CASES

IN THE

SUPREME COURT

OF

MINNESOTA.

MERCANTILE NATIONAL BANK V. PARSONS.

[54 MINNESOTA, 56.]

Trusts-DeeDS TO ONE "AS TRUSTER" WITHOUT NAMING OBJECT OF THE TRUST.-While the fact that a grantee in a deed is described as "trustee" gives no notice of the name of the beneficiary or of the char acter of the trust, yet it imposes the duty of inquiry as to its character and limitations upon a party who takes title under the deed; but all that is required of him is good faith and reasonable care in following up the inquiry which the notice given him suggests.

NOTICE-DUTY TO INQUIRE.-Whatever is sufficient to put a person of ordinary prudence upon inquiry is constructive notice of every thing to which that inquiry would persumably have led.

CORPORATIONS-Knowledge of Stockholder as Notice to. —To render the knowledge of individual corporators the knowledge of the corporation it must be the knowledge of all the corporators.

ACTION to foreclose a mortgage. Some time after October 20, 1890, and before January 17, 1891, the plaintiff bank loaned the defendant, the Lake Erie Tobacco Company, seventeen thousand five hundred dollars, and took six notes therefor, indorsed by the defendant Parsons. On maturity such notes were presented for payment, but not paid, and were then protested and notice given to Parsons. Plaintiff claimed as Becurity the Beard block in Minneapolis for the payment of the notes, and brought action of foreclosure, to obtain a sale and have the proceeds applied in payment of the debt. Another defendant, the South Market Company, appeared in the action claiming to own the Beard block, and denied that plaintiff had any mortgage thereon. On the trial, judgment was rendered against plaintiff and in favor of the South Market Company. Plaintiff's motion for a new trial was deni d,

( 299 )

and it appealed. On July 19, 1888, the Cleveland Farming Company had a capital stock of two hundred and fifty thousand dollars, divided into shares of one hundred dollars each. Two hundred of these shares were owned by undisclosed parties. The balance was owned by defendants H. P. Crowell, T. P. Handy, and J. B. Parsons, in equal proportions. On that day the Cleveland Farming Company exchanged with one Fletcher a farm in Dakota for the Beard block. By consent of the Cleveland Farming Company the title to the Beard block was conveyed to the defendant "Crowell, trustee." This conveyance did not disclose the trust nor the beneficiary, but it was in fact intended to be in trust for the farming company. September 18, 1888, Crowell and wife executed a declaration of trust, stating that this Beard block, standing in his name as trustee, was owned by said Handy, Parsons, and himself in equal parts, each owning one-third; and that he would on demand convey to each a third interest therein. This instrument was not recorded. December 14, 1888, Parsons showed this instrument to the plaintiff and gave it a deed to his interest in the property as security for his indebtedness and that of the Lake Erie Tobacco Company. Crowell acknowledged notice of this deed upon its face, and agreed to be governed accordingly. This deed was recorded December 19, 1888. On December 5, 1890, Crowell, with the consent of the Cleveland Farming Company, conveyed the entire property to the South Market Company, subject to two mortgages for seventy-five thousand dollars, which said company agreed to pay said company, whose capital stock amounted to five hundred thousand dollars, gave to Crowell, Parsons, and Handy two hundred thousand dollars thereof for the Beard block property, subject to such mortgages. The South Market Company had notice, before its purchase, that Crowell held the title to the property as trustee for the farming om any, and procured the consent of the officers of the latter corporation to the sale. The South Market Company had no notice of plaintiff's claim until November, 1891.

Munn, Boyesen, and Thygesen, and J. M. Gilman, for the appellant.

Benton, Roberts, and Brown, Frank Healy, and A. T. Brewer, for the respondents.

61 MITCHELL, J. While some of the findings of fact and conclusions of law of the trial court are probably erroneous,

yet, in view of other facts found, these are not material, for, in our judgment, the whole case comes down to the single question whether the South Market Company was a purchaser in good faith, for value, without notice of plaintiff's mortgage. The deed of the property from Fletcher having been taken in the name of Crowell, with the knowledge and consent of the Cleveland Farming Company, no enforceable trust in its favor resulted from the fact that it paid the consideration: Gen. Stats. 1878, c. 43, sec. 7.

It may be that the property would have been charged with a constructive trust in favor of the creditors of the company, but 62 that is a question between them and Crowell, which is not involved in this suit.

The fact that Crowell was designated "trustee" in the deed, without naming the beneficiary, or stating the nature of the trust, was, of course, insufficient to create any trust; and it can hardly be necessary to suggest that a trust could not be ingrafted on to this conveyance by parol evidence: Gen. Stats. 1878, c. 41, sec. 10.

