Stump v. Warfield

Boyd, J., delivered the opinion of the Court. This is an appeal from a judgment rendered in favor of Charles A. Warfield and others (appellees) against Messrs. Stump and Herrarían, trustees (appellants), in an action of ejectment brought to recover a tract of land in Baltimore County. On February ,6th, 1869, Timothy A. Carroll, in consideration of the sum of $8,000, conveyed the property in controversy to Charles D. Warfield, in trust for the benefit of his ⁵³⁹ wife, Isabella, during her life or widowhood, she to collect the rents-, issues, income and profits therefrom, for her sole and separate use free from the power, disposal and control of her husband, and after her death or marriage in trust for their children, etc. Then after making provision that, in case Mr. Warfield survived his wife, upon her death the property should be for their children, etc., the deed proceeds as follows: “With power, however, to the said Isabella Warfield, with the consent and approbation of the said trustee, to grant and convey absolutely said property at any time, and the proceeds to reinvest in other property upon similar trusts as are herein declared, no purchaser, however, to be bound to see to the application of the purchase money.” On the same day “Isabella Warfield and Charles D. War-field, her husband and trustee,” gave a mortgage to Mr. Carroll to secure three promissory notes, amounting in the aggregate to $3,119.

It recites that they were given in part payment of the purchase money for said property, and that the trustee united to show his consent and approbation of the conveyance. On July 21st, 1870, Isabella Warfield and Charles D. War-field, trustee, gave a mortgage to Clara A. Ross, which recites that she was the assignee of the mortgage and the three notes given to Carroll, which then amounted to $3,391.91, and that she had loaned Isabella Warfield $900 “which last sum the said Isabella, hath used in extinguishing claims against her incurred on account of the interest aforesaid and other debts contracted for the benefit of the property hereby mortgaged, making in all an indebtedness of four thousand dollars.” It also states that Charles D. Warfield had given his note for the $900, and four notes of $120 each, being the interest on the said sum of $4,000, payable in six, twelve, eighteen and twenty-four months, respectively. The notes are all signed by him, individually. An assignment of the first mortgage and of the three notes described therein to Clara A. Ross was executed by Carroll and duly recorded.

There was a power of ⁵⁴⁰ sale in the first mortgage to Timothy A. Carroll, or Samuel D. Schmucker, his attorney, and one in the second to Clara A. Ross, or Luther M. Reynolds, her attorney or agent. The second provides for the payment of the notes mentioned in the first, as we'11 as the others mentioned above. „ A petition was filed in the Circuit Court for Baltimore County by Clara A. Ross, showing that she was the holder of the two mortgages, alleging that they were in default, that she was desirous of selling the property and asked the Court “to accept and approve the bond of the attorney in the later mortgage named, that he may proceed to sell.” Mr. Reynolds gave bond, advertised the property and on July 15th, 1871, sold it to Elias Livezy for $4,450. Exceptions were'filed to the sale, but were overruled, a petition was filed to open up the decree, which was dismissed, and the case which will be hereafter referred to was brought to this Court. Finally on August 18th, 1873, a writ of possession was ordered, requiring Mr. and Mrs. Warfield to deliver possession of the property to Elias Livezy, the purchaser, which they did.

On January 19th, 1874, Luther M. Reynolds, attorney, and Elias Livezy and wife conveyed the property to Eliza J. Miller—she having purchased the interest of Mr. Livezy. On March 28th, 1878, Mrs. Miller and her husband conveyed the property to William H. Reid and the appellants represent his interest, through some, proceedings in the Circuit Court No. 2, of Baltimore City. The defendant filed the general issue plea and a plea on equitable grounds. The latter wasLdemurred to and the demurrer was sustained.

The case was tried before the Court, and at the trial an agreed statement of facts and certain record evidence were offered. The Court found in favor of the plaintiffs (now appellees), and its rulings on the demurrer to the equitable plea and on the prayers present the questions before us. Before passing on the plea and prayers separately, it will be well to consider the principal points involved. 1. It is conceded by the appellees that the first mortgage— the one to Mr. Carroll—was validly executed, but it is con ⁵⁴¹ tended that the second only passed Mrs. Warfield’s life interest, because the mortgagors had no power to mortgage any other interest.

