Hancock v. Hancock , 205 Ga. 684 ( 1949 )

1. The allegations of the petition were sufficient to set forth a cause of action on the theory of an implied trust; and the trial judge did not err in overruling the general demurrer.

2. Error was committed in overruling the demurrer attacking that portion of the petition seeking to establish a constructive trust as to a 100-acre tract of land; and all further proceedings in the trial court were nugatory.

No. 16670. JULY 12, 1949. REHEARING DENIED JULY 27, 1949. On April 11, 1944, Coy R. Hancock, as administrator of the estate of Linton C. Hancock, filed in Colquitt Superior Court, against Levay C. Hancock and his wife, a petition which as twice amended alleged substantially the following: In 1936 Linton C. Hancock owned 281 acres of described realty, which was encumbered by outstanding security deeds, and he remained in possession thereof until he died intestate on September 3, 1941. He made application to the Federal Land Bank of Columbia for a loan in an amount sufficient to liquidate the indebtedness. At the time he was nearly 80 years of age, and was unable to procure the loan on account of his advanced years and enfeebled condition. However, the local agent of the Land Bank suggested that the loan could be obtained by conveying the property to some younger member of his family, having such member apply for the loan, and then reconveying the property to him after the consummation of the loan and subject thereto. Thereupon, the principal defendant, Levay C. Hancock, who was one of his sons, being fully advised in the premises, offered to assist his father in the manner before stated, and to handle, operate, and manage his father's business affairs for him during his declining years, which agreement was in parol. The father was illiterate, unable to write except to sign his name, could not read writing, and being childish and in his dotage, reposed implicit confidence in his son, and so trusting him, constituted him his confidential and continuing agent for the purposes aforesaid. The acts and conduct of the son, as hereinabove and hereinafter stated, constituted a fraud upon his father. In the circumstances and for the purposes detailed, the father on June 24, 1936, conveyed approximately 181 acres of the realty to the principal defendant, and the latter assumed the management of the entire farm, including that part conveyed to him. The copy of the deed attached to the petition was a plain warranty deed, reciting the consideration as $4500, together with stated encumbrances, all of which the grantee agreed to pay off.

On August 17, 1937, pursuant to the arrangement, the principal defendant conveyed the 181 acres to the Federal Land Bank to secure a loan of $2000, and by a second deed conveyed the same property to the Land Bank Commissioner to secure an additional loan of $1000. The principal defendant received the $3000 and retired the existing encumbrances in an amount unknown to the petitioner but insufficient to consume the entire proceeds of the loans. While the loans were closed in August, 1937, the principal defendant repeatedly stated to his father that the loans had not been closed, and for nearly two years the father was kept in ignorance thereof. When the father learned that the loans had been closed he immediately requested his son to reconvey the property, but the son continued to delay the reconveyance upon one pretext or another, contending among other things that he could not legally reconvey the property because of the outstanding loans, that the creditors would not be satisfied with such arrangement, and that he himself was entitled to have the loans paid off before he reconveyed the property to his father. While thus delaying the fulfillment of his obligation as a trustee, the principal defendant, having previously voluntarily conveyed other real estate, which is not here involved, to his wife (the other defendant), did on April 12, 1940, voluntarily convey the 181 acres to his wife, subject to the outstanding security deeds. Shortly thereafter the father discovered that the loans had been closed, protested the conveyance to the defendant wife, and insisted that the principal defendant carry out his agreement by effecting a reconveyance to him, but this the principal defendant refused to do. A few months later the father died. The failure of the principal defendant to reconvey the land to his father, and, on the contrary, conveying the land to his wife, was a fraud against his father; and the defendant wife, having taken the deed from her husband with knowledge of the equities of the father, took said deed subject to the equities of his estate.

