rely upon the fact as stated in the re-conveyance, supported as it was by the presumption, after a lapse of about four and a half years, that the trustees had performed their duty under the assignment. (Jones v.Smith, 1 Hare, 43.)
Within the general principles of equity, therefore, the rights of the North American Trust and Banking Company would be superior to the claim of a creditor provided for in the assignment, to be paid out of the real estate in question. Such a claim rests upon a mere equity, while the mortgage of the company is upon the legal title, and, as we have seen, it was taken in good faith. This view would be decisive of the case, but for the statute (1R.S., 730, § 65) which declares that "when the trust shall be expressed in the instrument creating the *Page 30 
estate, every sale, conveyance or other act of the trustees in contravention of the trust shall be absolutely void." The re-conveyance in question, upon the facts found, was clearly an abuse of the trust, because the creditor who complained of it had not been paid his debt, as provided for in the assignment; and as between him and all parties to the re-conveyance, his debt remained a charge upon the trust fund. This charge has been enforced against the land in question, by a sale under a decree pronounced in a suit instituted by the creditor against those parties only. That decree and the sale under it undoubtedly vested the title in the respondent, who was the purchaser; and if the re-conveyance to Masten was absolutely void under the statute, then it may be that the mortgage should be canceled as a cloud upon the title.
But I am of opinion that the re-conveyance was not "in contravention of the trust" within the meaning of the statute. In a certain loose and general sense, every act of a trustee done in bad faith or in abuse of his trust is in contravention of it. Thus, if a trustee, for creditors in the execution of his acknowledged powers, should sell the estate at a very improper sacrifice of value, the act would in one sense contravene the trust, and parties injured by the transaction would have a right to complain, and even to annul the sale upon facts implicating the purchaser in the abuse. Nevertheless the act in its nature would be entirely consistent with the trust, although a violation of it in the attending circumstances; and there is no doubt that a good derivative title could be acquired by a party purchasing for value, and having no notice of the abuse. So in this case. The re-conveyance to Masten was an act, as we have seen, in its own nature precisely in accordance with the duty of the trustees. The express trusts in favor of the creditors and the resulting trust in favor of the assignor were entirely harmonious. The re-conveyance simply executed that resulting trust. Looking at extrinsic facts, we know that the trustees violated their duty, because the express trusts were not satisfied. But there was no necessary conflict between those trusts and the re-conveyance. *Page 31 
The language of the statute does not require the interpretation insisted on by the respondent, and that interpretation is plainly opposed to its policy as well as to the general maxims of equity. What are the acts which "contravene" an express trust declared in the instrument creating the estate? They are such as on a comparison with the trust necessarily and in all circumstances stand opposed to or in conflict with it: in other words, such as transcend the powers vested in the trustee, and not such as are within his powers, although a violation of his duty. Thus, under the statute of trusts (1 R.S., 729, § 55), an express trust may be created to receive the rents and profits of lands, and apply them to the use of any person, or to receive and accumulate them, or to mortgage or lease lands for the benefit of legatees, c. In such cases the trustee takes no power to sell, and his conveyance would be in contravention of the trust, and therefore void. The intention was to render trusts, for any purpose except sale, inalienable, and that intention was accomplished by the section (65) which declares the sale or conveyance void. At the common law such estates were alienable, although the purchaser might take the estate still charged with the trust. But when the trust is to sell for the benefit of creditors, the trustee may grossly violate his duty without transcending his powers. In such a case the purchaser, whether immediate or remote, ought to be protected if he acts in good faith. The trust being one for sale, it is impossible that an actual sale can "contravene" the trust. After all the creditors are satisfied, the estate is held in trust for the debtor who assigned it, and the duty to re-convey is plain. It may be that the estate re-vests without a re-conveyance, but that is not material. A re-conveyance is the proper evidence that the trusts are satisfied, and the right of the debtor to demand one is unquestionable. Now it is quite easy to suppose that the trustees re-convey in entire good faith, having paid all the debts which have come to their knowledge. If an unpaid debt, however small, is afterwards discovered, or if a controverted one be established, then, on the construction contended for, the re-conveyance is absolutely void. Good faith *Page 32 
or bad faith is certainly not material. The question is purely one of power to act. I am satisfied that such is not the intention of the statute. A conveyance or other act of the trustee, which as such, and judged by its own nature, is consistent with the trust, or perhaps even strictly pursues it, and when the alleged violation rests in parol facts, does not contravene the trust; and the conveyance, therefore, or other act, is not necessarily and absolutely void.
The judgment should be reversed, and a new trial granted.
S.B. STRONG, J., also dissented; SELDEN, J., took no part in the case.
Judgment modified.