I regret exceedingly that I cannot agree with the conclusions of Special Judge Henderson and Mr. Justice Fraser in this case, with the accumulated embarrassment that my disagreement is opposed to the evident conclusions of Hon. A.P. Aldrich and Hon. Robert Aldrich, both formerly Circuit Judges of this State, of eminent ability, of unquestioned integrity, and most amiable qualities.
My reasons follow: This is an action by the plaintiff, a purchaser of a part of certain real estate, conveyed by Lewis M. Ayer to Robert Aldrich, trustee, on December 29, 1866, for the purpose of having the rights of the several parties judicially determined. The defendants, other than *Page 129 A.P. Aldrich (the third of that name), are purchasers directly or indirectly from A.P. Aldrich (the second of that name), to whom the entire tract (of which the smaller tracts immediately affected by this litigation are parts), was conveyed by the trustee under the Ayer deed. There is confusion in the record for appeal as to the date of this last conveyance; in the answer of A.P. Aldrich, 3d, it is given as October 1, 1889; in the decree it is given as subsequent to December 26, 1889, the date of the written directions from A.P. Aldrich, (the first of that name), and M.A. Aldrich to Robert Aldrich, the trustee, authorizing him to sell the premises; and in the answer of A.P. Aldrich 3d, it is alleged that it was conveyed under said direction. It will be assumed, therefore, that it was executed after, and under the said written direction. The defendant A.P. Aldrich, 3d, is the only child of Mrs. Rosa Aldrich, the life tenant under the Ayer trust deed; she died after this action was commenced. He claims the entire property under that trust deed as remainderman.
The undisputed facts of the case are as follows: On December 29, 1886, A.P. Aldrich, 1st, and his wife Mrs. Martha A. Aldrich, purchased a large tract of land, 690 acres, from General Lewis M. Ayer, at the price of $3,345.90, which they, it seems, together paid. Obviously by their direction, the deed was made to their son Robert Aldrich, as trustee, "in trust for the sole and separate use of his sister Rosa, for and during her natural life, and after her death to be equally divided among her children who may then be alive, share and share alike, the child or children of a deceased parent to take among them what their parent if alive would have been entitled to." The deed contained also the following provision:
"But if the said Rosa should die without leaving a child or children, then in trust to be returned to the estate of the said A.P. Aldrich and M.A. Aldrich to be divided under the *Page 130 provisions of his or her will, and if no will, as the law may direct."
It contained also the following:
"And on the further trust that the said land may be sold and the proceeds thereof reinvested as the said A.P. and M.A. Aldrich may direct, their consent being first obtained in writing, or, if they be dead, by the consent of the said Rosa, approved by the said Robert, said consent and approval being in writing, without the necessity of applying to the Court for that purpose."
On December 26, 1889, A.P. Aldrich, 1st and M.A. Aldrich executed a formal instrument in writing, under their seals, witnessed, probated, and recorded, in which, after fully reciting the terms of the trust deed, they declared that:
"We * * * do hereby direct the said Robert Aldrich, trustee as aforesaid, to sell and convey the said land unto Alfred Aldrich, for the sum and price of $5,000, and upon receipt of said purchase money, to transmit the same to the said Rosa, cestui que trust under said trust deed, to be by her invested in such other property as she may elect, and this shall be our direction and consent therefore; and upon the transmission of said money to the said Rosa as hereinabove directed, the said Robert shall be discharged from further liability and accountability under said trusteeship."
It appears, as above indicated, that under said direction, Robert Aldrich, as trustee, conveyed the entire property, some 690 acres, to Alfred Aldrich (A.P. Aldrich, 2d), received from him the authorized purchase price, $5,000, and transmitted it to Mrs. Rosa Aldrich, who had in the meantime moved to California.
By conveyances, either directly or indirectly from A.P. Aldrich, 2d (the record for appeal not disclosing), the defendants B.L. Easterling and J.M. Easterling came into possession respectively of the two smaller tracts here involved, and by several deeds conveyed them to the defendant Deason, who conveyed them to the plaintiff Best. Best *Page 131 paid a part of the purchase price, and gave Deason a mortgage to secure the remainder. Some doubt having arisen as to the validity of the title, Best instituted this action to have the matter set at rest.
