Boyd v. Hawkins

Full title: RICHARD BOYD ET AL. v. JOHN D. HAWKINS ET AL

Court: Supreme Court of North Carolina

Date published: Dec 1, 1832

17 N.C. 195 (N.C. 1832)

Opinion

(December Term, 1832.)

1. Where one, who had become surety for an insolvent person, was, in order to obtain forbearance, compelled to convey his estate as a security for the debt, to a trustee nominated by the creditor, who also became assignee of the effects of the principal debtor to secure the surety, it was held that a subsequent agreement, whereby the surety gave the trustee one-fourth of the principal debt, as a compensation for managing it, was invalid.

2. To prevent frauds, courts of equity do not permit trustees to purchase the trust estate at their own sales.

3. The rule also forbids a trustee from purchasing for his own benefit an encumbrance on the trust estate.

4. And it extends to all persons standing in a fiduciary relation to the estate.

5. Bargains between trustee and cestui que trust are not void; but they are viewed with great jealousy.

6. If they result from the annexation, they cannot be sustained.

7. If a sale by cestui que trust to trustee be the effect of the unbiased judgment of the former, it must appear how this judgment was produced, and whether by pecuniary distress of which the trustee availed himself.

8. A sale by the cestui que trust to the trustee, made while the connection existed, the consideration of which was a discharge of duty by the trustee, cannot be supported.

9. Especially where the trustee was one for sale, imposed upon the cestui que trust by his creditor, having all the influence of the latter.

10. And where the cestui que trust was ignorant of the value of the estate sold in distress, and confided in the friendship of the trustee.

11. In this State trustees are entitled to nothing but their expenses.

12. A stipulation for compensation made when the relation was contracted will be supported unless the trustee be one for sale, nominated by the creditor.

13. If subsequently arranged, it is only evidence that gratuitous services were not intended, and will not be regarded as a measure for its allowance.

14. The purchase by a trustee of an encumbrance upon the trust estate enures to the benefit of cestui que trust, and a sale of one-fourth of the estate in consideration that the trustee will surrender the judgment is made by cestui que trust in ignorance of his right.

15. And such a sale made when the cestui que trust was in pecuniary distress, fearful of the sinister influence of the trustee, and under mistaken estimates of his services, cannot be supported.

16. And a subsequent deed will not help it, unless the cestui que trust knew that the first was invalid, and intended the second as a confirmation.

17. Where a deed is pleaded, or only stated in the answer as a bar to the relief, without having been mentioned in the bill, the replication puts only its execution in issue, and it cannot be impeached by proof of collateral facts.

18. But it is otherwise where the deed, with all its attending circumstances, is set forth in the answer, and is made the foundation of a charge against the plaintiff.

19. At the hearing a deed thus brought forward is not decreed to be canceled, because relief of that kind is not sought, not because it was not in issue.

THE bill charged that on 2 July, 1824, the complainant Boyd, being largely indebted (about $34,000) to the State Bank of North Carolina, as surety for his brother, Alexander Boyd, did, for the purpose of obtaining forbearance, and also securing the payment of that debt, convey to the defendants Hawkins and Robards, as trustees, eighty slaves and sundry large tracts of land, including one on the Roanoke in Warren County, containing 4,000 acres; that he had since paid the debts and received a discharge from the bank, and a declaration to that effect to the trustees, and had requested a reconveyance according to the terms of the deed, but that the defendant Hawkins alleged that the plaintiff was indebted to him for compensation for services rendered under the deed, and advances made in discharge of the debts, and refused to convey, but had in his name and that of his cotrustee advertised the Warren land for sale, and instituted an action of detinue for the slaves. The bill denied any debt from the plaintiff to Hawkins, and (196) averred a willingness to make a reasonable allowance for his services or by way of commissions (for which there was a provision in the deed, the amount to be determined by the bank,) and insisted that Hawkins was largely indebted to Boyd upon his transactions as trustee in another deed, executed on the same day, and for the same purposes as the former, for certain property in Virginia, for the settlement of which a bill had been filed by Boyd in a court of chancery in that state; that Hawkins put in an answer to that bill, insisting upon sundry demands arising to him upon this last deed, and also for services rendered touching the estates in North Carolina, conveyed by the deed first mentioned. The bill then stated a subsequent mortgage by Boyd to the other plaintiffs, Thornton and Davidson. The bank and the trustees were made defendants, and a reconveyance prayed, and in the meantime an injunction against the sale and action at law, and general relief.

Attorney-General and Devereux for plaintiff.

Gaston, Badger, and W. H. Haywood for defendant.

The answer of the bank admitted the payment of the debt, and submitted to a reconveyance, but not so as to interfere with any just claims the trustees might have against the estates.

