Fulp v. Fulp

140 S.E.2d 708 (1965) 264 N.C. 20

Ruby Mabe FULP
v.
John Robert FULP.

No. 447.

Supreme Court of North Carolina.

March 17, 1965.

Frank C. Ausband, Kernersville, and Randolph & Clayton, Winston-Salem, for plaintiff.

Hayes & Hayes, Winston-Salem, for defendant.

SHARP, Justice.

Plaintiff's evidence is insufficient to establish either a resulting or a constructive trust in the land described in the complaint, for defendant acquired no title to realty with the use of plaintiff's money. "(A) resulting trust arises, if at all, in the same transaction in which the legal title passes, and by virtue of consideration advanced before or at the time the legal title passes, and not from consideration thereafter paid." Rhodes v. Raxter, 242 N.C. 206, 208, 87 S.E.2d 265, 267. When one person's money is used to pay for land, title to which is taken in the name of another, equity creates a trust commensurate with his interest in favor of the one furnishing the money. Bowen v. Darden, 241 N.C. 11, 84 S.E.2d 289. A constructive trust, on the other hand, arises when one obtains the legal title to property in violation of a duty he owes to another. Constructive trusts ordinarily arise from actual or presumptive fraud and usually involve the breach of a confidential relationship. Teachey v. Gurley, 214 N.C. 288, 199 S.E. 83; Lee, North Carolina Law of Trusts § 11(a) (1963 ed.) Plaintiff's evidence is insufficient to establish in herself any equitable title to the land; defendant did not acquire title with her money.

Notwithstanding, plaintiff's evidence is sufficient to establish that, in consideration of defendant's oral promise to convey her a one-half interest in the land, or "to have her name put on the deed," she turned over to him $2,500-$3,000 of her money, with which he made improvements on his property. This contract to convey was not specifically enforceable because it was not in writing. Even so, defendant became liable to plaintiff, when he refused to convey, for all the money he received from her under it. Wells v. Foreman, 236 N.C. 351, 72 S.E.2d 765. This would have been true even if the parties were strangers because such an obligation is enforceable in an action in assumpsit for money had and received, the most common medium of restitution. Because they were not strangers, plaintiff was entitled not only to a judgment for the money advanced but also to the remedy of an equitable lien.

"The most confidential of all relationships is that between husband and wife, and transactions between them, to be valid, particularly as to her, must be fair and reasonable." Wolff v. Wolff, 134 N.J.Eq. 8, 15, 34 A.2d 150, 155; accord, Matt v. Matt, 115 Colo. 589, 178 P.2d 419; Brewer v. Brewer, 84 Ohio App. 35, 78 N.E.2d 919; Hodes v. Hodes, 173 Or. 267, 145 P.2d 299; 26 Am.Jur., Husband and Wife § 268 (1940).

"`Whenever a husband acquires possession of the separate property of his wife, whether with or without her consent, he must be deemed to hold it in trust for her benefit, in the absence of any direct evidence that she intended to make a gift of it to him.' * * * The reason for the rule is thus stated in Parrett v. Palmer, * * * (8 Ind.App. 356, 35 N.E. 713, 52 Am.St. Rep. 479): `The trust and confidence ordinarily reposed by the wife in the husband, her natural reliance and dependence upon him for the management of her business; the fact that as a rule the husband is possessed of general business experience, while the experience of the wife is usually limited; all these considerations sustain us in the conclusion that where the wife voluntarily delivers her money to the husband, the law presumes that he takes it as trustee for her, and not as a gift, even though there be no express promise to repay. * * *'" Etheredge v. Cochran, 196 N.C. 681, 682, 146 S.E. 711, 712; accord, Bowling v. Bowling, 252 N.C. 527, 114 S.E.2d 228.

