MacGregor v. Gardner

Baldwin, J.1

This suit was commenced in the Clayton District Court, at the May Term, 1853. It was finally heard in the Dubuque District Court, upon change of venue. A full and concise history of the case, and the issues made by the pleadings, may be had by reference to the case of MacGregors v. MacGregor et al., 9 Iowa, 65. By reference to the statement of the case as above reported, it will be found that the object of the complainant’s petition, was to set aside and to have declared as fraudulent and *330 void, certain deeds to real estate made by Alexander MacGregor as tbe attorney of James MacGregor, Jr., to George D. and Egbert Gardner. James claims, that tbe lands thus conveyed were purchased with his money, and for his own use and benefit; that the said deeds were made by Alexander, as his attorney, to the Gardners, without consideration and for a fraudulent purpose, and prays that the same may be cancelled and declared void.

Alexander claims, that the lands thus conveyed were purchased for his use, but that the titles thereto were taken in the name of James, as he, Alexander, was at that time involved and could not hold property in his own name.

It is also claimed, by Alexander, that $2,000 of the money thus invested, was a certain trust fund willed to his wife, Ann G. MacGregor, bj^ his brother, Gregor MacGregor ; that Duncan MacGregor, ahother brother, and the complainant, were the trustees of this fund; that the said trustees assented to the investment of this fund in the lands thus conveyed; and that the lands purchased therewith should inure to the use and benefit of the cestui que trust; that after it was ascertained that James refused to recognize the purchases thus made as an investment of this trust fund, the said Alexander conveyed the said property to the Gardners, under his power of attorney, by its terms irrevocable, for the purpose of protecting the rights of the beneficiaries under the will; that the said Gardners now hold the said property in trust for the said legatees.

At the June Term, 1857, the cause was submitted to the court, and a decree was entered in which it was found, that the $2,000 waSj by agreement of the trustees named in the bill, invested in the lands and estate known as the Eei’ry property, part of the property conveyed to the Gardners; and it was ordered and decreed, that “ the undivided- half of the aforesaid tracts of land are the fund of $2,000; that *331 the same should be conveyed by George D. Gardner and Egbert Gardner to George D. as trustee, to hold the same for the use of Ann G. MacGregor during her life; and after-wards to the use of the persons who shall be entitled to the same under the said claim of said will.”

It appears, also, from the pleadings and evidence that in 1859 James came to the town of MacGregor, Iowa, where Alexander then resided, and insisted upon a settlement with Alexander; that he then asserted his right to the ownership of all the lands, the title of which was in him, denied the investment of the trust fund, as claimed, and threatened to dispossess Alexander and his family of said premises; that, acting under the fear of such threat, Ann G. MacGregor agreed to purchase of James all of his interest in said lands, and agreed to pay therefor the sum of $6,500, by releasing to James the $2,000 trust, and by'giving her note for $4,500.

It also appears that in December, 1852, Ann G. and her infant children, Gregor and Gardner, instituted proceedings in the Supreme Court of the State of New York, against said James and others, for the purpose of restraining the collection of the $4,500 note; to have the agreement made at the time the note was given declared void; to have James and Duncan discharged as trustees; to have the Gardners declared the trustees, holding the ferry property in trust for said Ann, remainder to Gregor and Gardner MacGregor, her co-complainants; that Duncan and James should, as trustees, release all right to said property, and that all claims of Alexander, if any, might be ascertained and declared. This cause was determined against the complainant, Ann G. and her children, in favor of the respondent James. The cause determined in this State was appealed from, and also decided by this court in favor of the complainant .James.

*332 Iii the decision of the case by the Supreme Court of New York, it was held, that under the terms of the bequest the trustees had no power to change the character of the trust fund from personalty into realty. It was also found, that .the ferry property was not purchased with this trust fund; and the court say, that even granting that such was the case, and that the right to follow and claim the investment of this fund did exist, that the right of election did not belong to the complainants.

