BASSETT V. BASSETT, 1990-NMSC-070, 110
N.M. 559, 798 P.2d 160 (S. Ct. 1990)
CARL BASSETT, et al.,
Plaintiffs-Appellees,
vs.
ELMER BASSETT and ESTHER BASSETT, Defendants-Appellants
SUPREME COURT OF NEW MEXICO
1990-NMSC-070, 110 N.M. 559, 798 P.2d 160
Appeal from the District Court of Santa
Fe County; Petra Jimenez Maes, District Judge.
Vernon Salvador, Albuquerque, New Mexico,
for Appellants.
Melinda J. Silver, Santa Fe, New Mexico,
for Appellees.
Dan Sosa, Jr., Chief Justice. Seth D.
Montgomery, Justice, Kenneth B. Wilson, Justice, concur.
{*561} SOSA, Chief
Justice.
{1} Plaintiffs-appellees,
Carl Bassett and his four sons, filed suit against defendants-appellants, Elmer
Bassett, and Elmer's wife, Esther Bassett. Carl and Elmer are brothers. We do
not discuss the other litigants who were involved nominally in the suit.
Consequently, appellee herein is designated "Carl," and appellant "Elmer."
In his amended complaint, Carl alleged that he and Elmer formed a partnership
about the year 1950 for the purposes of conducting a ranching and farming
business in the Edgewood district of Santa Fe County. Carl alleged that in 1950
the partnership purchased a section of land from L.W. Briggs and that in 1958
the partnership purchased another section of land from L.W. Briggs.
{2} Carl alleged that
although title to both parcels of land was placed in Elmer, it was agreed
between the partners that Elmer held a one-half interest in the land in trust
for Carl until such time as Elmer and Carl could find Carl similar land of like
value. In May 1980 however, Elmer repudiated any such trust agreement,
dissolved the partnership, and locked Carl out of both parcels of land. Carl
alleged that Elmer held the land in trust for Carl on several theories,
including resulting trust, unjust enrichment, constructive trust, and statutory
trust pursuant to NMSA 1978, Section
46-2-13 (Repl. Pamp. 1989). Carl also
alleged breach of contract and sought the value of his labor and expenditures
on the partnership business from 1950 to 1980.
{3} The jury was asked to
return a special verdict based on twenty interrogatories. Among the answers to
the interrogatories, the jury found that: (1) "by spoken words, by actions
and conduct or by a combination thereof," Carl and Elmer intended to enter
into an agreement "whereby Carl Bassett would help Elmer Bassett with the
purchase of the Briggs property in return for like help from Elmer Bassett[;]"
(2) Carl performed on the agreement and was entitled to specific performance of
Elmer's obligation to convey to Carl a one-half interest in the Briggs
properties;
{*562} (3) the Briggs
properties were bought with partnership funds for partnership purposes; (4)
Carl justifiably relied on Elmer's representations that Carl would have a
one-half interest in the properties; (5) Elmer openly denied Carl's trust
interest in the properties; (6) Elmer did not deal openly and honestly with
Carl regarding Elmer's intentions as to the properties; (7) in reliance on
Elmer's representations that Carl held a one-half interest in the property Carl
gave up his interest in other property he owned in order to help pay for the
Briggs properties; (8) Carl and his sons should be compensated in the amount of
$1.00 each for their contributions of labor to the partnership business
conducted on the Briggs properties; (9) Elmer's actions in depriving Carl of
his one-half interest in the properties were malicious, intentional, fraudulent,
oppressive or reckless; and (10) Elmer was liable for punitive damages to Carl
in the amount of $176,000.