The defendants Deason and the Easterlings demurred to the complaint upon certain grounds which need not be specified or considered, as the Circuit Judge overruled their demurrer, and no exception was taken by them to his order.
The defendant A.P. Aldrich, 3d, son of Mrs. Rosa Aldrich answered the complaint, setting forth the various matters heretofore detailed, and claiming that the written declaration of A.P. Aldrich, 1st, and Mrs. M.A. Aldrich, was insufficient to authorize and empower Robert Aldrich as trustee, to make a valid conveyance of the property to A.P. Aldrich, 2d, free of the trust created by the Ayer trust deed of December 29, 1866, in that it was contrary to and in violation of the trust deed, in the following particulars: (a) The said direction constituted a destruction of the trust, and a delivery of the trust property to one entitled to the use thereof for life only; (b) it constituted an unauthorized and unlawful and void change of the trustee named in the trust deed; (c) it effected a removal of the corpus of the trust to another state.
It is assumed that this answer was served upon the codefendants of A.P. Aldrich, 3d; at any rate, they demurred to it, and the matter came up for a trial before Hon. P.F. Henderson, Special Judge. He held a decree sustaining the demurrer, which in effect amounted to a decree in favor of said codefendants, and a denial of the injunction, which the plaintiff asked for against the enforcement of the mortgage which he had given. From the decree of Special Judge Henderson, the defendant, A.P. Aldrich, 3d, has appealed upon exceptions which fairly raise the questions hereinafter considered.
When Judge Aldrich and Mrs. Aldrich, in 1866, purchased the land from General Ayer, and paid the purchase money, *Page 132 they had the right to demand and receive from him a deed in fee simple for the land; it is equally clear that they had the right to forego this right and create a trust for their daughter Rosa and her children. The trust deed was manifestly executed by General Ayer to Robert Aldrich, trustee, at the direction of Judge and Mrs. Aldrich, and in pursuance to their purpose to establish the trust. When that purpose was consummated by vesting the fee-simple title in Robert Aldrich, as trustee, the title, legal and equitable, passed by Judge and Mrs. Aldrich, and vested in the trustee for the purposes of the trust, leaving Judge and Mrs. Aldrich with absolutely no interest in the land except that which became a part of the trusts created by the deed, a contingent equitable estate in fee in the event that their daughter Rosa should die without leaving a child or children alive. Any right which they might thereafter claim, to change the terms of the trust, or to do any act in reference thereto not specifically permitted by the trust deed must necessarily be denied.
That the deed created an executory trust, and was not executed by the statute, appears indisputable. It contemplated that Rosa should have the sole and separate use of the land for life, and at her death it was to be equally divided among her children; this may not necessarily have meant that the trustee was to make that division; but there are other duties imposed which prevented the execution of the trust. The provision alone for a sale by the trustee and a reinvestment of the proceeds, was sufficient to prevent the operation of the statute. Boney v. Cornwell, 121 S.C. 256;113 S.E., 686, and an array of authorities cited therein.
It is equally clear that under the trust deed, the daughter took an equitable life estate, with contingent remainders to her children who might at her death be alive, share and share alike, and per stirpes.
The life tenant is dead, leaving only one child, the defendant A.P. Aldrich, 3d. He took under the trust deed a contingent, equitable, fee-simple estate, in remainder, contingent *Page 133 upon his surviving his mother, which he has done. Having a contingent remainder in the estate prior to the execution of the deed from Robert Aldrich, trustee, to A.P. Aldrich, 2d, the question is: Has it been annihilated by that deed?
It could only have been annihilated, so far as this particular property is concerned, by an act of the trustee in conformity with the terms of the trust deed. Unquestionably, if it had been deemed advisable by Judge and Mrs. Aldrich that the property should be sold and the proceeds reinvested, the trustee would have had the power, upon their written consent and direction, to sell it and convey a good title; and doubtless under those circumstances the purchaser would not have been responsible if the trustee had not reinvested the proceeds as the trust deed requires; and, if the proceeds had been reinvested in other property, the trustee would the same trust as originally created.