“ This,” says Jambs, J., “ was a bequest of personal property to Ann G. McGregor for life, and also to her husband for life, he her surviving, remainder over after the death of both to his next of kin. The capital was invested and was required to be kept invested for the benefit of the remainderman, and the tenant for life has only an interest in the income of that fund. She has no title to the capital, nor any right to control or dictate in its mode or manner of investment. The title to the fund for her life is, by the will, invested in the trustees, after that the capital belongs to the remainderman; and 'if the trustees have diverted the fund and made investments different from those directed by the will, the right to elect, whether the fund shall be followed into the new investment, or the trustees held personally responsible for the original amount, is with the remainderman and not with the tenant for life. This right of election in the remainderman cannot be exercised until, after the estate becomes invested. Who the remainder-man will be it is impossible to determine until after the death of the tenant for life.”

The Supreme Court of this State reversed the decision of the District Court upon the grounds:

1st. That it was improper under the pleading to give the relief granted to respondents, as they filed no bills, nor were any of their answers made * cross-bills, that the most *333 and all they could ask was, that they might be dismissed the court.

2d. The court regarded the question as res adjuddcata, so far as it related to the trust fund. “It seems,” says 'Wright, C. J., “that this question was adjudicated between these parties in the'New York case, and as long as that judgment remains in force it must be conclusive.”

3d. Treating it as res integra, this court finds, first, that the evidence shows that the trust fund never was in fact, transferred; and second, following the’reasoning and conclusions of the court in the New York case, that the trust fund did not belong to Ann or Alexander, but to the residuary legatees; that the remainderman and not those having an income for life had the right to elect, &c. 1

Upon the reversal of the judgment by this court, a writ of procedendo issued, and the Court below directed to hear and determine the cause in accordance with the opinion of the court. During the pendency of this appeal, however, Alexander died, and, upon motion in this court, the executors of his will were substituted, and the necessary change made in the style of the cause.

Upon the 9th day of July, 1860, 'the cause was again heard and a decree entered in the District Court in favor of the complainant, setting aside a portion of its former decree, so as to comply with the opinion of the Supreme Court. At the commencement of this decree we find the following in the record:

“James MacGregor, Jr., v. Alexander MacGregor. In Chancery. Owing to the death of Alexander MacGregor, the style of this case is changed toJames MacGregor, Jr., v. George D. Gardner, Egbert Gardner, Duncan MacGregor et al, and George D. Gardner et al as executors of the estate of Alexander MacGregor.

The defendants appeared specially and moved the Court to set aside this decree, and among other causes assign *334 that the decree is against the executors of the estate of ■Alexander MacGregor, whereas the said executors have never been made parties to this suit in any manner, nor served with process, and were therefore not under the jurisdiction of the Court.” This motion was sustained, and another decree entered by which it was ordéred and found that the $2,000, referred to in the pleadings and claimed to be invested in a portion of the lands in controversy, is not so invested. The Court also finds, that the other matters in controversy are not ready for a final hearing without an examination of accounts between the parties. It was therefore ordered and directed, that ail matter of accounts between said parties be referred to H. A. Wiltse, Esq., special master, to report an account between the parties, and also to report with whose money the several tracts of land in controversy were bought, the amount paid for each tract, and for whose use the same were bought, also the amount expended in improvements on the said property and by whom so expended, &c. Under this order further testimony was heard by the master, after which he filed his report, finding that the property was purchased for James and with his money, and that there was due him from the estate of Alexander the sum of $1,728. Exceptions to this report being overruled, a decree was entered accordingly, and from this judgment the defendants again appeal.