{4} In its findings of fact,
the court found that: (1) a partnership had been formed and it had purchased
the Briggs properties in such a way that Elmer held title to the properties but
Carl had a one-half interest in the properties; (2) over the years Carl helped
Elmer pay for the land, including mortgaging his own land to raise money to
meet installment payments; (3) partnership income was used to pay for the land;
(4) after making $8,000 in payments on other land he owned, Carl relinquished
this property in order to meet the payment schedule on the Briggs properties;
(5) after 1961, Carl and his sons did most of the ranch work while Elmer held
outside jobs; (6) Carl and Elmer bought the Briggs properties with partnership
funds and used the properties for partnership purposes; (7) Elmer wrongfully
terminated the partnership agreement in 1980; (8) Elmer made false
representations to Carl by telling Carl he owned a one-half interest in the
Briggs properties and Carl relied to his detriment on these representations;
(9) the Briggs properties were purchased in such a way that Elmer held a
one-half interest in trust for Carl; and (10) Elmer openly denied Carl's trust
interest.
{5} In its conclusions of
law, the court ruled that: (1) the Briggs properties were acquired with
partnership funds; (2) Carl and Elmer performed on the partnership agreement
until 1980; (3) Carl's interest in the partnership assets, including the Briggs
properties, is personal property; (4) a resulting trust was established when
Carl furnished money for the purchase of the property with the intention that
Elmer would take title and hold Carl's one-half interest in trust; (5) Elmer repudiated
the trust; (6) Carl has equitable title to a one-half interest in the
properties; (7) Carl had no reason to know of the need to assert his right
against Elmer until 1980; (8) the evidence was sufficiently clear, convincing
and substantial to support the formation of either a resulting trust or a
constructive trust in favor of Carl; (9) Elmer is subject to an equitable duty
to convey a one-half interest in the properties to Carl; and (10) Elmer
breached a confidential, fiduciary relationship with Carl and committed
constructive fraud against him.
{6} In its judgment, the
court awarded Carl a one-half interest in the properties, attorneys fees of
$30,074, reformation of the original deeds from L.W. Briggs to Elmer to show
that Carl is tenant-in-common of the properties, compensatory damages, costs
and punitive damages in the amount of $176,000. On appeal, we affirm.
II. ISSUES RAISED ON APPEAL
{7} Elmer alleges that any
agreement pertaining to the conveyance of the Briggs properties to Carl is
rendered void by the Statute of Frauds. We disagree. While New Mexico has no
statute incorporating the common law Statute of Frauds for the creation of a
trust, New Mexico has adopted the English Statute of Frauds by judicial rule.
Childers
v. Talbott, 4 N.M. 336, 339,
16 P. 275, 276 (1888);
see also Browning v.
Estate of Browning, 3 N.M. 659,
9 P. 677 (1886). The question then becomes,
are there any exceptions to the Statute of Frauds that would permit proof of an
oral trust? It is well settled that "statutes requiring a writing for the
creation or enforcement of a trust are not applicable to resulting or to
constructive trusts." 5 Scott & Fratcher,
The Law of Trusts 406
(4th ed. 1989),
accord, Bogert,
The Law of Trusts and Trustees
497 (2d ed. 1978).
{8} Elmer further argues that
the jury was not instructed properly that it must find the existence of a trust
by clear, cogent and unambiguous evidence. Rather, it is alleged, the jury was
given the
{*563} interrogatories with
the understanding that proof must be shown merely by a preponderance of the
evidence. It is true that evidence required to establish an oral trust must be
"strong, cogent and convincing[.]"
Portales Nat'l Bank v. Beeman,
52 N.M. 243, 250,
196 P.2d 876, 880 (1948); Bogert,
id. ("[T]he
case for the constructive trust [must] be 'clear and unequivocal.'") Here,
the trial court explicitly concluded: "The evidence was sufficiently
clear, convincing and substantial to support the formation of either a resulting
trust or a constructive trust...." We take the court's finding as
establishing the proof of an oral trust by "strong, cogent and
convincing," or "clear and unequivocal" evidence. Even where the
standard of proof is clear and convincing evidence, it is for the factfinder
and not the appellate courts to weigh conflicting evidence and arrive at the
truth.
Ledbetter v. Webb, 103 N.M. 597, 601,
711 P.2d 874, 878 (1985).
Likewise, we are bound on appeal to indulge every presumption to sustain the
judgment.
Id.
{9} Further, at trial, Elmer
neither asked the court to instruct the jury to find an oral trust by a higher
standard of evidence nor submitted a proposed instruction in which the higher
standard of evidence was enunciated. Hence, he is barred from demanding that we
in effect retroactively require proof by the standard he requests.
