APPEAL from the Circuit Court of Vermilion County; the Hon.
BEN F. ANDERSON, Judge, presiding.
MR. CHIEF JUSTICE DAILY DELIVERED THE OPINION OF THE COURT:
Rehearing denied March 17, 1952.
On March 2, 1948, the widow and two of the children of Fred Bremer, deceased, filed this suit in the circuit court of Vermilion County against Louis Bremer and Irma Bremer Esslinger, brother and sister of the decedent, John Bremer, one of decedent's sons who appeared pro se and requested the same relief as plaintiffs, and the two tenants on the farm land in controversy. Plaintiffs seek to recover an undivided one-half interest in approximately 236 acres of land and an undivided two-fifths interest in an additional 160 acres, alleging that defendant Louis Bremer holds title to such interests as constructive trustee for plaintiffs by virtue of a conveyance obtained from decedent on February 23, 1937, by both actual and constructive fraud. Other relief was requested not material to the issues presented herein. An answer and reply were filed and a hearing held before the court, which thereafter entered a decree for plaintiffs. The decree found that a fiduciary relationship existed between Louis and Fred Bremer; that Louis took the title to the farms with the understanding that he would reconvey Fred's interests when a mortgage debt, as will be shown by the facts, was satisfied from the proceeds of the farm; that the conveyance was procured without payment of reasonable or adequate consideration; that plaintiffs had established by clear and convincing proof the existence of a constructive trust at the time of the challenged conveyance, and that Louis Bremer had failed to prove the transaction to be fair and equitable.
Louis Bremer has appealed to this court, contending, first, that the evidence does not show the existence of a strict fiduciary relationship or even a confidential relationship of a lesser degree, and, second, that if it be determined that a fiduciary relationship did exist such relationship does not give rise to a constructive trust when the dependent party conveys land to the dominant party, in the absence of a second factor of fraud and undue influence. He argues, too, that the legal basis for a constructive trust is not established in this record by clear, convincing, unequivocal and unmistakable evidence which leads to but one conclusion, viz., that of a constructive trust. Plaintiffs contend, of course, as the trial court found, that a fiduciary relationship did exist between the brothers, and that Louis, as the dominant party, failed to maintain his burden of showing that the transaction was fair, equitable and just and that it did not proceed from fraud.
Before proceeding to a detailed account of the evidence, it would perhaps be well to consider the tests laid down by previous decisions of this court with regard to the presumptions and burdens of proof which prevail in such cases. Constructive trusts are divided into two classes; one where actual fraud is considered as equitable ground for raising the trust, and the other consisting of those cases in which the existence of a fiduciary relation and the subsequent abuse of the confidence reposed is sufficient to establish the trust. (Suchy v. Hajicek, 364 Ill. 502; Catherwood v. Morris, 345 Ill. 617: Neagle v. McMullen, 334 Ill. 168.) A standard example of a constructive trust is where property is conveyed to a grantee upon his parol promise to convey to a third person, or for the use and benefit of other persons. (Brooks v. Gretz, 313 Ill. 290.) In the first type referred to the burden is upon the one seeking to establish the constructive trust to prove that the claim is of such character as to raise the trust. (Delfosse v. Delfosse, 287 Ill. 251.) Where the existence of a fiduciary relationship has been established, the law presumes that any transactions between the parties, by which the dominant party has profited, is fraudulent. This presumption is not conclusive, but may be rebutted by clear and convincing proof that the dominant party has exercised good faith and has not betrayed the confidence reposed in him. The burden rests upon the dominant party to produce such evidence, and if the burden is not discharged the transaction will be set aside in equity. (Clark v. Clark, 398 Ill. 592; McCord v. Roberts, 334 Ill. 233.) The recent cases of Peters v. Meyers, 408 Ill. 253, Curtis v. Fisher, 406 Ill. 102, and Stephenson v. Kulichek, 410 Ill. 139, have stated that it is not the existence of a fiduciary relationship which, alone, is the ground for raising a constructive trust, but in order to establish such trust there must be, in addition to the fiduciary relationship, the second factor of undue influence. None of these cases, however, have destroyed the concept that a presumption of fraud or undue influence arises from the confidential relationship, nor have they shifted the burden of proving the so-called second factor to the dependent party. As we view it, appellant does not seek to put the burden of proving fraud upon appellees, but contends that there is insufficient satisfactory evidence to establish the legal basis, i.e., that of fiduciary relationship and resulting fraud, for a constructive trust, and that the finding of the trial court that Louis Bremer had failed to prove the transaction to be fair and equitable is likewise against the manifest weight of the evidence. These are the factors which must be determined in considering the evidence.
