Opinion
August Term, 1853.
In all transactions between persons standing in the relation of trustee and cestui que trust, from which the former derives a benefit, Courts of Equity, to sustain them, require that they should be performed by the latter, with a fair, serious and well informed consideration.
Therefore, where an administrator, who was prosecuting a suit in the name of his intestate, prevailed upon one of the next of kin, an aged lady living in his own family, under the pretence that she was running great risk by the suit, to release to him all her right in the intestate's estate: Held, That he should not be permitted to avail himself of it.
WILLIAM S. M. BAXTER, a minor, died intestate, leaving as his only next of kin, the plaintiff, his mother, and the feme defendant, Sarah C., his sister, intermarried with the other defendant, William Costin, who administered on his estate.
G. W. Baxter, for the plaintiff.
Gaither, for the defendants.
The plaintiff alleges, that the defendant hath refused to come to an account with her for her distributive share of her said son's estate, on the ground, as he pretends, that he has her assignment and release, duly executed to him, for all her share and interest in the estate of said intestate; but which assignment and release, though the plaintiff admits she executed it, she alleges was procured from her under circumstances of fraud and imposition. For, she states in her bill, that at the time she executed said instrument, and for some time previous thereto, she was residing with the defendant, William; that at the time of her executing said paper, he told her that unless she would sign the same, he would be likely to lose a suit which, as administrator, and also in right of his wife, he was then prosecuting against the estate of William Baxter, Sen., in (263) which suit he expected to recover several thousand dollars, and be subjected to much costs; and that having full confidence in defendant's representations, and under the impression that it was necessary to his success in said suit, she did execute said assignment and release, but, as she insists, without any intention or expectation that it would be set up against her claim to a distributive share of the estate of her son, the defendant's intestate, or that it would be applied any otherwise than to enable him to prosecute his said suit. She further alleges, that at the time she executed said paper, she was entirely ignorant of the condition of said estate, and had been induced by the representations of the defendant, and a misapprehension of the facts and ignorance of her rights, to suppose it was worth but very little: and hence she was the more easily led to sign the said release and assignment, the consideration of which, to wit, five dollars, she says, was not paid, nor any part thereof. The prayer is for a cancellation of the said assignment and release, and for an account.
The defendant in his answer admits that no consideration was paid to the plaintiff for the said assignment. But he states that she had full knowledge of all the facts and circumstances connected with the estate of his intestate, of the monies received and the probabilities of further recoveries, and of the contents and the legal force and effect of her said assignment and release, which she executed freely and voluntarily. That the plaintiff, for many years after the execution of said paper, and before the filing of the bill, lived with the defendants free of charge, and not until she went to reside at Rutherfordton, did she ever make complaint of the defendant, or call upon him for a settlement as in the bill alleged. That she had repeatedly and oftentimes declared her purpose to give the defendant and his wife her share of the estate of the said intestate, (with the exception of a watch, which she desired to keep in remembrance of him, and which was delivered to her;) that she was not in need thereof; that she is a woman of good sense, and was well advised of the circumstances under which the defendant was prosecuting the suit aforesaid — frequently warned him that it might ruin him — and that her said assignment and release was but in accordance with her avowed purpose over and over again and explicitly expressed. And the defendants (264) expressly deny any fraudulent representations or concealment or suppression of facts from the plaintiff in the premises, and expressly plead the said release, in bar of the plaintiff's equity and her right to an account.
The plaintiff took replication to the answer, and the parties proceeded to take testimony; after which the case was set for hearing, and by consent, transmitted to the Supreme Court.