While no deed was made to the principal defendant to the remaining 100 acres, since it was not contemplated that it would be necessary to include it in the security for the loan, nevertheless, as before stated, the entire home place was turned over to the principal defendant to be operated for his father. On March 31, 1936, the father conveyed the 100 acres to J. P. Lawson to secure $311.81, but in fact the debt created was for the purpose of obtaining funds with which to pay off personal indebtednesses owing by the principal defendant. Subsequently Lawson transferred the note and security deed to Leo T. Barber. On October 2, 1936, the father executed a second security deed to the petitioner embracing the 100 acres. On November 3, 1938, the petitioner transferred his note and security deed to Barber for a consideration of $400. On November 4, 1941, Barber under the power of sale contained in the petitioner's security deed subjected the property to sale, and the same was bought in by L. W. Green for a purported consideration of $1300, when as a matter of fact the indebtedness due Barber was $1215 including the cost of sale. The principal defendant induced Barber to foreclose the deed with the prearrangement and understanding with Green that he purchase the property and convey the same to the wife of the principal defendant. In pursuance thereof Green did convey the property bought in by him to the defendant wife on November 7, 1941, for a purported consideration of $1450. The principal defendant in procuring the sale and the execution of the deeds pursuant thereto violated his duty as a continuing agent and trustee and did so for the purpose of defrauding the estate of his father.

The several conveyances place the record title to all of the property formerly owned by the intestate in the wife of the principal defendant, and she took all the deeds and now holds the property with full knowledge of the facts before set forth. In the circumstances, the defendant wife holds all of the property, constituting the entire property of the intestate, impressed with a trust in favor of said estate and the petitioner as administrator thereof.

During each of the years that the principal defendant operated his father's farms, both prior and subsequently to the death of his father, he sold all of the farm produce and made disposition of the funds derived therefrom. In addition thereto he sold all of the livestock and farm equipment together with all the timber suitable for cross-ties and wood purposes. He has never accounted for the balance of the proceeds of the loan from the Federal Land Bank, or for the proceeds from the sale of crops, livestock, farm equipment and timber, and he should be required so to do. Each of the defendants is insolvent.

The prayers of the petition, besides for process and a rule nisi, were: (1) that a receiver be appointed; (2) that the defendants be required to account for the moneys and properties coming into their hands belonging to the estate; (3) that it be decreed that the defendant wife holds the property which was turned over by the father to the son, as trustee for and impressed with a trust in behalf of the estate of the father and the petitioner as administrator thereof, and that title thereto be decreed to be vested in the petitioner as administrator of the estate, subject to such valid encumbrances as may be outstanding against the same and subject to administration by the court; (4) that the petitioner have such further relief as to the court may seem meet and proper.

Demurrers were interposed to the original petition and renewed to the petition as amended. The demurrers were overruled, and the defendants filed exceptions pendente lite.

When the case came on for trial four questions were submitted to the jury. The questions, with the findings of fact, were to the following effect: 1. Was the deed from the father to the son, conveying the 181-acre tract embraced in the deed to the Federal Land Bank, executed and delivered with the understanding and agreement between the father and son that the grantee son was to obtain a loan and reconvey the property back to his father? Answer: Yes. 2. Was the sale of the 100-acre tract under the security deed executed by the father to the petitioner, dated October 2, 1936, a fair or fraudulent exercise of the power of sale contained therein? Answer: Fraudulent. 3. If you answer question number one "yes," then you determine under the evidence, if any, the fair or reasonable value of the property the defendant should account to the petitioner for? Answer: $2000. 4. If your answer to question number two is "fraudulent;" then you determine under the evidence, if any, the fair and reasonable value of the property the defendant should account to the petitioner for? Answer: $500. A decree was entered in accordance with the special verdict.

The defendants filed a motion for new trial, which was amended by the addition of special grounds complaining of stated excerpts from the charge and because the court refused to have the jury answer fourteen questions submitted by the defendants. The court overruled the motion for new trial as amended, and the case comes to this court for review upon the defendants' exceptions to that judgment. In the bill of exceptions they also assign error on the exceptions pendente lite. 1. The allegations of the petition as amended, to the effect that the principal defendant, being fully advised in the premises, offered to assist his father in procuring a loan by taking title to the 181-acre tract of land, making application for the loan, and, when accomplished, to reconvey the property to his father, which agreement was in parol, that the son failed to reconvey the land to his father, and on the contrary conveyed it to his wife, and the acts and conduct of the son were a fraud upon his father, were sufficient to allege a cause of action based on an implied trust. Day v. Parham, 192 Ga. 484 (15 S.E.2d 714); Pittman v. Pittman, 196 Ga. 397 (2) (26 S.E.2d 764); Hall v. Turner, 198 Ga. 763 (32 S.E.2d 829); Harper v. Harper, 199 Ga. 26 (33 S.E.2d 154).

