Marshall v. Gustin

Lead Opinion

BENSON, J. —

Defendant urges that the demurrer should have been sustained upon two grounds: (1) That it appears upon the face of the complaint that the statute of limitations has run against the claims of both plaintiffs; and (2) that the facts alleged do not disclose a case calling for the interposition of a court of equity.

1. As to the first of these, it is sufficient to say that no demurrer was interposed upon that ground, and it cannot now be considered: Portland v. Coffey, 67 Or. 507 (135 Pac. 358).

2. As to the second contention it may be remarked that from the complaint it appears, at least inferentially, that the defendant was holding the real estate described therein as guardian of plaintiffs at the time of the transfer of the land to her. Such a trust relation existing between the parties creates a condition calling'for the exercise of equitable jurisdiction and although the court might not be able to grant the specific relief prayed for, it would be justified in following the trust property or its proceeds for the relief of the cestui que trust. "We must therefore hold that the complaint is not vulnerable to a demurrer upon this ground.

3. A careful examination of the evidence discloses the following facts: The father of plaintiffs died, leaving an estate consisting of seventy-five acres of land in Clarke County, Washington, and a. life insurance policy in Portland, upon which was collected the sum of $1,904.85. The County Court of Multnomah County appointed defendant guardian of the minor children, including plaintiffs, and of the personal estate just referred to. The estate in Washington was administered, but there is no evidence that any guardian or trustee was ever appointed to manage it. There is no question as to the integrity and propriety of defendant’s care of the children and of the funds which came into her hands as guardian.- On September 18, 1909, plaintiff George Amos Marshall conveyed his one-eighth interest in the land to defendant, and in September, 1911, Lavina Marshall conveyed his one-eighth interest to defendant, the expressed consideration in the deeds being $170 and $68 respectively. Bach of the plaintiffs was twenty years old when he made his conveyance. Thereafter, having acquired by purchase the interests of the other heirs, defendant sold the land in connection with an adjacent 160 acre tract of which she was the owner, for the expressed consideration of $8,812.50, receiving a partial payment in cash and, for the balance, accepting two notes for the aggregate sum of $6,412.50, secured by a mortgage upon the land. The testimony is very largely directed to the relative values of the 75 acre tract and the 160 acre tract which were sold as one at the rate of $37.50 per acre. It is not necessary to consider this evidence since under the pleadings and the facts already stated it sufficiently appears that the plaintiffs have not made a case calling for the interposition of a court of equity. It is true that the prayer asks that the defendant be declared a trustee of their interests in the profits arising from the sale of the land by defendant, but they can have no interest in such profits unless they were part owners of the land at the time of such sale, which, according to their allegations, they were not. It must be remembered that they are not seeking a rescission of their contracts, or a cancellation of their deeds, but simply to recover the difference between the price received by them and the true value of the property and for this relief they have a complete remedy at law. When a party has been induced by fraud and deceit to part with his property for an inadequate consideration he has his election of two remedies: He may affirm the transaction and have his action for damages, or he may repudiate the bargain and call upon a court of equity to aid him in placing the parties in the position they occupied before the deal was consummated, but he cannot have both remedies.

It is evident from the decree itself that the trial court found no ground for equitable interference, since a money judgment is all that was allowed and, in that event, the money judgmént could not under any view of the matter be sustained. In the ease of Oregon-Wash. R. & N. Co. v. Reed, decided December 27,1917, not yet reported, this court through Mr. Justice Moore says:

“This being so, the element of damages which the defendants may have sustained is necessarily eliminated, for the right to recover such compensation in a suit must depend upon some equity which enables the court to secure and retain jurisdiction of the subject matter, and as an incident thereof to award the damages inflicted.”

In Zinn v. Zinn, 54 W. Va. 483 (46 S. E. 202), the same doctrine is thus expressed:

“All that plaintiff has any claim to whatever is the oil royalties and gas rentals reserved in the lease of Preston G. Zinn, and all he claims by his bill is these oil royalties. This is mere pecuniary demand for the royalties already received by plaintiff and is not maintainable under the alleged heads of equitable jurisdiction.”

We do not wish to be understood as holding that in a proper case a court of equity will not exert its power where a trustee has violated the conditions of his trust or has acted in bad faith in the execution thereof. However, when the facts proven and the relief sought justify nothing further than pecuniary recompense for the wrong, there is nothing upon which equitable jurisdiction can base its action.

The decree must be reversed and one entered here dismissing the suit, without prejudice.

Reversed. Suit Dismissed.

Mr. Chiee Justice McBride, Mr. Justice Bean and Mr. Justice Harris concur.

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Dissenting Opinion

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 estates 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 courts 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.

In 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; not 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 converted 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.

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Rehearing

Former opinion adhered to June 4, 1918.

On Rehearing.

(173 Pac. 461.)

Mr. Guy G. E. Corliss, Mr. Martin W. Eawkins and Mr. Edioard J. Brasell, for the respondents (applicants for rehearing), with an oral argument by Mr. Corliss.

Mr. Henry S. Westbrook and Messrs. Ghristopherson & Matthews, contra, with an oral argument by Mr. Henry 8. Westbrook.

In Banc.

McBBIDE, C. J. —

Í. The able petition for rehearing herein created some doubt in the mind of the court as to the soundness of the original opinion concerning the jurisdiction of equity in the premises. Upon a careful review of the authorities and a consideration of the testimony we are satisfied that the result arrived at by Justice Benson is correct.

The crucial point in the case is stated by Justice Benson as follows:

“It must be remembered that they are not seeking a rescission of their contracts, or a cancellation of their deeds, but simply to recover the difference between the price received by them and the true value of the property, and for this relief they have a complete remedy at law. When a party has been induced by fraud and deceit to part with his property for an inadequate consideration, he has his election of two remedies; he may affirm the transaction and have his action for damages, or he may repudiate the bargain and call upon a court of equity to aid him in placing the parties in the position they occupied before the deal was consummated, but he cannot have both remedies.”

The application of this doctrine here is this: The plaintiffs waive minority as a substantive cause of suit. They do not ask to have the sale set aside or the contract rescinded. Having arrived at majority they had, upon discovery of the alleged fraud, a right to have the deeds set aside and their lands returned to them. But they chose to affirm the sale and thereby stand in the same position as though they had been of full age. This being true their remaining remedy was by an action at law to damages for the alleged deceit. There is nothing in the case that calls for an intricate accounting or for any investigation that a jury cannot make readily. The price paid plaintiffs for their shares is easily ascertained; the price paid to defendant is admitted and the measure of damages is the difference between the net price paid to plaintiffs and the price received by defendant from her grantee. There is no pretense that the mortgage is worth less than its face. On the contrary the tendency of plaintiffs^ evidence is to show that it is ample security for the balance due. There is no pleading or proof that defendant is or is likely to become insolvent, so that with the sale affirmed and the right of rescission waived by the plaintiffs, there is left to them a plain, speedy and adequate remedy at law for damages for the alleged deceit, in which defendant can have the benefit of a jury trial.

We adhere to our former opinion.

Former Opinion Approved. Decree Reversed.

Bean, J., dissents.

Case Details

Case Name: Marshall v. Gustin

Court Name: Oregon Supreme Court

Date Published: Jan 22, 1918

Citation: 170 P. 312

Court Abbreviation: Or.