The defendant Robards, in his answer, set up no claim on his own behalf, and admitted that it was understood when the deeds were signed that he was not to be active in the execution of the trusts, which were expected to be very troublesome, particularly in relation to the property in Virginia, but that the defendant Hawkins was to undertake the sole management of it; that he did manage it successfully, and at much risk and trouble, and greatly to the advantage of Boyd in many particulars, which were mentioned in the answer of Hawkins himself.

That answer, upon which arose all the material questions in the cause, stated that Alexander Boyd, of Mecklenburg County in Virginia, owed the large debts for which his brother, the plaintiff Richard was surety, to the State Bank, and also a further debt of about $9,000 to Richard himself; and that becoming entirely insolvent, he (Alexander) (197) conveyed by deed of trust to one Rainny and others, on 11 June, 1824, as a security to Richard Boyd, a very large estate consisting of many tracts of land in that county, about 140 slaves, the crops growing on sundry plantations, besides his stock, plantation wagons, tools, etc., that he had before conveyed to Henry Fitts of Warren County, as a counter security for Richard Boyd's endorsements, several tracts of land and other property in this State. It further stated that the bank had a considerable part of its debt in judgment, and was about proceeding to a sale of R. Boyd's estate in Warren, and that such was the prospect of his distress from those and other debts which he owed, and the small sum which he expected to realize from Alexander Boyd's conveyances, in consequence of previous encumbrances, that Richard Boyd himself apprehended insolvency, which it was generally supposed would be the case in the winding up; that it was of the last consequence to him to gain indulgence, and also to have his claims under A. Boyd's assignment vigilantly attended to and pressed, and that the bank would not forbear unless he made deed of trust to persons in whom the directors had confidence; that application was made to him (Hawkins) by Boyd and his friends, but he declined because he was aware, from the nature of the business, that it would occupy much of his time and take his attention from his own affairs, and also because he doubted Boyd's integrity from previous transactions, upon which a difference had arisen between them; but that at length, upon a second application urgently made, he gave his assent, being the brother-in-law of R. Boyd, and wishing to serve him, as he seemed greatly distressed by his embarrassments and impending ruin; that the parties came to Raleigh, and the deed mentioned in the bill was executed; that but little was then expected by the bank or R. Boyd to be received under the assignments of A. Boyd, but that the president of the bank, after the execution of the former deed, proposed that R. Boyd should transfer, the benefit thereof to the same trustee, for the same purposes, which was immediately done; that (198) Hawkins was to take on himself the active part of the trusts which all parties expected to be difficult, perplexing, and troublesome, and probably leading to much litigation; that he proposed to the bank to give him the liberty of drawing for money to discharge other encumbrances, but was refused, unless he would become personally responsible, because the debt was considered as large as could be safely trusted upon the personal security of Boyd, or that of his property conveyed, which was all, or nearly all, he had. The answer further stated that all the property conveyed to Fitts by A. Boyd had been sold under executions, and could only be recovered by suits; and Boyd engaged the defendant to recover that, also; that R. Boyd himself was indebted to other persons in several sums mentioned, amounting to $6,000, for which there were judgments or deeds of trust, on which sales were threatened, as he had no funds, and was incapable of action himself, or had given over exertion in despair. It was further stated that Alexander Boyd owed a debt to one B. Burwell of about $20,000, for securing which there was a deed of trust for about ninety of the slaves mentioned in the deed to Rainny and others; that he was indebted to others by judgments in Virginia, on which executions had been sued, having a lien prior to the deed of 11 June, and amongst them one in favor of Thomas Brown, for about $8,000 and interest, which appeared from an exhibit to have been against R. Boyd. The answer proceeded that on 4 July the defendant heard that the executions of Brown and others, to the amount of $10,000, were levied on the slaves, work horses, and other effects, on the plantations, and that sales would be force, which would prove destructive to the growing crops and ruinous to R. Boyd; that he went over to Mecklenburg, and urged the trustees there to assert their right, but found they could do nothing, because the executions had the preference; that the slaves conveyed for the security of Burwell were also advertised to be sold, and if the sales had then been made the executions alone would not have been satisfied; that R. Boyd, who went to Virginia with the defendant, returned and left him there to contest the matter; that (199) he proposed to Rainny and the other trustees in the deed of 11 June to assign their legal title to him (Hawkins), to which the two Boyds assented, and the conveyance was made on 8 July; that in this state of things, for the purpose of averting an immediate sale, he purchased from Brown, on 11 July, his judgment, and took an assignment to his own use, by giving his own bond for the amount; that this purchase was made without consultation with Boyd, and being without any understanding for an indemnity, or any funds in hand belonging either to Boyd or the trust, and when Boyd was believed to be insolvent, it was founded exclusively upon his own responsibility, and enured to his advantage; that under the executions a sale was made, at which Hawkins, acting by R. Boyd as his agent, purchased nearly all the property, to the amount of about $9,000; that he refused to deliver the negroes conveyed to Burwell until the crops were finished, and with those and his own purchases he did finish the crops, after guaranteeing to the overseers their wages; that he then surrendered the negroes to Burwell, for which he had a deed, and that the property bought at execution sale and the crops, upon a resale afterwards made, produced the sum of $17,855.94, besides a quantity retained by Boyd, and never resold, to the value of $4,257.99, making together $22,113.93.

