Opinion
No. 59-143.
July 14, 1960.
Appeal from the Circuit Court for Dade County, George E. Holt, J.
Cunningham Weinstein, Miami, for appellant.
John D. Brion and Wilbur C. Rollins, Miami, for appellee.
The appellant, John J. Deal, owned a distributive interest in the estate of his grandmother. The appellee was Deal's attorney who was hired to effect a prompt settlement of the estate. For his fee the attorney was to receive one-third of Deal's ultimate distribution. The attorney, however, purchased the client's entire interest in the estate. Thereafter Deal brought a complaint in chancery seeking rescission and alleged that the purchase was unconscionable. This appeal is from a final decree for the defendant. The decree is reversed and the cause remanded for further proceedings.
The final decree was in part as follows:
"The Plaintiff has filed his complaint herein seeking cancellation and rescission of an assignment of his interest in the estate of his grandmother, Margaret C. Deal, deceased, to the Defendant Walter J. Migoski, an attorney, on the grounds of misrepresentation and fraud while acting as Plaintiff's attorney, and seeking to enjoin the Defendant Wallace Ruff, as Administrator C.T.A., D.B.N. of said estate from disbursing any funds thereof to the Defendant Walter J. Migoski.
"The Defendant Walter J. Migoski's answer denies the wrongdoing charged to him, claiming that he paid full value for the inheritance and setting up the additional defense that the Plaintiff did not come into equity with clean hands, by reason of the fact that the Plaintiff had previously assigned the income from the inheritance to his mother and father without disclosing such prior assignment, whereby a fraud was perpetrated on the defendant Migoski.
"From the issues made by the pleadings and the proof submitted, the Plaintiff has failed to prove the material allegations of his complaint and the Court finds that the Defendant Walter J. Migoski under the circumstances acted in good faith and paid a good and sufficient consideration, namely, $2,500.00, for the assignment of the inheritance which consisted of a one-sixteenth interest in and to the Estate of Margaret C. Deal, without notice or knowledge of the prior assignment of the income to Plaintiff's father and mother, namely, Daniel F. Deal and May Gertrude Deal, which is dated July 16, 1938."
It is apparent that the chancellor has failed to apply the proper rule as to the burden of going forward with the evidence. The responsibility of an attorney to place his client's interest ahead of his own in dealings with matters upon which the attorney is employed is at the foundation of our legal system. If an attorney in contravention of Canon 10, Rule B, Section (I) of the Code of Ethics Governing Attorneys, 3 F.S. '59, 31 F.S.A., purchases from his client the subject matter of the attorney's employment, then the transaction is suspect. Upon action being filed to rescind the transaction, the attorney has the burden of proving that he paid full and complete consideration for the purchase. Gerlach v. Donnelly, Fla. 1957, 98 So.2d 493; Renno v. Sigmon, 148 Fla. 229, 4 So.2d 11; Bolles v. O'Brien, 63 Fla. 342, 354, 59 So. 133; Williams v. Bailey, 69 Fla. 225, 67 So. 877. See also Williston, Contracts, § 1625A (rev. ed. 1937.)
"Acquiring Interest in Litigation. — The lawyer should not purchase any interest in the subject matter of the litigation which he is conducting."
Certain facts appear without dispute from this record: 1) Migoski purchased his client's interest in an estate while he was employed to secure settlement of the estate. 2) The purchase price was $2,500 and the distributive share was at trial, two and one-half years later, worth from $7,200 to $8,500, exclusive of income and charges for probate. 3) The client was at the time of the purchase unemployed and desperate to find a source of money to meet daily needs. Therefore it is necessary to determine whether the attorney has met the burden cast upon him by his conduct.
In an attempt to invoke the principle, "He who comes into a court of equity must come with clean hands", the attorney complained that Mr. Deal did not reveal to him that he had made a previous assignment to his mother and father of the income from the estate. While Mr. Deal's explanation that he forgot the informal assignment is not adequate to relieve him of responsibility, the effect of the assignment was not to destroy the advantage gained by Mr. Migoski. It only decreased and postponed the enjoyment of the advantage.
The principle of clean hands requires a plaintiff to be free of any inequitable conduct relative to the controversy. See cases cited at 12 Fla.Jur., Equity § 55. See Faber v. Landman, Fla.App. 1960, 123 So.2d 405. There are some recognized limitations to this principle. 2 Pomeroy, Equity Jurisprudence, § 399 (5th ed. 1941), and cases cited therein
The relation of attorney and client is one of the most important as well as one of the most sacred relations known to the law. It is indeed a relation affected by a very vital public interest which is predicated on trust and confidence. State v. Snyder, 136 Fla. 875, 187 So. 381 .
The preamble to Rule B, of the Code of Ethics Governing Attorneys, 3 F.S. '59, 31 F.S.A., reads as follows:
"In America, where the stability of Courts and of all departments of government rests upon the approval of the people, it is peculiarly essential that the system for establishing and dispensing Justice be developed to a high point of efficiency and so maintained that the public shall have absolute confidence in the integrity and impartiality of its administration. The future of the Republic, to a great extent, depends upon our maintenance of Justice pure and unsullied. It cannot be so maintained unless the conduct and the motives of the members of our profession are such as to merit the approval of all just men."
We therefore hold that the public interest requires the intervention of the court, if the defendant-lawyer is unable to satisfy the burden cast upon him to prove that no advantage has been taken by him of his client, notwithstanding the wrongdoing of the plaintiff-client. To apply the principle of clean hands in the instant case would be to ignore the exacting standards placed upon lawyers, who are officers of the court. The principle should not be applied by the court as a shield to protect its own officers if there is a question of unconscionable advantage. It is true that courts should be cautious in affording relief to a complaining party, who is guilty of wrongdoing; but where vital public interests are involved, the door should not be closed.
