Court Opinion

ID: 6699334
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:04:45.845851+00
Date Added: 2024-06-11T16:01:21.956263
License: Public Domain

DbviN, C. J.
The defendant Bank appealed from the denial of its motion to strike certain paragraphs from the complaint filed in the suit instituted by the plaintiff to surcharge the accounts of First Security Trust Company as executor and trustee of his father’s estate. It is alleged the defendant Bank had absorbed by consolidation or merger the named Trust Company and assumed its liabilities. The gravamen of the charge in the complaint is negligence and mismanagement on the part of the Trust Company constituting a breach of trust, particularly in respect to the sale of 754 shares of stock of the Hutton & Bourbonnais Company which had been bequeathed in trust for the plaintiff under his father’s will. Plaintiff, now of full age, seeks to recover damages for the loss alleged to have resulted. He alleges that the conduct of the Trust Company, for which the defendant Bank is now liable, under the circumstances set out at length, amounted to a constructive fraud upon his rights. In order to present the entire matter plaintiff has also set out in his complaint the fact that a judgment of the Superior Court was rendered in a proceeding instituted by the Trust Company as executor in which all interested persons were made parties, including the present plaintiff, approving the sale of the shares of stock now complained of. The judgment roll, including the pleadings, findings and judgment, is attached to the complaint and for the purpose of attack made part of it.
Plaintiff’s allegation that the sale of the shares of stock complained of was approved by a judgment of the Superior Court in an adversary action in which the plaintiff here was party defendant and appeared by *316a guardian ad litem and answered, nothing else appearing, would raise a complete defense to bis complaint on that ground, and bis allegations of negligence and mismanagement in respect to tbe sale of tbis stock would not avail against a valid judgment rendered by a court having jurisdiction of tbe parties and of tbe subject matter.
It is alleged tba't tbe Superior Court wbicb rendered tbe judgment was without jurisdiction of tbe subject matter, but we do not think tbe judgment is open to attack on tbis ground, as a court of equity has power to entertain a petition to sell land to pay debts, though personal property remains undisposed of, in order to preserve tbe personal property from being sacrificed (Settle v. Settle, 141 N.C. 553, 54 S.E. 445; King v. R. R., 184 N.C. 442, 115 S.E. 172). However, no action was taken on tbis petition, and some time later an amended petition was filed, wbicb tbe present plaintiff’s guardian ad litem and tbe adult defendants answered, presenting a proposal for tbe sale of tbis stock and asking tbe court’s approval and authority to tbe executor to conclude tbe sale for tbe reasons assigned.
Tbe facts set out would seem to indicate tbe court bad jurisdiction both of tbe parties and of tbe subject matter. Hence mere irregularities in tbe rendition of tbe judgment would not justify an independent action to avoid its effect. Irregularities may be corrected by motion in tbe cause. McIntosh, sec. 652; Simms v. Sampson, 221 N.C. 379, 20 S.E. 2d 554; Carter v. Rountree, 109 N.C. 29, 13 S.E. 716.
Tbe remaining ground left tbe plaintiff upon wbicb to maintain his action, in tbe face of tbe judgment wbicb would otherwise bar bis access to tbe relief demanded, is that of fraud. He alleges tbe judgment was void for constructive fraud on tbe part of tbe Trust Company wbicb entered into tbe rendition of tbe judgment.
Constructive fraud differs from active fraud in that tbe intent to deceive is not an essential element, but it is nevertheless fraud though it rests upon presumption arising from breach of fiduciary obligation rather than deception intentionally practiced. 23 A.J. 756; Rhodes v. Jones, 232 N.C. 547, 61 S.E. 2d 725; Hatcher v. Williams, 225 N.C. 112, 33 S.E. 2d 617; City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125; Ryan v. Plath, 18 Wash. (2) 839.