It is undoubtedly the general rule that “a power to sell and convey does not confer the power to mortgage.” It -wa§ so held in Tyson v. Latrobe, 42 Md. 325 , and the Court added, “Questions of this sort must depend upon the peculiar circumstances of the trust, and the intention of the parties as shown by the instrument. A trust with a power of sale ‘out and out’ will not authorize a mortgage; and a trust for sale with nothing to negative the settlor’s intention to convert the estate, absolutely, will not authorize the trustee to execute a mortgage.” The latter part of the quotation adopted the language of 2 Perry on Trusts, sec. 768. See also Wilson v. Md. Ins. Co., 60 Md. 150; Price v. Courtney, 87 Mo. 387 ; Bloomer v. Waldron, 3 Hill, 361 ; Hoyt v. Jaques, 129 Mass. 286 ; 1 Jones on Mortgages, sec. 129.

Although the appellees concede that the first mortgage was valid, it will be well to examine some of the authorities which announce an apparent exception to the general rule, and determine that when a trustee is authorized to sell and dispose of trust property and reinvest the proceeds, he can give a mortgage for the purchase money, or any part thereof, in order that we may see the reasons for such exception. In Gernert v. Albert, 160 Pa. 95 , the testatrix gave the trustee “authority to sell and dispose of the said real estate at such price or prices as he may deem best to the advantage of my said children, and to reinvest said proceeds in other real estate. ” The trustee sold the trust property for $4,750 and purchased another tract for $3,210, subject to a widow’s dower of $890. He paid $2,210 cash, and gave a mortgage for the balance of the purchase money. The deed was dated April 2nd and the mortgage April 10th, 1884, but both were recorded on the latter day and were treated by the Court as one transaction.

The Court held that the mortgage for the purchase money was valid. In passing on that question it said, “In such a purchase the trustee really buys no more than he pays for; in form he receives the whole legal title, but his ac ⁵⁴² tual'interest in the land is only what remains after he pays to the vendor from time to time the annual value of the mortgage. In substance the vendor continues to be a part owner of the land; he did own the whole of it and while he transferred the legal title with one hand, he took back a real definite interest with the other, so that it may truthfully be said that at no point of time was his grasp so far relaxed as to enable the trust to seize what it did not buy and never was intended to have.” ' The Court distinguished between that case and Wilhelm v. Folmer, 6 Pa. 296 , where it was held that a judgment given for purchase-money a week after the deed was made, but not recorded for another week, was invalid against the trust estate. In Mavrich v. Grier and Smith, 3 Nev. 52 , Mrs. Smith, a feme covert, entered into a contract with Mavrich for the purchase . of a house and lot.

The transaction was consummated by a conveyance to Grier, to be held in trust for Mrs. Smith. As a part of the transaction, Mrs. Smith gave her note for $2,000, the price of the house and lot. Grier as trustee for Mrs. Smith gave a mortgage for the two thousand dollars— stating that it was for the purchase money of said property, and he and Mrs. Smith signed the mortgage. It was held that the mortgage was valid to secure the purchase money “the conveyance and mortgage being executed at the same time and being part of the same transaction.” In Constant v. Servoss, 3 Barb. 128 , the Court said that when upon the sale and purchase of land, a deed is executed and a mortgage given for the purchase, money, or part thereof, the presumption is that the deed and mortgage were executed at the same time'and the whole is considered one transaction, and taking the whole together the vendee only acquires the equity of redemption. “In such case the purchaser cannot avoid one part of the transaction and affirm the other.

He cannot, nor can any one for him, take the land and repudiate the mortgage. He either holds the land subject to the mortgage, or he does not hold it at all.” In Hannah v. Carnahan, 65 Mich. 601 , the wife conveyed ⁵⁴³ real estate to her husband in trust for their minor children. The husband was authorized to sell and convey the property in his discretion and to reinvest the moneys for the benefit of the children, and in case he survived his wife to control and govern the property as if he held it in fee-simple. He sold the property for $1,700 and with part of the proceeds purchased land from Hannah for which he paid him $800 in cash, and gave a mortgage for $800.

Afterwards Carnahan gave another mortgage on the property to Hannah for $600. The Court held that the purchase-money mortgage was valid, but “had the purchase price of the premises been in excess of the proceeds of sale of the trust property, the investment wo^ld have plainly exceeded the powers of the trustee, if such purchase had to be partly paid by a mortgage upon the land bought.” Without citing other authorities on that question, it can be seen from the above why the Courts hold that a mortgage given by a trustee for part of the purchase money of trust property, purchased by him, is valid, unless there be something in the instrument creating the trust prohibiting it. This case is even stronger than most of those cited, because the instrument creating the trust and the mortgage given in part payment of the purchase money were not only executed on the same day and constituted one transaction; but there was in reality nothing for the trust to attach to until the deed and mortgage were executed and delivered, and effect cannot be given to the one to the exclusion of the other. 2. When we come to consider the second mortgage, as we now do, the authorities and reason as clearly show that it was not a valid execution of the power contained in the deed, as those cited above show that the first mortgage was valid.