The first question presented by the counsel for appellant is, that the heirs and executors of Alexander MacGregor were not properly brought into Court, and made parties to this proceeding before the final judgment and decree were rendered. Ann MacGregor, the wife, and Gardner and Gregor, the children, were made parties prior to the death of Alexander. George D. Gardner and Duncan MacGregor were parties to the original proceeding. The widow, the children and executors were therefore as individuals in Court, and bound to take notice of every order affecting *335 the rights of either. They were therefore presumed to have taken notice of the suggestion of the death of Alexander and the substitution of his legal representatives, as made by the order of the Court. It appears by reference to the records of this Court, that the death of Alexander was suggested, and upon motion the proper parties were substituted. Whether this was done in a proper manner we think it too late now to determine. Again, the counsel of appellant raised this objection in the Court below, in the motion to set aside the decree rendered August 9th, 1860. This motion was sustained, whether for this cause or some other, does not appear. On the 14th of the same month another decree was entered, and no exceptions were then taken, because the heirs and executors were not brought in in their representative capacity. On the contrary the respondents recognized this decree as formal, and proceeded to introduce their evidence before the referee therein appointed. This preliminary question being thus dispose^ of, the main question arises for our determination, that is with whom are the equities of this cause ? In entering upon the consideration of this question we are met at the very threshold with the position of appellee, that Alexander MacGregor was guilty of a fraud in taking the law into his own hands; that if he and his family were the equitable owners of the lands it was not for him to execute deeds as attorney in fact for James, the person against whom he was about to set up equities; that the powers of attorney did not authorize the execution of conveyances, except to purchasers; that the Gardners were not purchasers, and did not pretend' to be, and for that reason the deeds were fraudulent, and a court of equity should set them aside. We regard the principle as well settled, that where an agent acting under a power of attorney conveys the property of his principal without consideration, and with the purpose of acquiring the title in himself, that such conveyances in a *336 court of equity -would be declared fraudulent and void. Thus in the case of Sturdevant et al. v. Pike et al., 1 Carter (Ind.) R., 277, it was held, that if an agent appointed to sell lands, caused a conveyance to be made to himself, such conveyance, unless ratified by his principal, will, on application of the principal or his heirs within a reasonable time,' be set aside by a court of equity, without inquiry as to its fairness. “ In Moore v. Moore, 1 Seld. (N. Y.), 256, it was held, that an agent employed to collect a mortgage belonging to his principal, cannot purchase the property at a mortgage sale either himself, or through the agency of a third person for his own benefit.” In the case of Michoud et al. v. Girod et al., 4 How. S. C. R., 503, the validity of a sale made by the executors of an estate to third parties with the view of obtaining the title in themselves arises, and the equitable rule that controls such sales is by Justice Wayne ably discussed. Nicholas Grerod .and Francois became the possessors of their testators’ estate. In this instance Laiguel and St. Felix were the instruments of the executors. They bid off the property, paid nothing, reeeived titles, and conveyed what they normally bought to the executors. The Supreme Court concurred in the judgment of the Circuit Court in setting aside the sale thus made. The learned Justice in his opinion says: “But the morality and policy of the la.w as it is administered in courts of equity, induce us to add that those purchases were fraudulent and void, and may be declared so without any farther inquiry, upon the ground that they were made by the intervention of persons who were nominal buyers for the purpose of conveying it to the executors. Such transaction carries fraud upon the face of it.” “ The rule as to persons incapable of purchasing particular property, except under particular restraints, on account of the rules of equity, is compendiously given by Sir Edward Sugden in his second section of Purchases by Trustees and Agents. *337 It has been adopted by almost every subsequent writer, and we cite the passage with confidence, having verified its correctness by an examination of all the cases cited by him, by an examination also of other cases in the English Courts, and of cases in the courts of chancery of several of the States in our Union, sustaining the doctrine to the fullest extent, of the incapability of trustees and agents to purchase particular property for the sale of which they act representatively, or in whom the title may be for another. He says, “ It may be laid down as a general proposition, that trustees, unless they are nominally such, to preserve contingent remainders, agents, commissioners of bankrupts, assignees of bankrupts, solicitors, to the commission auctioneers, creditors who have been consulted as to the mode of sale, or any person who by their connection with any other person, or by being employed or concerned in his affairs, have acquired a knowledge of his property, are incapable of purchasing such property, except under the restraints which will shortly be mentioned. Eor if persons having a confidential character were permitted to avail themselves of any knowledge acquired in that capacity, they might be induced to conceal their information, and not exercise it for the benefit of the persons relying upon their integrity. -The characters are inconsistent.” 2 Sug. Vendors and Purchasers, 109. The case of Wormely v. Wormely, 8 Wheat., 421, is also cited, in which the Court declared, that no rule is better settled than that a trustee cannot become the purchaser of a trust estate. He cannot be at the .same time vendor and vendee. So also in the case of Prevost v. Gratz, 6 Wheat., 481, it was so held; and the rule reaffirmed in Rings et al. v. Binns et al., 10 R., 269, 281, by its application to an agent who had bought land to which his principal was in equity entitled. So, also, in the case of Oliver v. Piatt, 3 How., 333 ; and affirmed in Church v. Marine Insurance Company, *338 1 Mason, 341, that an agent or trustee cannot, directly or indirectly, become the purchaser of the trust property which is confided to his care. So, also, in the ease of Davoue v. Fanning, 2 Johns. Ch., 252, it was affirmed, that if a trustee or person acting for others sell the trust estate and becomes himself interested in the purchase, the cestui que trusts are entitled as of course to have the purchase set aside, and the property re-exposed to sale under the direction of the Court. The inquiry in such a case is not whether there was or was not fraud in fact. The purchase is void and will be set aside, at the instance of the cestui que trust, and a resale ordered, on the ground of the temptation to abuse, and of the danger of imposition inaccessible to the eye of the Court. “ The general rule,” says Justice Wayne, “ stands upon our great moral obligation to refrain from placing ourselves in relations which ordinarily excite a conflict between self-interest and integrity. It restrains all agents public and private; but the value of the prohibition is most felt, and its application more frequent, in the private relations in which the vendor and purchaser may stand toward each other. The disability to purchase is a consequence of that relation between them which imposes on the one a duty to protect the interest of the other, from the faithful discharge of which duty his own personal interest may withdraw him. In this conflict of interest the law wisely interposes. It acts not on the possibility that in some cases the sense of that duty may prevail over the motives of self-interest, but it provides against the probability in many eases and the danger in all cases, that the dictates of self-interest will exercise a predominant influence and supersede that of duty. It therefore prohibits a party from purchasing on his own account that which his duty or trust requires him to sell on account of another, and from purchasing on account of another that which he sells on his own account.”