The cited cases deal thoroughly with the principles of law giving rise to implied trusts under circumstances similar to those allegedly existing in the present case; and with a citation of these authorities we might with propriety rest our decision upon this phase of the case. However, in view of the forceful argument advanced by counsel for the plaintiff in error, some further discussion of the law of trusts appears to be in order.

It is urged by the plaintiff in error: (1) that the petition attempts to assert an express trust by parol and engraft it on a deed; (2) that no constructive trust is established by the pleadings, in that the allegations of the petition are insufficient to show inceptive fraud in the transaction, that is, that the grantor was induced to execute the deed by false or fraudulent promises, intentionally made; and (3) that the petition attempts to vary the consideration set forth in the deed by substituting an entirely different consideration by parol.

"Trusts are either express or implied. Express trusts are those created and manifested by agreement of the parties. Implied trusts are such as are inferred by law from the nature of the transaction or the conduct of the parties." Code, § 108-104. "While express trusts must be created by writing, and cannot be proved by parol, implied trusts may be established by parol evidence, although the effect of such evidence is to alter or vary a written instrument, and although the defendant sets up and insists upon the statute of frauds." Jenkins v. Lane,154 Ga. 454 (3a) (115 S.E. 126); Jansen v. Jansen, 180 Ga. 318 (178 S.E. 654); Sykes v. Reeves, 195 Ga. 587 (24 S.E.2d 688).

"Trusts are implied: 1. Whenever the legal title is in one person, but the beneficial interest, either from the payment of the purchase money or other circumstances, is either wholly or partially in another. 2. Where, from any fraud, one person obtains the title to property which rightly belongs to another. 3. Where from the nature of the transaction it is manifest that it was the intention of the parties that the person taking the legal title should have no beneficial interest." Code, § 108-106. Thus it will be seen that implied trusts arise under varying circumstances. Such trusts are divided into two categories; resulting trusts and constructive trusts, and sometimes it is exceedingly difficult to differentiate between the two; but ordinarily distinctions are unnecessary since both are implied trusts and are governed by the same rules. Generally trusts arising under the first and third classifications in the cited Code section are resulting trusts, while those arising under the second classification are constructive trusts. Not infrequently in the case of resulting trusts no fraud exists, such trusts resting primarily on an implication of law from the nature of the transaction; but generally, if not necessarily, the element of fraud is present in constructive trusts.

Sometimes a trust partakes of the nature of both a resulting and a constructive trust. For instance (aside from those cases calling for special considerations, as where there arises an inference of a gift), if A purchases land, paying the purchase-price therefor, and for convenience, or by agreement with B, the legal title is placed in B's name, a resulting trust arises in favor of A; and if B, who had every intention of conveying the property to A, should die, his heirs or representative would hold the property impressed with a resulting trust, although no fraud had entered into the transaction. If, under the same circumstances, B took title, having induced the transaction, intending at the time to break the agreement and appropriate the property to his own use, or after acquiring the title formed such an evil and dishonest intention, which was followed by a retention or disposition of the trust res, this would constitute fraud, and he would hold the property or the proceeds as a trustee ex maleficio. Thus, what in the beginning might have been a resulting trust may by subsequent events partake more of the nature of a constructive trust.