It does not require argument to support the proposition that the authority of the trustee to sell and reinvest the proceeds of sale in other property carries the implication that such other property should be held by the trustee subject to the same trust as originally created.
In the concurring opinion of Mr. Justice Woods, in the case of Rice v. Coleman, 87 S.C. 342; 69 S.E., 516; Ann. Cas. 1912B, 1016, it is said:
"Every power of sale conferred by a will has attached to it by law as a condition of its exercise that it shall be used only in the discharge of the testamentary trust imposed by the will. Adopting the language of the Court in Reeves v.Tappan, 21 S.C. 1: `It was a power coupled with a trust the trust being the executorship, and it was conferred upon the office of executor so as to enable the party filling that office, whoever he might be, to properly discharge its functions and duties.'"
It seems an easy step to a similar conclusion, in the case of a power of sale conferred upon a trustee. If there had *Page 134 not interposed the direction of Judge and Mrs. Aldrich, attempting to modify the implied duty of the trustee to sell and reinvest for the purposes of the trust, there would not have been a question as to the power and duty of the trustee in this case. That they had surrendered this power, in the creation of the trust, appears too plain for discussion.
The case last cited was decided by a divided Court; but the following extract from the dissenting opinion of Mr. Justice Hydrick, concurred in by Mr. Chief Justice Jones, taken in connection with the quotation above from the opinion of Mr. Justice Woods, shows that there was no difference of opinion upon that point:
"While the power conferred on the executors to sell the real estate is ample, still it is a naked power, and should be construed as intended to be exercised only for the purpose of administering the estate according to law."
The plain intention of the trust deed (not the written direction of Judge and Mrs. Aldrich who were powerless to change what they had procured to be written) was that if it should be deemed by Judge and Mrs. Aldrich that the property should be sold, they should so direct the trustee; that the trustee should make the sale, and that he should reinvest the proceeds in other property, to be held by him upon the same trusts. Thus, while the contingent remainder of A.P. Aldrich, 3d, would have been annihilated as to this particular property, it would have been protected by transferring it to the other property, the title of which should have been taken to the trustee.
But that is not what Judge and Mrs. Aldrich directed the trustee to do. He was directed to sell and convey the property to A.P. Aldrich, 2d, for a stated sum, $5,000, and that upon receipt of the purchase price, the trustee should not reinvest the proceeds of sale in other property, and hold it subject to the trusts of the deed, but transmit it to the life tenant, Mrs. Rosa Aldrich, mother of appellant, who was described the cestui que trust under the deed, to be by her *Page 135 reinvested in such other property as she might elect, and that thereupon the trustee should be discharged from all further liability.
Doubtless had Mrs. Rosa Aldrich followed these directions, and the appellant had accepted the fruits of such reinvestment, he would not be heard to claim his contingent remainder in the original property, while holding to that which in a measure represented it. That fact, however, does not appear in the present record. Certainly the appellant should be allowed his election to pursue the property in which in a measure represented it. That fact, however, does repudiate the whole transaction and follow the original property, if his rights had not been concluded by the original direction and the deed to A.P. Aldrich, 2d; and until it appears that he has elected the former, his remedy upon the latter course cannot be concluded upon a demurrer.
The trustee could not shield himself behind the direction of Judge and Mrs. Aldrich. They had created the trust, parted with what rights they may have had in the land, and had no power of control over the trust or trust estate, except what was confirmed by the trust deed, and this was simply to direct and approve a sale of the property for reinvestment.
In the case of Wormley v. Wormley, 8 Wheat, 421;5 L.Ed., 651, it is held that where a power of sale is conferred upon a trustee, coupled with the duty of immediate reinvestment, the two facts, while separate and distinct, are intended to be exercised in connection with each other.
"And it is very difficult to perceive how the trustee could arrive at the conclusion that it was proper to sell, unless he had, at the same time, fixed on some definite reinvestment, which, compared with the former estate, would be advantageous to the parties."