The evidence discloses, in substance, that on and prior to February 23, 1937, Fred and Louis Bremer each owned an undivided one-half interest in the 236-acre tract of farm land, and an undivided two-fifths interest in the 160-acre tract. Another one-fifth interest in the latter tract was held by Louis as trustee for their sister, Irma Bremer Esslinger. The two brothers owned livestock and equipment jointly and operated the farms together, Fred usually supervising the farm work, with Louis handling the financial affairs. Louis was an attorney at law, while Fred was an experienced businessman, having been a building contractor for many years, an appraiser of real estate, and a part owner of a greenhouse. Their farm business was operated under the name of Bremer Bros., and the farm account at the bank was carried in that name. In addition to conducting their farming activities in common they were associated in a lumber business.
Prior to the depression, Fred had acquired, in addition to his farm land, several pieces of business and residential property. During the depression years, however, his property became unproductive and some of it had to be sold at a loss. His income was substantially reduced, and he owed substantial sums of money to various creditors. He was not alone in his trouble, however, for the record shows that Louis, too, was not without his financial difficulties. By February, 1937, Fred owed the bank $6300, Louis owed $6650 jointly with Fred, and the partnership operating the farms owed $2050, the total indebtedness aggregating $15,000. The joint indebtedness with Louis was secured but that of Fred alone and of the partnership was not, and the bank was pressing Fred for payment or security on his unpaid portions of the indebtedness. Bank officials, who were in office at the time, testified that in response to their demands Fred replied he had no money with which to pay the debts and could not give security because his wife would not sign the necessary papers.
The record discloses that over the years prior to 1937, Louis was a frequent visitor at Fred's home and it was not uncommon for them to discuss their business and legal problems. Plaintiff Dorothy Bremer testified that during one of such visits prior to February 23, 1937, Louis proposed they borrow some money at the bank, with the farm as security, in order to clear up the existing indebtedness of Fred and Bremer Bros. and to enable Louis to remodel a residence property so that it could be rented, and that when Louis assured her the mortgage could be paid off by the income from the farm she agreed to the proposition. She further testified that on a second visit two weeks later, Louis said the bank had consented to grant the loan; that he produced a paper which he asked her to sign; and that he placed the paper upon the dining room table with his hand over the top of it. When Dorothy was about to sign it she noticed something which indicated to her that the paper was a deed and objected to signing it, whereupon Louis said it was the same thing as a mortgage and that the bank would not loan to a partnership. We find nothing in the testimony of the bank officials that explains why a loan to the partnership or to the brothers as tenants in common would not have been acceptable. In any event, Dorothy refused to sign the paper until she talked to a lawyer.
Louis denied the conversations and occurrences related by Dorothy. He testified that he had no deed, mortgage or paper of any kind, and that he never asked her to sign one. He related that, upon the occasion of the visit involved, he called their attention to the debts owing to the bank; that the bank was calling him about them and that it was getting embarrassing; that he mentioned all of Fred's land would not be worth $10,000 and suggested they sell and deed it to him and he would take up Fred's notes at the bank, pay a note due their sister Irma, and hold Fred harmless on any rents due the sister for the use of her interest in the farm and other property which the brothers had been renting. Dorothy then remarked she would not sign anything until she had seen her lawyer.
A few days later, on February 23, 1937, Fred, Dorothy and Louis met in the office of Dorothy's attorney, who had acted for her in other matters. A deed was then executed by Fred and Dorothy conveying their interests in the property to Louis. Dorothy testified that prior to the delivery of the deed Louis promised to give a contract to convey the land back when the proceeds from the farming operations repaid the indebtedness. Louis contradicted this version of the transaction. He testified that he made no agreement to deed the land back; that both Fred and Dorothy remarked the land was not worth the amount of Fred's debts, and that Dorothy's attorney told the two they were "getting out of a pretty good deal here because Louis is taking this land for all this indebtedness;" and that when the attorney explained to Dorothy they would have no more interest in the farm, she replied: "I do not care, we are not getting anything out of it anyway." This same attorney represented Dorothy on subsequent occasions both before and after Fred Bremer's death, but it appears that shortly before the trial of this cause their business relation ceased on an unfriendly note. Before that occurred, however, in June, 1947, Dorothy, who had been making unheeded demands on Louis to reconvey, procured the following statement from the attorney, which was introduced into evidence: "It was the understanding at the time of the execution of the deed that Louis Bremer and his wife were to execute a contract to Fred and Dorothy Bremer agreeing to convey to them the land when the mortgage in the sum of $18,000 was paid, and the undersigned never knew but what the contract had been executed and delivered." At the trial, the attorney appeared as a witness for the defendants and testified he advised Dorothy that if she had an equity in the property, and if she thought the farm had more value than the indebtedness, she should not sign the deed, to which she answered that she might as well sign the deed as they received nothing from the farm anyway. He further testified that prior to the execution of the deed nothing was said about an agreement by Louis to deed it back or give a contract; that after the deed was signed Dorothy asked Louis if he would "contract it back" and Louis replied he would if he knew he was going to get his money. As to the written statement, he testified that it had been made on the spur of the moment after his memory had been refreshed by Dorothy's version of the February, 1937, transaction.