Bringing the illustration squarely within the facts of the present case, if A, a father, deed land to B, a son, not upon a good and valuable consideration, though such consideration might be recited in the deed, but for the purpose of the son's obtaining a loan on the land and reconveying to the father, a resulting trust would arise in favor of the father. SimpsonGrocery Co. v. Knight, 148 Ga. 410 (96 S.E. 872); Peppers v. Peppers, 194 Ga. 10, 12 (20 S.E.2d 409). The trust would not rest upon the agreement, though it might be proved to rebut the inference of a gift; but, on the contrary, the law would imply that the son held the legal title for the benefit of the father. This rule applies even where possession is delivered by the grantor, there being no conflict between this rule and the provisions of the Code, § 67-104, "Which declares that a deed absolute on its face and accompanied with possession of the property shall not be proved (at the instance of the parties) by parol evidence to be a mortgage only, unless fraud in its procurement is the issue to be tried. Nor is the ruling in conflict with the decisions which applied the section just cited to those cases where a grantor contended that a deed absolute on its face and accompanied with possession of the property was a security deed only." SimpsonGrocery Co. v. Knight, supra; Jenkins v. Lane, supra. If, under the circumstances enumerated, the son induced the transaction with the intention of not complying with the agreement, or after having acquired the property formed such intent and appropriated the property would be impressed with a constructive trust. There is ample authority for this statement, which we shall presently cite.

Accordingly, it would appear that it makes little difference whether, in a case such as the present one, the implied trust was in the nature of a resulting or a constructive trust. However, the present petition seems to be predicated on the theory of a constructive trust, and we shall so consider the trust sought to be established.

The principles controlling this case have been so well considered and presented in Pittman v. Pittman, supra, which answers the contentions of counsel for the plaintiff in error, that we feel justified in quoting liberally from that opinion: "While fraudulent undertakings or promises, whatever their terms, ``do not, unless reduced to writing, raise express trusts,' yet ``the law, acting upon them according to their nature, makes them a basis upon which to build up in favor of the defrauded party an implied or constructive trust. . .While an express trust can only be shown by a writing, an implied trust may rest upon an express parol agreement, fraudulently made, by which a person acquires title to property of another; and in such case the express promise may be proved by parol to raise, not an express, but an implied trust.' Likewise, in Guffin v. Kelley, 191 Ga. 880,886 (14 S.E.2d 50), the court said: ``The fact that the plaintiff alleged that a certain oral agreement was made between him and [the other parties] at the time of such conveyance to the latter, did not render the petition defective as seeking to enforce an express trust by parol. If from all the facts and circumstancesan implied trust is otherwise established, it is not destroyed by the express verbal agreement which may have constituted part of the transaction. The express agreement may be shown, not as fixing the interest to be owned by the parties, but as rebutting the inference of a gift by the plaintiff.' To the same effect seeHemphill v. Hemphill, 176 Ga. 585, 590 (168 S.E. 878);Hadaway v. Hadaway, 192 Ga. 265 (14 S.E.2d 874); 3 Scott on Trusts, §§ 482, 485, 486, and cit. It matters not whether a fraudulent intention existed at the time the conveyance was made. ``Constructive trusts are such as are raised by equity in respect of property which had been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds it.' O'Neal v. O'Neal,176 Ga. 418 (2) (168 S.E. 262); 26 R. C. L. 1232, § 78; 3 Scott on Trusts, 2317, § 462.2.

"In construing the codified rules quoted, defining express and implied trusts, it has been held in general terms that ``a parol trust cannot be engrafted on an absolute deed.' Durrett v.McWhortaer, 161 Ga. 179, 181 (129 S.E. 870). But a ``deed' as referred to in such decisions must have reference to an instrument valid not only in form but in substance, and not a deed wholly without consideration, good or valuable, and where the grantee fraudulently holds thereunder against the rights of the vendor. The general rule stated in the Durrett case is but the application of another rule that it is not permissible to vary or contradict by parol the terms of a written instrument. But our Code, § 29-101, declares that ``a deed to lands must be . . . made on a valuable or good consideration,' and that ``the consideration of a deed may always be inquired into when the principles of justice required it.' If, however, the instrument states the consideration, not merely by way of recital, but in such a way as to constitute it a part of the terms and conditions of the agreement itself, then and in such event it is not permissible, even under the guise of inquiring into the consideration, to set up a new and different consideration, and in this way to incidentally modify the terms and conditions of the written contract. But the rule just stated does not have application where a total lack or a total failure of consideration is shown. In that event the instrument can be attacked irrespectively of how or in what manner the consideration may be expressed. Carter v. Walden,136 Ga. 700 (71 S.E. 1047); Finch v. Woods, 113 Ga. 996 (39 S.E. 418); Aultman v. Mason, 83 Ga. 212, 219 (9 S.E. 536); Byrd v. Marietta Fertilizer Co., 127 Ga. 30, 34 (56 S.E. 86), and cit.; Ramsey-Fender Motor Co. v. Chapman,46 Ga. App. 385, 390, 392 (168 S.E. 92), and cit.; Code, § 29-110."

