Flagg v. Walker - 113 U.S. 659 (1885)
U.S. Supreme Court
Flagg v. Walker, 113 U.S. 659 (1885)
Flagg v. Walker
Argued January 16, 1885
Decided March 2, 1885
113 U.S. 659
A, being embarrassed, conveyed by deed absolute several parcels of land in Illinois to B, among which were a tract known as "the pasture," encumbered by a mortgage to C; other tracts occupied by shops and tenements, and "the homestead," also encumbered with a mortgage. B agreed verbally to advance to A and wife $1,500 a year for four years; to dispose of the property conveyed to him; to apply the proceeds to the payment of A's debts, and to divide equally between himself and them what might remain at the end of four years. Subsequently B made and delivered, and they received and accepted, a written agreement substantially to that effect, and further providing that B's liability to C should not exceed the amount realized from sale of "the pasture," that the deed to B was absolute for all purposes, and that B was to have the free and unobstructed control and ownership of the property. B remained for some time in possession; paid sundry debts due from A; made advances in cash for A's use and for taxes and repairs, and advanced money for and took an assignment to himself of the mortgage on "the homestead." A then resumed possession, and subsequently thereto the mortgage on "the pasture" was foreclosed and the property sold. Held (1) that the relation of B to A and his wife was
not that of mortgagee, but that of trustee, under the original deed and subsequent agreements; (2) that B was not bound to advance out of his own means money to pay the mortgage debt on the pasture tract; (3) that A was under no personal liability to B for advances made by him; (4) that the mortgage debt on "the homestead" was one of the debts which B had undertaken to pay out of the proceeds of the property, and that he was entitled to be reimbursed for advances for its purchase not merely out of the mortgaged premises, but out of the proceeds of all the property conveyed to him by A.
The time fixed by the decree in the court below for payment by appellant to appellee of a sum named in the decree in order to secure a reconveyance of the property in litigation having expired pending the appeal, and without payment, and the appellants having given an appeal bond which superseded the decree, in affirming the judgment, the Court modifies the decree so as to extend the time of payment.
William F. Flagg, one of the appellants, was the owner, in February, 1875, of real estate in and near the City of Bloomington, Illinois, which may be generally described as follows:
1. A large manufacturing establishment, known as the Empire Machine Works, and about three acres of land upon which it stood.
2. A tract of land containing about 69 acres, known as "the pasture," situate in the northeastern part of the city.
3. Block No. 1, in Flagg's third addition to the City of Bloomington, containing about five acres, on which stood his residence. This property is designated in the record as the "homestead."
4. A large number of lots in the city, most of them vacant, but on about ten of which were tenement houses.
5. A tract in Fayette County, Illinois, and lands in Pettis County, Missouri. He also owned a large amount of personal property, consisting mainly of the machinery and tools in the Empire Machine Works.
At the date mentioned, he was embarrassed in business and owed over $50,000. The larger part of this indebtedness bore interest at the rate of ten percent per annum. Much of the real estate was covered by mortgages; his tenement houses were out of repair; he was largely in arrears for taxes and for interest on his indebtedness, and was in broken health. In this condition of his affairs, he sent for the appellee, Samuel Walker, who resided in Massachusetts, and who was the brother
of his first wife, and made a statement to him of his financial condition and embarrassments.
On February 22, 1875, after a conference between Flagg, Maggie R. Flagg, his wife, Walker, and J. H. Rowell, who, up to that time, had been the counsel of Flagg, but who, on that occasion, with the knowledge of Flagg, acted as attorney for Walker, Flagg agreed to convey all his real estate to Walker by deed, his personal property by bill of sale, and his choses in action by assignment.
Although there is some conflict in the testimony on this point, it plainly appears that these transfers were to be made to enable Walker to control and dispose of the property as he saw fit. Its management and disposition of the proceeds were left entirely to his judgment and discretion, both Mr. and Mrs. Flagg having full confidence in his business ability and integrity, but their understanding was that the proceeds of the property were to be applied to the payment of Flagg's debts, and Walker was to advance money temporarily for that purpose.