See
Salinas v. John Deere Co., 103 N.M. 336, 339,
707 P.2d 27, 30 (Ct. App.)
("A mere assertion that an instruction does not state the law is
insufficient."),
cert. quashed, 103 N.M. 287,
705 P.2d 1138 (1985);
McNeely v. Henry, 100 N.M. 794, 799,
676 P.2d 1359, 1364 (Ct. App. 1984)
(To preserve error on appeal "[i]t is necessary to submit a correct
instruction or form of verdict for the court's consideration below.")
{10} Elmer asserts that
Carl's testimony, objected to at trial, concerning the reason why L.W. Briggs
placed title to one of the Briggs properties in Elmer, and Carl's testimony
concerning the agreement underlying transfer of the deed on another of the
Briggs properties, violates the parol evidence rule. We disagree. Carl was not
a party to the deeds and thus could testify as to the facts surrounding their
transfer.
Roehl v. Anderson, 31 N.M. 616, 619,
249 P. 1010, 1011 (1926)
(strangers to writing not bound by parol evidence rule). Further, there is no
bar to the introduction of parol testimony in order to prove the trust asserted
here.
Browne v. Sieg, 55 N.M. 447,
234 P.2d 1045 (1951) ("[a]
resulting trust may be established by parol evidence, even in direct
contradiction of a warrant, patent or deed") (citation omitted).
D. STATUTE OF LIMITATIONS AND LACHES
{11} Elmer claims that
because Carl had constructive notice of the deeds on the dates they were
recorded (1950 and 1957, respectively) Carl was required to file suit by 1963.
In the alternative, Elmer contends, Carl unreasonably delayed in filing suit
and thus his complaint is barred by the doctrine of laches. We disagree. Carl
has alleged, and the court has found, constructive fraud. A statute prescribing
a limitation period for fraud applies to constructive fraud.
Gaston v.
Hartzell, 89 N.M. 217, 219,
549 P.2d 632, 674 (Ct. App. 1976). We apply the
same reasoning here as the court of appeals did in
Gaston: "[A]
person does not slumber on his legal rights when he is wholly unaware of the
nature of his legal rights or the cause which gave rise to them."
Id.
at 220, 549 P.2d at 635.
{12} The statute of
limitations under consideration here, NMSA 1978, Section
37-1-3(A) (six years),
is limited by NMSA 1987, Section 37-1-7, which provides that "[i]n actions
for relief, on the ground of fraud... the cause of action shall not be deemed
to have accrued until the fraud... complained of, shall have been discovered by
the party aggrieved." Carl could not possibly have discovered that Elmer
defrauded him until Elmer forced Carl off his property and repudiated the trust
in 1980. Carl filed suit in 1981, well within the time of the limitation
period. He also filed in a reasonable period of time to avoid the doctrine of
laches
{*564} E. PUNITIVE
DAMAGES AND ATTORNEY FEES
{13} Contrary to Elmer's
contention on appeal, we find the record supports the award of punitive
damages. Our ruling in
Levy v. Disharoon, 106 N.M. 699,
749 P.2d 84
(1988), is relevant here. There we said: "It follows from the general
requirement of good faith in partnership dealings that a partner is not allowed
to gain any advantage over a co-partner by fraud, misrepresentation or
concealment, and for any advantage so obtained he must account to the
co-partner."
Id. at 704, 749 P.2d at 89. In upholding an award of
$100,000 punitive damages in
Levy, we held that punitive damages were
not so unrelated to actual damages of $103,000 as to be clearly erroneous. Here
the present value of the land in controversy is well over a million dollars.
Punitive damages were set by the jury at $176,000, based on the jury's finding
that Elmer's conduct had been malicious, intentional, fraudulent, oppressive or
reckless and in wanton disregard of Carl's rights. The court expressly found
that Elmer had committed constructive fraud against Carl, and that he had
failed to be open, fair and honest in dealing with Carl as a partner. The award
of punitive damages was proper.
