Title: Terry v. Terry
Citation: 273 S.E.2d 674
Docket Number: 105
State: north-carolina
Issuer: north-carolina Supreme Court
Date: January 27, 1981

273 S.E.2d 674 (1981) Edwin McKinley TERRY, Jr. v. Charles Thurman TERRY et al. No. 105. Supreme Court of North Carolina. January 27, 1981. *675 Tharrington, Smith &amp; Hargrove by Steve Evans, Raleigh, for plaintiff. Emanuel &amp; Thompson by W. Hugh Thompson and Yeargan &amp; Mitchiner by Joseph H. Mitchiner, Raleigh, for defendant. BRANCH, Chief Justice. Plaintiff first assigns as error the dismissal of his first and fourth claims which are grounded on fraud. In pertinent part he alleges in his complaint under these claims: As a general rule, the law of frauds contains few absolutes. In this connection, this Court has stated: Standard Oil Company v. Hunt, 187 N.C. 157, 159, 121 S.E. 184, 185 (1924); Furst v. Merritt, 190 N.C. 397, 404, 130 S.E. 40 (1925). Fraud can nevertheless be broken into two categories, actual and constructive. Actual fraud is the more common type, arising from arm's length transactions. It requires an allegation of facts to support the five elements of fraud. These essential elements of factual fraud are: The proper elements for a constructive fraud claim are set out in Rhodes v. Jones, 232 N.C. 547, 61 S.E.2d 725 (1950). Justice Barnhill stated in that case: Id. at 548-49, 61 S.E.2d 725. The courts have been as reluctant to define a confidential relationship as they have been to define fraud itself. As this Court said in Abbitt v. Gregory, 201 N.C. 577, 160 S.E. 896 (1931): Id. at 598, 160 S.E. at 906. In Lee v. Pearce, 68 N.C. 76 (1872), the Court stated that one type of confidential relationship that would support a constructive fraud claim is where "one is the general agent of another and has entire management, so as to be in effect, as much his guardian as the regularly appointed guardian of an infant." Id. at 87. In this case, plaintiff must rely on constructive fraud rather than actual fraud. The gist of the complaint is not that defendant misrepresented material facts to the detriment of plaintiff's father, but rather that defendant used his confidential relationship with plaintiff's father to take advantage of him by purchasing his interest in the business at a price well below its market value. Defendant contends that under the rules of civil procedure, this claim of fraud is not stated with sufficient particularity. He cites Rule 9(b) which states, "In all averments of fraud, duress or mistake, the circumstances constituting fraud or mistake shall be stated with particularity...." He also notes that, in Mangum v. Searles, 281 N.C. 91, 187 S.E.2d 697 (1972), this Court concluded that "Rule 9(b) codifies the requirement previously existing in our State practice that the facts relied upon to establish fraud, duress or mistake must be alleged." Id. at 96, 187 S.E.2d at 700. Recognizing and reaffirming our rule that allegations of fraud must be pleaded with greater particularity, we also are aware that Rule 9(b) must be reconciled with our Rule 8 which requires a short and concise statement of claims. See United Insurance Co. v. B. W. Rudy, Inc., 42 F.R.D. 398 (E.D.Pa.1967); 5 Wright and Miller, Federal Practice and Procedure § 1298, at 406 (1969). Our legislature's recognition of this need for reconciliation of these statutes is reflected in the adoption of the short and concise form suggested for pleading fraud. G.S. 1A, Rule 84(7). We find no decisions in which this Court has examined the rationale of Rule 9(b) to determine the extent of particularity required in pleading fraud. Since our Rule 9(b) is a counterpart of the Federal Rule 9(b), we turn to apposite Federal cases for aid in determining this question. Sutton v. Duke, 277 N.C. 94, 176 S.E.2d 161 (1970). In Lincoln National Bank v. Lampe, 414 F. Supp. 1270 (N.D.Ill.1976), the court noted that the purpose of Rule 9(b) is to protect a defendant from unjustified injury to his reputation by requiring more particularity than is normally required by notice pleading. The particularity required by the rule generally encompasses the time, place and contents of the fraudulent representation, the identity of the person making the representation and what was obtained by the fraudulent acts or representations. The particularity required cannot be satisfied by using conclusory language or asserting fraud through mere quotes from the statute. Other courts have noted that allegations of fraud have been advanced for their nuisance or settlement value. Further it has been recognized that fraud embraces such a wide variety of potential conduct that the defendant needs particularity of allegation in order to meet the charges. See 5 Wright and Miller, Federal Practice and Procedure, § 1296 (1969). In Re National Student Marketing Litigation, 413 F. Supp. 1156 (D.D.C.1976). Our consideration of the above-stated rules of law leads us to conclude that in pleading actual fraud the particularity requirement is met by alleging time, place and content of the fraudulent representation, identity of the person making the representation and what was obtained as a result of the fraudulent acts or representations. A constructive fraud claim requires even less particularity because it is based on a confidential relationship rather than a *679 specific misrepresentation. The very nature of constructive fraud defies specific and concise allegations and the particularity requirement may be met by alleging facts and circumstances "(1) which created the relation of trust and confidence, and (2) [which] led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff." Rhodes