Still quoting from the Pittman case, but paraphrasing to bring the ruling squarely within the facts of the instant case — in this case, although a valuable consideration is mentioned, it is contended that none exists, unless it be the assumption by the son of his obligation to obtain a loan on the land and reconvey to his father: "In other words, if the [son] did not take the title with this trust or condition, he did not take any title at all; and such being the case, it would be a fraud for him to hold it adversely or to give it to his wife. It follows that since the deed was wholly without any good or valuable consideration, other than the trust assumed, and since the only title at all that [he] could have had was a title in trust [the petitioner's claim] is not an attempt to engraft on an otherwise good and valid deed an extraneous parol trust, but is an effort either to void the deed, or else to sustain it in the only way that it might possibly be given effect, if allowed to have any effect at all.

"This is not a new proposition before this court. Substantially and in legal effect the identical question here involved was decided by a unanimous bench in McKinney v.Burns, 31 Ga. 295, 299, where it was said: ``It is contended that a parol trust to the land cannot be engrafted on the absolute deed from Burns to McKinney. There is no attempt to do this. The legal title was conveyed to McKinney merely to enable him to pass it over to Mrs. Burns and her children. The deed is founded upon no consideration good or valuable. The title was conveyed to him for a particular purpose. It operates as a power merely. Powers of attorney are frequently executed in this way, and any attempt to hold or appropriate the land under such a power would constitute a fraud, against which equity would grant relief.'"

As to the question of the necessity of inceptive fraud, the principles governing constructive trusts should not be confused with such cases as Brinson v. Hester, 185 Ga. 761 (196 S.E. 412), and Pantone v. Pantone, 203 Ga. 347 (46 S.E.2d 498), being suits to cancel deeds made upon a promise by the grantee that he would support and maintain the grantor for the balance of his life, or similar covenants. In a case of that character there has been a conveyance upon a good and valuable consideration, and the action is based upon the breach of a covenant. Ordinarily, the remedy in such a case is a suit for damages, unless there are special equities, making such a suit inadequate, such as insolvency on the part of the grantee. (Incidentally, in a suit to impress property with a constructive trust, the question of insolvency is ordinarily immaterial.) Such a deed may also be canceled where it is procured as the result of an "inceptive fraudulent intent." See Pantone v. Pantone, supra, where the grant of a nonsuit was affirmed because no "inceptive fraudulent intent" was proved. The Pantone decision, as applied to the facts of that particular case, states correct principles. The writer of that opinion, Presiding Justice Atkinson, also states and applies the correct rule, with respect to constructive trusts, in Murray County v. Pickering,196 Ga. 208 (26 S.E.2d 287), where it is said: "Constructive trusts are such as are raised by equity in respect of property which has been acquired by fraud, or where though acquired originally without fraud, it is against equity that it should be retained by him who holds it." There is certain language inMays v. Perry, 196 Ga. 729 (27 S.E.2d 698), written by the writer of the present opinion, which might be construed as holding that it is necessary to show inceptive fraud in order to establish a constructive trust. If the ruling there made is susceptible of such a construction, then it must yield to earlier fullbench decisions holding to the contrary.