The defendant insisted that as the judgment was his, and the purchases his, he was entitled exclusively to all the profit, but admitted that he told R. Boyd that although he had not acted as trustee in the purchases, he did not mean to speculate on his difficulties, for which great gratitude was expressed. It was further stated that R. Boyd owed large debts to several persons, secured by deeds of trust or judgments, among which was one to Fitts for $2,100, one to Palmer for $4,200, and one to Cannon for $800, and that Boyd was wholly unable to meet them, and made no effort to do so; that the last was satisfied by a bond of Boyd, with Hawkins as his surety; the first by a sale of one of the tracts of land (200) conveyed in the deed of 2 July, and a new bond of Boyd, with Hawkins as his surety; and that to Palmer by a sale of another tract of land conveyed in the same deed, which was not worth more than $1,500, but was taken in full satisfaction of the debt, from the apprehension of Boyd's insolvency; that these responsibilities were dangerous in the situation of Boyd, at that time, before any part of the debt to the bank was paid, and made it necessary for him to indemnify the other trustee before he would join in conveying to the purchasers. The answer then proceeded that R. Boyd, being impressed with the value of the defendant's services rendered, and those to be rendered, which would for a long time cause the neglect of his own affairs, and especially in consideration that the defendant, after making the profitable speculation on Brown's judgment, had voluntarily given him the benefit of it, offered, without persuasion and with a full knowledge of all the premises, to give to the defendant one-half of all the estates, real and personal, which had been or might be secured from Alexander Boyd's property, that the defendant refused that offer, but that afterwards, on 13 September, 1824, the plaintiff Boyd, after free consultation with his own friends, and in the absence of the defendant, executed and then delivered to Hawkins a deed, which was exhibited, and which secured to Hawkins one-fourth part of those estates of every kind, thereby adding the inducement of interest to excite the defendant to the greater activity; that Boyd never had pretended to the defendant, personally, that he was in any manner deceived in the execution of the instrument, for he well knew that he had often offered more, and that under all the circumstances it was not more than adequate, and that he confirmed it by another deed on 28 October following, which was also exhibited. That the defendant, although entitled to retain one-fourth as the funds came in hand, yet, as R. Boyd was pressed by the bank debt, had applied all its receipts to its satisfaction, and in so doing advanced what was his own, without even fully satisfying the bond debt of Brown, on which there was a balance due of $1,946.39. The answer (201) proceeded to specify the lands and their value, amount of debts and effects obtained from A. Boyd, besides the chattels covered by the before-mentioned executions, which amounted to the sum of $17,950 in value; of which the defendant claimed one-fourth, being an amount realized from the assignments of A. Boyd of $35,805.94, although it was deemed worthless when the defendant's trust commenced. It was further stated that the defendant afterwards essentially served R. Boyd in effecting sales of portions of his lands in North Carolina, by which he was enabled to discharge his debts and save all his negroes, and one-half of his manor plantation, worth $25,000, although Boyd himself, in his distresses, had offered to take $30,000 for the whole, which Hawkins refused to ratify, because he considered it far below the value, and believed he could himself get much more; that in making that sale and others, he was obliged to indemnify his cotrustee, and also became responsible to other encumbrancers for sums which had since been discharged by Boyd or out of the trust funds. The answer proceeded to state that after R. Boyd's affairs were thus rendered prosperous, a difference arose between him and the defendant about the claims of the latter for commissions, advancs [advances], etc., and that the defendant rendered an account and demanded a balance of $8,494.34 1/2, which Boyd refused to pay, and that the defendant advertised the sale, and brought the suit as charged in the bill, for the purpose of satisfying himself. The answer admitted the pendency of the suit in Virginia, in which the transactions in this State were embraced; but the defendant averred that he was not restrained by any order therein from asserting his demands in this State, and insisted that the pendency of a suit in another state could not affect the jurisdiction here, between citizens of this State, and claimed the right of making a full defense and setting up all his demands. The answer further stated that the first deed of 2 July contained a clause allowing the trustees a reasonable compensation, and that it was omitted in the other by accident, or because the interest was then thought too inconsiderable to require a stipulation. It was further stated (202) that the defendant was prosecuting an action of ejectment in Warren against William Hunt and John C. Goode for a valuable tract of land which those persons had purchased under execution, as the estate of Alexander Boyd, and which had been conveyed as before mentioned, by A. Boyd to Fitts as trustee for R. Boyd, of which, if recovered, the defendant also claimed one-fourth. The expenses of prosecuting this suit were charged in the general account against R. Boyd. The whole concluded by insisting that the defendant's attention had been faithfully bestowed for several years on the business of R. Boyd, to the injury of his own fortune; that he was entitled to liberal compensation; that the agreement for it was freely and fairly made and that such an agreement to buy his efforts ought, upon their success, to be fully executed. To the answer were annexed detailed accounts, showing the plaintiff Boyd to be the debtor of the defendant for about the sum above mentioned, if the defendant was allowed credit for a share of the proceeds of A. Boyd's estate; but if he was not so allowed the balance was on the other side; and also a list of R. Boyd's debts for his brother and on his own account, which in July, 1824, amounted to $59,439. A general replication was put into the answers.

