Court Opinion

ID: 7367908
Source: CourtListenerOpinion
Date Created: 2022-07-27 23:53:29.274886+00
Date Added: 2024-06-11T16:20:49.256279
License: Public Domain

ON APPLICATION FOR REHEARING.
THOMAS, J.
(7) When the cause of Greil Bros. Co. et al. v. Brooks, 176 Ala. 577, 58 South. 552, was first before this court, certain material averments of notice, as pointed out by Justice Mayfield, were wanting. Amendment to the bill, thereafter made, alleged the renting of appellant’s land, by her husband, to Crenshaw, and the taking of the lease and rent notes in his name, “wholly without her knowledge, consent, or authority, and that until a short time before the filing of the original bill in this court complainant was ignorant of the facts that said lease was executed in the name of her husband, C. E. Brooks, and that said notes were made payable to him;” that her husband, without her knowledge or consent, transferred said rent notes to Greil Bros. Company, a corporation, “as collateral security for his indebtedness to said corporation, -and that said Greil Bros. Company, at the time of the transfer of said rent notes to it by the said C. E. Brooks, and at the time it collected said rents from the said Anderson Crenshaw from complainant’s plantation, had notice that the complainant was the owner of said plantation mentioned and described in the second paragraph of the original bill of complaint, and that as such owner she was entitled to the rents arising from said plantation; * * * that said Greil Bros. Company has *243disposed of said rents; that it is chargeable as trustee in invitum for the same.”
This was an allegation of knowledge by appellee of the ownership of the lands and the renting of the lands by Crenshaw, or of sufficient notice at least to put appellee on inquiry of C. E. Brooks’ authority to take the lease and rent notes in his name, and to place the same with appellee as collateral security for his debts, and to deny its right to collect the rents from the tenant. The allegation of notice to the tenant was “that at the time he entered into said rental contract with the said C. E. Brooks and executed the rent notes to him, as hereinabove alleged, the said Anderson Crenshaw had notice that the complainant was the owner of said premises for which said lease and rent notes were given, and as such owner entitled to the rents arising from said plantation. * * * That after she discovered that said leáse contract and said rent notes had been executed in the name of C. E. Brooks, she did * * * on September 17, 1910, notify the said Anderson Crenshaw that she claimed the rents for said lands above named, and directed him not to pay any of said rent for the year 1910, or any succeeding year, to any one except herself.”
This allegation charged notice to the tenant of the breach of the trust by her husband and the repudiation of the unwarranted act of the husband and the tenant in giving and accepting the lease and rent notes payable to the husband for the rent of the wife’s lands, and that she demanded of the tenant payment of the rents.
As to the authority of the husband, the bill specifically avers that the wife never gave him authority to rent, or to collect the rents on her lands in his own name, nor in any manner to dispose of said rents in his own name, or to use them for the payment, or as *244security for the payment, of the individual debts of the husband.
The case now made by the amended pleading presents the equity of Mary E. Brooks, a third party to the lease and rent notes, growing out of the wrongful act of her husband and the tenant, Crenshaw, in giving and taking the lease and rent notes in the husband’s name, in disregard of her rights as landlord. If the proof supports the pleadings, a trust was then impressed on the rents for the benefit of the appellant. When the lease and rent notes were given and the notes transferred, it was not necessary that such maker or transferee or purchaser should be guilty of positive fraud, or should actually intend a violation of the trust obligation. It is sufficient that the purchaser or transferee acquired property upon which a trust was in fact impressed. If so impressed, the trust property, or the proceeds of its sale, may be followed so long as it can be identified, into the hands of all subsequent holders who are not in the position of bona fide purchasers for value without notice. — Robinson v. Pierce, 118 Ala. 273, 24 South. 984, 45 L. R. A. 66, 72 Am. St. Rep. 160; Smith v. Perry, 56 Ala. 266; Oliver v. Piatt, 3 How. 411, 11 L. Ed. 622; 3 Pom. Eq. Jur. § 1048; Farmers’ & Traders’ Bank v. Fidelity Co. of Md., 56 S. W. 671, 22 Ky. Law Rep. 22; 2 Lead. Eq. Cases, 713, 273; Central Nat. Bank v. Ins. Co., 104 U. S. 54, 26 L. Ed. 693; Holmes v. Gilmer, 138 N. Y. 376, 34 N. E. 205, 20 L. R. A. 566, 34 Am. St. Rep. 463; Silsbury v. McCoon, 3 N. Y. 379, 53 Am. Dec. 307; Twohy Mercantile Co. v. Melbye, 78 Minn. 357, 81 N. W. 20.