*339 “ The rule of equity is in every Code of Jurisprudence with which we are acquainted, that a purchase by a trustee or agent of the particular property of which he has the sale, or in which he represents another, whether he has an interest in it or not, per interpositam personam, carries fraud on the face of it.”

We.have thus fully quoted from this able and elaborate opinion, not only from the fact that it is to be regarded by us as the established rule of the highest tribunal in the land, but from the fact that the reasoning is so clear, and to our minds unanswerable, and peculiarly applicable in the determination of the controlling question in this case. It is admitted by the defendants, that the deeds to the Gardners, which the complainants ask to be set aside, were made without consideration and for the sole purpose of defeating the title of James, and vesting the property in the attorney who made the sale. It is conceded, that the deeds were thus made to advance the interest of the agent or trustee, and to deprive the beneficiary of his legal rights. Under the rule as above given, this transaction carries fraud on the face of it, and a court of equity without further inquiry as to the equities of the person making such sale, should at once set such sales aside. It is assumed by the counsel of appellant, that Alexander did not take the law into his own hands, when he conveyed to the Gardners, but that he did what James desired him to do when he gave him the irrevocable powers of attorney ; and that was to convey this property at his discretion, and for his own benefit. That there is no rule of law or equity, that required him to surrender his powers of attorney, and file a bill in equity to establish his rights, when James had empowered him to do what would accomplish the .same object; and that every man has a right to exercise the authority conferred upon him for the protection of his own rights. • It is claimed that the authorities above referred *340 to, are applicable only where the attorney or agent had no interest in the thing, where he had no rights to protect, and are therefore not in point. Does the fact that the powers of attorney under which Alexander acted, were made irrevocable, so change the character of the trust-imposed, as to place this transaction beyond the limits of the rule, which declares such sales fraudulent upon their face ?

The mere fact that the power of attorney is-itself declared irrevocable, does not prohibit its revocation, nor does it establish the fact, that the person making the same yields -all right or claim to the property authorized to be sold, or that the person upon whom such power is conferred, has the right to sell and dispose of the property entrusted to his care, without consideration, or without being held ■accountablefor the faithful discharge of his trust. “The .general rule is,” says Story on Agency, § 476, “ that the ■principal may revoke the authority • of his agent at his ¡mere pleasure. But this is open to some exceptions, which, however, are entirely consistent with the reason upon which the general rule is founded. One exception •is when the principal has expressly stipulated that the authority shall be irrevocable and the agent has an interest in its execution. Both of these circumstances must concur, for although in its terms an authority may be expressly declared to be irrevocable, yet if the agent has no interest in its execution, and there is no valid consideration for it, it is treated as a mere nude pact and is deemed in law to be revocable, upon the general principle, that he who alone has an interest in the execution of an act, is also entitled to control it.” The use of the word “ irrevocable ” alone is not evidence that the power is coupled with an interest: if so, it would not be necessary that both of these circumstances should concur. The powers of attorney under which these deeds were made read as follows: “Know all men by these presents, that I, James MacGregor. Jr., &c., being *341 seised in fee of certain lands in the County of Clayton, Iowa, have nominated, constituted and appointed Alex. MacGregor * * * my true and lawful attorney, irrevocable, for me, and my name to lease, devise' and sell said lands * * to such person or persons, upon such terms, * * * and for such prices as he may see fit.”