When the matter is again entertained by the chancellor the issue before him will be whether the attorney has adequately demonstrated that the purchase was for a full and complete consideration and free of all the advantages which an attorney ordinarily has of knowing more of a client's legal rights than the client knows.
Reversed and remanded for further proceedings in accordance with the opinion.
HORTON, C.J., concurs.
CARROLL, CHAS., J., concurs specially
I concur in the court's reversal of the decree, but I do not agree with the majority's direction for further trial of this case.
It was established that the value of the interest purchased by the lawyer was far more than he paid for it. This is so, even giving effect to the assignment the plaintiff had made of the income for a period.
By the defendant attorney's own testimony, he and the plaintiff discussed the value of plaintiff's share in the estate and estimated it to be in excess of $7,000 after administrative expenses; and the attorney informed the plaintiff that an outsider approached to buy his share in the estate would regard the purchase as a speculation, and probably would not be willing to pay more than one-third of the value of the plaintiff's interest.
The testimony of Walter J. Migoski on this feature was as follows:
"Q. Did you have any discussion with him as to the value of his inheritance, the price he should ask? A. Yes, I did; and I made certain notations on my files, and if I may use that file to refresh my memory — my scribbled notes show a gross estimated estate of $113,500. Dividing that into sixteen parts would give an interest of $7,093 as the estimated interest of his share. * * * That, combined with the brokerage commission that would have been involved in the sale of those properties [of the estate], the expenses of closing, that I would easily figure on about $20,000 as gross expenses, which would include the brokerage commissions, attorney's fees, administrative fees, and so on. Taking that into consideration, we arrived at a figure of a little over $7,000 as the estimated value of this one-sixteenth interest in the estate. As I mentioned previously —
"Q. You told him to answer these ads that appeared in the papers, and so on. Had he set any figure, or was it just inquiry? Was he making any figure as to what he should ask for his inheritance? A. I said based upon a figure of $7,500, and that he would probably realize one-third of that. In my opinion, a prospective speculator or buyer would not pay any more than that. And we arrived at $2,500 as a reasonable figure that he could expect to get.
"When he told me that it was all right, what he would be willing to accept for it, I advised him to try to sell it to other people. He came back to see me and had had no success. I then said I had a Canadian client who perhaps would be interested."
[After explaining that his Canadian client, though interested, had not purchased plaintiff's interest because he was required to return to Canada on business] "* * * When Mr. Deal came back to me, I then advised him that in my opinion I could sell it, and if he was interested, I would go ahead. He asked me right then and there, could I advance him some money, and I immediately made out a check for him on, I believe — * * *".
It appears that the plaintiff was so pressed for funds that he was willing to sell on that basis if that was all he could get, and he authorized his attorney to so proceed. The attorney purchased the interest for himself, while the plaintiff was given to believe the attorney was selling it to a third party.
But the plaintiff's lawyer was not uninformed on the value of the plaintiff's interest in the estate. Conceding that an outside party, not having the full knowledge of the estate enjoyed by the plaintiff and his lawyer, understandably would consider it a speculation, and be willing to buy it only at a fraction of its represented value, the situation was different as to the plaintiff's attorney. He knew the value, and under the applicable law he was required to make full disclosure to his client of the circumstances of the sale to him, as well as to pay full value. Is it not reasonable to assume that the plaintiff would have expected to receive more from his lawyer, who knew the estate and its value, than from an uninformed third party he understood was to be the purchaser? Otherwise, why would the lawyer, while buying the interest for himself, allow his client to believe he was selling to an outsider to the estate on a "speculation" basis?
This record shows, by the plaintiff's testimony, that even when he and his wife signed the papers for transfer of his interest in the estate to Migoski he understood that the transfer was being handled through Mr. Migoski for some "northern buyer" with whom the attorney was in contact. The testimony given in the case by the defendant attorney does not contain any denial of this. The lawyer testified that he instructed and informed the plaintiff about the papers by which the assignment was being made to him in his name, but his testimony does not disclose what the explanation was, and nowhere does the attorney clearly or flatly state that he informed the plaintiff that it was he, and not a northern buyer as the plaintiff says he understood it, who was buying plaintiff's interest in the estate. In addition to this nondisclosure on the part of the attorney, there were the circumstances of the financial distress of the plaintiff and an established inadequacy of consideration. The result was that the lawyer acquired property of his client under conditions and circumstances in which the courts hold he may not be permitted to retain it.
The law applicable to this situation is well stated in 1 Black, Rescission and Cancellation, § 51 (2d ed. 1929), as follows:
"The relation of attorney and client is likewise one which requires the exercise of the utmost good faith and integrity. Any transaction or dealing between them will be closely scrutinized by the courts, and the attorney will not be allowed to retain any unconscientious advantage which he may have gained, even though he was guilty of no actual fraud. It is necessary, in fact, for him to show, in order to defend his position, that there was no fraud or mistake, no undue influence or bad advice on his part, no concealment or misrepresentation, and no inequitable advantage taken of his dominating position. An attorney who bargains with his client in a matter of advantage to himself must, if the transaction is afterwards questioned, show that it was fairly conducted, and that he discharged his duties to his client not only by refraining from all misrepresentation and concealment, but by diligence to see that the client was fully informed of the nature of the transaction and of his own rights and interests, either by independent advice or else by such advice from the attorney himself as he would have given if he had been a stranger to the transaction. These rules are applicable with perhaps peculiar severity where the attorney buys property from his client or sells to him * * *".
I therefore, concur in the reversal of the decree, but I can not agree that there is need for any further trial in this matter; and it is my opinion that this court should remand the cause with directions to enter a decree in favor of the plaintiff for rescission of this sale of his interest in the estate to his lawyer.