There were numerous exhibits, among them the executions in Virginia, on which the sheriff had frequent sales from 27 August to 20 September, 1824, of which the principal ones were on 13 and 15 of the latter month. The deed of 13 September was in the following words:

"The undersigned, R. Boyd, is bound to the State Bank of North Carolina, as security for his brother, Alexander Boyd, to the amount of $32,600, or thereabouts, and Alexander Boyd, is indebted, beside, to Richard Boyd nearly $9,000 individually; and to secure said Richard Boyd from the aforesaid bank debt, as well as to pay him his private debt as aforesaid, Alexander Boyd has consented that a conveyance be made to John D. Hawkins and his heirs in trust, and who is the assignee (by the consent of the parties concerned) of Philip Rainny and others, the original trustees, of sundry property, including the growing crops, etc., as will better appear by referring to the deeds themselves of record (203) in Mecklenburg County. And whereas, by virtue of an execution at the instance of Thomas Brown, of Granville County, North Carolina, of $8,000 or thereabouts, the negroes as well as other property of Alexander Boyd were taken by the sheriff of Mecklenburg into his custody to pay said Brown's debt, which would have destroyed the crops of the said Alexander Boyd, and been attended with great expense beside, in keeping the property at the sheriff's house and injury to said Richard Boyd, for whose benefit said property was conveyed. And whereas John D. Hawkins, in order to benefit said Richard Boyd, purchased said Judgment and execution, and had the property to remain upon the plantations, but at the said Boyd's risk, to advance the interest of the crops for the benefit of the said Richard Boyd; and whereas said Hawkins has moreover, by his timely advances and exertions, in other respects prevented said Richard Boyd's own estate from being sacrificed by R. H. J., who was about to sell as trustee, for the benefit of Henry Fitts; and whereas said Hawkins has been at unusual trouble and disadvantage in protecting the rights, credit, and property of Alexander Boyd for the benefit of said Richard Boyd, and also about the said Richard Boyd's property generally, which was vitally exposed; and whereas Alexander Boyd conveyed by deed to Henry Fitts, in trust for the benefit of Richard Boyd and Francis A. Thornton, to secure the payment of the aforesaid debts to the bank, and to Richard Boyd, a variety of property, as will appear by reference to said deed of record in the county of Warren, North Carolina; and Henry Fitts, by the consent of the parties, has assigned his powers, rights, and authority under the deed to John D. Hawkins and his heirs, also in trust for the same purpose; and inasmuch as the execution of this latter trust will involve much litigation and trouble, all the property conveyed by it having been sold by execution, and all the other property is more or less liable to legal difficulties and expense, which expense in all cases respecting the property in question, and the business attending it, said Richard Boyd is to pay: Now, in consideration of the premises and as well as that said John D. Hawkins is yet to be at much trouble in executing the premises, I, Richard Boyd, do hereby promise and agree to give said Hawkins 25 per cent upon all the proceeds of the sales of said Alexander Boyd's property which has been sold, and shall again be sold, and upon all sales hereafter to be made for the benefit and protection of said Richard Boyd, to satisfy said bank debt, and said Richard Boyd's private claims as aforesaid; and said Hawkins, as trustee as aforesaid, is hereby authorized to retain accordingly, for compensation, in his own hands. In witness, etc."

Two other agreements between R. Boyd and Hawkins were also exhibited by the latter, dated 25 October, and the other 7 December, 1824, whereby it was agreed that all the property bought by R. (204) Boyd as agent of Hawkins under the executions, and certain other of the estates of A. Boyd which had been bought in, should be resold to the best advantage by Hawkins for the purpose of paying the debt to Brown, and then giving Boyd the surplus for the payment of his debt to the bank, Boyd being responsible for the forthcoming of the property for a resale.