The word, “ irrevocable,” signifies, not to be recalled or revoked. * Therefore, when used in the above connection it shows, that it was the intention of the principal that the authority thereby conferred, should not be recalled.. It cannot however be inferred from its use that the agent was thereby invested with any greater power of disposition or authority in relation to the property to be sold, than if this word had been omitted. But it is not the policy of the law to deny to the person making such powers irrevocable the right to revoke such authority, notwithstanding the fact that it was the fixed design of the parties so to do when they were made. If, however, the power is coupled with an interest, or the agent is interested in its execution, it shall not be revoked.'

Conceding, therefore, that the power is by its terms made irrevocable, and when the agent has an interest in its execution, the law declares that it then cannot be revoked, this fact still does not of itself give the agent any power to dispose of the property, except in the manner directed by the principal. The authority is continuous, but in other respects the same as if revocable. If the agent therefore exceeds his authority or abuses the trust reposed, equity will afford the principal the proper relief. Alexander had no authority conferred.upon him to dispose of the lands without consideration. He was required to act for the best interest of the principal, and granting that he had an interest in the execution of the authority conferred, he could not dispose qf the property of which he had the sale, in such a manner as the title would inure to his benefit, for *342 the rule of equity is, that a purchase by an agent of the property of which he has the sale, or in, which he represents another, whether he has an interest in it or not, per interpositam personam, carries fraud on the face of it.

The prayer of the complainant'is that these deeds be set aside. The respondents do not file a cross-bill or claim any relief in their answer, but assume that Alexander, under the powers of attorney, and having certain equities in said lands, had the power to dispose of said lands as he did; and that the respondents should not be permitted to interpose such equities to prevent the disposition of the deeds as prayed for by complainant. Applying the equitable rule, as given us by the Supreme Court of the United States in Michoud v. Girod, supra, it is the duty of the Court without an investigation of such equities at once to set such sales aside. But conceding for the sake of the argument that the equitable rule we have thus applied does not fully cover this case, and that the deeds should not be set aside without an examination of the equities of the respondents in the land thus conveyed. It being admitted that the deeds -were made without consideration and for the purpose of placing Alexander in a better position to have his equities declared, it is then with respondents to show that the legal title was taken in the name of James for the purpose of creating a trust. In other words, the respondents, as against James who holds the legal title, will have to make it appear that Alexander was the equitable owner thereof. In Order to do this the respondents undertake to establish a resulting trust, as arising by implication from the fact that the purchase" money was furnished by Alexander. The rule is not controverted, that to establish a resulting trust, as against the person holding the legal title the proof should be clear and unequivocal. In Noel v. Noel, 1 Iowa, 423, Wright, C. J., says: “ The legal title is ■conceded to be in the defendant. To divest it upon the *343 ground that he holds it or any part of it as trustee for the complainant, the testimony should be clear and satisfactory. It is a rule too well understood to need repetition, that parol testimony to establish such trust should be received with great caution, and should be clear, and such as goes distinctly to prove the facts necessary to create such resulting interest. The testimony must not be loose and equivocal. It is contrary to every correct principle, that the legal title should be divested upon parol testimony which is not dear, satisfactory and distinct.” . .

The evidence introduced upon the trial of this cause and certified up to this Court, is very voluminous, containing the letters, declarations and transactions of the brothers, dames and Alexander, in relation to the purchase, improvements and disposition of the lands in dispute during a period of ten years.

