Summary
In Leatherman v. Leatherman, 297 N.C. 618, 256 S.E.2d 793 (1979), this Court held that there is a "presumption that services rendered by a wife in her husband's business are gratuitously performed absent a special agreement to the contrary."
Summary of this case from Penley v. PenleyOpinion
No. 27
Filed 30 July 1979
1. Trusts 13.4 — wife's services in husband's business — use of joint bank account funds to capitalize corporation — no resulting trust in stock Plaintiff was not entitled to a resulting trust in one-half of the stock of a corporation formed upon incorporation of her husband's land clearing business because she had performed bookkeeping and other supportive services for the husband's business for many years, the income from the business was placed in joint bank accounts, and money in the joint bank accounts was used to capitalize the corporation where plaintiff failed to overcome the presumption that services rendered by a wife in her husband's business are gratuitously performed absent a special agreement to the contrary; the evidence showed that the funds in the joint account were the exclusive property of the husband, and plaintiff failed to show that her husband, by depositing funds in a joint account, intended to make her an inter vivos gift of such funds; and plaintiff thus failed to show that she had an ownership interest in the bank accounts.
2. Trusts 14.2 — wife's services in husband's business — use of joint account funds to capitalize corporation — no constructive trust in stock Plaintiff wife was not entitled to have a constructive trust imposed on one-half of the stock of a corporation formed upon incorporation of her husband's business and capitalized with funds derived from the business which had been placed in joint bank accounts of plaintiff wife and defendant husband, although the wife had contributed her services to the building up of the business, since (1) defendant husband did not acquire any property through the use of funds to which plaintiff wife had an equitable or legal claim, and (2) even though there was a confidential relationship between the parties, there was no evidence that defendant failed to disclose any material fact with respect to the use of the funds to capitalize the corporation or that defendant violated any duty to plaintiff.
APPEAL by plaintiff pursuant to G.S. 7A-30(2) from the decision of the Court of Appeals, 38 N.C. App. 696, 248 S.E.2d 764 (1978) reversing judgment entered by Lewis, J., 11 July 1977, in CATAWBA Superior Court, Judge Robert M. Martin dissenting.
Rudisill Brackett, by J. Steven Brackett, for plaintiff-appellant.
Patton, Starnes Thompson, by Thomas M. Starnes, for defendant-appellees.
Justice BROCK did not participate in the consideration or decision of this case.
Chief Justice SHARP dissenting.
Justice HUSKINS joins in the dissent.
Plaintiff filed a complaint in this action on 31 October 1975 in which she alleged that she was entitled to be declared the owner of one-half of the capital stock of defendant corporation, Leatherman, Inc., held by defendant Floyd Leatherman (hereinafter referred to as defendant). Defendants filed a joint answer in which they denied the material allegations of the complaint. Defendants also averred that plaintiff lacked any ownership interest in the sole proprietorship from which the corporation was formed and that plaintiff lacked any ownership interest in the joint bank accounts from which funds were taken to capitalize the corporation.
Jury trial was waived and evidence offered at trial tended to show:
Plaintiff and defendant were married 17 August 1947 and obtained a divorce in May 1975. During the marriage three children were born to the couple. At the time of the separation defendant conveyed to plaintiff a house and ten acres of land clear of all liens. He also paid her a lump sum of $5,000.00 and agreed to pay her $500.00 monthly until her death or remarriage. The agreement stated that its provisions were not to affect this claim relating to the stock of the corporation.
In 1951 defendant bought a bulldozer from his father and began doing custom grading work. He was the sole operator of the bulldozer and did all the work on the various jobs for which he was hired. Plaintiff kept the books, answered the phone, paid the bills, and did other supportive work for the business. The income from the business was placed in a joint bank account to which both husband and wife made deposits. Plaintiff testified that all monies deposited to this account were derived from the grading business. Neither of them received a salary from this account, but funds from it were used to pay household and business expenses.
About 1960 the business began to expand, branching out to larger contract jobs, buying new equipment, and hiring additional personnel. As a consequence of this growth, plaintiff spent more time doing the support work of the business. By 1963 the company had begun doing out-of-state work, had hired twenty-eight employees, and had accumulated several more pieces of equipment. Between 1963 and 1965 plaintiff worked full time (forty hours or more weekly) in the business office maintained in the couple's home. During this time neither plaintiff nor defendant was paid a salary. Both business and household funds continued to be channeled through the joint checking account. During this time the couple also placed some money in joint savings accounts.