The effect of the proposed transfer was explained to Mr. and Mrs. Flagg by Rowell. On the next day, February 23d, Flagg and wife executed to Walker deeds of conveyance, absolute on their face, of all the real estate above mentioned, and Flagg gave him a bill of sale of all his personal property, and an assignment of his choses in action. Walker at once took possession of all the property except the "homestead," which by agreement was to be left in the occupancy of Mr. and Mrs. Flagg.
In the following April, Walker stated to Mrs. Flagg that he would allow her $1,500 per year for four years; that at the end of that time, he thought he would be able to dispose of the property, and would give a bond that whatever was left, after paying all the indebtedness and the expenses of disposing of the property, he would divide equally between himself and Mr. and Mrs. Flagg. This proposition was accepted.
Afterwards Walker executed and delivered to Mrs. Flagg (Mr. Flagg being absent from home) a writing, which opened with the following recital:
"This agreement, made this 12th day of April, 1875, between Samuel Walker, of the first part, and William F. Flagg, of the second part, witnesseth that the said Flagg and wife have heretofore conveyed to the said Walker all the real and personal property of the said Flagg."
The writing then declared that in consideration of such conveyance, Walker agreed, in addition to the moneys already advanced by him for Flagg, to pay him $1,500 per year for four years, and pay off all the ascertained indebtedness of Flagg which had at that time been made known to him, and that Flagg should occupy his residence for one year free from any interference by sale of the same or otherwise. But Walker, by the same instrument, limited his liability to pay the sum of $25,000 due to Hiram Sibley, secured by trust deed to Corydon Weed, "to the amount realized out of the lands mortgaged to secure the same." He further agreed that after "a disposition" of the property conveyed to him by Flagg, if anything should remain of the proceeds after reimbursing Walker for payments for Flagg, and paying the expenses of the management and sale of the trust property, he would pay to Flagg or his legal representatives the one-half of such excess.
The writing then stated, and was signed and witnessed, as follows:
"It being the express understanding that the conveyance heretofore made to said Walker is absolute for all purposes; that the said Walker is to have the free and unobstructed ownership and control of said property; that he will dispose of such property at pleasure, and according to his best judgment, and in all things be the sole judge of time and manner of using and disposing of said property, both real and personal, and this agreement is to include the property known as the Empire Machine Works, as well as the other property of said Flagg. The said Flagg, by his acceptance of this contract, agrees to its terms and consents to all its parts. Witness our hands the day and year first above written."
"Witness: J. H. Rowell and John M. Hamilton. "
There is no doubt that the agreement of Walker embodied in this paper was accepted by Mr. and Mrs. Flagg, and was for a time acted on by both them and Walker.
Walker, upon the transfer above mentioned by Flagg of the property of the latter, paid off all or nearly all of the unsecured debts of Flagg, and furnished Mrs. Flagg with money to pay the taxes which were due and interest due and unpaid on the residue of Flagg's debts, and supplied Flagg with money to take a journey for the improvement of his health. The money so advanced amounted on August 27, 1875, to over $11,000.
Among the other indebtedness of Flagg, there was due from him to one Soper about $5,000 in notes and on open account. Walker, acting upon the advice of Flagg, sold to Soper the tools and machinery in the Empire Machine Works, and as part consideration therefor, Soper acknowledged payment of the debt due to him from Flagg, and gave his notes for the residue. Walker also leased to Soper, by the advice and with the consent of Flagg, one-half of the Empire Machine Works buildings for $1,500 per year. Walker began repairing the tenement houses so as to put them in good condition for renting. Having appointed one Du Bois as his agent to look after the property, superintend the repairs which he had begun, and collect the rents, he returned to his home in Massachusetts.
When the transfer of his property was made by Flagg to Walker in February, 1875, there was a deed of trust of the 69-acre tract, known as "the pasture," to Corydon Weed, trustee, to secure $25,000 due to Hiram Sibley, bearing interest at the rate of ten percent per annum, payable semiannually, and there was a mortgage on the "homestead" for $9,000, bearing like interest. In November, 1876, the interest on the debt due to Sibley being in arrear, Weed, the trustee, by virtue of a power contained in the deed of trust, advertised "the pasture" for sale, and on the day mentioned in the notice sold it at public sale to Hiram Sibley for $10,500.