Thisreeord and evidence have been thoroughly sifted and placed in its strongest light before us by able counsel upon both sides. This cause has, not only from the peculiar relations of the parties thereto, from the length of time it has been pending in the Courts of this State, and its final issue so anxiously looked -for, but from the importance of the questions and interests involved, as well as from the zeal and ability manifested by counsel in its presentation,’ received from each member of this Court that careful consideration, we trust, to which it is entitled. ”We have not been unmindful of the fact that our final determination will most materially affect the interests of the widow and the minor children of'the deceased, a class of suitors that always draws strongly upon the sympathies of Courts, and whose rights it is the peculiar prerogative of courts of equity to guard and protect.

It would unnecessarily prolong this opinion to discuss the bearing this mass of evidence has had upon our minds, and state the reasons at length that have impelled us to our *344 conclusions. It is sufficient to state that a majority of the court cannot conclude, that the evidence so fully and clearly establishes.the fact that the purchase money was furnished by Alexander, or that a resulting trust is so unequivocally established, as would justify a court of equity in divesting James of the legal title of any of the lands conveyed to the Gardners. In arriving at this conclusion, we have not been uninfluenced by the fact that the theory of Alexander's defense in relation to the investment of the $2,000 trust fund has been up-turned, not only by the former decision of this court, but also by the final adjudication of the Supreme Court and Court of Appeals in the State of New York. That the lands known and described by Alexander in his answer as the ferry property, were not purchased with the money advanced, as is claimed as a part of the trust fund, is settled beyond all controversy.'

After this branch of the defense has thus been decided against Alexander, it seems to us that he cannot, upon the same answer, ask a court of equity to find that this same property was purchased with his own money, or money loaned to him by James, in the face of his own verified averment that it was purchased with a different fund. To determine the particular tracts of land embraced in what is called the ferry property, we have but to look to the answer of Alexander in folios 42 and 48, and to the declarations of trust made by the Gardners. From these it appears, without doubt, that the ferry property or the land claimed to have been purchased with this $2,000 trust fund, included not only the 160 acres in the Bazil Giard claim, and the 14.90 acres purchased from Burnett, but also the 40 acre tract and the 99.05 acre each purchased from Olmstead.

In relation to the King tract, we all concur in the opinion that the evidence clearly shows that the purchase-money was furnished by James. While the testimony *345 shows that the remaining tracts of land in dispute were purchased by Wadsworth, with money placed in his hands by Alexander-for that purpose, this fact alone, when we take into consideration all the other circumstances connected therewith, is not of itself sufficient to disturb the title in James. Alexander, when this purchase was made had been acting as the agent and attorney of James in buying and selling property, collecting money, paying taxes, and attending to his business generally. Whether Alexander had money in his hands belonging to James when this land was bought, as is claimed by counsel, it is not important to consider, even if it could be determined. We ■ are of the opinion that this land was bought, and the title taken in the name of James and Duncan with the same design, under the same understanding, that the other tracts were. What that understanding was is a secret, unrevealed . by the evidence before us. If there was an understanding between these brothers that James was holding this property merely as the trustee of Alexander, it is truly remarkable that in all of the private letters that are introduced as having passed between them, no allusion whatever is made to such an arrangement.

If the claim of Alexander to the lands purchased by Wadsworth stood alone and unconnected with the other transaction, or, if he had not by his own acts closed the door of equity against him, a resulting trust might be implied, from the fact that he furnished the purchase money to Wadsworth. But, in the first place, it is admitted that the titles of all these lands were taken in the name of James to' avoid their being reached by Alexander’s creditors. - And, in the second place, he had, without consideration, and for the purpose of defeating James’ title, conveyed, under his power of attorney, all said lands to the Gardners. Either of these transactions was fraudulent upon its face.

*346 We unite in the opinion that the master erred in his statement of the account between these parties. The evidence satisfies us that the improvements made by Alexander were made with the knowledge and assent of James, and that he should be chargeable therefor. We also think that Alexander should be credited with a fair and reasonable compensation.for his time and labor, as well.as for the skill exercised in promoting the interest of James. We have adopted a statement of the accounts, herewith filed, as approximating to as just and equitable a statement of the amount chargeable to each, as we could arrive at, under the evidence. From this it will be seen that there is due to the representatives of Alexander MacGregor, deceased, from the complainant the sum of $3,263.71. Judgment will be entered in this court accordingly. In other respects the decree is affirmed, but at the cost of the appellee.

Lowe, J., dissenting.