There were many depositions which are not material to the points on which the case was decided, except three. One of them was that of J. W. Hawkins, the brother-in-law of Boyd and the brother of the defendant, taken by the latter, who proved Boyd's extreme distress upon the failure of his brother Alexander, and his expectation of being reduced to utter poverty; that he was extremely anxious to gain the favor and the services of the defendant, and entreated the witness to intercede for him, and that Boyd's situation and wishes were, by the witness, made known to the defendant, who was ultimately prevailed on to undertake the trust. This witness saw Boyd upon his return from his first visit with Hawkins to Mecklenburg, and learned from him that he had fled to avoid being put in jail by his cosureties for the debt to Brown, and advised him to return; but he said he would not, for he thought nothing could be made of the wreck of Alexander Boyd's estate, and that he could be of no service, but would leave it to the defendant; that he further said that he did not know what to do, for he could not go home, because a ca. sa. against him was in the hands of the sheriff of his own county. At a sale of A. Boyd's property, at a plantation called Davis's (which the return of the sheriff on Brown's execution showed was on 1 September), R. Boyd told the witness that his prospects brightened, and that the defendant would save him much more than he had expected, and talked of a resale. The witness said that as he knew everything rested on the defendant Hawkins, he inquired the terms on which he was to manage the business, to which Boyd replied that he should have his own asking, if it were half, for he could not do without him, and readily agreed, upon the suggestion that (205) half was too much, to give one-fourth. He shortly afterwards heard Boyd say that A. Boyd's property would yield but little; that he had come to the determination to give up all chances of gain from it to the defendant, and, after satisfying some executions, sell his own property, and particularly his land, at $25,000, pay his debts, and move away. This witness further proved that the defendant was engaged the greater part of his time, until the latter part of 1826, in the execution of the trust, and that R. Boyd declared his own embarrassments to be such that he gave up the entire management to the defendant, whose exertions had saved him from bankruptcy.

The second deposition was that of P. R. Burwell, of Virginia, who stated that the defendant had told him that he had reconciled an old difference with R. Boyd, and had agreed to manage his affairs, as he viewed him to be incompetent and almost deranged, and that A. Boyd's other creditors must not blame him for anything he did, as he acted without fee or reward. The witness replied that it was surmised otherwise, and that his object was said to be to get Boyd in bonds, and secure to himself all the advantages of the wreck of A. Boyd's property; which the defendant desired him to contradict, as he intended to make no charge, except for his expenses.

The deposition of Mr. Young, the subscribing witness to the deed of 13 September, stated that R. Boyd brought the agreement to him, in the courthouse yard at Mecklenburg, already signed, and requested him to witness it, which he did, and that Boyd seemed not to be dissatisfied with it, and although in private, expressed no reluctance in executing it, but seemed to do it freely. No particulars of the conversation were given.

The agreement was admitted to have been drawn up by Hawkins himself, and appeared, from the ink, to have been written at a different time from that of its execution. It was also admitted that Mr. Young married the daughter of Hawkins and the niece of Boyd.

Upon the coming in of the answers, an order was made for a dissolution of the injunction unless the plaintiff should pay certain sums alleged to be due to Brown, for which Hawkins continued responsible; and under that order he paid into court the sum of (206) $1,930.48 on 19 May, 1829, and $79.67 on 8 July, 1829.

By an order in the cause, the master was directed to take an account of all the transactions, upon the trusts in both states, and of Hawkins' responsibilities for Boyd. A report was made, in which the master allowed the defendant Hawkins the full benefit of the agreement of 13 September, and also the sum of $782.77 by way of commissions at 3 per cent on the sales of property in this State, and payments made to the bank. The effect was to give to Hawkins, for the execution of all the trusts, including interest, the sum of $10,036.10, and to leave a balance due to him of $7,026.03. All the expenses of every kind, including those of finishing the crops and getting them to market, and of lawsuits, amounting to about $2,500, were charged to Boyd; as was also the sums paid on the debt to Brown. So that the fourth part assigned to Hawkins was of the gross proceeds on a resale, or of the value of such parts as had not been resold, of all the estates obtained under the assignment of A. Boyd. If the claim of the defendant Hawkins under the deed of September 13 was not sustained, then by the accounts stated by the master he would have in his hands the sum of $2,505.16 as a balance for receipts on resales of the property bought under the executions, and the crops in Virginia, after allowing all expenses and payments thereout to the bank and others on account of R. Boyd, and also the further sum of $400 for the price of negro Patty, and a surcharge in account, making, together, the sum of $2,905.16, besides interest thereon, due to R. Boyd. This did not include the sums paid under the interlocutory order, because they went in satisfaction of the balance due to Brown, which balance the master had nowhere charged in the accounts to the plaintiff.

To the report the defendant Hawkins excepted because the allowance of $782.77 as a commission of 3 per cent on the payment to the bank was too small. The plaintiff also took numerous exceptions, the first of which was against any allowance of credits to Hawkins (207) founded upon the deed of 13 September, and the others because, if any should be made, the allowances were too large, and extended to property to which it was contended the deed did not relate.

RUFFIN, J., after stating the case:

From the shape of the pleadings in this case the principal question arises upon the first exception of the plaintiff's to the master's report. That question is as to the validity of the deed of 13 September, 1824, which is brought forward in the answer of the defendant Hawkins.

