Gisborn v. Charter Oak Life Insurance Company of Hartford/Opinion of the Court

There are three principal questions in this case: First. Was the mine chargeable with the payment of the consideration money? Second. Was it also chargeable with the payment of the moneys expended in the fruitless search for the lost vein? And, third, is the cause of action barred under the statute of limitations?

With respect to the first, the contention of appellant is that Stephens, as trustee, was a purchaser of the undivided two-thirds acquired by Gisborn by his deed of 24th February, 1874, that, as such purchaser he took all the chances of the mine's productiveness, and that now, on its failure, he must pocket the loss; and, secondly, that the trust was only in reference to the rents, issues, and profits; that Stephens, having taken title for the purpose of executing such trust, has failed, and relinquished all attempts at so doing; and therefore that the title to the one-third of the mine, of which Gisborn was all the while the owner in equity, has now reverted, and a decree should have been entered directing a conveyance thereof by Stephens to him.

These matters must be settled, not by parol testimony as to the prior conversations and negotiations between the parties, but by the terms of the written instruments, which express the result of all such negotiations, and constitute the contract between the parties. If the meaning of these instruments be in any respect doubtful, reference may be had to the surrounding circumstances for the purpose of interpretation; but, when interpreted, the writings which constitute the contract determine the relative rights. Fortunately the language is not obscure, and the real transaction is fully disclosed. There was no purchase by Stephens, or the firm for which he was trustee. On that side of the transaction there was only a loan of money. By the deed of February 24, 1874, from his co-owners, Gisborn became the owner of the entire mine. True, the delivery at first may have been conditional, and to be completed only on the payment of the consideration; but when that was paid, as it was, then the delivery was complete, and Gisborn became the absolute and full owner. Gisborn, as owner, by two deeds conveyed the entire mine to Stephens as trustee, and not individually. The terms of that trust were disclosed by the declaration of May 30th, which, as stated in it, was 'a part of the same transaction.' The two deeds and the declaration may, therefore, be considered as one instrument, making a conveyance of lands upon certain specified trusts and conditions. They are that the grantee shall take the title and possession, out of the rents, issues, and profits pay certain moneys, and then reconvey the entire property to the grantor. If the firm had been a purchaser, then, on performance of the trust, the trustee should have conveyed to it the portion of which it was a purchaser. As was well said by the supreme court of the territory: 'The idea of a sale, and that the purchaser was not to get the title, are not consistent.'

Nor is this conclusion affected by the surrounding circumstances, or the subsequent conveyances disclosed by the testimony. It appears that Warren Hussey, who had no interest in the property, was helping Gisborn to negotiate the loan, on a promise of receiving, if successful, an interest in the mine. In order to induce Allen, Stephens & Co. to make the loan, he promised to share with them his compensation; and on April 13th, and prior to any advances, this agreement was executed:

'New York, April 13, 1874.

'It is understood that Warren Hussey gets four-eighteenths of     all the 'Mono' mine in his own right. With us he agrees to     make the matter satisfactory to us from the said      four-eighteenths, even if he gives us all of it.

'ALLEN, STEPHENS & CO.

'WARREN HUSSEY.'

After the declaration of trust, but on the same day, Gisborn gave to Hussey a contract, which recited that 'for and in consideration of certain moneys advanced and services rendered to me in effecting the purchase of two-thirds of the 'Mono' mining claim and lode from my late cotenants, * *  * as soon as the uses and purposes of said trust shall be fulfilled and accomplished according to the terms of said declaration of trust (reference thereto here made for particulars) I shall and will convey to the said Warren Hussey, his heirs and assigns, by good and sufficient deed, the following described part, portion, and interest in said mining claim, lode, and premises, viz., the one-half, undivided, of all that portion of said 'Mono' mining claim, lode, and premises,' etc. And on August 10, 1874, Hussey executed to William A. Stephens a bond to convey to him all the interest acquired under such contract from Gisborn.

But the transaction evidenced by these instruments was independent of the loan. It was an arrangement of the agent with respect to his compensation for services, and does not change the contract made by the two deeds and the declaration. Indeed, the recital in the bond from Gisborn is equivalent to an assertion by him that he, rather than Allen. Stephens & Co., was the purchaser of the two-thirds, and is inconsistent with his present claim in respect thereto. No disposition which Hussey, his agent, might make of the interest which he proposed to convey to him for his services in effecting a purchase from the co-tenants would reach backward and modify the terms of the contract between him and the lenders to him, or alter their established relations.

