Opinion
No. 31829.
May 11, 1936.
1. TRUSTS.
In suit to recover one-half interest in property procured by defendant under alleged enforceable trust, evidence held sufficient to establish oral agreement between plaintiff and defendant that defendant would purchase and operate property as partnership or corporation to be organized by parties, but unless constructive trust arose, agreement did not create enforceable trust.
2. TRUSTS.
Oral agreement by defendant to purchase and operate property as partnership or corporation to be organized by plaintiff and defendant held not to create resulting or constructive trust for plaintiff's benefit, where plaintiff acquiesced in defendant's taking title in own name, and made no offer to advance or assume any part of purchase price prior to conveyance to and resale by defendant.
3. TRUSTS.
Where defendant agreed orally to purchase and operate property as partnership or corporation to be organized by plaintiff and defendant, mere nonperformance of agreement, in absence of fraud or bad faith, did not create constructive trust for plaintiff's benefit, even if agreement created fiduciary relation between parties.
4. TRUSTS.
In suit to recover one-half interest in property procured by defendant after orally agreeing with plaintiff to purchase and operate property as partnership or corporation to be organized by parties and resold by defendant, evidence held insufficient to establish such fraud or bad faith as would give rise to constructive trust for plaintiff's benefit.
APPEAL from chancery court of Wilkinson county. HON. R.W. CUTRER, Chancellor.
Jones Stockett, of Woodville, and Charles A. Holcombe, of Baton Rouge, La., for appellants.
The status of parties as partners under any written instrument or any agreement is to be governed by the laws of the state where the parties reside.
Price v. Independent Oil Co., 168 Miss. 292, 150 So. 521; 5 C.J. 1342, sec. 32; Restatement of the Law of Conflicts of Laws, A.L.R. 419, par. 342.
The bill of complaint reading it as a whole is so vague, indefinite and uncertain that one must guess at its meaning. To read the bill is proof sufficient that complainant has no case and knew not what the alleged agreement was nor what relief he was entitled. The bill is contradictory of itself and shows on its face that there had never been at any time a final and settled agreement between Louis Wax and appellee. This contradiction, doubt, vagueness and uncertainty even in the mind of complainant is evidenced and made manifest when the bill of complaint is perused.
The bill of complaint does not contain averments setting forth a resulting trust, it negatives the idea for no allegation is made that any part of the purchase price for the property was paid by appellee or offered to be paid by him at the time of conveyance.
Bush v. Bush, 134 Miss. 531.
Nor does the bill of complaint or the evidence of appellee establish a constructive trust with which fraud is always a part. There being neither proper charges of fraud in the bill nor proof thereof by appellee.
Partnership is a synallagmatic and commutative contract made between two or more persons for the mutual participation in the profits which may accrue from property, credit, skill or industry, furnished in determined proportions by the parties.
Article 2801, Revised Civil Code of Louisiana.
Partnerships must be created by the consent of the parties.
Article 2805, Revised Civil Code of Louisiana; Amacker v. Kent, 144 La. 545.
In numerous decisions of the Supreme Court of Louisiana, we find the law to be that if the understanding between the parties is that a contemplated partnership agreement is subsequently to be reduced to writing, there is no partnership contract until the same is actually written and signed by the parties.
Sheridan v. Reese, 122 La. 1027, 48 So. 443; Fredericks v. Fasnacht, 30 La. 117; Blocker v. Tillmon, 4 La. 80; Wolf v. Mitchell, 24 La. Ann. 434; Laroussini v. Werlein, 52 La. Ann. 424; Kaplan v. Whitworth, 116 La. 337; Knights of Pythias v. Fishel, 168 La. 1095, 123 So. 724; McIntire v. Industrial Securities Corp., 158 So. 849.
The defendant denies the alleged partnership. The burden of proving it is upon Pope.
Atwater v. Colton, 18 La. Ann. 226.
The court will keep in mind that this is not a suit by one joint owner against another for a partition. It is a suit by an alleged partner to be recognized as a half owner of partnership property which cannot be done under the laws of Louisiana.
A partner cannot sue his co-partner for sums paid or advanced for the partnership or funds placed in it, or goods furnished, or profits made, or losses incurred, during its continuance, until a final settlement, and then only for the balance due.