It seems to plain for argument that the interposition of an unauthorized direction, is an interference with this clear power and duty. *Page 136
That the conveyance of the property by Robert Aldrich, trustee, to A.P. Aldrich, 2d, on December 26, 1889, in pursuance of the written direction of Judge and Mrs. Aldrich, constituted a technical breach of trust, appears beyond question. They had the power, under the trust deed, to direct the trustee to sell, and to direct how the proceeds of sale should be reinvested by him, subject, of course, to the terms of the trust as defined in the trust deed. They did not have the power to direct him to sell and deliver the entire trust estate, in money, to the life tenant, to be by her reinvested, and thereby to be discharged from his trust. Granting that this did not amount to a destruction of the trust, it certainly greatly imperiled it. In the trust deed it was studiously provided that the trustee could make a reinvestment of the proceeds of sale only by the written consent and approval of Judge and Mrs. Aldrich, or that if they should be dead, by the written consent of Mrs. Rosa Aldrich and the trustee. By the arrangement that was actually consummated, the reinvestment was left entirely to the pleasure of the life tenant. It amounted also to a change of the trustee, without the consent of any one interested, and without the sanction of the Court, as required by section 5458, Vol. 3, Code of Laws A.D. 1922.
The circuit decree appears to proceed upon the theory that Judge and Mrs. Aldrich, having furnished the purchase money for the land, and being desirous of making provision for their daughter, reserved practically unlimited control of the trust, notwithstanding the specific terms of the deed. It is said:
"My construction of this paragraph of the deed is that A.P. Aldrich and M.A. Aldrich realized that contingencies might arise, by virtue of which it might be necessary materially to change the method of investment, and that they carefully provided in the trust deed that, should this contingency arise that by directing and requesting the trustee *Page 137 to act, they might make any change, no matter how sweeping, in the investment, as they might desire to make."
In the first place, Judge and Mrs. Aldrich, having by their own voluntary act caused the creation of the express trust, parted with their entire interest in the property, except the contingent remainder upon the death of Mrs. Rosa Aldrich without children. There was left in them, or rather conferred upon them by the deed, simply the power to direct and approve a sale and a reinvestment of the proceeds. In the second place the only contingency which might authorize any interference by them with the trust estate, was the possible existence of circumstances making it expedient, in their judgment, to change the investment by a sale of the property and a reinvestment of the proceeds of the trustee upon the same trust terms.
To say that this gave them the power to authorize the trustee to sell the property, and turn over the proceeds to the life tenant, for reinvestment as she might deem expedient, thus to imperil the trust, practically to annihilate the interest of the remainderman, to discharge the trustee and to substitute another in his place with unrestrained power, appears to authorize liberties with a solemn instrument amounting to an absolute disregard of its provisions.
If the contest involved in this proceeding had arisen with A.P. Aldrich, 2d, the grantee in the deed from the trustee, there cannot be a doubt but that he took the deed with full knowledge of the trust and of its breach, and would be accountable to the remainderman as a constructive trustee.
"Where a person buys property, with a knowledge that it is subject to a trust, he takes it subject to the trust."Smith v. Daniel, 2 McCord, Eq. 143; 16 Am. Dec. 641.
"One purchasing land, to which another has an equitable title, with notice of the equity takes subject to the equity, and is bound to convey in like manner as the person from whom he purchased." Massey v. McIlwain, 2 Hill Eq., 421. *Page 138
In Simmons v. Bank, 5 Rich. Eq., 270, it is said:
"One who purchases from a trustee, with notice of the trust, becomes himself chargeable with the equities of the trust, to the extent of his dealing, if the trustee's act is a violation, or an abuse of the trust.
"In this case, the bank had notice, for the trust was unmistakably stamped upon the face of the certificates; and, if they had followed up the indications thereby afforded, it would have led to the most complete information on the subject, and shown them the utter incapacity of Laurens to sell, much less to hypothecate for his own use the certificates of stock, which stood in his name for the benefit of the wards of the Court." Simons v. Bank, 5 Rich. Eq., 270.