{14} As for attorney fees,
Elmer is right to state the general rule that each party to litigation must pay
his own attorney fees,
State ex rel. Stanley v. Lujan, 43 N.M. 348, 349,
93 P.2d 1002, 1003 (1939), unless the case falls within the exceptions noted in
Gregg v. Gardner, 73 N.M. 347, 360-61,
388 P.2d 68, 77-78 (1963).
See
also Gurule v. Ault, 103 N.M. 17, 19,
702 P.2d 7, 9 (Ct. App. 1985). Yet,
another judicial exception to the general rule has been announced by the
Supreme Court of Washington in
Hsu Ying Li v. Tang, 87 Wash.2d 796, 557
P.2d 342 (1976) (en banc). In that case one partner's negligent breach of his
fiduciary duty to another partner amounted to constructive fraud. The court
based an award of attorney fees on the court's "inherent equitable powers.
Id. at 799, 557 P.2d at 345. We note that the South Carolina Court of
Appeals has declined to follow the "bad faith exception" set forth in
Hsu Ying Li. See Weeks v. McMillan, 291 S.C. 287, 353 S.E. 2d 289 (Ct.
App. 1987).
{15} In
Hsu Ying Li,
the court pointed to Washington statutes detailing the fiduciary duties which
partners owe to one another. In particular, the court quoted from RCW
25.04.210(1), 87 Wash.2d at 800 n.2, 557 P.2d at 345 n.2, a statute that is
identical to NMSA 1978, Section
54-1-21(A) (Repl. Pamp. 1988), which reads, in
pertinent part:
Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with the
formation, conduct or liquidation of the partnership or from any use by him of
its property.
NMSA 1978, Section 54-1-39 (Repl. Pamp. 1988) provides in
pertinent part:
Where a partnership contract is rescinded on the ground of
the fraud or misrepresentation of one of the parties thereto, the party
entitled to rescind is, without prejudice to any other right, entitled:
C. to be indemnified by the person guilty of the fraud or
making the representation against all debts and liabilities of the partnership.
{16} Neither of these
statutes contemplates granting attorney fees to an aggrieved party who is
situated similarly to Carl in the case before us. Yet, like the court in
Hsu
Ying Li, we read our statutes as requiring strict compliance between partners
in their duty to deal with one another as fiduciaries fully, honestly and
openly. Where one partner breaches the fiduciary duty owed another partner, on
dissolution of the partnership and accounting of assets it is within the
equitable jurisdiction of the court to consider an award of attorney fees to
the aggrieved partner. We thus follow the exception to the general rule on
award of attorney fees as stated in
Hsu Ying Li.
{17} Elmer maintains that
there was no substantial evidence before the jury to support
{*565}
Carl's claim that the Briggs properties were an asset of the partnership or
that a one-half interest in the properties was held in trust for Carl. We
disagree. The record shows that Carl made substantial monetary contributions to
the partnership and that partnership money was used to retire the debt on the
Briggs properties. Further, Carl used his own resources to support the
partnership business and borrowed money to make installment payments on the
Briggs properties so that the partnership business could be maintained.
{18} Carl introduced into
evidence a letter to him from the National Farm Loan Association of Albuquerque
in which the secretary-treasurer of the association wrote, "It is
understood that this money [loaned to Carl] is to be used... to take care of
the installments now due on the indebtedness on Elmer Bassett's farm." In
the context of the case, "Elmer Bassett's farm" means partnership
property. Although Carl made only two payments directly to L.W. Briggs, he made
several other payments to Briggs through Elmer's bank account. The fact that
Elmer made the bulk of the payments does not mean that Carl did not contribute
substantial income to purchase the properties. The evidence showed that
partnership income usually was placed in Elmer's personal banking account, from
which Elmer then wrote checks to satisfy indebtedness on the Briggs properties.