The notes transferred to appellee were nonnegotiable. If Greil Bros. Company was a bona fide assignee of the notes for value, it took the notes discharged from any latent or secret equity in favor of third persons *245of which it had no notice or knowledge. — Dulin v. Hunter, 98 Ala. 539, 13 South. 301; Goldthwaite v. National Bank, 67 Ala. 549; Tison v. People’s Sav. Assoc., 57 Ala. 323. Such was the rule declared by Lord Eldon, in Redfearn v. Ferrier, 1 Dowe Rep. 50, and by Chancellor Kent in Murray v. Lylburn, 2 Johns. Ch. (N. Y.) 441. If Greil Bros. Company knew of the equity of a third person, it would be chargeable. — Summer v. Waugh, 56 Ill. 531; Albion State Bank v. Knickerbocker, 125 Mich. 311, 84 N. W. 311; Reid v. Sprague, 72 N. Y. 457; Rayburn v. Davisson, 22 Or. 242, 29 Pac. 738.
(8) The assignee is not excused from the exercise of prudence and vigilance in making such inquiry as the circumstances of the case would suggest to- a reasonably prudent man.- — Brunson v. Rosenheim, 149 Ala. 112, 43 South. 31; Pepper v. George, 51 Ala. 190, 194; Pippin v. Farmers' Warehouse Co., 167 Ala. 162, 51 South. 882; Center v. P. & M. Bank, 22 Ala. 743, 752; Taylor v. A. & M. Assoc., 68 Ala. 229, 240; First Nat. Bk. v. Nat. Broadway Bk., 156 N. Y. 459, 51 N. E. 398, 42 L. R. A. 139; Mayor v. Williams, 6 Md. 235; Condit v. Maxwell, 142 Mo. 266, 44 S. W. 467; Tantum v. Green, 21 N. J. Eq. 364; Hartley v. Tatham, 23 N. Y. Super. Ct. 273; Swasey v. Emerson, 168 Mass. 118, 46 N. E. 426, 60 Am. St. Rep. 368; Perry on Trusts, § 223; Smith v. Burgess, 133 Mass. 511.
In the cases of Dulin v. Hunter, supra, Goldthwaite v. National Bank, supra, and Tison v. People’s Assoc., supra, the instruments against which equities of third pax-ties were sought to be invoked were dealing with the properties of the makers, and not the properly of a eestxxi qxxe trust. The case before us is that dealt with in Robinson v. Pierce, 118 Ala. 301, 24 South. 984, 45 L. R. A. 66, 72 Am. St. Rep. 160, where a trustee, in *246contravention of the trust, had disposed of the property of the cestui que trust; and it was there held that a purchaser from such trustee in contravention of the trust becomes a trustee in invitum, and that a court of equity will force a trust upon his conscience and compel him to perform it or to' answer for its fruit.— Butts v. Cooper, 152 Ala. 375, 385, 44 South. 616.
In Smyth v. Oliver, 31 Ala. 39, Chief Justice Rice, for the court, declared that the husband had no right, without the consent of the wife, to sell and transfer a promissory note, constituting the bulk of her separate estate, which had been taken for the purchase money of her property, and that a purchaser from the husband, of such promissory note with notice, expressed or implied, of the wife’s equitable right would be held a trustee for her benefit. In Evans v. English, 61 Ala. 416, 423, Chief Justice Brickell (discussing Bolling v. Mock, 35 Ala. 727) says: “The husband, having in his possession a promissory note the property of the wife, without her concurrence, transferred it in the purchase of property. The transfer was an excess of his power as trustee, a breach of trust, and did not divest the wife of her legal title to the note. * * * Of consequence, the only claim of the wife to the property purchased was equitable, growing out of the doctrine of implied or constructive trusts, which prevails only in a court of equity.”
In Bolling’s Case the note was not payable to the wife, but to the administrator. If we examine each of the authorities cited on the point by Justice Head in Robinson v. Pierce, supra, we find that the rule of bona fide purchaser for value without notice as to the equities of third parties (as declared in Dulin v. Hunter, supra) applies with equal force to bona fide purchasers for value without notice of trust properties. Judge *247Story says: “Another instance, perhaps more comprehensive in its reach, in which courts of equity act by creating trusts in invitum, is, where a party purchases trust property, knowing it to be such, from the trustee, in violation of the objects of the trust, courts of equity will force the trust upon the conscience of the guilty party, and compel him to perform it, and to hold the property subject to it, in the same manner as the-trustee himself held it.” — 2 Story, Eq. Jur., § 1257.