The well established principle of equity, which has been repeatedly recognized by the courts of this State, is that a trustee cannot purchase the trust property, directly or indirectly, at a sale made by himself, either privately or by auction. It is founded on the notion that it exposes him to temptation and the cestui que trust to imposition. Although no actual fraud be proved, the contract is invalid by reason of the danger of fraud. The same policy forbids a trustee from dealing in encumbrances on the trust estates. His situation opens sources of information to him of the value of the estate, the necessities of his cestui que trust, and his capacity for encountering difficulties and clearing away the encumbrances, or his disposition to submit to hard terms for obtaining indulgence, or making satisfaction of them. Besides, most commonly, the trustee has in his own hands the funds out of which they are to be satisfied, and the profit which is made on such purchases should enure to the owner of the fund, which in fact causes the gain. A familiar instance of this is the purchase of a debt of the testator by the executor. He can hold it as a security only for what he paid; and this as well against (208) creditors as legatees. This principle has been extended to every case which comes within the reason of it, and to all persons standing in a confidential relation to the fund. He who by contract, or the course of this Court, is charged with the interests of others, and therefore bound to protect and advance them as far as he honestly can, shall not be allowed to speculate either upon those interests or in anything else at their expense. Hence, solicitors, agents, stewards, and guardians, as being in the nature of trustees, are forbidden, as well as executors and express trustees, from buying the estate, or buying for their own benefit any charge upon it. This doctrine is so well settled as to need no reference to authority.

The prohibition of the trustee to purchase from the cestui que trust himself is not found to be so absolute. There are cases in which contracts between them have been supported. But the same danger that has induced courts to declare transactions of the nature just mentioned to be void has imposed restrictions upon the power of contracting with the cestui que trust which, in effect, almost extinguishes it. Bargains between them are viewed with anxious jealousy. It must appear that the relation has ceased, at least that all necessity for activity in the trust has terminated, so that the trustee and cestui que trust are two persons, each at liberty, without the concurrence of the other, to consult his own interest, and capable of vindicating it; or that there was a contract definitely made, the terms and effect of which were clearly understood, and that there was no fraud or misapprehension, and no advantage taken by the trustee of the distresses or ignorance of the other party. The purchase must also be fair and reasonable. Coles v. Trecotrick, 9 Ves., 246; Fox v. Macreath, 2 Bro. C., 400. These cases are not allowed to turn on nice inquiries whether it might not possibly be for the benefit of the cestui que trust to make that particular contract rather than none at all; but when there is a fair judicial doubt, as some of the cases express it, whether the trustee has not availed himself of his confidential situation to obtain selfish advantages, the contract cannot stand. Ormond v. Hutchinson, 16 Ves., 107. In other cases the chancellors have (209) said that the trustee must show demonstratively that he had given the cestui que trust the advice he ought, were a third person in treaty; that he dealt with himself as he would with a third person, and did not take a bargain which he would not have advised his cestui que trust to make with another, or it cannot be supported. Dunbar v. Tredennick, 2 Ball. Beat., 314. Were it to appear that the transaction was the effect of the free and uninfluenced judgment of the principal or cestui que trust, with a perfect knowledge of all the circumstances and consequences, gained from the communications of the agent, yet it will remain to inquire how that judgment and intention were produced, and whether it was not the effect of pecuniary necessity, of the knowledge of which the trustee was availing himself. Hugonin v. Basely, 14 Ves., 300. When it is said, therefore, that a contract between the trustee and cestui que trust is not per se void, but may be made under these restrictions, it is hardly taking a step; for it is requiring us to change our natures. It is telling a man that he must go out of himself, and in making a bargain must gain nothing, which amounts nearly to a total prohibition. Yet less would certainly not do, for it would leave the helpless a prey to those whose duty it was to protect them.