Morera v. Schwan, 133 La. 643; Stanton v. Buckner, 24 La. Ann. 391; Marx v. Blooms, 21 La. A. 67; Sewell v. Cooper, 21 La. Ann. 582; Crottes v. Frigerio, 18 La. Ann. 283; Baer v. Kopler, 19 La. Ann. 194; Hennigan v. Wilcox, 13 La. A. 576; Conrad v. Callery, 22 La. Ann. 428; Seelye v. Raylor, 32 A. 1115.
A partner, even in a special partnership, cannot sue his co-partner for a special item. It must be for a general settlement.
Reddick v. White, 46 La. Ann. 1198; Myers v. Will, 6 La. Ann. 33.
The liability of the alleged partners as to third parties is governed by the laws of Louisiana.
Cameron v. Orleans Ry., 108 La. 83; Abadie v. Frechede, 22 La. Ann. 423.
If there has been a violation of any partnership agreement, which is denied, he should sue in the courts of Louisiana for a dissolution of the partnership, for an accounting and for the rescission of the sale made by Wax to the Wax Lumber Company.
Borah v. O'Neill, 116 La. 672.
The case of Price v. Independent Oil Company, 168 Miss. 292, 150 So. 521, and the admitted residence of all parties to this case is quite conclusive that the laws of the State of Louisiana control the status of the parties, their rights and liabilities.
W.F. Tucker, of Woodville, for appellee.
A resulting trust is raised by equity to carry out the presumed intention of the party as a result of whose act the trust arises. A constructive trust is raised by equity to effect the ends of justice and to frustrate a possible fraudulent intention of the parties whom equity makes trustee against their will. It is immaterial whether the trust be called resulting trust or constructive trust.
Robinson v. Struather, 106 Miss. 754, 64 So. 724; Winn v. Dillion, 27 Miss. 494; Flynt v. Hubbard, 57 Miss. 471; Thomas v. Thomas, 62 Miss. 531; Barton v. Magruder, 69 Miss. 462; Schrader v. Schrader, 119 Miss. 526, 81 So. 227; Mass. v. Sister of Mercy, 135 Miss. 505, 99 So. 468; Holmes v. Holmes, 154 Miss. 713, 123 So. 865; Quin v. Phipps, 113 So. 419; Summers v. Summers, 118 So. 912; 26 R.C.L. 1238, sec. 85.
There was no effort made by the appellant to deny by evidence any allegation of the bill of complaint, and there was no effort made by the appellant to support by evidence any averment made in his answer or cross-bill. There was no evidence introduced by the appellant Wax at all, except the agreement set out in his cross-bill and it only relates to the disposition of certain lumber at Holden, Louisiana.
If the appellant wishes some Louisiana law to control this case they may get some consolation out of Haynesville Oil Company, Inc. v. Beach, 159 La. 615, 105 So. 790.
The Chancellor heard this case and decided the same on the facts, and, as shown by the decree, left to a master in chancery the adjustment in payments on the purchase and repairs of the mill. This court in a score of cases has refused to disturb the findings of a chancellor on facts, and in this case has no reason to overrule that law and reverse the chancellor.
H.V. Watkins and Ralph B. Avery, both of Jackson, for appellee.
The chancery court of Wilkinson county, Mississippi, had jurisdiction of the parties and subject matter.
Section 363, Code of 1930.
The laws of this state control the rights of appellee under the breach of contract.
12 C.J. 450, Conflict of Laws; Hall v. Cordell, 142 U.S. 116, 12 S.Ct. 154, 35 L.Ed. 956; Pritchard v. Norton, 106 U.S. 124, 1 S.Ct. 102, 27 L.Ed. 104; Andrews v. Pond, 13 Pet. 65, 10 L.Ed. 61; Richardson v. Rowland, 40 Conn. 565; Arnold v. Potter, 22 Iowa 194; Davis v. Aetna Mut. F. Ins. Co., 67 N.Y. 218, 34 A. 464; Graham v. Norfolk First Nat. Bank, 84 N.Y. 393, 38 Am. Rep. 528; Montana Coal, etc., Co. v. Cincinnati Coal, etc., Co., 60 Ohio St. 351, 69 N.E. 613; Pittsburg, etc., R. Co. v. Sheppard, 56 Ohio St. 68, 46 N.E. 61, 60 A.S.R. 732; Kanaga v. Taylor, 7 Ohio St. 134, 70 Am. Dec. 62; Waverly Nat. Bank v. Hall, 150 Pa. 466, 24 A. 665, 30 A.S.R. 823; Geneva First Nat. Bank v. Shaw, 109 Tenn. 237, 70 S.W. 807, 97 A.S.R. 840, 59 L.R.A. 498; Davidson v. Browning, 73 W. Va. 276, 80 S.E. 363, L.R.A. 1915C 976; International Harvester Co. v. McAdam, 142 Wis. 114, 124 N.W. 1042, 26 L.R.A. (N.S.) 774, 20 Ann. Cas. 614.