The principle of preventive justice is acknowledged in our Courts of Equity, upon the doctrine that it is better to prevent wrong than to trust to remedying the evil after it is done. Upon this principle rests, in a great measure, the jurisdiction of Chancery, in legal or constructive fraud. Story, 1 Equity Jur., sec. 258, defines constructive fraud to mean such acts or contracts, as, although not originating in any actual evil design or contrivance to perpetrate a positive fraud or injury upon another, are yet by their tendency to deceive and mislead, or to violate public or private confidence, deemed equally reprehensible with positive fraud, and are, therefore, prohibited; as within the same reason and mischief as if done malo animo. Courts of Equity, therefore, do not confine their action to remedying the mischief occasioned by fraud, but extend it to the prevention of it. To do this, they endeavor to suppress the temptations to do wrong, by taking from the parties all legal sanctions for their acts. They do not affect to act as custodes morum of the community, by enforcing the rules of strict morality; and to authorize their interference, some relation of trust or confidence must exist between the parties, "which compels the one to make a full discovery to the other, or to abstain from all selfish purposes." The cases coming under the operation of this principle are by writers divided into three classes: 1, where the contract is against public policy; 2, where it arises from some judiciary relation; and 3, where it is a fraud upon the rights of third persons. The case we are considering belongs to the second class, under which is, (265) among others, the relation of guardian and ward, principal and agent, trustee and cestui que trust. In all cases arising under either, the power of the Court arises from the confidence imposed by the relation existing between the parties; and it acts, not upon the idea or proof that there has been actual fraud or imposition, but upon the principle that where confidence is imposed, it must be faithfully acted on and preserved from any suspicion of overreaching, and be always restrained to good faith, and the personal good of the party reposing the confidence. It is, therefore, in every contract arising out of such judiciary relation necessary for the guardian, agent or trustee claiming its benefits, to prove its "perfect fairness." So stringent indeed is the rule, that Lord ELDON, in Hatch v. Hatch, 9 Ves. 296, observes — "It is almost impossible that a transaction entered into, in the course of the connection of guardian and ward, trustee and cestui que trust purporting to be a bounty for the execution of an antecedent duty, can stand." Equity, however, does not forbid a bounty in such cases, but it will not sanction it, unless entirely satisfied that it is spontaneous, and not the impulse of a mind misled by undue kindness, or forced by oppression. Such transactions are, therefore, watched with a jealousy which will defeat most of them when made whilst the connection exists, and the accounts are unsettled. In Boyd v. Hawkins, 17 N.C. 195, where these principles are strongly and clearly expressed, as one of the grounds upon which the Court acted, it is stated as a principle, that when at the time of the transaction the cestui que trust was ignorant of the value of the property conveyed, the transaction was void. See also Allen v. Bryan, 42 N.C. 276. The plaintiff and the defendant Costin stood in the relation to each other of trustee and cestui que trust. The defendant was the administrator of W. S. Baxter, and his wife and the plaintiff were the next of kin to the deceased. An action had been brought to recover a large debt due the estate, and while in this situation, the transfer alleged by the defendant took place. It was proved by the subscribing witness to the transfer, that the evening before its execution Costin told him that he had a suit with William Baxter, and in order to gain it, he wanted his mother-in-law to assign her interest in that estate; but that nothing was said about it at the time he witnessed the paper. (266)
The plaintiff, living in the defendant's family, was old, in very moderate circumstances, and dreaded getting into a lawsuit, being unwilling to run any risk of paying costs. She had great confidence in, and affection for, the defendant Costin, who had married her only daughter. The accounts of the estate were unsettled, and she did not know what would be her share, if a recovery were effected against William Baxter. It is precisely one of those cases in which a donation from the cestui que trust to the trustee is viewed by a Court of Equity with great suspicion — requiring from a defendant to show "its perfect fairness." Here there is an entire absence of such proof. The repeated declarations of the plaintiff as to her intention of giving her property to the defendants only shows the state of her feelings towards them; but they cannot go the length of satisfying the Court that, poor as she was, she would have been willing to give them so large a sum as her distributive share actually amounted to, and to leave herself so destitute in her old age. It is very likely that Costin himself did not know what it would amount to when the accounts of W. S. Baxter were taken; but he had a general knowledge on the subject, and there is no proof to show that he communicated what he did know to the plaintiff. Without, therefore, imputing to Mr. Costin any fraudulent design at the time the transfer was made, the Court cannot permit it to stand, because we are not satisfied that it was done by the plaintiff in the language of Lord ELDON, "with a fair, serious and well-informed consideration" of its nature and effect. To sustain it under these circumstances would be to open the door to much fraud and oppression in transactions of this kind.
The plaintiff is entitled to the relief she seeks, and a reference must be had to the Clerk to audit the accounts of the defendant, Costin, as administrator of W. S. Baxter, his intestate.
PER CURIAM. Decree accordingly.
Cited: McLeod v. Bullard, 86 N.C. 214; Cole v. Stokes, 113 N.C. 274.
(267)