Further, these contracts throw light upon the third and fourth clauses of the declaration, which otherwise would appear strange and unnecessary provisions. Were it not for them it might seem singular that, if the trust was simply to pay the $400,000 borrowed from Allen, Stephens & Co., the reconveyance should not be made immediately upon such payment, and that the trust should continue further, and until the payment of $275,000 to Gisborn. They show that the final arrangement was not that Gisborn should give Hussey an undivided one-half of the mine after the payment out of the profits of the money borrowed, but only after the payment of the loan, and also the receipt by himself of the further sum named. In other words, the transaction practically amounted to this: The mine was placed as security to Allen, Stephens & Co. for the $400,000 borrowed, then to Gisborn for $275,000, and thereafter Hussey was to receive one-half for his services. But whatever arrangements may have been made between Gisborn and Hussey, and whatever disposition Hussey may have seen fit to make of the remote interest he was to acquire from Gisborn, the transaction between Gisborn and Allen, Stephens & Co. was fully contained in and determined by the two deeds and the declaration. That transaction was a loan by Allen, Stephens & Co. of $400,000 on the security of the mine.

Neither is there force in the contention that the mine itself was not the security, but only the rents, issues, and profits. It is true that the language of the trust is 'to receive the issues, rents, and profits of the said premises, and to apply the same as received as follows.' Undoubtedly the thought of the parties was that the mine would continue so rpoductive that the issues and profits would pay these amounts, but the mine itself was conveyed, and the further stipulation was that upon the discharge of this trust the mine should be reconveyed. The trust contemplated the payment of the sums named, and until they were paid the trust was not discharged. The language used may not have been the most apt, but the intent is clear. What was meant is that the mine was not placed in the hands of the trustee simply for the purposes of sale, but in order that he might work it and apply the proceeds to the payment of these sums. There was not a mere conveyance of the title in the nature of a mortgage to secure the debt, but an express and active trust.

Undoubtedly the owner or real estate can specifically appropriate rents and profits to a named purpose, or create a trust in them separate and apart from the title to the real estate; but where the manifest object is security, and the title is conveyed, the mere direction to appropriate the rents and profits to the payment of the debt will not relieve the realty from the burden of the lien or limit the latter solely to the rents and profits. The test is, the manifest purpose. Is that merely to dispose of the rents and profits, or is it to grant security for an indebtedness? This question is not a new one. It has arisen frequently in the consideration of powers given by will to dispose of rents and profits. In the case of Allan v. Backhouse, 2 Ves. & B. 65, the vice-chancellor held that where the term was created for the purpose of raising money out of the rents and profits, if the trust of a will required that a gross sum should be raised, the expression 'rents and profits' would not confine the term to the mere annual rents, but would authorize the sale or mortgage of the estate itself. In 2 Story, Eq. Jur. (11th Ed.) § 1064a, the rule is thus stated. 'When a testator directs a gross sum to be raised out of the rents and profits of an estate at a fixed time, or for a definite purpose or object, which must be accomplished within a short period of time, or which cannot be delayed beyond a reasonable time, it is but fair to presume that he intends that the gross sum shall at all events be raised so that the end may be punctually accomplished, and that he acts under the impression that it may be so obtained by a due application of the rents and profits within the intermediate period. But the rents and profits are but the means; and the question, therefore, may properly be put, whether the means, if totally inadequate to accomplish the end, are to control the end, or are to yield to it. Now, if the gross sum cannot be raised out of the rents and profits at all, or not as soon as to meet the exigency contemplated by the testator, it would seem but a reasonable interpretation of his intention to presume that he meant to dispense with the means, and, at all events, to require the sum to be raised.' See, also, Hawk. Wills, 120; 1 Pow. Mortg. 61. The same ruling has been applied to mortgages. In 3 Pom. Eq. Jur. § 1237, the author says that 'an assignment of the rents and profits of land as security for a debt is another mode of creating an equitable lien on the land in favor of the assignee.' And in Ex parte Wills, 1 Ves. Jr. 162, it is said of such an assignment that 'it is an odd way of conveying; but it amounts to an equitable lien, and would entitle the assignee to come into equity and insist upon the mortgage.' Legard v. Hodges, 1 Ves. Jr. 477; Smith v. Patton, 12 W. Va. 541.

