Haynes v. Montgomery
132 S.W. 651
Ark.
1910
Check Treatment
Kirby, J.,

(after stating the facts). Was Montgomery, the guardian, under such disability to purchase these lands ‍​‌​​‌​​​‌​‌​‌​‌​‌‌​‌​​‌​​‌​‌​‌‌​‌‌​‌​‌‌‌​​‌‌​‌​​‍as that they will be charged with a trust in his hands and those of his vendee with nоtice ?

In Hindman v. O’Connor, 54 Ark. 633, this court said: “As a general rule, a party occupying a relation .of trust or confidence to another is in equity bound to abstain from doing everything which can place him in a position inconsistent with the duty or trust such relation imposes ‍​‌​​‌​​​‌​‌​‌​‌​‌‌​‌​​‌​​‌​‌​‌‌​‌‌​‌​‌‌‌​​‌‌​‌​​‍on him or which has a tendency to interfere with such duty. Upon this principle no one placed in a situation of trust or confidence in reference to the subject of a sale can be the purchаser, on his own account, of the property sold.”

'Continuing, quoting from Imboden v. Hunter, 23 Ark. 622: “The rule is not confined to persons who are trustees within the more limited and technical signification of the term, or to any particular class of fiduciaries, but applies to all persons in a situation of trust or confidence with reference to the subject of the purchase. It embraces ‍​‌​​‌​​​‌​‌​‌​‌​‌‌​‌​​‌​​‌​‌​‌‌​‌‌​‌​‌‌‌​​‌‌​‌​​‍all that come within its principle, permitting no one to purchase property and hold it for his'own benefit where he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser on his оwn account and for his individual use.”

And further using the language in Clements v. Cates, 49 Ark. 242: “The law forbids a trustee and all other persons occupying a fiduciary or gMasi-fiduciary position from talcing personal advantage touching the things or subject as to which such fiduciary position exists. * * * If such a person acquires an interest in property as to whiсh such relation exists, he holds it as a trustee for the .benefit of those in whose interest he was prohibited from purchasing, to the extent of the prohibition.” Continuing, with reference to the rule (page 635) : “Its applicability to guardians and wards and persons standing in like relation is apparent. Judge Story, in spеaking on this rule, says: ‘Tn the next place, as to the relation of guardian and ward. In this most important and delicate of trusts the same principles prevail, and with a larger and more comprehensive efficiency. It is obvious that during the existence of the guardianship the transactions of the guardiаn can not be binding on the ward if they are of any disadvantage to him; ‍​‌​​‌​​​‌​‌​‌​‌​‌‌​‌​​‌​​‌​‌​‌‌​‌‌​‌​‌‌‌​​‌‌​‌​​‍and indeed the relative situation of the parties imposes a general inability to deal with each other. But courts of equity proceed yet further in cases of this sort. They will not permit transactions between guardians and wards to stаnd, even when they have occurred after the minority has ceased and the relation become thereby actually ended, if the intermediatе period be short, unless the circumstances demonstrate in the highest sense of the term the fullest deliberation on the part of the ward and the most abundant good faith (uberrima tides) on the part of the guardian. For in all such cases the relation is still considered as having an undue influence upon the mind оf the ward, and as virtually subsisting, especially if all the duties attached to the situation have not ceased; as if the accounts between the parties have not been fully settled, or if the estate still remains in some sort under the control of the guardian, 1 Story on Equity. (13 ed.) § 3I7.’ ”

The wisdom of the rule was never better exemplified than in this case. Here the guardian, Montgomery, contrary to his .express promise to the dying father of this ward, who left in his hands means for the рayment of the note secured by a mortgage on these lands, and in violation of his duty as guardian to protect her interests, let the mortgage be foreclosed and procured the lands to be bought in for a grossly inadequate consideration and held for his ‍​‌​​‌​​​‌​‌​‌​‌​‌‌​‌​​‌​​‌​‌​‌‌​‌‌​‌​‌‌‌​​‌‌​‌​​‍benefit. As one of the witnesses said who had rented the land in 1899 and 1900: “Montgomery claimed to own the land. He said there was a mortgage on the place when Arnold died, and that he let it rock аlong and sell and bought it in himself.” He has held possession of the lands from the death of Arnold in 1896 to January, 1908, and collected from $40 to $70 a year rent, and he has never charged himself as guardian therewith nor accounted therefor.

“The doctrine as to purchases by trustees, guardians, administrators and pеrsons having a confidential character arises from the relation between the parties, and not from the circumstance that they have power to control the sale. The right to set aside the sale does not depend on its fairness or unfairness. To set aside the purchase it is not nеcessary to show that it is actually fraudulent or advantageous. If the trustee or other person having a confidential character can buy in аn honest case, he may in a case having that appearance, but which may be grossly otherwise;'and yet the power of the court, because of the infirmity of human testimony, would not be equal to detect the deception. It is to guard against this uncertainty and the hazard of abuse and to rеmove the trustee and other persons having confidential relations from temptation that the rule does and will permit the cestui, que trust or other рerson to come at his option and, without showing actual injury or fraud, have the sale set aside.” Hindman v. O’Connor, 54 Ark. 640, and cases ci*ed.

W. J. Montgomery comes within this rule, and appellant is entitled to an accounting for rents and profits; and if M. R. Armstrong purchased with knowledge of the conditions and relation, he is in no better positiоn than his vendor. Was he an innocent purchaser? He knew that Montgomery was guardian of plaintiff, that the relation was still in existence, and the accounts not closed; that she had lived at his home as a member of his family from early infancy, and was under his influence; that she inherited■ this land from her father; that it hаd been sold since Montgomery’s appointment as guardian; that the title to same was held by another for him, and he had been in possession since his аppointment as guardian; required the order of removal of the disability of the ward and a conveyance from her before purchasing, as Mоntgomery says, and examined the papers and record of it before paying any of the purchase price; knew that the order of court was procured through Montgomery’s influence over his ward and the conveyance thereunder without consideration to the minor, and that she would have no benefit from the purchase money he was to pay. He can not be regarded an innocent purchaser. Clay Sloan, who loanеd the $500, to secure which a deed of trust conveying these lands to A. J. Witt as trustee was made, appears from the evidence to be entitled to рrotection as an innocent purchaser or mortgagee. Since the cancellation of the deeds would not effect the proper relief, the lands will be charged with a trust in the hands of M. R. Armstrong for the benefit of appellant, and the securities marshaled, and all the other lands in the sаid Clay Sloan mortgage sold, and the proceeds applied to its discharge, before these lands can be resorted to under said mortgage; and, if it shall not thereby be paid in full, then ap-^ pellant shall have the right to redeem upon payment of the balance.

The case is reversed, with directions to render a decree in accordance with this opinion, and for such other proceedings as are necessary and in accordance with law.