Court Opinion

ID: 6906322
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:00:58.420702+00
Date Added: 2024-06-11T16:06:21.599957
License: Public Domain

BEAN, J.,
Dissenting. — I am unable to concur in the holding that this is not a proper case for the interposition of a court of equity.
As stated, it appears that the defendant, Nellie Gustin, was appointed as guardian of the persons and *60estates of plaintiffs, George Amos Marshall and Lavina A. Marshall, minor children of O. A. Marshall. Part of their estate consisted of a one-eighth interest each in 75 acres of land. While they were yet minors the defendant purchased the interest of each in the land for the consideration of $68 and $170 respectively. In December, 1911, the defendant sold the 75-acre tract together with 160 acres of adjoining land which she owned and which was of but little value, for $8,812.50. It is alleged that the one-eighth interest of each of the plaintiffs was of the value of $1,000. This suit was instituted for an accounting and to impress a trust upon the proceeds of the land in favor of the plaintiffs for the difference between the respective amounts paid and the actual value of their interest in the land. After deducting some expenditures made by the guardian on behalf of her wards the trial court adjudged a balance of $620.85 in favor of George Amos Marshall, and a balance of $570 in favor of Lavina A. Marshall.
Equity has inherent, original, general jurisdiction independent of statutory legislation concerning the same subject matters over the persons and estates of infants: 3 Pom. Eq. Juris. (3 ed.), § 1303. In 1 Pom. Eq. Juris. (3 ed.), § 78, we find the following:
“Under their general power in cases of trust and of accounting, the American courts of equity may give all proper relief to wards against their guardians.”
Constructive fraud which is inferred from the conditions and relations of the parties to the transaction embraces those cases in which the transaction, although it may be perfectly regular in its external form, is impeachable in equity because it lacks that-absolute consent which is regarded as essential by *61courts of equity: 2 Pom. Eq. Juris., § 943. In a note to this section we find a quotation by Mr. Justice Hand in Cowee v. Cornell, 75 N. Y. 91, 99 (31 Am. Rep. 428), as follows:
“It may be stated as universally true that fraud vitiates all contracts, but as a general thing it is not presumed, but must be proved. Whenever, however, the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality, but that either on the one side from superior knowledge of the matter derived from a fiduciary relation, or from overmastering influence, or on the other from weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, there the burden is shifted, the transaction is presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood. This doctrine is well settled.”
Such constructive fraud includes: (1) Transactions void or voidable with persons totally or partially incapacitated; (2) transactions presumptively invalid between persons in fiduciary relations. The incapacities embraced under the first head may be created by the policy of the law, such as infancy, and may be either total or partial. Théy may be inherent in the very position and circumstances of the parties: 2 Pom. Eq. Juris. (3 ed.), § 944. The incapacity of the plaintiffs while they were minors to enter into a binding contract and execute a conveyance of their land to the defendant is the same in equity as in law. Such contracts are generally voidable only and therefore may be ratified after the infants attain their majority: Id., § 945.
*62In the present case the land having been conveyed by the infants’ guardian to one who is presumably an innocent purchaser for value, and the former wards of defendant having ratified the deed so far as the title is concerned by this suit seek to compel the guardian to account for, and to have a trust impressed upon, the proceeds of the land, namely, certain promissory notes in the hands of the defendant, in lieu of the land to which they would have an undoubted equitable right if the second conveyance had not been executed.
The defendant should in equity be declared to hold a fair proportion of the proceeds of the land in trust for plaintiffs and the trust should be enforced. Their remedy at law would not be adequate. Mr. Pomeroy says:
“Equity * * under certain circumstances grants remedies which are legal in their nature, and are capable of being conferred by a judgment at law, namely, a mere recovery of money, or of the possession of specific land or chattels”: 1 Pom. Eq. Juris. (3 ed.), § 108.
A purchase made by a guardian from his ward, or by a trustee of the cestui que trust, or by an attorney of his client, may be in good faith, and as beneficial to all parties as any other transactions in life; and yet the inconvenience and danger of allowing contracts to be entered into between parties holding such relations to each other are so great that courts of equity construe such contracts prima facie to be fraudulent, and they construe a trust to arise from them: 1 Perry on Trusts (6 ed.), § 168. In Section 197, Id., we find the following language:
“It is thus seen that the rule against purchasing by trustees, of the cestui que trust, amounts almost to prohibition; for if a trustee purchases the property, and sells it at a profit, he must account for it as a trustee; *63not because there was any fraud in the transaction, but because it is against the policy of the law to allow such transactions (without the consent of the cestui given freely after he has been fully' informed). Nor is it material that there should be an advantage, or profit, arising out of a purchase by the trustee from the cestui que trust. It is not necessary to prove such advantage or profit: it is enough to show the relation and the purchase.”
The defendant as guardian of the persons and estates of the plaintiffs occupied a fiduciary relation of trust and confidence imposed upon her under the law, and it is contrary to the policy of the law to permit her to speculate and profit by the purchase and sale of the land of her wards and a constructive trust in the proceeds of the sale of the land should be declared: Parrish v. Parrish, 33 Or. 486 (54 Pac. 352); Kroll v. Coach, 45 Or. 459, 473 (78 Pac. 397, 80 Pac. 900). In the case of Borchert v. Borchert, 132 Wis. 593 (113 N. W. 35), brought to establish a constructive trust, and for an accounting under circumstances where an aged mother was induced to convey certain property owned by her to some of her children, upon consideration of their supporting her, the court speaking through Mr. Justice Marshall, states the following:
“The point is made that the pleader intended to state a cause of notion and to establish a constructive trust and for an accounting, and that the facts alleged are not sufficient in that it appears that the subject of the trust no longer exists, therefore a personal action only will lie. There are three answers to that proposition. One: The primary purpose of the action is to rescind the alleged fraudulent contract. The other matters are germane thereto and so may properly be litigated as incidental to a vindication of the primary right. Two: An action lies to establish a constructive trust and to recover the subject thereof where the property wrongfully obtained in specie, or in its *64converted form, still remains in the possession of the wrongdoer. Three: In case of a constructive trust, an action lies in equity for its establishment and for an accounting even though the property wrongfully obtained is personal, or in specie or in some new form into which it can be definitely traced, and is within the reach of a plain remedy at law where it is necessary, in order to establish complete justice, for equity jurisdiction to deal with the situation: 3 Pom. Eq. Jur. 1053.”
The court further says:
“This court quite recently held that the better rule is that the cestui que trust may always sue in equity for an accounting: Harrigan v. Gilchrist, 121 Wis. 127, 252 (99 N. W. 909).”
In the case at bar equity would not be divested of jurisdiction by reason of the form of the decree of the lower court being simply a money judgment. Neither is this court bound by the form of such a decree. It should be couched in appropriate language and defendant required to account for the profits realized upon the sale of the land of her wards, and a constructive trust impressed upon the proceeds of the land. The decree of the lower court in substance should be affirmed.