In Webb v. Graniteville, 11 S.C. 396; 32 Am. Rep, 479, it is said:
"The transfer to Paul as guardian was made with full knowledge on the part of the corporation of the source from which information might have been derived as to the persons represented by Paul, and it must be assumed that the defendant corporation either had full knowledge of the persons entitled as beneficiaries under the trust, or improperly neglected to inform themselves on such subject."
In Salinas v. Pearsall, 24 S.C. 179, the Court says:
"A purchaser is not ordinarily required to see to the application of the purchase money where the vendor has power to sell, but where he knows, or ought to know, that a breach of trust is being committed, he cannot shield himself."
In that case the trustee assigned a note and mortgage payable to himself as trustee, for the purpose of securing advances made to the beneficiary and himself. The Court said:
"Now, the important question arises, did Salinas (the assignee) have knowledge of this fact (the existence of the trust), or knowledge of facts sufficient to put him upon such inquiry as would have led to a discovery of the trust impressed upon those papers? If so, he could not hold *Page 139 them discharged of the trust, unless they were properly assigned under the power of the original deed. * * * The very papers assigned to him advertised him of the fact on their face, that they were connected with a trust. * * * This it seems to us, was enough * * * to make him hesitate, at least to make him inquire into the nature and character of this trust. It does not appear that he had done this, nor that had he looked into the records he would have failed to ascertain the facts in reference thereto."
In the case last cited, the trustee had the power to sell with the consent of the beneficiary, and it was urged that the assignee should be protected as he had been informed of this power and that the consent had been given. Meeting this point, the Court said:
"True, the trustee had power to sell the trust estate or any portion thereof, with the written consent of Mrs. Jarrott, for reinvestment. Was the assignment here for reinvestment? Certainly not. It was to pay a debt contracted by Mrs. Jarrott and her husband for supplies, and its effect was not to keep the trust estate alive, but to destroy it, and this must have been apparent to Salinas."
The case of Rabb v. Flenniken, 29 S.C. 278; 7 S.E., 597, presents a striking parallel to the case at bar. The trustee was authorized to sell, with the consent of the beneficiary, for reinvestment, the acquired property to be held upon the same trusts. He conveyed land with the consent of the beneficiary, and received in part payment a debt which he owed to the grantee The Court held:
"The only sale which the deed authorized was one for reinvesment: the defendant knew that the sale to him was not made for that purpose. He therefore participated in the breach of trust. In fact, it was through him that said breach was committed. We think the sale was void and should have been so held by his honor."
It is true that in the case last cited there was an express provision in the trust deed that the property, in which the *Page 140 proceeds of a sale of the original trust estate might be invested, should be held by the trustee upon the same trusts as were defined in the trust deed. In the trust deed now under consideration the express provision is not present. The only reasonable inference, however, from a direction to the trustee to sell the trust estate for reinvestment, is that the trustee shall hold the acquired property under the same trusts.
In the case of Sullivan v. Latimer, 35 S.C. 422;14 S.E., 933, it is held that where one purchases land sold as the absolute estate of another, knowing at the time that such other held the land as trustee for his sister and her children, the purchaser takes the land subject to the trust, and becomes himself a trustee. The same rule should apply to one who purchases under circumstances constituting a breach of trust on the part of the trustee, of which breach he had knowledge, or of facts sufficient to put him upon a successful inquiry.
In Price v. Krasnoff, 60 S.C. 172; 38 S.E., 413, the Court said:
"No one who purchases is obliged to see that purchase money is reinvested. * * * It is only where third parties have notice, either from the terms of the instrument creating the trust, or other notice, or from some collusion with the trustee in the wrong done a cestui que trust, that they are liable for the breaches of duty by the trustee."
In Cathcart v. Matthews, 105 S.C. 329; 89 S.E. 1021, it is held:
"If the grantee purchased with notice of the trust, she took subject to it, and became a constructive trustee" — citing 1 Perry, Trusts, § 334.
