Court Opinion

ID: 7817528
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:41:24.414847+00
Date Added: 2024-06-11T16:30:38.495938
License: Public Domain

George Rose Smith, Justice, dissenting. The majority opinion overlooks a basic principle in the law of trusts — the rule that a fiduciary, regardless of his good faith, is absolutely forbidden to take a position in which his personal interest is in conflict with his duty as a trustee. A public officer occupies the status of a trustee with respect to the governmental body (here the school district) that he represents and with respect to its property. Fidelity & Deposit Co. of Md. v. Cowan, 184 Ark. 75, 41 S. W. 2d 748 (1931); Grooms v. Bartlett, 123 Ark. 255, 185 S. W. 282 (1916); State v. Baxter, 50 Ark. 447, 8 S. W. 188 (1887). As a trustee he must conform to the high ethical standard imposed by the law upon all fiduciaries. In Cardozo’s familiar words: “A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” Meinhard v. Salmon, 249 N. Y. 458, 164 N.E. 545, 62 A. L. R. 1 (1928). A trustee cannot engage in any activity in which his own financial interest conflicts with that of the trust. For example, an administrator cannot buy at his own sale, simply because his own pecuniary interest demands that he get the property as cheaply as possible while his fiduciary duty demands that he obtain the highest possible price. Good faith and what might appear to be the best interest of .the trust have nothing to do with the matter. In the case at bar I do not impugn Chandler’s motives, because, conceding his integrity and high principles, the disqualification is absolute. “No one can be allowed to assume a position in which his interests are antagonistic to his duties, and derive a personal benefit from it. However firm the virtue of individuals may be, human nature as a general rule cannot endure the test, and equity, for security, removes the temptation by the inflexible rule that all profits of the trustee . . . must enure to the benefit of the cestuis que trustent.” Trimble v. James, 40 Ark. 393 (1883). Apart from statute, Chandler’s position in this case involves that same conflict of interest which, without exception, is prohibited by the law of trusts. On the one hand his duty as a school director required him to purchase the needed school buildings or other property at the lowest possible price. The district is entitled to demand that its directors be absolutely free from any personal interest in such purchases. Here the testimony makes it plain that all the district’s contracts are not let to the lowest bidder, but even if they were we all know that one prospective seller can be favored over his competitors by the wording of the specifications. On the other hand, if Chandler can participate to his profit in the performance of the contract, as he is doing in this case, his personal interest clashes directly with his duty to the school district. Suppose, for example, that there are two rivals competing- for the district’s business. One fabricates his buildings or other products locally, while the other must rely upon the type of transportation facilities furnished only by Chandler or his brotliei. How can Chandler, in choosing between the two, discharge his duty to the district with the perfect impartiality that the law demands ? He cannot. It is no answer to say, as the majority do, that unless there was prearrangement between Chandler and Holiday when the contract was executed between Holiday and the district, then Holiday’s contract is valid. That attitude accomplishes nothing except to outlaw actual dishonesty if it is detected. In Cardozo’s phrase, it condones conduct meeting the morals of the market place, but it fails to hold public officers to their fiduciary duty. Moreover, nothing is in issue here except Holiday’s subcontract with Chandler. If that contract were declared to be invalid, as against public policy, the district would be fully protected both in this instance and in similar situations that will certainly arise now that the majority have opened the door to constructive fraud. Finally, the statutes adopt the controlling principle so explicitly that I do not understand how the majority can conclude that Chandler’s subcontract is not in direct violation of the law. Section 80-138 reads in pertinent part as follows: “It shall be unlawful for any person serving as a member of any . . . local school board to be or become interested directly or indirectly in the profits or purchase price received by any person, firm or corporation from the sale of any . . . materials of whatsoever kind or character sold to any school board of which such person may be a member.” (My italics.) The wording of the statute fits the District-Holiday-Chandler transaction like a rubber glove. If the legislature has not prohibited deals such as the one now before us, the- English language is incapable of achieving that result. I would reverse the decree and declare the Chandler subcontract to be void.