Constructive fraud has been frequently defined as “a breach of duty wbicb, irrespective of moral guilt, tbe law declares fraudulent because of its tendency to deceive, to violate confidence or to injure public interests. Neither actual dishonesty nor intent to deceive is an essential element of constructive fraud.” 37 C.J.S. 211; Greene v. Brown, 199 S.C. 218.
Tbe plaintiff alleges in substance that tbe sale of tbe shares of stoek by tbe trustee, to tbe injury of plaintiff, under tbe circumstances set out in tbe complaint, constituted a breach of tbe fiduciary obligation im*317posed upon tbe Trust Company in good conscience to guard tbe interests of tbe infant beneficiary, and was bence constructively fraudulent.
Eut if plaintiff’s complaint be sufficient to allege constructive fraud, b.e is confronted by another burdle.
In order to sustain a collateral attack on a judgment for fraud it is necessary that tbe allegations of tbe complaint set forth facts constituting extrinsic or collateral fraud in tbe procurement of tbe judgment. It is well settled that tbe fraud for which a judgment may be vacated or enjoined in equity must be in tbe procurement of tbe judgment. Horne v. Edwards, 215 N.C. 622, 3 S.E. 2d 1; McCoy v. Justice, 199 N.C. 602, 155 S.E. 452; Mottu v. Davis, 153 N.C. 160, 69 S.E. 63; U. S. v. Throckmorton, 98 U.S. 61; Freeman on Judgments, sec. 1233. “Extrinsic or collateral fraud operates not upon matters pertaining to tbe judgment itself but relates to the manner in which it is procured.” Freeman on Judgments, sec. 1233.
In McCoy v. Justice, supra, Justice Adams quotes with approval from Freeman on Judgments: “For judgments are impeachable for those frauds only which are extrinsic to tbe merits of tbe case, and by which tbe court has been imposed upon or misled into a false judgment. They are not impeachable for frauds relating to tbe merits between tbe parties. All mistakes and errors must be corrected from within by motion for a new trial, or to reopen the judgment, or by appeal.” Where the fraud is extrinsic or collateral, operating without, the remedy also is without, and the judgment may be collaterally attacked or set aside by an independent action. McIntosh 745; Carter v. Rountree, 109 N.C. 29, 13 S.E. 716.
To avoid a judgment on this ground there must be shown extrinsic fraud, or fraud collateral to the matters in issue and heard by the first court, and not fraud in the matter on which the judgment was rendered. U. S. v. Throckmorton, supra. “The fraud which warrants equity in interfering with such a solemn thing as a judgment must be such as is practiced in obtaining the judgment and which prevents the losing party from having an adversary trial of the issue.” Mottu v. Davis, supra.
The question here is whether the fraud charged relates to inequitable conduct on the part of the trustee which prevented the court from considering the plaintiff’s case, or whether the court was imposed upon to the extent that facts material to the present plaintiff’s case and in his interest were concealed or were not presented. McLean v. McLean, 233 N.C. 139, 63 S.E. 2d 138.
The plaintiff’s position is that the allegations of his complaint considered in the light favorable for him are sufficient to make out a case of constructive fraud. He contends the facts alleged show that the Trust Company, executor and trustee under the will, in breach of its trust negligently failed in 1938 to sell a portion of the shares of stock referred *318to at a time when a price of $50 per share was obtainable, and that in the suit it instituted in 1939 it was seeking to extricate itself from the consequences of its mismanagement; that in the proceeding now attacked it occupied inconsistent positions, and that in consequence of interlocking directorates and close business associations among those who controlled the defendant Bank, its subsidiary the Trust Company, and the Hutton & Bourbonnais Company, the corporation whose stock was the subject of negotiation and sale, interests represented by the executor and trustee were conflicting, and that the trustee in breach of the trust did not act in the interest of the plaintiff who was then 18 years of age; that as result of negligence valuable shares of stock were sold for an inadequate price; that at the same time the sale of 700 shares of stock in the same corporation were being negotiated and sold by the Hutton Estate of which the Trust Company was one of the executors and trustees; that some of the officers and directors of Hutton & Bourbonnais were also directors of the defendant Bank, and the Bank was a creditor of Hutton & Bourbonnais Company.