v. Jones, supra at 548-49, 61 S.E.2d at 725. In instant case, plaintiff has alleged facts and circumstances tending to show the following: A close family relationship existed between defendant and his brother Edward McKinley Terry, Sr. Edward McKinley Terry, Sr., had made defendant the executor of his will and for many years there existed a trusted business relationship in that defendant was given managerial responsibilities including the keeping of the books in his brother's business. Immediately prior to the death of Edward McKinley Terry, Sr., defendant was relied on "increasingly" to manage the day-to-day operation of the business. As defendant's managerial control over the business increased, brother Edward McKinley Terry, Sr., became seriously weakened by a continued illness. At the time Edward McKinley Terry, Sr. signed the document which purported to transfer all his interest in Terry's Furniture Company, Inc., to defendant, Edward McKinley Terry, Sr., was confined to his bed, nearly blind, unable to talk or hear clearly and was suffering from intense pain which required heavy medication. At the time the document was executed, a relation of trust and confidence existed between defendant and his brother. Charles Thurman Terry knowingly and willfully, and with the intent to deceive, fraudulently induced his brother and business associate, Edward McKinley Terry, Sr., to sell his interest in Terry's Furniture Company, Inc., at a grossly inadequate price. The plaintiff Edward McKinley Terry, Jr., as a devisee under the will of Edward McKinley Terry, Sr., had been damaged by the difference between the price agreed to be paid and the actual value of Terry Furniture Company, Inc. Defendant's reliance on Mangum v. Searles, supra, is misplaced. While it is true that in Mangum there were a number of allegations in the complaint similar to those made in instant case (especially the allegations of the weakened state of the person taken advantage of and the family relationship), we find Mangum distinguishable because no continuing formal business relationship was alleged. The complaint in that case simply alleged advice on many confidential matters. The Court in Mangum properly found that the mere family relationship and general allegations of consultations among family members were not particular enough to support the complaint. Here, however, plaintiff's allegations detail an increasing control of the business by defendant coupled with a worsening of plaintiff's father's condition which culminated in the execution of the sale of the business. We hold that on his first and fourth claims plaintiff has alleged sufficient facts and circumstances to withstand dismissal of his fraud claims for lack of particularity. Plaintiff's next assignment of error is that the Court of Appeals erred by affirming the dismissal of his third claim. This claim alleges that defendant breached his trust as executor of plaintiff's father's estate and engaged in self-dealing by failing to disapprove his $25,000 purchase of the father's interest in the business. Plaintiff's third claim contains the following allegations, in addition to incorporating those set out above: Plaintiff contends that G.S. 28A-13-3(a)(4) requires that defendant as executor consider the impact of adopting the contract to sell his father's business. The statute empowers the executor The Court of Appeals reasoned that since the contract was signed prior to the father's death, the transfer of property must have taken place at that time as well. Thus, the court concluded that the estate had no contract obligation to discharge and no claim arose under the statute. We find that we need not further consider plaintiff's third claim for relief. When the decedent signed the contract of sale, his interest passed to defendant, subject to payment of the full purchase price. The executor's duty, if any, under the statute, would have been to refuse receipt of payment and to bring an action to set aside the contract of sale on grounds of fraud or undue influence. Plaintiff's third claim for relief is, therefore, based on his first and fourth claims of fraud and his fifth claim of undue influence. This being so, if the jury does not find in plaintiff's favor on either the claim of fraud or of undue influence, his third claim for relief necessarily fails also. Conversely, if the plaintiff succeeds on either the fraud claim or the undue influence claim, this third claim becomes mere surplusage. Plaintiff's final assignment of error is that the trial court incorrectly dismissed his claim for punitive damages. Ordinarily punitive damages are not recoverable. Hardy v. Toler, 288 N.C. 303, 218 S.E.2d 342 (1975). In the proper case, however, punitive damages are permitted on public policy grounds. Cotton v. Fisheries Products Co., 181 N.C. 151, 106 S.E. 487 (1921). As this Court stated in Newton v. Standard Fire Insurance Company, 291 N.C. 105, 229 S.E.2d 297 (1976), "In North Carolina actionable fraud by its very nature involves intentional wrongdoing ... [and] is well within North Carolina's policy underlying its concept of punitive damages." Id. at 113, 229 S.E.2d at 302. [Original emphasis.] We therefore hold that plaintiff's fraud claims constitute a sufficient basis to withstand a 12(b)(6) challenge on the claim for punitive damages. The decision of the Court of Appeals is reversed. We remand to the Court of Appeals for further remand to the Superior Court of Wake County for further action consistent with this opinion. REVERSED and REMANDED. MEYER, J., did not participate in the consideration or decision of this case.