Wax took title to the property as trustee for himself and appellee on equal shares.
Haynesville Oil Co. v. Beach, 105 So. 790; 47 C.J. 659, sec. 49.
Parties to an executory contract of partnership which has been breached have no recourse to an action for an accounting, as they are not partners.
Powell v. Maguire, 43 Cal. 11; Doyle v. Bailey, 75 Ill. 418; Wilson v. Campbell, 10 Ill. 383; Frank v. Thompson, 207 Ky. 335, 269 S.W. 295; Maxa v. Jones, 148 Md. 459, 129 A. 652; Haskins v. Burr, 106 Mass. 48; Reid v. McQuestion, 61 N.H. 421; Armstrong v. Rickard, 192 App. Div. 880, 192 N.Y.S. 502; Comstock v. Thompson, 286 Pa. 457, 133 A. 638; Lucopoulos v. Sotriopoulous, 111 Wn. 400, 191 P. 149; Cantara v. Blackwell, 14 Wn. 294, 44 P. 657; O'Neal v. Moore, 78 W. Va. 296, 88 S.E. 1044; Osborne v. Jullion, 3 Drew. 596, 61 Reprint 1031.
With reference to the form of decree in this case it seems to us that the same should be modified to some extent at least. The decree adjudicates that the appellee is the owner of one-half of all of the property acquired by Wax under the conveyance from the receiver and one-half of all of the assets of the mill. It is evident from the record that the lower court did not intend to adjudicate that one-half of the legal title is in the appellee but intended to award appellee one-half of the property described out of the interest owned by Louis A. Wax in the corporation, subject to debts, if any, owing by the appellee to Wax, on the theory that said interest was still held in trust by Louis A. Wax for the appellee, and to award the appellee personal judgment against Louis A. Wax for the sum found to be due after the account had been stated.
This court has authority under Section 3378 of the 1930 Mississippi Code, Annotated, to render such decree as the lower court should have rendered, and it appears to us that no additional matters of fact need to be ascertained as all questions have been presented and passed on and it should only be necessary to remand the matter for an account to be stated, as directed by the chancellor.
Davis v. Lumber Co., 126 Miss. 812, 89 So. 148.
Argued orally by Charles A. Holcombe and A.H. Jones for appellant and by Ralph B. Avery for appellee.
Appellee, L.H. Pope, filed a bill of complaint in the chancery court of Wilkinson county against Louis A. Wax, Sr., and the Wax Lumber Company, a corporation, alleging an oral agreement between the appellee and Louis A. Wax, Sr., to purchase certain sawmill properties and to operate the same on a partnership basis, or by means of a corporation to be organized by them, the purchase of the property by the said Wax in his own name, and the subsequent sale thereof to the Wax Lumber Company in violation of the agreement between appellee and the said Wax, and without the knowledge and consent of appellee. The bill further alleged that the said Louis A. Wax, Sr., took title to the said property, as trustee, for the appellee to the extent of one-half interest therein, and that before the transfer of the property to the Wax Lumber Company, the appellee contributed certain machinery and an undisclosed amount of cash toward the rehabilitation of the sawmill plant so purchased in the name of Wax.
The prayer of the bill was that the court grant a decree declaring that one-half of the property, rights, and privileges conveyed to the said Louis A. Wax, Sr., and one-half of all property acquired by purchase with the profits of the mill, or money borrowed on manufactured lumber, was the property of appellee; that the said Louis A. Wax, Sr., held the same as trustee for appellee; that the apparent title to one-half thereof be divested out of said Wax and fully vested in appellee, or that the said Wax, as trustee, be declared to be indebted to the appellee in a sum equal to one-half of the proven value of the said mill and property, also one-half of the value of the manufactured lumber, logs, and cash on hand derived from the profits, the value of the property, and money advanced by the appellee to repair the mill, all expenses incurred by the appellee in procuring the agreement for the purchase of the said property, and a sum equal to the amount drawn by the said Wax, Sr., from the corporation as salary, or from the profits of the mill, and that the said mill and all property acquired by said corporation be charged with the indebtedness found to be due the appellee.