Plaintiff further alleged that no evidence was presented to the court which rendered the judgment in 1940 as to the true value of the shares of stock; that while judgments were rendered by the court in this case and the Hutton Estate case on the same day, the attention of the court was not called by the trustee to the conflict of interest among the parties in the purchase and sale of this stock. Plaintiff cites as authority for his position, among others: Graham v. Floyd, 214 N.C. 77, 197 S.E. 873; Hatcher v. Williams, 225 N.C. 112, 33 S.E. 2d 617; McNinch v. Trust Co., 183 N.C. 33, 110 S.E. 663; City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125; City Bank Farmers Trust Co. v. Taylor, 69A (2) 234 (R.I.); Ryan v. Plath, 18 Wash. (2) 839; G.S. 36-28.
On the other hand, the defendant’s motion to strike as irrelevant the allegations in the complaint which relate to the sale of these shares of stock, was based on the ground that according to the complaint and the exhibits attached the sale was approved by a valid judgment of the Superior Court, and that any irregularities alleged are insufficient to justify a collateral attack on this judgment.
It appears from the complaint and the judgment rolls attached thereto that plaintiff’s father died testate in 1935, and that at the date of the judgment referred to, July 10, 1940, there was no personal property, except the shares bequeathed in trust for the plaintiff, with which to pay the balance of the debts of the estate and to provide for the maintenance of plaintiff, testator’s son; that it had been necessary to ask for orders of court authorizing the executor to borrow money to pay for the education of the plaintiff. In 1939 the executor instituted an action to sell real property for this purpose rather than sacrifice the shares of stock for which it was alleged there was no market. In that suit the court *319appointed as guardian ad litem of tbe present plaintiff L. P. McLendon, an experienced and reputable lawyer of tbe G-uilford bar, wbo bad no connection or association with any of tbe parties interested. Tbe petition to sell land was not prosecuted, but in 1940, a year later, tbe executor filed an amended petition asking for authority to sell tbe shares of stock to tbe issuing corporation tbe Hutton & Bourbonnais Company upon tbe terms therein set out. Tbe guardian ad litem filed an answer in which be set out that since bis appointment as guardian ad litem be bad personally attended meetings of tbe stockholders of Hutton & Bourbonnais Company and bad repeatedly conferred with officials of tbe Trust Company, with tbe mother of the present plaintiff, and with tbe attorneys representing all parties; that be bad familiarized himself with tbe financial affairs of Hutton & Bourbonnais Company and obtained all information available with respect to that company’s assets and liabilities ; that be was convinced that there bad been and was then no market for tbe stock owned by tbe Miller Estate, and that it would be necessary to liquidate this Company in order to realize tbe present value thereof; that as result of discussions with stockholders and other interested parties tbe guardian ad litem was instrumental in securing an offer for this stock $6,500 in cash, $6,500 in real estate conveyance, and $21,500 endorsed notes of tbe Company, and tbe proportionate share of tbe investment of Hutton & Bourbonnais Company in various local corporations. Tbe guardian ad litem expressed tbe view that funds to be derived from tbe contemplated sale were presently needed for tbe education and maintenance of plaintiff, then about to enter college
Tbe guardian ad litem incorporated in bis answer tbe following recommendation: “After tbe most careful consideration of all tbe circumstances involved this defendant is convinced that it is to tbe best interest of tbe minor, J. T. Miller, Jr., that tbe offer for tbe purchase of tbe stock of tbe J. T. Miller Estate, as set forth in tbe amended petition, should be accepted and approved by tbe Court, and in reaching this conclusion this defendant has been influenced by the fact that the acceptance of said offer will enable tbe executor to close, with reasonable promptness, tbe administration of tbe estate and to set up tbe trust fund provided by tbe will of tbe minor’s father and thereby carry out tbe purpose and intention of tbe testator to insure tbe existence of a fund sufficient to support, maintain and educate said minor, and secondly, this defendant believes that a liquidation of tbe Hutton & Bourbonnais Company, either voluntarily or by a receiver, would in all probability produce less money for tbe use of said minor than will be obtained by tbe acceptance of this offer.” Tbe adult defendants, tbe widow and legatees of tbe testator, wbo together owned more than 400 shares of this stock filed answer asking that tbe sale be made as proposed, and elected to sell their own shares on tbe same terms.