Hence the testimony of Crowell that he held the land in trust for the farming company was incompetent, and, even if admitted without objection, proved nothing.

Hence, under the deed from Fletcher, Crowell was, as against the farming company, the absolute owner of the property. But we fail to see why his subsequent declaration of trust in favor of Parsons and Handy was not valid, and did not establish an enforceable trust as against him or any one purchasing from him with notice of it. It is not important whether Crowell received any consideration for this declaration of trust. He had a right to give away his property if he saw fit. If he received no consideration, then it stood as an executed gift, and, as it seems to us, the trust became a mere passive one, which vested in Parsons and Handy each the legal title to one undivided third of the property.

But whether they took a legal or only an equitable title is immaterial, for an equitable interest is mortgageable equally with a legal one. Nor is it at all material that plaintiff did not know of this declaration of trust when it took its mortgate from Parsons. If it took the mortgage without examining the title the mortgage nevertheless covered whatever interest Parsons in fact had in the premises. Hence plaintiff's mortgage from Parsons was valid as between the parties,

and will take priority over the subsequent conveyance from Parsons to the market company, unless the latter is protected as a purchaser in good faith for value whose conveyance was first recorded. The record of the mortgage from Parsons to plaintiff, without the record of the declaration of trust by Crowell in favor of Parsons, would not be constructive notice to any subsequent purchaser from Crowell, because not in the chain of title; and, as this declaration of trust was not recorded, the case comes down to the question whether the fact that Crowell was, in the deed from Fletcher, described as "trustee," was sufficient to put 63 the market company on inquiry, and, if so, whether the investigation it made and the information it received was such as a reasonably prudent man would have acted on without further inquiry. It is a familiar doctrine that a purchaser is chargeable with notice of facts recited in deeds under or through which he takes title; and while the word "trustee" in a deed gives no notice of the name of the beneficiary, or of the character of the trust, yet it does give notice of a trust of some description, which imposes the duty of inquiry as to its character and limitations; and whatever is sufficient to put a person of ordinary prudence upon inquiry is constructive notice of every thing to which that inquiry would presumably have led.

But the court finds that the market company, before and at the time of the conveyance to it by Crowell, was informed by Crowell that the farming company had paid the entire consideration for the property so conveyed to him, and that he then held the title thereto in trust for the use and benefit of the company, and that he was disposing of the property for the purpose of closing up its business; that in reliance upon such notice, and believing the fact to be that the farining company was desirous of disposing of the property by and through Crowell, then holding the title thereto for such purposes, the market company purchased and paid for the property. We have carefully examined the evidence, and are fully satisfied that it abundantly justified these findings. In fact, the testimony of Crowell and of Benton (who, as its president, transacted the business in behalf of the market company) to that effect stands uncontradicted.

The facts thus found constituted due diligence in following up the inquiry suggested by the word "trustee" in the deed, and the information received was, under the circumstances, such as to render it unnecessary, in the exercise of reason

able care, to make further inquiries as to the possible rights of any one, at least other than of the farming company.

As the deed gave no indication as to who the possible beneficiary was, the only persons of whom inquiry could or would naturally be made were the grantor and the grantee. If Fletcher, the grantor, had been inquired of, presumably the market company would have been informed, as the facts were, that the consideration was paid 64 by the farining company, and at its direction the deed made to Crowell. There is nothing, however, to suggest that Fletcher knew of the subsequent declaration of trust by Crowell in favor of Parsons and Handy. The other person of whom inquiry could be made was Crowell, who made a statement of the situation, which, especially, in view of the fact that the farming company had paid the consideration for the property, was reasonable and natural, and one upon which a prudent man would have been justified in acting without inquiry whether possibly some one other than the farming company might not be the beneficiary. Under the circumstances, the conclusion at which any one would naturally have arrived would have been that, for convenience, the title had been put in Crowell, in trust (perhaps not enforceable, because not in writing) for the farming company, which paid the consideration; and it can make no difference whether the information was given by Crowell in response to inquiry, or volunteered to induce the market company to make the purchase. And while it is true that the possibility that a false or inconpetent answer may be given, is no excuse for not making inquiry, yet a false answer or a reasonable answer given to an inquiry made may dispense with the necessity of further inquiry. All that is required of a party who is put upon inquiry is good faith and reasonable care in following up the inquiry which the notice given him suggests. As the information given by Crowell suggested an interest in the property on the part of the farming company, it is quite possible, had there existed an enforceable trust in favor of that company, and its limitations and restrictions had been such that Crowell had no power to convey, that, as to the farming company, the market company would have been chargeable with notice of these facts, of which presumably the latter would have been informed upon further inquiry of the former. But there was nothing in the information received of Crowell that would have suggested to any man of ordinary prudence that