The appellant Wax filed a sworn answer admitting that there was a tentative agreement between appellee and appellant Wax to purchase the said sawmill property and timber, if such a purchase could be consummated, and to operate the same on a partnership basis, but denying that any partnership was formed, or that the appellee discharged, or promised to discharge, any of the conditions and obligations necessary to be performed in the creation and formation of the alleged partnership. The answer of the appellant Wax further denied that there was ever any agreement that the appellee and the said Wax should purchase, own, and operate the property on an equal partnership basis and should share equally in profits. This answer further alleged that, before the formation of the Wax Lumber Company and the transfer of the property to it, the appellee was fully advised as to all the details of the negotiations for the purchase of said property and the proposed formation of the partnership, or corporation, to operate the same, and was called upon to contribute a proportionate part of the cost of the property and to pay in his proportionate part of the capital or stock of the proposed partnership or corporation; but that he refused to contribute anything for the purpose. The answer further denied that the appellee furnished any material at the request, or upon the authority, of the said Wax, but admitted that machinery belonging to the appellee, of the value of two hundred nineteen dollars and thirty-eight cents, was used in placing the sawmill plant in a condition to be operated. All other averments which materially affect the alleged liability of the appellants were denied.
The appellant Louis A. Wax, Sr., made his answer a cross-bill, and alleged therein that on April 26, 1933, he entered into a contract with the appellee to purchase certain lumber then on the yards of the Holden Lumber Company, at Holden, La., for a consideration of two thousand dollars, and that appellee agreed and bound himself to liquidate this lumber at the earliest possible moment, and to the best advantage, and out of the proceeds first pay such obligations as insurance, taxes, loading expenses, a small remuneration for the appellee, and an indebtedness due certain creditors of the Holden Lumber Company not to exceed seven hundred twenty-five dollars, and next repay the said Wax the two thousand dollars advanced by him. This contract further provided that after all the named expenses and charges had been paid, the balance derived from the liquidation of the lumber should be divided equally between the appellee and Wax "to be used to further the operation in prospect at Woodville, Mississippi."
The cross-bill then alleged that, acting under the provisions of this contract, the appellee had sold the lumber covered thereby, and had appropriated the proceeds to his own use, and refused to account for the same; and that, consequently, the appellee was indebted to the said Wax in a large sum. The cross-bill further charged that the entire agreement between the appellee and Wax for the prospective formation of any partnership or corporation was dependent on the faithful discharge of the obligations of the contract for the sale of said lumber; and charged, in detail, the breach of the contract and the failure and refusal of appellee to account for the proceeds of the sale of the lumber, or to advance any money for the formation of the proposed partnership or corporation.
The prayer of the cross-bill was for an accounting between the appellee and the said Wax, and a decree against the appellee for the sum found to be due by him to Wax.
Upon the proof offered on the hearing of the cause, a decree was entered declaring that the said Louis A. Wax, Sr., took title to all the property conveyed to him by the receiver of the Eicher Woodland Lumber Company, and afterwards conveyed by him to the Wax Lumber Company as trustee for himself and appellee, each owning a half interest therein, and adjudging that the appellee was the owner of a one-half interest in all the property so conveyed, and also a half interest in all the property afterwards purchased or acquired with the profits earned by the operations of the Wax Lumber Company, and a half interest in all cash on hand and all property of every kind, character, and description then owned by the said Wax Lumber Company. It was further ordered that in an accounting between the parties, the appellee should be charged with one-half of the original purchase price of the property, and credited with the sum of six hundred fifty one dollars and eighty-eight cents, as the value of certain machinery alleged to have been furnished by him for the repair of the said mill plant, and also the amount of cash, if any, furnished for that purpose; and a master was appointed to state an account between the parties.
Counsel for appellee concede, as we think they must, that the decree of the court below is erroneous in so far as it adjudicated that the legal title of all the property of the Wax Lumber Company is in appellee and charged the Wax Lumber Company as such with liability for a breach of trust, and, as we understand the brief of counsel, they suggest that a modified personal decree be entered here against L.A. Wax for one-half of the present value of said property, subject to debts, if any, owing by the appellee to Wax.