There will, with the aid of these authorities, be little hesitation in the mind of any how the Court is obliged to deal with the contract in question. The defendant, by the deed 2 July, became the assignee for Richard Boyd of the security created for him by his brother in the deed to Rainny of 11 June preceding. On 8 July, upon the defendant's own proposition, he was also invested with the legal title in those estate, by a deed from Rainny in which the Boyds joined. He says he accepted this last trust because R. Boyd was altogether unable to manage his own interests, had no credit, and had left the county of Mecklenburg, or, as J. H. Hawkins proves, had fled in dismay, and because great energy was required to conduct it, which the original trustees would not (210) exert. Hawkins then understood perfectly, when he assumed this relation to the plaintiff, the nature of the task he imposed on him self; and, indeed, the vast importance to Boyd of a correct discharge of them formed, he says, his inducement. When the agreement of 13 September was entered into, those functions had not been performed; they were in the height of their execution. The answer itself states that the object of Boyd in executing it was to add the inducement of interest to excite the defendant to greater activity; in another part, to buy his efforts. No price is given by Hawkins but those efforts; none else pretended in the deed itself, throughout its long recital, except the purchase of Brown's judgment. So far, then, was this contract for one-fourth of the trust fund from being made by a trustee, after the trust had been executed, or who had in this purchase divested himself of the character of trustee, that the purpose and consideration of it was to get the trustee to go on and execute the trusts undertaken by him. Can a court of justice permit a man who has become a trustee, and in that character caused various other conveyances to be made to him, so that the titles to very large estates, and all the estates of his cestui que trust, are concentered in him and within his power, then to say to his cestui que trust, You shall give me a fourth part of the whole, or I will proceed no farther? But this is not an ordinary trust, where the whole interest was in Boyd, so that he might call upon Hawkins to convey to him or to another trustee; it was not a nominal estate for the use of Boyd merely. Hawkins was not only Boyd's trustee, but that of the bank also, and charged with its interest, and Boyd could not remove him without a dilatory litigation, which would have exposed him to ruin. Can such a trustee avail himself of his advantages of trustee, and superadd thereto the powers and influence of the creditor, and demand such a conveyance as the price of his aid, either in the way of services or of mercy? Can it be permitted that a trustee should derive any benefit from such a conveyance, made by his cestui que trust in distress, embarrassed, (211) incompetent to business, apprehensive of the great loss, and of eventual insolvency, when he was confiding in the friendship and ability of the trustee — and, moreover, ignorant of the value of what he was giving? If it could be sustained, there are no checks worth regarding to the unlimited demands of those who have the care of others' affairs, even should their situation also give them power over them. The value of these estates, as claimed by the defendant, was in truth near $40,000; they realized that sum in about two years. Did Boyd have any just information upon that subject? So little did he know, or so incapable was he of judging, that the defendant himself says it was much doubted by Boyd whether they were worth pursuing; and at one time he told J. W. Hawkins he would give all up and rely on his own estate; and at another, expressed great expectations. Such was the state of his mind that it is obvious he threw himself into the custody and ward of the defendant, and was ready to do whatever he was required, or whatever he thought would be deemed a compensation, for the magnified services of his friend. He offered one-half. Why did not Hawkins take that? It would have had the same ground to stand on which this has, the offer and willingness of Boyd. The answer does not state the reason, but leaves us to infer that it was either generously declined, although merited, or that it was deemed too large, and that the defendant was only willing to receive adequate remuneration. But upon the score of contract, each would have been alike obligatory, and each is open to be impeached upon the ground of unfairness, unreasonableness, and advantage taken by one man of another in his power.

But it has been insisted that trustees are in this State entitled to compensation, and as none was provided for by the deed, it was a fair subject of treaty and adjustment, and, in that light, good. The Court does not understand that trustees are entitled to have more than their expenses. The contrary is the old rule of the court of equity, and no opinion has been given against it in this State, as far as we know. Nor does the Court see a reason to adopt a new rule. As far (212) as the operation of the statutes allowing compensation to administrators and guardians has been observed, it is thought far from being salutary. It makes those offices objects sought after and contested for, and it requires the courts to hold persons in those trusts to stricter account. If it be established that a trustee is entitled to compensation, it follows that bona fides will not excuse him, but he must answer for his acts as a paid man; and such changes we are not prepared to make. The farthest we can go is to permit a stipulation for compensation at the contracting of the relation; and then, not in a case where the trustee to sell is imposed on the debtor. If it be arranged pending the trust, it can only be taken as evidence that the parties did not intend gratuitous service, and the measure will be disregarded, and fixed at what is deemed reasonable by the court. Any other doctrine would subvert the whole law of this Court upon contracts between these parties; for, instead of buying, the trustee would take what he pleased of the estate, without price, under the name of compensation, and every abuse would follow. The case in this respect, then, stands on the fairness of the measure of compensation; and upon that there cannot be a moment's doubt, when it is seen to be near $10,000 for a portion of two years attention, without the defendant being one cent out of pocket, or risking one penny of his money. Instead of serving this distressed man, it would be plundering him, as by the terms of the agreement the defendant is to have one-fourth of the gross estate. Every expense is to be borne by Boyd, even that of carrying the crop to market, although Hawkins shares in the increased price; and Brown's judgment is to be paid by Boyd out of his residue. Thus Boyd's interest is to satisfy encumbrances to the amount of eleven or twelve thousand dollars, and Hawkins none; which, in effect, nearly gives the latter the half which his own conscience had one rejected.

