Opinion
March 13, 1907.
Wallach Cook [ Charles K. Allen and Garrard Glenn of counsel], for the appellants.
Weeds, Conway Cotter [ Frank E. Smith and Thomas F. Conway of counsel], for the respondent.
The defendant might well have asked for a more specific statement of the alleged agreement on the part of Riley, the attorney, as to who should advance the money, as to how much he should advance, and as to the conditions upon which such purchase was to be made. Having failed to ask that the complaint be made more definite and certain he cannot now complain that no cause of action is stated if, under the pleadings as they stand, any contract or any agreement could be proven which is fairly within the general allegations made.
While this is a demurrer to the answer, because that demurrer searches the record, the defendant has procured a holding that the complaint does not state facts sufficient to constitute a cause of action. In reviewing this question, however, we are to review it as though the decision were made upon demurrer to the complaint, and for this purpose cannot assume as true any of the facts stated in the defendant's answer.
It may fairly be inferred that Riley's assurance to the plaintiffs that he would purchase these policies and hold them for their benefit referred to the sale upon December 10, 1903. He had advised the plaintiffs that that was the only way in which they could obtain substantial benefit from the policies and had assumed to undertake to perform this office for them. In violation of his assurance he allowed their title to become divested by the sale, and afterwards, by secret agreement, purchased the property himself. Upon proof of these facts we are of the opinion that equity should impress a trust upon the policies in the hands of Riley or his assignees with knowledge as to the surplus of the fund over and above the amount paid therefor.
The defendant's contention is that after the sale of December 10, 1903, the plaintiffs' title was completely divested; that Riley's relation of trust or agency terminated, and Riley might thereafter deal with the property the same as though he had been a stranger. In my judgment it is not very material whether the agreement of Riley's related to a purchase at the sale upon December tenth or whether it was an assurance of a purchase at any time that they could be obtained. In either case I think that the subsequent purchase of Riley inured to the benefit of the plaintiffs. In Downard v. Hadley ( 116 Ind. 131) the head note in part reads: "An attorney who is employed to perfect or defend a particular title to land can not, either during the continuance of the employment or after its termination, without disclosing the facts to, and obtaining the consent of, his client, avail himself of information acquired, or which it was his duty to acquire, while in that relation, and purchase an outstanding title for himself, and set it up in hostility to that which he was employed to perfect or defend; on the contrary, a title so acquired enures to the benefit of the client or his vendee." In the opinion of the court it is said: "The obligation of fidelity which an attorney owes to his client is a continuing one, so far as respects any matter which has once been professionally committed to the attorney's confidence, and when the matter involved is the title to land, good faith and public policy require that any existing adverse title which the latter may thereafter purchase shall be deemed to enure to the benefit of his client, or his, the client's, vendee." The case at bar is not the case of property dealt with by a trustee after the title had been lost to the cestui qui trust without fault of the trustee. Under the allegations of the complaint the divestment of title by the sale of December tenth was through the neglect or refusal of Riley to purchase said policies for the plaintiffs' benefit as he had agreed to do. If upon the day after the sale Riley had purchased this property from the trust company, which itself became the purchaser upon the sale, it would hardly be questioned that he would hold such title for the benefit of the plaintiffs. Having failed to perform his agreement upon December 10, 1903, he may be deemed to be owing a continuous duty to purchase those policies for the benefit of the plaintiffs in fulfillment of the assurance which he had given them. And when a year and four months thereafter he procured those policies, equity should declare that the purchase was made in pursuance of that duty which he owed to them which had for so long remained unfulfilled.