Here, there is no question of a gift, for plaintiff has testified that defendant expressly promised to convey her an interest in the land in consideration of the money she advanced. In reviewing the motion of nonsuit we accept this testimony as true. Therefore, defendant had the duty to restore plaintiff her funds. Since she is able to trace the money into the improvements which defendant made on the land, any judgment obtainable would qualify as an equitable lien. Edgecombe Bank & Trust Co. v. Barrett, 238 N.C. 579, 78 S.E.2d 730; Edwards v. Culberson, 111 N.C. 342, 16 S.E. 233, 18 L.R.A. 204.

An equitable lien, or encumbrance, is not an estate in land, nor is it a right which, in itself, may be the basis of a possessory action. It is simply a charge upon the property, which charge subjects the property to the payment of the debt of the creditor in whose favor the charge exists. "It is the very essence of this conception, that while the lien continues, the possession of the thing remains with the debtor or person who holds the proprietary interest subject to the encumbrance." 1 Pomeroy's Equity Jurisprudence § 165 (5th ed. 1941). "(T)he doctrine of `equitable liens' was introduced for the sole purpose of furnishing a ground for the specific remedies which equity confers, operating upon particular identified property, instead of the general pecuniary recoveries granted by courts of law." Id. § 166. In other words, an equitable lien, by charging specific property, provides an enforcement of the obligation more effective than that provided for the enforcement of the ordinary money judgment.

"`An equitable lien arises either from a written contract which shows an intention to charge some particular property with a debt or obligation, or is declared by a court of equity out of the general considerations of right and justice, as applied to the relations of the parties and the circumstances of their dealings.'" Garrison v. Vermont Mills, 154 N.C. 1, 6, 69 S.E. 743, 744, 31 L.R.A.,N.S., 450, 453, modifying on rehearing 152 N.C. 643, 68 S.E. 142; accord, Burrowes v. Nimocks, 35 F.2d 152 (4th Cir.); Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 43 A.L.R. 1409. See Stanley v. Cox, 253 N.C. 620, 630-631, 117 S.E.2d 826, 833-834.

A lien in equity is analogous both to resulting and to constructive trusts, but between the two there is a fundamental difference, which is drawn in 4 Pomeroy, op. cit. supra note 5, § 1234:

"(T)he very essence of every real trust, express, resulting, or constructive, is the existence of two estates in the same thing,—a legal estate vested in the trustee, and an equitable estate held by the beneficiary. In an equitable lien there is a legal estate with possession in one person, and a special right over the thing held by another; but here the resemblance, which at most is external, ends. This special right is not an estate of any kind; it does not entitle the holder to a conveyance of the thing nor to its use; it is merely a right to secure the performance of some outstanding obligation, by means of a proceeding directed against the thing which is subject to the lien. To call this a trust, and the owner of the thing a trustee for the lien-holder, is a misapplication of terms which have a very distinct and certain meaning."

In the absence of a contract an equitable lien most frequently arises in cases where one person has wrongfully expended, for improvements on his property, the funds of another, but instances of this sort of lien are not confined to such cases. See Annot., Remedy of one whose money is fraudulently used in the purchase or improvement of real property, 43 A.L.R. 1415, 1441. This remedy is not a necessary incident to the action for money had and received but results only where there are factors invoking equity, here the confidential relationship. In Jones v. Carpenter, supra, the president of a corporation had used corporate funds to make improvements upon his personal residence. In a suit against him by the trustee of the bankrupt corporation, it was held that, since defendant, while acting in a fiduciary capacity, had misappropriated corporate funds, plaintiff was entitled to follow the funds and to assert an equitable lien on the property.

It is apparent, then, that at the time the improvements on defendant's house were completed in 1952, plaintiff could have acquired an equitable lien on the property for the amount of her money which defendant had expended in making the improvements upon it. This brings us to the decisive question in this case: Is plaintiff's action in assumpsit barred by the three-year statute of limitations, which defendant has pleaded? If so, the nonsuit was correct because "where the party against whom the statute has been pleaded fails to sustain the burden on him to show that limitations had not run against his cause of action, it is proper for the court to grant a motion for nonsuit." Solon Lodge v. Ionic Lodge, 247 N.C. 310, 317, 101 S.E.2d 8, 13; accord, Mobley v. Broome, 248 N.C. 54, 102 S.E.2d 407.