{19} Exhibits given to the
jury show that Carl made $13,747 in payments and Elmer $10,403, with the brothers'
father making the remainder of the payments. Based on evidence detailing Carl's
and Elmer's income from and expenses for partnership business through 1962,
when Carl and his sons began to do most of the work on the properties, it
appears that Carl expended $96,807 on the partnership business and Elmer
$68,264. Carl's partnership income through 1962 was $73,784, and Elmer's
$53,369. There is little doubt from the record that Carl and Elmer equally were
engaged in maintaining the business and that they likewise were engaged equally
in retiring the indebtedness on the Briggs properties. "Unless the
contrary intention appears, property acquired with partnership funds is
partnership property." NMSA 1978, §
54-1-8(B) (Repl. Pamp. 1988). Here the
jury was entitled to conclude that the Briggs properties were an asset of the
partnership.
{20} The same reasoning
applies to Elmer's contention that there is a lack of substantial evidence to
support the oral trust. The court specifically found:
Carl and Elmer Bassett agreed that legal title to the
property would be taken in the [name] of [Elmer] and further agreed that [Carl]
would have a fifty percent (50%) interest in the property until such time as
[Elmer] was able to assist [Carl] in acquiring property of an equal value in
his name.
This finding was based in part upon the jury's affirmative
answer to interrogatory number 9, which asked, "Did Carl Bassett
justifiably rely upon representations made by Elmer Bassett in 1950 that Carl
Bassett would have a one-half interest in the Briggs property, or would be
helped by Elmer Bassett in obtaining a like property?" From our review of
the record and taped transcript we find that the jury was justified from the
evidence in making the conclusion it did, and that the court likewise was
justified in finding as it did.
{21} Our conclusion here is
similar to that in
Citizens Bank of Clovis v. Williams, 96 N.M. 373,
630
P.2d 1228 (1981), where we held:
The trial judge hears the witnesses in person and has the
opportunity to observe their demeanor and manner of testifying and has a much
better grasp of the evidence in its entirety than we have. Based upon a cold
record on appeal and absent an erroneous application of the law, we will not
interfere with the trial court's decision. Under the circumstances and facts in
this case, we believe the trial court arrived at a correct result.
Id. at 376, 630 P.2d at 1231 (substantial evidence
supported finding by trial court that partners had entered into an oral
agreement specifying an equal division of assets of ranching business).
{*566} G. NATURE OF
TRUST INTEREST INVOLVED
{22} The trial court
concluded that "[t]he evidence was sufficiently clear, convincing and
substantial to support the formation of either a resulting trust or a
constructive trust in favor of" Carl. We agree with the trial court that
Carl properly alleged and proved either or both types of trust. The difference
between a resulting trust and a constructive trust has been stated as follows:
[A] resulting trust arises from a transfer of property under
circumstances showing that the transferee was not intended to take the
beneficial interest.... It has been termed an "intention-enforcing"
trust, to distinguish it from the other type of implied trust, the constructive
or "fraud-rectifying" trust. The resulting trust carries out the
inferred intent of the parties; the constructive trust defeats or prevents the
wrongful act of one of them.
Martin v. Kehl, 145 Cal. App. 3d 228, 237, 193 Cal.
Rptr. 312, 318 (1983) (emphasis in original, citations omitted).
{23} As discussed above, the
evidence shows that Elmer perpetrated a constructive fraud on Carl by inducing
him to contribute his money and labor to the support of the partnership
business in reliance on Elmer's promise to hold for Carl a one-half interest in
the Briggs properties until such time as the brothers could find Carl like
property of similar value. This presents a classic case of constructive trust.
"A constructive trust arises where a person who holds 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." 5 Scott
& Fratcher,
The Law of Trusts 462 (4th ed. 1989). Here, Elmer held a
one-half interest in the Briggs property in trust for Carl and was subject to
an equitable duty to convey that one-half interest to Carl, as the court has
ordered. A constructive trust properly has been found.
{24} With respect to the
resulting trust, there are three situations in which much a trust arises:
(1) where an express trust falls in whole or in part;
(2) where an express trust is fully performed without
exhausting the trust estate;
(3) where property is purchased and the purchase price is
paid by one person and at his direction the vendor conveys the property to
another person.