The mortgage for $9,000 on the homestead was purchased by Walker on July 1, 1876, the amount paid, principal and interest, being $9,976.77.
After these events, on September 25, 1878, the original bill in this case was filed by Mrs. Flagg against Walker, Sibley, Weed, the trustee, and her husband, William F. Flagg. It alleged that since the conveyances made by her husband to Walker in February, 1875, the former had by mesne conveyances transferred and conveyed to her "all his interest, right, and title in and to said real estate above mentioned," referring to the real estate conveyed by Flagg to Walker, "and all personal property appertaining thereto, or that went into the hands of Samuel Walker." The bill set out the transfer to Walker by Flagg and his wife of the real and personal estate of Flagg, and in reference thereto made the following averments:
"That the said deeds were intended by said William F. Flagg and oratrix to secure the said Samuel Walker for his advances to be made by him, as above set forth, and as a further security for a reasonable compensation to be paid to him for the rendition of such services, and that he might out of the sale of a portion of said property be reimbursed for such advances and compensation. It was also agreed . . . that when the purpose for which such conveyance had been made was fully completed, the said Samuel Walker was to reconvey to William F. Flagg, or to oratrix, as they might elect at least one-half of the property remaining unsold and undisposed of, and should keep for himself and for his compensation a portion of said lands, not exceeding one-half of the residue, after payment of all debts."
The bill also averred
"that shortly after receiving the said deeds of conveyance the said Samuel Walker executed a statement in writing in which he set forth and stated to your oratrix the use and purpose, both set forth, upon which the said Samuel Walker had received the said property in trust."
The bill charged "that said deeds of conveyance made to Samuel Walker, while, in fact warranty deeds," were
"in equity no more or less than mortgages, made to secure said Samuel Walker for his advances to be made by him, and said advances were to be sufficient in amount to pay all indebtedness of said William F. Flagg to other persons than said Samuel Walker, and that said Samuel Walker was to reimburse himself out of the sales to be made by him. "
The bill alleged that Walker neglected and refused to furnish money to pay the interest on the debt to Sibley, secured by the trust deed to Weed on "the pasture," which was well worth $80,000, and that had it not been for the conveyance thereof by Flagg to Walker, Flagg would have been able to raise money to pay the interest on the debt as it accrued, or could have made a new loan and paid off Sibley's claim in full, but by reason of the conveyance to Walker, he was unable to do so, and that Walker knowingly and willfully permitted Sibley, by Weed, his trustee, to sell the premises at a forced sale for about $10,000, when its real value at the time of the sale, was $80,000.
The bill further charged as follows:
"That Walker, as to the real estate conveyed to him by Flagg, is to be taken and deemed as mortgagee thereof, . . . and that, by reason of the execution of said instrument in writing by Walker, as the purpose for which he received said conveyance,"
said conveyance "is to be taken and deemed in equity as a trust deed on said lands," and that Walker should
"be charged with the value of all the real estate which, in fault of his said trust, he has permitted to be sold, and thereby alienated from said William F. Flagg or the plaintiff, and is likewise to be charged with a reasonable rental value of all said premises."
The prayer of the bill was as follows: that Walker might be charged with all the waste committed or permitted by him on the property conveyed to him by Flagg, and with "the value of property allowed by him to be alienated," the amount of taxes and interest paid by Flagg or the plaintiff, with interest thereon, and that he might be credited with what he had paid out for Flagg or the plaintiff, with interest,
"and that the difference between the said 'items' should be charged to said Samuel Walker by reason of his failure to act as trustee as aforesaid; that said mortgage by him now held upon the homestead of your oratrix should be cancelled; that if there be any outstanding claims against the said William F. Flagg, which were liens [or] encumbrances at the time of the conveyance to him, that they should be satisfied and paid out of the decree so awarded against the said Samuel Walker, and the property
above mentioned now remaining in the name of said Samuel Walker be thereby free, clear, and released from all encumbrances and liens, and that said Samuel Walker should be decreed by this Court to reconvey the residue, or such portion thereof as the court shall decree your oratrix is entitled to, by proper deeds of conveyance."