Although the rule is apparently otherwise in a majority of the other American jurisdictions—see 34 Am.Jur., Limitation of Actions § 377 (1941); Annot., Applicability of statute of limitations or doctrine of laches as between husband and wife, 121 A.L.R. 1382, 1393, 1403—, yet in Graves v. Howard, 159 N.C. 594, 598, 75 S.E. 998, 1000, Ann.Cas.1914C, 565, 567, it was said:

"The statutes of limitations contain no exception in favor of the wife when she holds a claim against her husband. * * * Disputes with respect to property may arise between them when the separate existence of the wife, and a separate right of property, are recognized at law, as in this state, as well as other matters; and, when they do arise, there is as great necessity for a judicial determination of the questions as when they arise between other parties. A litigation of the kind between husband and wife may be unseemly and abhorrent to our ideas of propriety, but a litigation in one form can be no more so than in another, and no more so than the necessity itself which gives rise to the litigation. * * *"

The language of Graves is broader than its facts required. At the time the wife in that case became the owner of her husband's note, the subject of the suit, the note was already due. The statute, therefore, had already commenced to run. Under the rule that once the statute begins to run nothing stops it, Pell's Rev. § 365 (G.S. § 1-20); Frederick v. Williams, 103 N.C. 189, 9 S.E. 298, it continued to run against the wife. That, and nothing more, was the ratio decidendi of Graves. Nevertheless, we approve the reasoning quoted above and hold that statutes of limitation run as well between spouses as between strangers. Curiously enough, this appears to be a question previously undecided in this State; see Spence v. Foster Pottery Co., 185 N.C. 218, 225, 117 S.E. 32, 36 (dissent).

Plaintiff's action is based on an implied contract and is analogous to one based on the breach of an express trust, which is necessarily based on a breach of contract. Teachey v. Gurley, supra. The limitation applicable to both such actions is three years. G.S. § 1-52. In the case of an express trust the statute begins to run when the trustee disavows the trust with the knowledge of the cestui que trust, Solon Lodge v. Ionic Lodge, supra. Unquestionably, therefore, the statute of limitations began to run against plaintiff's claim against defendant when, upon the completion of the house in 1952, she called upon him to perform his agreement "to put her name on the deed" and he replied "You don't think I'm a damn fool, do you?" This was a flat repudiation of his agreement and was notice to plaintiff that he intended to misappropriate the funds which he had received from her through their confidential relationship. The defense of the statute is not barred by the existence of a fiduciary relation between the parties. Henry v. Hammon, [1913] 2 K.B. 515 (action for money had and received). Were plaintiff the cestui que trust of a resulting or a constructive trust, the ten-year statute would apply, G.S. § 1-56; Rochlin v. P. S. West Construction Co., 234 N.C. 443, 67 S.E.2d 464; Bowen v. Darden, supra; Teachey v. Gurley, supra; and, she sharing defendant's possession, the statute would not have begun to run against her until the separation of the parties on May 31, 1959, some seven years after the breach of promise, Solon Lodge v. Ionic Lodge, supra; Bowen v. Darden, supra. The ten-year statute applies when the title to property is at issue, not where, as here, the action is merely for breach of contract, Barden v. Stickney, 132 N.C. 416, 43 S.E. 912, though the enforcing remedy, the equitable lien, is analogous to remedies for resort to which the statute of limitations is ten years. As we have seen, however, plaintiff's action is based upon an implied contract, the equitable lien which could have been imposed notwithstanding. See Reynolds v. Whitin Mach. Works, 167 F.2d 78 (4th Cir.), cert. den. 334 U.S. 844, 68 S. Ct. 1513, 92 L. Ed. 1768. The applicable statute is G.S. § 1-52, three years. This action was not instituted until December 19, 1959, at least four years after it was barred. The nonsuit was proper.

Affirmed.