I am not at all sure that to reach this conclusion it is necessary to find a breach of duty on the part of the defendant Riley in failing to purchase at this sale on December tenth. Assuming for the argument that there were conditions to such purchase by reason of which he was absolved from making the purchase, could he, without his client's consent, have made a private purchase next day and obtained title to himself? The fidelity which an attorney owes to his client is to use every endeavor in his power to the advantage of his client. By failing to insist upon conditions, even without collusion, opportunity may be presented for a subsequent purchase by him to his private gain. Collusion itself is difficult to prove. It may well be held that to insure the utmost fidelity of an attorney he should be barred from ever after, without his client's consent, making private gain out of a sale which he was once employed to prevent. This rule may well be dictated by public policy and is in accord with the jealous care the courts have taken to guard sacredly the relations of attorney and client. In Ex parte James, 8 Ves. Jr. 337, 352) application was made to restrain the solicitor of an assignee in bankruptcy from bidding at a bankrupt sale. The motion was granted. Lord ELDON, in writing in respect thereof, said: "With respect to the question now put, whether I will permit Jones to give up the office of solicitor, and to bid, I cannot give that permission. If the principle is right, that the solicitor cannot buy, it would lead to all the mischief of acting up to the point of the sale, getting all the information that may be useful to him, then discharging himself from the character of solicitor and buying the property. Infinite mischief would be the consequence in a number of cases. On the other hand, I do not deny, that those interested in the question may give the permission. The rule is, that a trustee shall not become the purchaser, until he enters into a fair contract, that he may become the purchaser with those interested. * * * No Court can say, ab ante, they will permit this." In Carter v. Palmer (8 Cl. F. 657) a barrister had for several years been the general counsel of the plaintiff under a general retainer and had by reason of that relation acquired an intimate knowledge of his affairs. After the relations were ended he purchased some securities which were held by the plaintiff. The House of Lords held the barrister to be trustee for the plaintiff of the securities thus purchased. Lord COTTENHAM, in writing for the court, said: "From the earliest times down to the latest case in which I believe the subject has been discussed, which is Taylor v. Salmon (4 Myl. C. 139), the rule in equity has been always recognized which would prevent a person in the situation of the appellant making such a purchase for his own benefit, whilst he continued to act as agent. As the reason for this disability continues to operate after the employment has ceased, the disability itself must continue unless a contrary rule has been established by decisions. But this is not the case but the very reverse." (See, also, Peck v. Peck, 110 N.Y. 64, 72; Case v. Carroll, 35 id. 385.)
If then the complaint is held to state a good cause of action we must decide what the Special Term has failed to decide, to wit, the issue raised by the plaintiffs' demurrer to the defendant's counterclaims. To these the plaintiffs have demurred on the ground that they do not state facts sufficient to constitute a cause of action, and also upon the ground that they are not of the character specified in section 501 of the Code. It cannot be held that they do not state facts sufficient to constitute a cause of action. By section 501 of the Code, however, a counterclaim must tend in some way to diminish or defeat the plaintiff's recovery. I am unable to see how these counterclaims in any way can tend to diminish or defeat the plaintiffs' recovery in this action. I cannot agree with the appellants' counsel that the complaint states a legal cause of action for deceit. It was evidently not the intention of the pleader when the complaint was drawn nor can such a cause of action be spelled therefrom. There are no appropriate allegations as to damage suffered in order to sustain such a cause of action. If these plaintiffs succeed in holding the defendant Riley as trustee of these policies, it is clear that the defendant would have no right of action upon these deficiency judgments. They would be deemed to be held in like trust with the policies. If they do not succeed in establishing this trust they must fail in their action, and the establishing of these counterclaims by the defendant will neither defeat nor diminish any judgment which they might obtain. If we are right in this view of the pleadings, it is unnecessary to determine whether the claims of the plaintiffs are so far several as to admit of several counterclaims.
The interlocutory judgment should, therefore, be reversed and the plaintiffs' demurrer sustained, with leave to the defendant to amend his answer upon payment of costs of the demurrer and of this appeal.
All concurred.
Interlocutory judgment reversed and demurrer sustained, with leave to defendant to amend answer upon payment of the costs of demurrer and of this appeal.