In 1965 the sole proprietorship was incorporated as Leatherman, Inc. $32,382.02 was transferred from the joint checking and savings accounts to accounts in the name of the corporation. All of the equipment which the business had acquired was likewise transferred to the corporation. Plaintiff aided the accountants who did the financial work for the new corporation. Her duties continued to require her full time. The corporation's net worth was approximately $93,000.00 and all of its 930 shares were issued to defendant. Plaintiff protested this arrangement and her husband and the accountants explained that this was necessary for "tax purposes." Defendant also told her that she was "going to get it [the business] anyway" as they would execute cross-wills to each other. These wills were executed shortly thereafter.
After the corporation was formed plaintiff continued to do the office work required to support the business and defendant continued to do the on-the-job supervision of the grading. The office duties increased when the firm began to submit competitive bids to acquire contract work. In 1966 defendant was paid a salary of $20,000.00. From this salary the household expenditures were made. It was explained to plaintiff that this compensation was for both of them and was paid in this manner to reduce the amount of taxes and social security which were withheld. After she protested, plaintiff was paid a salary for the first time in 1971. She continued to receive a salary until she left the employ of the corporation in 1974.
From 1951 until 1965 all financing for the business was arranged through loans cosigned by both plaintiff and defendant. After 1965 financing for the corporation was obtained through similar loans to the couple who in turn lent funds to the corporation. Purchases of equipment were handled similarly with both the husband and the wife signing the required financing documents.
Defendant never told plaintiff that any of the company's stock would be transferred to her. After they separated she asked him to compensate her for the work she had done in the business by transferring some of its stock to her. He refused and this action was begun.
On 11 July 1977 judgment nunc pro tunc was entered. The court found, among other things, that plaintiff owned a one-half interest in the joint accounts which were used to capitalize the corporation. The court imposed a constructive trust in the amount of $16,191.01 upon defendant's stock holdings in defendant corporation. Defendants excepted to various findings of fact made by the court, to the imposition of a constructive trust upon the stock, and to the entry of judgment based on said findings of fact and conclusions of law.
Plaintiff contends the Court of Appeals erred in failing to uphold the constructive trust imposed by the trial court on the stock holdings of defendant in the corporation. In its decision the Court of Appeals held that plaintiff had failed to show from the facts and circumstances that a "special contract" existed between herself and defendant which entitled her to compensation for work performed for the business; therefore, her claim of legal ownership in the stock could not be maintained. The Court of Appeals held that plaintiff had failed to show any wrongdoing on the part of defendant which justified the imposition of a constructive trust. The decision of the Court of Appeals is well reasoned and is based upon sound legal principles. It is therefore affirmed.
Two classes of trusts arise by operation of law; resulting trusts and constructive trusts. Bowen v. Darden, 241 N.C. 11, 84 S.E.2d 289 (1954); Teachey v. Gurley, 214 N.C. 288, 199 S.E. 83 (1938). "[T]he creation of a resulting trust involves the application of the doctrine that valuable consideration rather than legal title determines the equitable title resulting from a transaction; whereas a constructive trust ordinarily arises out of the existence of fraud, actual or presumptive — usually involving the violation of a confidential or fiduciary relation — in view of which equity transfers the beneficial title to some person other than the holder of the legal title." Bowen, supra at pages 13-14. Before either type of trust can be imposed by the court, it must be shown that the party seeking to invoke these doctrines has been deprived of the beneficial interest to which he is entitled in some property. The elementary flaw in plaintiff's case for a resulting trust is her failure to prove that she owned a portion of the funds in the joint accounts. Absent an enforceable interest in those funds, she cannot have an equitable interest in the stock purchased therewith.
The trial court found "[t]hat the funds transferred from joint accounts to the corporate account in 1966 were the property of the plaintiff and defendant, either of whom could have withdrawn any or all of the funds at any time." Although denominated a finding of fact, this is actually a mixed question of law and fact which may be reviewed on appeal. Carolina-Virginia Fashion Exhibitors, Inc. v. Gunter, 291 N.C. 208, 230 S.E.2d 380 (1976); Davison v. Duke University, 282 N.C. 676, 194 S.E.2d 761 (1973). We do not believe that the trial court correctly applied the law to the facts shown at the trial of this case. Plaintiff has not overcome the presumption that services rendered by a wife in her husband's business are gratuitously performed absent a special agreement to the contrary. Smith v. Smith, 255 N.C. 152, 120 S.E.2d 575 (1961); Sprinkle v. Ponder, 233 N.C. 312, 64 S.E.2d 171 (1951); Dorsett v. Dorsett, 183 N.C. 354, 111 S.E. 541 (1922). Nor has plaintiff sustained the burden of proving that her husband, by depositing funds to an account in the name of himself and his wife, intended to make her an inter vivos gift of such funds. Smith, supra.