The instant case differs from those cases where the parol trust sought to be imposed would have vested duties and obligations separate and distinct from those which would naturally arise from the "nature of the transaction or the conduct of the parties." Such a case is Jones v. Jones,196 Ga. 492 (26 S.E.2d 602), upon which counsel for the plaintiff in error in the present case principally rely in their argument. As stated in the Pittman case, supra, in the Jones case "a situation existed which was entirely different from that here involved. There the deed was not without at least a good consideration, if not also, as contended, a valuable one; and the plaintiff not only relied on the terms of the express parol agreement pleaded, which he necessarily had to rely upon, since under the allegations the grantee in the deed from the father of the parties was to convey to the plaintiff a specifically described portion of a tract of land, and no right to recover such particular portion of the tract could have existed from the mere relationship of the parties and the nature of the transaction, but the right, if any, of the plaintiff to thus recover was dependent upon the specific terms of the express parol trust. Also, in the Jones case, the party seeking to set up the trust was not the grantor of the deed, seeking to re-establish the status quo, but was a mere voluntary beneficiary of the alleged parol agreement." Here, on the contrary, the representative of the estate of the grantor seeks no more than he would be entitled to claim in restoring the status quo that existed when the property was deeded to the son without consideration. The petitioner seeks to recover the property for the benefit of the heirs at law, including the defendant, of the grantor.

(a) Where a grantee holds property impressed with a constructive trust in favor of the grantor, and conveys such property to another, who has notice and knowledge of the circumstances creating the constructive trust, the latter takes the property subject to the equities of the original grantor, and is a proper party in a suit seeking to impress the property with a constructive trust.

Applying the foregoing rulings, the petition set forth a cause of action on the theory of an implied trust; and under the well established principle that a petition will not be dismissed on general demurrer if the facts entitle the plaintiff to any of the substantial relief sought, the trial judge did not err in overruling the general demurrers interposed by the two defendants.

2. The allegations of the petition as amended, to the effect that the father constituted the principal defendant as his continuing agent and trustee to operate and manage the father's business affairs for him during his declining years, and that the principal defendant, subsequently to the death of his father, procured a third person to exercise a power of sale as to the 100 acre tract of land, and thereby violated his duty as a continuing agent and trustee, come within the general rule that the relationship of principal and agent is terminated by the death of the principal. Code, § 4-214 (1); Wilkins v. McGehee,86 Ga. 764 (1) (13 S.E. 84); Ray v. Hemphill, 97 Ga. 563 (25 S.E. 485); Anderson v. Goodwin, 125 Ga. 663 (3) (54 S.E. 679).

Counsel for the petitioner insist that the agency was coupled with an interest because the principal defendant was an heir at law and entitled to a child's part in his father's estate. There is no merit in this insistence, for the reason that the exception to the general rule exists where the power of the agent is coupled with an interest in the property; and since the son had no interest in the 100-acre tract at the time the alleged contract was entered into, the father could have revoked the contract during his lifetime. After the death of the father terminated the agency, the principal defendant could bid at the foreclosure sale the same as other children. The petition did not allege that the other children did not have notice of the foreclosure sale, and the allegations that the principal defendant procured a third person to exercise a power of sale, and thereby violated his duty as a continuing agent, were subject to demurrer. Accordingly, the trial judge erred in overruling grounds 3 and 4 of the demurrer, attacking paragraphs 22 to 28 inclusive of the petition "upon the ground that the allegations contained in said paragraphs, both separately and collectively, are insufficient in law to create a trust in favor of the plaintiff on the 100-acre tract described in the petition."

(a) Other grounds of demurrer, such as attacks on certain paragraphs for a failure to attach copies of deeds which did not form the basis of the action, and an attack on the petition for a nonjoinder of parties, have been examined and found to be without merit; and no error was committed in overruling these grounds of demurrer.

(b) The questions raised in the motion for a new trial are not dealt with, inasmuch as all the proceedings in the trial court subsequent to the overruling of the defendants' demurrers, as indicated in the second division of this opinion, are to be treated as nugatory. Southern Railway Co. v. Pope, 129 Ga. 842 (60 S.E. 157).

Judgment affirmed in part and reversed in part. All theJustices concur, except Atkinson, P. J., who dissents.