*320Judge Phillips, who- was presiding at July Term, 1940, of Catawba Superior Court, had all the parties before him, and in his judgment set out his findings fully and, among other things, found that the shares of stock were not now marketable, that the trustee had repeatedly endeavored to sell them but was unable to secure an offer; that Hutton & Bourbonnais Company had made no profit since 1926, paid no dividend since 1930, and had a substantial deficit, and entered his conclusion as follows: “The Court, after careful inquiry and investigation, is of the opinion and finds that in order to carry out the purpose of the trust created by the testator, it is now advisable that the offer for the purchase of said stock be accepted and the executor and trustee be authorized to do and perform all things necessary for the consummation of said sale and purchase.”
It also appeared that on the same day a similar judgment was rendered authorizing the trustees of the Hutton Estate to sell the shares of stock of Hutton & Bourbonnais Company belonging to that estate upon identical terms. All these facts are set forth in the exhibits which plaintiff has attached to his complaint. Thus it appears from the answer of the guardian ad litem and the findings of the court, incorporated in the complaint, that the charge that the judgment was rendered without information as to the value of the shares, and without knowledge of the alleged conflicting interests, is not borne out.
After examination of the complaint and of the judgment rolls attached thereto and made a part thereof, we conclude that insufficient facts are alleged to show extrinsic fraud in procuring the judgment rendered 10 July, 1940. It follows that -the judgment would constitute g bar to an action to surcharge the executor’s accounts on account of the sale of the shares of stock authorized and approved by that judgment.
Estoppel by judgment is a matter of defense and ordinarily must be pleaded, but this rule does not apply where all the facts necessary to constitute an estoppel are set out in the complaint for the purpose of attack. Alston v. Connell, 140 N.C. 485 (494), 53 S.E. 292; 120 A.L.R. 110n. Here the plaintiff in order to raise the question has inserted the judgment roll in his complaint and a,t the same time set out allegations attacking the validity of the judgment in the effort to have it declared void and -of no effect. The defendant has moved to strike these allegations on the ground that the matters alleged have been determined by the judgment. Thus both parties have squarely presented the question for our decision whether the allegations sought to be stricken are sufficient for the purpose intended.
The case is here on motion to strike. The statute G.S. 1-153 -authorizes the court to strike from a pleading irrelevant or redundant matter. Rhodes v. Jones, 232 N.C. 547, 61 S.E. 2d 725; Poovey v. Hickory, 210 N.C. 630, 188 S.E. 78. See 29 N. C. Law Review 1, where this statute *321is discussed and pertinent decisions cited. And the right of the defendant to strike portions of a complaint which are insufficient to state a cause of action attempted to be set up is upheld in Development Co. v. Bearden, 227 N.C. 124, 41 S.E. 2d 85, upon the view that such allegations are in fact “irrelevant.” If the complaint be wholly insufficient to state a cause of action, objection should be raised by demurrer; but when only a portion of the pleading or certain paragraphs are insufficient for the purpose for which they are inserted, relief may properly be had by motion to strike the objectionable paragraphs. Thalhimer v. Abrams, 232 N.C. 96, 59 S.E. 2d 358.
For the reasons stated we think the motion to strike from the complaint the portions designated should have been allowed, with right to the plaintiff to amend his complaint or file an amended complaint if so advised.
Reversed.