"A wife in North Carolina may recover from her husband, on the basis of an express contract, for services rendered him in connection with his business or outside of the purely domestic relations of the marital status. The status, or marriage, nothing else appearing, negatives an implied promise on the part of the husband to do so." 2 R. Lee, North Carolina Family Law 110, p. 43 (1963). In this case there is no evidence of an express contract providing that plaintiff be compensated for her work in her husband's business.
The facts and circumstances of a particular case may, of course, give rise to an implied promise that the wife will be paid. Smith, supra, Sprinkle, supra, Eggleston v. Eggleston, 228 N.C. 668, 47 S.E.2d 243 (1948); Carlisle v. Carlisle, 225 N.C. 462, 35 S.E.2d 418 (1945); Dorsett, supra. In Dorsett, plaintiff and her husband maintained a shop in Greensboro where bicycles, locks, guns and keys were repaired. The wife brought an action in quantum meruit to recover pay for services rendered in the defendant's shop. Chief Justice Clark, writing for the court, reasoned:
"There are instances where there is not only a matrimonial partnership between a husband and wife, but a financial or business partnership; also, where the wife is to receive compensation from her husband for services rendered, but in all such cases the business partnership, or the liability of the husband to the wife for compensation, must arise out of an agreement, not out of the marital relation. . . ." Dorsett, supra at page 358.
The court in Dorsett sustained defendant's demurrer to the complaint because plaintiff had failed to allege an agreement, understanding, or intention — express or implied — that she was to be compensated for her work. Likewise, plaintiff in the case before us has not alleged an agreement for compensation between herself and defendant. Nor does the evidence reveal that either an explicit or implicit agreement for plaintiff's compensation existed between the parties.
The evidence in this case is unlike that in Eggleston v. Eggleston, supra, where plaintiff wife was granted a new trial after this court determined that evidence of a partnership between her and her husband, the defendant, had been improperly excluded. Much like the parties in this case, the Egglestons — through their joint efforts — developed a thriving commercial enterprise from a small family business which began with a single gas station. Mrs. Eggleston testified that she operated the filling station and maintained its books. Her duties in the business were, in short, very similar to those which plaintiff performed for the grading business in this case. The feature which distinguishes Eggleston from the case before us, however, is that in that case the husband and wife filed partnership income tax returns on which they listed themselves as partners. This fact is evidence from which the jury could infer that there was an implied agreement or contract between the parties providing for the wife's compensation. No similar circumstance is shown in this case. There is simply no evidence from which the trial court could find an agreement to pay for plaintiff's services. Quite properly, the court did not find that such an agreement existed.
The evidence is also insufficient to sustain the finding of co-ownership of the accounts on the theory that both plaintiff and defendant exercised control over the funds deposited therein.
Under the laws in this jurisdiction, nothing else appearing, money in the bank to the joint credit of husband and wife belongs one-half to the husband and one-half to the wife. Bowling v. Bowling, 243 N.C. 515, 519, 91 S.E.2d 176; Smith v. Smith, 190 N.C. 764, 767, 130 S.E. 614; Turlington v. Lucas, 186 N.C. 283, 290, 119 S.E. 366.
But in the absence of evidence to the contrary the person making a deposit in a bank is deemed to be the owner of the fund. If a husband deposits his own money in a bank and the money is entered upon the records of the bank in the name of the husband or his wife, it is still the property of the husband, nothing else appearing. Hall v. Hall, 235 N.C. 711, 714, 71 S.E.2d 471; Nannie v. Pollard, 205 N.C. 362, 171 S.E. 341; Jones v. Fullbright, 197 N.C. 274, 277, 148 S.E. 229; Thomas v. Houston, 181 N.C. 91, 93, 106 S.E. 466.
Such deposit does not constitute a gift to the wife. To make a gift inter vivos there must be an intention to give coupled with a delivery of, and loss of dominion over, the property given, on the part of the donor. Donor must divest himself of all right and title to, and control of, the gift. Such gift cannot be made to take place in the future. The transaction must show a completely executed transfer to the donee of the present right to the property and the possession. Buffaloe v. Barnes, 226 N.C. 313, 318, 38 S.E.2d 222; Nannie v. Pollard, supra, Thomas v. Houston, supra. When a husband deposits his money in the name of husband or wife, this fact taken alone does not necessarily indicate an intent to make a gift to the wife. It may, indeed, be only for the convenience of the husband. Furthermore, he does not thereby divest himself of dominion over the fund. He may withdraw any or all of it at any time. "The delivery of the deposit book for such an account is not sufficient to meet the formal requirements for a gift." 14 N.C. Law Rev. 133, and cases there cited (N. 23).