{25} Here, the third
situation is the relevant one, on either of two theories. By one theory, Carl
purchased a one-half interest in the Briggs properties with his own money and
directed L.W. Briggs to place title to the entire property in Elmer's name,
with Elmer the trustee of a resulting trust holding the beneficial interest of
Carl's one-half interest for Carl. By the second theory, the partnership
purchased the property, placing title to the property in Elmer. Elmer thus was
under an obligation to hold Carl's one-half interest in the property for Carl
in trust until the partnership dissolved and an accounting was had.
{26} Although the court did
not find what might be termed a "statutory trust" under NMSA 1978,
Section
46-2-13 (Repl. Pamp. 1989), Carl had alleged a trust under that
section. The section provides, in pertinent part:
A. When an interest in real property is conveyed by deed to a
person on a trust which is unenforceable on account of the statute of frauds
and the intended trustee or his successor in interest still holds title but
refuses to carry out the trust on account of the statute of frauds, the
intended trustee... shall be under a duty to convey the interest in real
property to the settlor....
As has been noted before,
The fact pattern to which § 46-2-13 is addressed is... not a
fact pattern in which the resulting trust has historically been used. An oral
agreement not complied with is simply not a fact pattern which lends itself to
allow the clear implication of a settlor's intention not to convey the
beneficial interest.... The would-be settlor under this fact pattern {*567} is attempting exactly what the Statute
of Frauds forbids, conveyance of legal title to land upon an oral trust,
whether in his favor or to the benefit of another.
If § 46-2-13 creates a resulting trust, it is not the classic
resulting trust, but merely a situation which has the same legal effect, a
resulting back to the transferor. If § 46-2-13 creates a constructive trust, it
is a restitutionary device which must be used to convey land in a prescribed
direction, to the settlor.
Note, Real Property -- Constructive Trust -- Resulting
Trust: Thomas v. Reid, 12 N.M.L. Rev. 591, 601-02 (1982).
{27} Perhaps because of the
ambiguity surrounding the purpose and use of Section 46-2-13, the trial court
did not structure a remedy based on this section. Accordingly, we need not
discuss whether under the statute there is an alternative remedy distinct from
the traditional equitable remedies of a constructive trust and a resulting
trust.
H. AWARD TO CARL OF A ONE-HALF INTEREST IN THE BRIGGS
PROPERTIES
{28} Elmer argues that even
if a trust has been proven, no evidence has been introduced which shows that
Carl owned a beneficial one-half interest in the Briggs properties. Elmer is
right to assert the general rule that "where one person pays part of the
purchase price and title is taken in another's name, the payor cannot secure a
greater interest in the property by way of a resulting trust than the
proportion of the amount he paid bears to the total
purchase price."
Martin v. Kehl, 145 Cal. App. 3d at 243, 193 Cal. Rptr. at 321. This
rule distinguishes between consideration paid at time of conveyance and
subsequent monetary contributions to make improvements or for installments paid
after title has been acquired.
Id.
{29} While there is no direct
evidence showing that Carl and Elmer paid equal portions of the down payment,
there is abundant circumstantial evidence showing that from the inception of
the partnership the brothers looked upon themselves as equal partners.
Testimony by Carl's expert witness, an accountant who had kept the books of the
partnership for many years, showed that the brothers attempted to share profits
and losses equally. Testimony by Carl's wife supported Carl's position that the
brothers invested equally in the land from the beginning. Over the years, Carl
invested slightly
more than fifty percent of his money in the land, a
fact that circumstantially supports an original fifty-fifty contribution of the
purchase price. Even if Elmer paid more to L.W. Briggs as a down payment than
did Carl, it is clear that in 1950 the brothers intended to contribute equally
to every partnership business investment. It could be inferred, to create a
hypothetical, that if Elmer paid $100 on the down payment and Carl only $50,
that the brothers nonetheless considered each to be paying $75, with the
appropriate reimbursement of $25 from Carl to Elmer to take place as time and
further accounting took place. We find no error in the court's award of a
one-half interest in the land to Carl.
{30} Elmer raises several
other minor points on appeal, which we find to be without merit.
{31} The judgment of the
trial court is affirmed.