In Hill on Trustees (marg. p. 144), the rule is thus stated: “In cases of fraud, whether constructive or actual, courts of equity have adopted principles extremely broad and comprehensive in the application of their remedial justice; and, especially where there is any fraud affecting the acquisition of property, they will interfere and administer the wholesome justice, and sometimes even a stern justice, in favor of innocent persons who are sufferers by it, without any fault on their own side. And this is done by converting the offending party into a trustee, and making the property itself subservient to the proper purposes of recompense, by way of equitable trust.”
Mr. Perry, in his work on Trusts (5th Ed.) § 217, declares: “It is a universal rule that if a man purchases property of a trustee with notice of the trust, he shall be charged with the same trust, in respect to the property, as the trustee from whom he purchased. And even if he pays a valuable consideration, with notice of the equitable rights of a third person he shall hold the property subject to the equitable interests of such third person. * * * Such purchases from trustee, whether for value or not, are fraudulent, and equity will follow the property and fasten the original trust upon it for the security of the cestui que trust, or other person holding an equitable interest.”
*248And in section 241 he declares: “Another instance of a constructive trust without fraud is where a person receives the trust property from the trustee without notice of the trust, by way of voluntary gift or without paying a valuable consideration. If such person had notice of the trust, it would be a fraud to receive the trust fund even if he paid a valuable consideration, and he would be held as a constructive trustee.”
In the case of Clay v. Sullivan, 156 Ala. 392, 396, 47 South. 153, 154, the property in question was the wife’s ring; she had given the husband “no authority to dispose of it, and he turned it over to” another, who was held “liable for conversion.” The court said: “It is clear, from the evidence and the law, that the plaintiff was the owner of the ring, and that the defendant Clay so intermeddled with the same as to render him liable in trover, for a conversion, unless the husband had authority from the wife to- pledge it, not to secure his debt, but, as her agent, to hypothecate it for her benefit.”
These authorities are not in conflict with Bennett v. Brooks, 146 Ala. 490, 494, 41 South. 149, 150, where Justice Anderson said: “The undisputed evidence showed that the hulls belonged to the plaintiff when converted by the defendants, who got them from Johnson, and, as the said Johnson had no title thereto, his vendee could acquire no better title than he had, whether purchased with or without notice of plaintiff’s title and for a valuable consideration. Une who, though acting-in good faith, purchases a chattel from a person in possession, but without title or authority, or indicia of authority, from the true owner to sell, acquires as against the true owner no title, and the latter may maintain trover for its conversion.’ ”
*249The learned justice was careful to limit the rule to the purchase of a chattel from a person in possession without title or authority or indicia of authority. In Mobile & Montgomery Railway Co. v. Felrath, 67 Ala. 189, Chief Justice Brickell declared that when an agent has misapplied or misused the property of his principal, the latter may pursue and recover it. But if the agent had the right to convert into money property of the principal having no “earmarks,” and which cannot he identified after passing into the possession of another who acquires it for value and without notice, it cannot be reclaimed.
The case now made by the bill is, not that the property was converted into money, but that there was a hypothecation, as collateral security for the agent’s debts, of rent notes for a five-year lease before any one of the annual rent notes became due. Was this the due course of collection or disposition of a landlord’s annual rents? According to the averments of the bill, it was a conversion of the rent of Mary E. Brooks by) her husband, who had been intrusted by her with the renting of her lands and the collection of the rents thereon Avhen due, and instructed to apply the proceeds, when collected, on the Avife’s mortgage debts.
It was declared the laAV in the time of Lord Mansfield “that though a factor has power to sell, and thereby bind his principal, yet he cannot bind or affect the property or the goods by pledging them as a security for his OAvn debt, though there is the formality of a bill of parcels and a receipt.” — Patterson v. Tash, 1 Strange, 1178.
Whether the case be decided on the theory of a constructive trust or on that of an unauthorized sale and transfer of a nonnegotiable rent note by an agent, the transferees of the notes must account therefor to the real OAvner, unless they can show that- they Avere bona *250fide purchasers for a valuable consideration, and without notice of the rights of the real owner, or without knowledge of facts that would put a reasonably careful man on inquiry which, if pursued, would lead to a knowledge of the ownership of the rent notes in question.
The application for a rehearing is overruled.
Anderson, C. J., and McClellan, Somerville and Thomas, JJ., concur. Mayfield and Sayre, JJ., dissent. Gardner, J., not sitting.