Walker filed his answer alleging that he came to Illinois at the request of Flagg and his wife, and upon examination of Flagg's affairs found that he was deeply in debt; that his real estate was heavily encumbered, and that he owed a large floating debt and was out of founds, and that all of his property was likely to be taken from him if it should be forced to sale, but that, after a full investigation, he became satisfied that Flagg's property, with good management, was worth more than his indebtedness, and that he proposed that Flagg should convey all his property to him, and let him manage his business for him; that Walker agreed that he would take the property without any future right of control, management, or ownership remaining in Flagg, and would pay off the debts of Flagg specified in a list furnished to him by Flagg.
This list did not include the debt due to Sibley, and he refused to assume that debt and would not agree to pay it, but promised that he would use the rents and profits of the land toward keeping down the interest on the Sibley debt and the taxes, and if he could sell the property so as to pay the debt, he would do so, or he would convey the same to any parties to whom Flagg might sell.
He denied waste or mismanagement, and averred that the conveyance to him was absolute and not a mortgage.
He alleged that he had paid out of his own means on the indebtedness of Flagg $10,000 more than he had realized out of the personal property transferred to him by Flagg, in addition to the money paid for the trust deed or mortgage on the "homestead" property. He further alleged that the whole property now held by him would not bring the money paid out by him and the accumulated interest, and that the amount was growing larger because he was deprived of the rents and profits of the property.
On June 28, 1878, Walker filed a cross-bill, to which he made William F. Flagg, Maggie R. Flagg, and Hiram Sibley defendants, and in which he set up substantially the same facts as in his answer, and prayed for a decree that his title to the premises be confirmed, and that the claim of the defendants to any title thereto be declared null and void, and that if, upon the final hearing, his title should be held to be a mortgage, an account might be taken of the amount of money paid out by him in consideration of said conveyances, and that the amount of the same, together with the interest, should be declared a lien upon said real and personal property, and that in default of payment thereof a strict foreclosure might be granted.
To this cross-bill, by leave of court, the original bill of Maggie R. Flagg was made to stand as an answer.
A large mass of evidence having been taken, the court, on August 5, 1879, made an interlocutory decree in which it was found that Walker held said real and personal property, conveyed and transferred to him by Flagg in trust for the purposes expressed in the declaration of trust made by Walker on April 12, 1875, and for the purpose of security to himself for all moneys paid out by him for Flagg or for or on behalf of the property of Flagg; that Walker had expended large sums of money in paying off the indebtedness of Flagg, and in taking care of and repairing the property, and in necessary expenses in the execution of the trust, in paying off and discharging liens and encumbrances upon the property, for all of which he was entitled to a first lien upon said real estate and upon all the personal property conveyed to him; that Walker assumed no portion of the debt due and owing by Flagg to Sibley beyond what the land covered by the mortgage to secure it might be sold for, and that Walker was not liable for any damages growing out of said indebtedness on said mortgage. The decree declared that the acts of Walker were approved, and referred the case to a master, to state an account between Walker and William F. Flagg and Maggie R. Flagg, and directed that the master, in stating the account, should not charge anything for any failure on the part of Walker to sell
any of the real estate, or on account of any depreciation of the value thereof.
On the 5th of September, 1879, the master filed his report, in which he credited Walker with the sum of $28,996.63, and charged him with the sum of $3,789.50, leaving a balance due to Walker of $25,207.13. On the 4th of October, 1880, the court entered a final decree in the cause, in which it was found that there was due to Walker the sum of $25,207.13, and that said sum was a first lien upon the property conveyed by Flagg to Walker and remaining unsold; that said property was scant security for said indebtedness; that said William F. Flagg was insolvent, and that a large part of said property was unoccupied and deteriorating in value. It was therefore decreed that Flagg should pay to Walker the sum of $25,207.13, with six percent interest, and also the costs of suit, on or before the first day of April, 1881; that such payment being made, Walker should reconvey all said real estate and personal property by quitclaim deed, and cancel and discharge the indebtedness of record, and that in default of such payment on or before the first of April, 1881, the title of Walker to all of the real estate and personal property conveyed to him by Flagg, and not already disposed of, should become absolute, and the title of William F. Flagg and Maggie R. Flagg be forever barred and foreclosed.
From this decree Maggie R. Flagg and William F. Flagg have brought this appeal.