The evident purpose of these instruments was not the mere appropriation of the rents and profits; the parties contemplated security for the debt. The owner conveyed the title to the trustee, and the provision as to rents and profits, while imposing a primary duty on the trustee, does not, if the rents and profits fail to accomplish the object of the conveyance, to-wit, the payment of the debt, prevent the application of the realty itself thereto.

Passing now to the second question. The trust, as disclosed by the first clause, contemplated the continued operation of the mine, keeping it and its appurtenances in good repair, and the payment of taxes. Whatever expenses were legitimately incurred in the discharge of this part of the trust were chargeable upon the property. These were not debts created on the personal obligation of the trustee and afterwards sought to be thrown upon the estate, but in an honest and reasonable execution of the trust. In 2 Pom. Eq. Jur. § 1085, it is said that 'the trustee is entitled to be allowed, as against the estate and the beneficiary, for all his proper expenses out of pocket, which include all payments expressly authorized by the instrument of trust, all reasonable expenses in carrying out the directions of the trust, and, in the absence of any such directions, all expenses reasonably necessary for the security, protection, and preservation of the trust property, or for the prevention of a failure of the trust.' Gisborn is certainly not in a position to complain of these expenditures, for most of them, at least, were incurred while he was acting as manager for the trustee, and were approved by him in writing. It will not do to say that it was the duty of the trustee to stop work the moment the vein was lost. It was a reasonable exercise of the power vested in him to make some limited exploration to see if the lost vein could not be recovered. No one could tell in advance how great had been the displacement; perhaps a few feet of mining might have brought it to light; and as Gisborn was consulted on these efforts, and approved of them, and the expenditures were largely made under his direction, it must be adjudged, as against him, that they were reasonable, and therefore also chargeable upon he trust-estate.

With reference to the last question the contention of the appellant is that, if the title was conveyed as security, then the instruments created simply a mortgage, and that the rule in California, from which state Utah took its statutes, is that, when action on the debt is barred, action on the mortgage given to secure the debt is also barred. Lord v. Morris, 18 Cal. 482; McCalthy v. White, 21 Cal. 495.

The obvious answer is that these instruments did not create a mortgage, but an active and express trust, and the rule invoked as to mortgages does not apply, either in California or elsewhere. In Miles v. Thorne, 38 Cal. 335, it was held that the statute of limitations does not begin to run in the case of an express trust until the trustee, with the knowledge of the cestui que trust, has disavowed and repudiated the trust. In Hearst v. Pujol, 44 Cal. 230, the proposition is laid down that 'if A. conveys to B. a tract of land, to be by B. afterwards reconveyed to himself, he thereby creates an express trust, which B. may accept by accepting the deed;' and also that 'the statute of limitations does not commence running on A.'s right to a reconveyance until B. repudiates the trust, and such repudiation is brought to the knowledge of A.' And Grant v. Burr, 54 Cal. 298, draws the distinction between a deed of trust and a mortgage, as to the running of the statute of limitations. In that case the trustee under a deed of trust, long after the note secured thereby had become barred by the statute of limitations, was proceeding to sell the land under the power conferred. The grantor in the deed sought to enjoin such sale, but the injuction was denied, and this ruling was affirmed by the supreme court. See, also, Henry v. Mining Co., 1 Nev. 619; Bacon v. Rives, 106 U.S. 99, 1 Sup. Ct. Rep. 3; Seymour v. Freer, 8 Wall. 202,-in which the general proposition is laid down that the statute of limitations has no application to an express trust where there is no disclaimer. In the case at bar there was no disclaimer on the part of the trustee, no repudiation of the trust. He never asserted title in himself as against any beneficiary. On the contrary, he continued to work the mine, and in the active discharge of the trust, so long as money therefor was available, and then, with the consent and approval of Gisborn, leased the mining property for two successive years, and until January, 1880, to parties who stipulated to do certain work therein. That nothing was done by him after this was not because of any repudiation of the trust, but simply from a lack of means. His inaction under the circumstances amounts to nothing further than this: that the continued failure to realize rents, issues, and profits justified an appeal to the courts to subject the realty itself to the satisfaction of the claims.

These are the principal and decisive questions in the case, and in respect to them, or otherwise, we see no error in the rulings. The decree will therefore be affirmed.