Colwell Elec. Co. v. KALE-BARNWELL RLTY. & CONST. CO.

Annotate this Case

148 S.E.2d 856 (1966)

267 N.C. 714


No. 847.

Supreme Court of North Carolina.

July 6, 1966.

*859 W. R. Dalton, Jr., Burlington, for claimant appellants.

W. Clary Holt and Sanders & Holt, Burlington, for North Carolina National Bank, appellee.

LAKE, Justice.

When the grantee in a deed, conveying the legal title to land, promises, at or before so acquiring the legal title, to hold it for the benefit of a third person, or *860 declares that he will hold the land in trust for such third person, a valid, express trust is thereby created though the deed contains no provisions with reference to any right of such third person. Avery v. Stewart, 136 N.C. 426, 48 S.E. 775, 68 L.R.A. 776; Sykes v. Boone, 132 N.C. 199, 43 S.E. 645. Such trust may be established by parol evidence which is clear, strong and convincing.

Though there is no such express promise or declaration, if the acts, declarations and assurances of the grantee, at or before the transfer of the legal title to him, are such as to lead a third party reasonably to believe that the contemplated conveyance will be drafted so as to confer upon him a beneficial interest in the property superior to that of the grantee and those actually named in the conveyance as beneficiaries thereof, and if such third person, in reliance upon this representation, parts with a thing of value or otherwise sustains a legal detriment, a court of equity will fasten upon the legal title so conveyed a constructive trust for the benefit of such third person. "A constructive trust * * is a trust by operation of law which arises contrary to intention and in invitum, against one who * * * in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy." 54 Am.Jur., Trusts, § 218. In order for a constructive trust to arise it is not necessary that fraud be shown. Speight v. Branch Banking & Trust Co., 209 N.C. 563, 183 S.E. 734. It is sufficient that legal title has been obtained in violation, express or implied, of some duty owed to the one who is equitably entitled. Bryant v. Bryant, 193 N.C. 372, 137 S.E. 188, 51 A.L.R. 1100. "A constructive trust arises where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it." Lee, North Carolina Law of Trusts, § 11a. Of necessity, the circumstances out of which such constructive trust arises may be shown by parol evidence.

Here, the evidence, including that of Mr. Wicker, himself, and of Mr. Shoffner, the trustee in the deed of trust securing the note to the Wickers, is abundantly sufficient to support each finding of fact by the trial court and to show that the claim of the Wickers and the claim of the Bank arise out of a unified plan for the acquisition and development of the Wicker properties by the defendant with the financial assistance of the Bank. The deeds from the Wickers to the defendant, the notes by the defendant to the Wickers, the deeds of trust from the defendant to Shoffner, trustee for the Wickers, and the deeds of trust from the defendant to Foley, trustee for the Bank, were all contemporaneously prepared by the same draftsman. After all the documents were executed, the deeds and deeds of trust were all taken by him to the office of the Register of Deeds for registration there. It was clearly understood and agreed that without construction loans from the Bank to the defendant, the defendant could not and would not purchase the Wicker lots for the agreed price. It was further clearly understood and agreed by the Wickers and Shoffner, trustee, prior to the conveyance of the legal title to the properties to Shoffner, trustee, that the legal title to the land would be conveyed to Shoffner as security for the Wicker notes, but that the beneficial interest of the Wickers in the land would be subordinate to the beneficial interest of the Bank. Language was inserted in the deed of trust to Shoffner, trustee, which was intended to accomplish this purpose. This provision did not sufficiently identify the deed of trust to Foley, trustee for the Bank, to comply with the requirements of Hardy v. Fryer, 194 N.C. 420, 139 S.E. 833, the amount of the encumbrance held by the Bank and intended to be given priority *861 not being stated. However, this statement in the deed of trust, under which the Wickers claim, is further evidence of the intent and understanding of the parties at and prior to its execution.

For the purpose of carrying out the contemplated program, including the establishment of a prior lien upon the property in favor of the Bank, Shoffner, the draftsman of the instruments, carried them all to the office of the Register of Deeds together and delivered them to a clerk in that office. Contrary to his instructions to such clerk, the deed of trust to Shoffner, trustee, for each lot was marked by the clerk as having been filed for registration before the deed of trust upon such lot to Foley, trustee for the Bank. If, as is clearly not the case, Shoffner had, with intent to defraud the Bank and to violate the clear agreement and understanding of all the parties, actually filed the deed of trust to him ahead of the deed of trust to Foley and, in drafting the instrument to him, had omitted any reference to the deed of trust securing the Bank, equity would fasten a constructive trust, in favor of the Bank, upon these properties, which trust would prevail over any right of Shoffner and the Wickers. The fact that the reversal in the order of filing of the papers was the result of inadvertence rather than fraud does not prevent the claim of priority for the Wicker note from being directly contrary to the understanding of the parties and contrary to good conscience. Equity will, therefore, raise a constructive trust in favor of the Bank "to satisfy the demands of justice." 54 Am.Jur., Trusts, § 218.

This is not a situation in which one acquires legal title to property upon which there is an existing but unrecorded encumbrance which is simply noted in the recorded, subsequent conveyance. See: Bourne v. Lay & Co., 264 N.C. 33, 140 S.E.2d 769; Lawson v. Key, 199 N.C. 664, 155 S.E. 570; Story v. Slade, 199 N.C. 596, 155 S.E. 256. It is not merely a matter of notice of the deed of trust under which the Bank claims. Here we have contemporaneously executed papers, parts of a unified plan, an agreement that the one deed of trust is to have priority over the other, and a bona fide but unsuccessful effort to record both documents so as to accomplish that purpose.

Although it is not shown in the record that Mrs. Wicker was present at the time the various papers were executed and delivered to Shoffner for registration, or that she had actual knowledge of the agreement that the Bank's claim was to have priority of lien, she is now claiming the benefit of the notes and deeds of trust given to her husband at the conference at which these documents were all signed and the relative position of the liens was explained. While a husband, as such, is not the agent of his wife, here the husband was handling the transaction, including the delivery of the deed signed by her as one of the grantors. She cannot claim the benefits of the notes received by him as her agent in this transaction and disavow his agency with reference to the agreement as to priority of the liens, without which the transaction would not have been consummated. Dobias v. White, 240 N.C. 680, 83 S.E.2d 785; Tomlins v. Cranford, 227 N.C. 323, 42 S.E.2d 100.

It is not necessary to consider the question of whether the record shows such a mistake in drafting the deed of trust to Shoffner, trustee, as to justify an order reforming it so as to include a more perfect description of the deed of trust securing the Bank. Nor is it necessary to determine the right of the Bank to have the record in the office of the Register of Deeds corrected with reference to the time of the filing of the respective deeds of trust for registration. The land has been sold and conveyed by the receiver and neither of these matters affects the title of the purchaser from him. The sole question before us relates to the order of distribution of the proceeds now in the hands of the receiver. The judgment of the superior *862 court is in accordance with the principles of equity above stated. We have examined each of the assignments of error and find no reason therein to disturb the judgment.


MOORE, J., not sitting.