When a husband deposits his money in this manner he merely constitutes the wife his agent with authority to withdraw funds from the account, and the agency is terminated by death of the husband. (See cases cited in the second paragraph next above.) The agency may be terminated during the lives of husband and wife by withdrawal of the fund and closing the account by the husband, notice to the agent and the bank, or by other methods recognized by law for termination of the principal and agent relation. Annotation, 161 A.L.R., Joint Deposit — Powers as to, pp. 71-95; Zollmann Banks and Banking (Perm. Ed.), Vol. 5, s. 3231, p. 250; Cashman v. Mason, 72 F. Supp. 487, 491.
Smith, supra at pages 154-155.
Plaintiff testified that she did not deposit any of her personal funds in the joint accounts and that all of the "money that went into those accounts was money that was earned on grading jobs by Floyd Leatherman either personally or through his employees." This testimony makes it clear that the funds in the joint accounts were the exclusive property of defendant. Both husband and wife had the authority to deposit and withdraw money from the accounts. The evidence of both parties tends to show that plaintiff acted as the agent of her husband, not the owner, with regard to these funds. Nowhere in the record is there evidence which would sustain a finding that defendant intended to make a gift of his property to his wife. On the facts presented the court could not properly find that plaintiff was a co-owner of the joint accounts.
Absent an ownership interest in the joint checking and savings accounts, plaintiff is clearly not entitled to have a resulting trust imposed upon defendant's stock holdings in the corporation. A resulting trust arises, if at all, when valuable consideration is given by one party for property but title thereto is put in the name of another. Fulp v. Fulp, 264 N.C. 20, 140 S.E.2d 708 (1965); Bowen, supra, D. Dobbs, Remedies 4.3, p. 241 (1973). In the present case plaintiff did not furnish any of the consideration used by defendant to acquire the stock on which plaintiff seeks to have her claim imposed. Granting a resulting trust would therefore be improper.
Plaintiff further contends, however, that a constructive trust may be imposed upon the stock in her favor even though it be determined that she had no ownership interest in the funds in the joint accounts. Her argument is that defendant will be unjustly enriched if he is allowed to retain the stock acquired in violation of the confidential marital relationship with funds which were the product of the joint efforts of the couple. This argument cannot sustain the imposition of a constructive trust in this case.
Ordinarily, 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." R. Lee, Trusts 13a, p. 67 (7th ed. 1978). Plaintiff's argument overlooks the fact that no unjust enrichment can inure to defendant in this case because he has not acquired any property through the use of funds to which she has an equitable or legal claim.
Assuming that defendant was enriched unjustly, however, plaintiff's case would still fail as she has not shown that defendant violated any duty to her. There must be some actual or presumptive fraud, some breach of duty, or other wrongdoing before a constructive trust can be imposed. Wilson v. Development Co., 276 N.C. 198, 171 S.E.2d 873 (1970); Fulp, supra, Bowen, supra, Teachey, supra. We are fully cognizant of the fact that "[t]he relationship between husband and wife is the most confidential of all relationships, and transactions between them, to be valid, must be fair and reasonable." Eubanks v. Eubanks, 273 N.C. 189, 159 S.E.2d 562 (1968); see also: Link v. Link, 278 N.C. 181, 179 S.E.2d 697 (1971); Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202 (1951). Where such a confidential relation exists, the person in whom the confidence is reposed must exercise good faith in his dealings with the other party. He must not take advantage of the fiduciary relation between them to obtain profit for himself, and he must fully apprise the other of all material facts surrounding the transactions between them. We believe that defendant fulfilled the obligation to his wife in this case.
As the Court of Appeals noted, the evidence discloses that defendant explained the process of incorporation to his wife and discussed with her the issuance of the stock in the corporation in his name. Nor can any wrongdoing on his part be implied from the execution of cross-wills by the parties subsequent to the issuance of the stock. In so doing defendant did not acknowledge an interest on the part of his wife in the business, but rather, he acknowledged that she was at that time the natural object of his bounty. The court made no other findings of fact which tend to support an inference of malfeasance on the part of defendant with regard to the confidential relationship between himself and his wife. Absent any breach of duty to her, plaintiff is not entitled to have the court impose a constructive trust upon defendant's stock in the corporation.
For the reasons stated the decision of the Court of Appeals is
Affirmed.
Justice BROCK did not participate in the consideration or decision of this case.