The power given Mrs. Warfield in this deed was limited to her granting and conveying the property, for the purpose of reinvesting the proceeds in another property, upon similar trusts. The power to grant and convey absolutely did not authorize her to mortgage the property, or, to state it in another way by repeating from Tyson v. Latrobe, supra, “a trust for sale with nothing to negative the settlor’s intention to convert the estate, ⁵⁴⁴ absolutely, will not authorize the trustee to execute a mortgage.” The property was vested in the trustee for the benefit of Mrs: Warfield and the children., subject to the purchase money mortgage, and her power of disposition was only such as the deed gave her—to grant and convey for the purpose of reinvesting the proceeds of sale, for that is what it meant. It was settled in this State as early as Cooke v. Husbands, 11 Md. 492 , “that a feme covert may act in reference to her separate estate as a. feme sole, where the settlement contains no limitations on the subject, on the principle that the jus disponendi accompanies the property, unless restrained in terms, or by the manifest intention of the instrument,” but it was long prior to that also determined “that where a mode of alienation or of appointment is provided, it operates as a negation of any other mode, and is a paramount law governing and controlling every contract in 'relation to it.” Ibid, 503. And where, as in this case, the feme covert was only given an equitable life estate, with power of disposition of the' property absolutely, for a purpose clearly defined, the limitation certainly operates as a negation of any other purpose as clearly as it would the mere mode of alienation.

If there be any difference, .it must be in favor of the interest to be alienated, as in that case she affects the rights of others, given by the instrument. In Hannah v. Carnahan, supra, the Court said, in speaking of Hannah the vendor: “But when the first mortgage was not paid, he could not take the second mortgage of $600 upon the premises, in the face of the notice he had of the terms and extent of the trust under which Carnahan held the property. Nor could any person, having notice of the trust, take such a mortgage, and enforce it against the property, as,there was no' power given Carnahan to execute such a mortgage.” In Price v. Courtney, supra, the power was much more comprehensive than that given by this deed, but the Court held, after referring to many authorities, that no power was bestowed on the trustee to mortgage or otherwise encumber the property. In that case the lower Court held the deed of trust given to ⁵⁴⁵ secure a loan was null and void, because executed without au - thority, but as $459.29 of the sum loaned was paid for taxes, it decreed that there should be a lien on the trust property for that amount, with interest and costs.

The Supreme Court of Missouri reversed that part of the decree, and said that the money was not loaned for that purpose, or any special purpose, and added: “But even had it been loaned for that specific purpose and applied in accordance therewith, such loaning and such application would have created no equity of subrogation or otherwise, in favor of him who loaned the money to remove the lien.” In Gernert v. Albert, supra, the Supreme Court of Pennsylvania said, “It is no doubt true that if a trustee has already received a legal title to land belonging to the trust, he may not afterwards encumber it, unless empowered by a Court, or expressly or impliedly authorized by the instrument creating the trust.” In Burroughs v. Gaither, 66 Md. 171 , the Court said, “It is doubtless time, as a general proposition, that where the powers and duties of a trustee are limited and defined by the terms of the instrument creating the trust, neither he, nor the Court, under whose administration the trust is carried on, can exercise any others,” but inasmuch as it was the duty of the trustee to pay taxes, an order of the lower Court was affirmed authorizing the receivers, whom the Court had appointed, to give a mortgage to raise money in order to redeem the trust property which had been sold for taxes. In this case, it was the duty of Mrs. Warfield, the life tenant, to pay the taxes, the interest on the mortgage which was on the trust property when she acquired it and other expenses connected with the property, and it is clear that she could not afterwards encumber the fee for such purposes. When a donee of a power to sell land also has an interest in his own right, a conveyance of the land by him, notappearing expressly or impliedly to be made in the execution of the power, will be held to pass his interest only, Ridgely v. Cross, 83 Md. 161 , and he certainly is presumed to have only intended to include his own interest when he gives a mortgage for his own debts. ⁵⁴⁶ Nor do we think- that they had the power to give a second mortgage for the purchase money. The mere fact that there was no such power given by the deed, and that the second mortgage was not embraced in the exception in favor of purchase-money mortgages, ought to be a sufficient reason for so declaring, in view of the authorities quoted, but if it could be allowed it is easy to see what the result would have been if the life tenant did not pay the interest on the first mortgage.

This second mortgage shows on its face that $272.91 of interest due on the first was included in it as principal, and interest notes were given which included interest on the interest, as well as on