The pleadings and the trial in the court below proceeded throughout on the theory that the conveyance of the land, timber, and property described in the deed exhibited with the bill of complaint, to the appellant Wax, in pursuance of a prior oral agreement between said Wax and appellee to purchase said property and operate it as a partnership or corporation, created an enforceable trust in favor of the appellee for a half interest in said property. The testimony in this record bearing upon all the issues is very indefinite and unsatisfactory. Appellants offered no evidence in support of their answer, or the cross-bill seeking an accounting on the Holden Lumber Company contract, but submitted the cause on the very indefinite testimony offered by the appellee as to the terms of the oral agreement between him and the said Wax. As we understand the testimony of appellee, and the admissions therein, they strongly tend to show an indebtedness to the appellant Wax under the Holden Lumber Company contract which would entitle him to an accounting, but we have reached the conclusion that the transaction between these parties touching the Eicher Woodland Lumber Company property did not create an enforceable trust.
The evidence is sufficient to establish an oral agreement between the appellee and the appellant Wax to purchase the property of the Eicher Woodland Lumber Company, then in receivership, and operate the same on some indefinite basis, either as a partnership or a corporation to be organized in the future. More than a month before the receiver of the Eicher Woodland Lumber Company, under the authority of the chancery court of Wilkinson county, Miss., conveyed the said property to the appellant Wax, the said Wax advised the appellee, in writing, that he contemplated taking the title to this property in his own name, which he afterwards did, and personally assumed the payment of the entire purchase price. The appellee acquiesced in this arrangement, making no objection or protest, either to Wax, or the receiver, or the court, and making no offer, prior to the conveyance and subsequent resale of the property, to advance or assume any part of the purchase price thereof.
As announced in 65 C.J. p. 250, sec. 35, "a verbal promise or agreement by the grantee in an absolute conveyance, either prior, contemporaneous or subsequent to the conveyance, to hold the land conveyed in trust for the grantor or other designated persons, does not create an enforceable trust under the statute of frauds, unless the circumstances surrounding the transaction are such as to show a resulting or a constructive trust; and the grantee takes the absolute title the same as though the agreement had not been made." It then remains to consider only whether or not the circumstances surrounding the transaction here involved show a resulting or a constructive trust. That no resulting trust was created by this conveyance, wherein Wax took title to the property for the alleged mutual benefit of himself and the appellee, is clear under the decisions of this court, and the authorities generally. In Bush v. Bush, 134 Miss. 523, 99 So. 151, 152, this court quoted with approval the rule announced in 3 Pomeroy's Equity Jurisprudence (3 Ed.) sec. 1037, that in order to create a resulting trust by the purchase of land, under an oral agreement to hold the same for the benefit of another, "it is absolutely indispensable that the payment should be actually made by the beneficiary or that an absolute obligation to pay should be incurred by him as a part of the original transaction of purchase at or before the time of the conveyance. No subsequent and entirely independent conduct, intervention or payment on his part would raise any resulting trust." In that case the court further announced the rule that "the facts creating the trust must exist at the time of the conveyance; for it is the money which has gone to the vendor as an inducement to the conveyance that creates the equity called a resulting trust. After the title has been conveyed the application of the funds of another to pay the purchase money for the land creates no trust in favor of such other. The trust arises, if at all, at the time of the conveyance."
Conceding for the purpose of this decision only that the tentative oral agreement between appellee and Wax created a fiduciary relation between them, the mere nonperformance of the agreement, in the absence of fraud or bad faith, did not create a constructive trust and authorize a court of equity to compel performance. As said in 26 R.C.L. 1244, "there must be a salutary and proper limitation of the doctrine of parol trusts, and it will be found in confining the equity to enforce trusts arising out of parol agreements to transactions involving some element of fraud or of bad faith, apart from the mere breach of the agreement itself, which makes it inequitable that the vendee should hold the legal title absolutely or discharged by any trust." There is no evidence in this record of fraud or bad faith on the part of Wax at the time the conveyance was made. On the contrary, he fully advised the appellee of his purpose and the reasons therefor, and the appellee by his inaction consented thereto. The inference from the very indefinite testimony bearing upon the subsequent dealings between the parties is that the failure to consummate the original oral agreement was due to disagreements between them as to the terms of the agreement, and we have reached the conclusion that the evidence bearing upon these issues is too indefinite to establish such improper conduct, fraud, or bad faith as would give rise to a constructive trust.
The decree of the court below will therefore be reversed, and the cause remanded.
Reversed and remanded.