In Bank v. Seton, 1 Pet. 299; 7 L.Ed. 152, it is said:
"It is a settled rule in equity, that all persons coming into possession of trust property, with notice of the trust, shall be considered as trustees, and bound, with respect to that special property, to the execution of the trust." *Page 141
The law being perfectly clear as to the position occupied by the immediate grantee of the trustee, who unquestionably had full knowledge of the trust and the breach of it through the scheme evolved from the direction of Judge and Mrs. Aldrich, the vital inquiry remains as to the position occupied, or rather the relation sustained, by the subsequent alienees of such grantee; and this inquiry involves the question whether or not they can sustain the position of bona fide purchasers from the trustee without notice of the breach of trust, for if they had notice of the trust and of its breach, or sufficient notice to put them upon inquiry which, if pursued with diligence, would have disclosed the facts, they are bound by the same rule which binds the grantee from the trustee.
It is manifest that this question cannot be decided upon the present appeal. The appeal is from an order sustaining a demurrer to the answer of the defendant A.P. Aldrich, 3d, which does not present the contention that such alienees are not subsequent purchasers for value without notice. The allegations contained in the eighth paragraph of the answer, from which it might be insisted that this issue is raised, are but statements of legal conclusions, which the demurrer does not admit. As the answer stands, even omitting the legal conclusions, the defendant would be entitled to the decree unless his codefendants should establish the affirmative defense of subsequent purchasers for value without notice, or other available defense. The defense alluded to is an affirmative one, and must be pleaded. Snelgrove v. Snelgrove, 4 Desaus., 274. Chestnut v. Strong, 2 Hill, Eq., 146.McBee v. Loftis, 1 Strob. Eq. 90. Roberts v. Ellis, 59 S.C. 137;37 S.E., 250. Carr v. Mouzon, 93 S.C. 161;76 S.E., 201; Ann. Cas. 1914C.731. Merck v. Merck, 95 S.C. 328;78 S.E., 1027.
The codefendants having demurred and not answered, a defense which can be interposed only by answer cannot be considered, but the codefendants should be allowed to *Page 142 answer or reply to the defendant's answer, setting up the plea of bona fide purchasers for value without notice and such other defenses, such as statute of limitations, laches, election, or estoppel as they may be advised. No intimation as to the validity of any of these is intended to be expressed. As bearing upon the matter of notice the absence of which is essential to a plea of bona fide purchaser, it may be instructive to refer to 2 Pom. Eq. Jur., § 626. Notes of Judge Freeman in 23 Am. Dec., 48, and 64 Am. Dec., 201. Moyle v. Campbell, 119 S.E., 186, decision filed September 12, 1923. Black v. Childs, 14 S.C. 312. Dillardv. Crocker, Speer. Eq., 20. Perry, Trusts (2d Ed.) § 830; note to 19 Am. St. Rep. 296.
It is possible that the deed from Robert Aldrich to A.P. Aldrich, which does not appear in the record, might throw some light upon the question of notice.
The declaration in the leading opinion, "No one had a right to complain of a failure to reinvest except one who has some right in the property, or the proceeds of sale. No one had such a right, not even the daughter Rosa," appears to ignore the rights both of the life tenant and of the remainderman. Certainly Mrs. Rosa Aldrich, who was given the use for life, had an interest in the reinvestment, and, conceding that she, by accepting the fund in solido, would not be in a position to complain that it had not been reinvested, it is equally certain that the remainderman had a contingent interest after the use of Mrs. Rosa Aldrich had been exhausted, and was directly interested in the proper execution of the trust by a reinvestment by the trustee; and that his rights were substantially affected by a transfer of the corpus to the life tenant.
It is clear, therefore, in my opinion, that the demurrer was improperly sustained; that the decree should be reversed, and that the case should be remanded to the circuit Court, with directions that the answer of A.P. Aldrich, 3d, within 10 days after the filing of the remittitur, be served upon *Page 143 the attorneys of the codefendants, and that they be allowed 20 days thereafter within which to serve such reply thereto as they may be advised, and that the case proceed to trial upon the merits.