On March 1, 1937, Louis signed a note for $15,000 to the bank and gave a mortgage on the 236-acre tract as security. By this note Louis Bremer took up Fred's note for $6300, his joint note with Fred for $6650 and the farm partnership notes totaling $2050. Thereafter, Louis also made payments on the indebtedness to Irma. The $15,000 indebtedness was refinanced in 1942, when Louis and his wife executed a note and mortgage for $11,000, and final payment clearing the 236 acres of the lien was made in July, 1944. Fred Bremer died May 6, 1947. It does not appear that at any time prior to Fred's death, Fred and Dorothy had ever requested a contract or a deed from Louis. Defendants produced several witnesses, including the former president of the bank, two other brothers of Fred, a tenant on the farm, a stenographer in Louis's office, and the local postmaster, who testified to many conversations with Fred subsequent to February 23, 1937, in which he stated that the farms belonged to Louis and that he had sold and deeded his interest to Louis in consideration of the latter paying his debts.
For the plaintiffs it was shown that after the transaction of February 23, 1937, the business relationships of Fred and Louis Bremer continued as before. The bank account for the farm operations remained in the name of Bremer Bros. Fred signed checks on the account just as he had done before the conveyance, and Louis continued to handle the financial affairs relating to the farm. Fred continued to work on and assist with the management of the farms, which were leased in the names of both brothers. The farms were insured in both names. The United States Department of Agriculture AAA records listed both Fred and Louis Bremer as owners of the farms after the conveyance; AAA farm plans and applications for payments were signed either "Fred and Louis Bremer" as "Title Owners," "Fred and Louis Bremer, by Louis Bremer, Agent," "Fred and Louis Bremer, Bremer Bros., by Louis Bremer, as Owner or Operator," or "Fred Bremer, Louis Bremer, a partnership, by Louis Bremer." Louis Bremer testified that where Fred's name appeared together with his own name as owner on such forms, Fred's name was used inadvertently because employees in the county AAA office from 1937 to 1947 copied each set of new papers from the preceding year. The chairman of the county committee of the Production Marketing Association, which supervised the AAA program, testified, however, "I know personally that Louis Bremer came in and talked to me and gave me the information on some of those exhibits," and stated specifically that he had never worked with anyone but Louis Bremer on the farm plans.
Partnership income tax returns for Bremer Bros. for each of the years 1943-1945, inclusive, signed and sworn to by Louis Bremer, showed an equal division of farm income between the two brothers. For the year 1946, income from the farm partnership was reported as a part of the income tax return for another partnership composed of Fred and Louis Bremer, doing business as Bremer Lumber and Supply Yard. Schedule 1040F, farm income and expense, carried the typed notation "one-half credited to Fred Bremer and one-half credited to Louis J. Bremer." The return was signed and sworn to by the two brothers. Louis Bremer personally prepared or supervised the preparation of the personal income tax returns of Fred Bremer and his wife, Dorothy, for the years 1941 to 1946, inclusive. Each of these returns disclosed income from the Bremer Bros. farm partnership upon which Fred and Dorothy Bremer paid income tax. When cross-examined as to these income tax returns, Louis Bremer claimed his privilege against self-incrimination and refused to explain the returns sworn to by him.
All the real-estate taxes on the farms and all amounts paid on the mortgage notes were paid out of the bank account of Bremer Bros. The only sources of income for this account, so far as the record discloses, were the farming operations on the land and contributions made by Fred Bremer in the amount of $1752.20. The evidence discloses that Fred Bremer made payments from his personal funds into this account on April 5, 1938, of $500, on March 23, 1939, of $500, and on January 17, 1942, of $752.20. Louis Bremer's testimony is that he borrowed $500 from Fred about a year after the execution of the deed and, again, in 1939. It may be observed that on April 5, 1938, a payment of interest in the amount of $675 was made to the bank and that, on March 1, 1941, $597.75 was ...