But it is not true that this was an adjustment of compensation for services. It is true that it was an arrangement to determine Hawkins' gains, and that they are called compensation in the agreement. (213) But services under the deed were not alone, or principally, in the contemplation of the parties. They are anxiously recited in the deed, and in a way to magnify them. But the principal service then claimed, and that which prevailed on Boyd to make such astonishing offers to the defendant, was the purchase of Brown's judgment and giving up the benefit of it to Boyd. The answer claims the exclusive ownership of it to be in the defendant, because he says he bought it with his own money, and without advice or indemnity from Boyd, or having any of his funds. This may be true in fact, but in this Court the purchase of the judgment enured to the benefit of the fund, which was bound, and was sufficient to discharge it. That judgment belonged to Boyd the instant Hawkins purchased it, and stood only as a security to him for what he gave for it. What did he give? Not a cent of his own money, but his bond, which has been satisfied out of the trust fund, or by Boyd. Hawkins has never paid anything out of his own pocket, never been in advance for Boyd, not even as alleged in his answer, except as it is therein stated that he advanced that which belonged to him under this very agreement itself, and all the expense of securing the whole. That such is the responsibility; for the judgment was against the two Boyds and three others, and execution was actually levied on much more than satisfied it, and ultimately yielded upwards of $17,000. This extra service in buying and extra kindness in transferring the benefit of the judgment (which here is taken to be but the discharge of a known duty) is exaggerated in the instrument itself into a principal reason why Boyd should give the other a fourth of the estate, and out of the residue pay the judgment itself, and all the expense of securing the whole. That such is the true character of the transaction is deducible not only from its face and circumstances, but it is expressly admitted in the answer that Boyd executed it "especially in consideration that the defendant, after making the profitable speculation on Brown's judgment, had voluntarily given Boyd the benefit of it." (214)

Can one doubt either that Boyd was altogether into the belief that the judgment really was the property of Hawkins, and not his own, or that, knowing it to be his, he was constrained to treat it as Hawkins', from the apprehension that a person who put up such a claim, and had him in his power, would use that power so as to serve himself as effectually in some other way?

As to the other responsibilities incurred by Hawkins in becoming the surety of Boyd, and indemnifying his cotrustee, they are perfectly imaginary. R. Boyd's own estate was, and has been, proved to be an ample counter security, without any aid from Alexander's. Every responsibility is discharged, and eighty negroes and half of his Roanoke estate left; and although it be said that at that time he was willing to take half price for it, and expected insolvency in that event, yet his willingness to make that sacrifice is no very satisfactory evidence that he was capable or careful, in dealing with his own trustee, for the uncertain interests under his brother's assignments. The very facts that from his want of judgment or his agitations and distress he estimated his own resources so inadequately, and exaggerated so greatly the responsibilities incurred for him by the defendant, or, from the same causes, that the services of the defendant were really indispensable to Boyd, he being incompetent to the management of such ordinary concerns, though sustained by his large means, made it unconscientious and inequitable, according to the rule of this Court, to exact or to receive such a donation from him. Accordingly, we find it stated in the answer, by way of reproach to Boyd, that as soon as his affairs became prosperous he refused to comply with the demand of Hawkins; in plain words, when he became able to think for himself, and got clear of the terror of his trustee, and of insolvency, he was sensible of the enormity of the exactions, and resisted them, although he offered, and now submits to do, whatever may be thought reasonable.

The conclusion of the Court is that, regarding the relation (215) of the parties, the consideration moving them, and the purposes in view, the actual pecuniary difficulties of Boyd, magnified by his alarm, his ignorance of his rights, or his constraint from asserting them, and the extravagant estimates of the services and responsibilities of the defendant Hawkins, and exorbitant claim of compensation for them, the agreement of 13 September cannot be treated here as obligatory, and as a discharge of Hawkins from accounting for the trust fund, or to found any charge on his part against Boyd.

As to the idea of a confirmation by the deeds executed in October and December, it will not bear stating. The confirmation is not direct, but only by inference. But if it were, the same objections existed then to such a contract as did in September. And to make an express confirmation of a void contract avail anything, it surely must appear that the party was then aware of his rights, and knew the first transaction, at least, was impeachable, and meant to make that valid which he did not before consider so. In any other sense the new deed is but a new imposition. Lord Chesterfield v. Jansen, 2 Ves., 146.

It has been, however, strongly urged that the validity of the agreement is not in issue, because it is not impeached in the bill, and, therefore, that the sole question is as to its execution. It is certainly true that no decree can be founded on a fact not in issue, and that, generally, it is safest to bring forward in the bill all matters in avoidance of a deed which the defendant means to use. It formerly was the course to do it by a special replication, but in more modern times the practice is to charge the facts in the bill originally, or to do it by amendment, which the court always allows when the deed is first stated in the answer, without its attending circumstances. If a release be barely pleaded or stated in the answer, and relied on simply as a release, it cannot be impeached by collateral matter, as having been unfairly obtained. So in James v. McKernon, 6 John., 543, cited for the defendant, where the defendant relied in his answer on the agreement as such, upon the mere (216) fact of existence and its import, and there was nothing on the face of it to invalidate it, it was properly held that evidence could not be heard to impeach it upon the ground that it was obtained by fraudulent misrepresentations or was otherwise unconscientious. Neither the bill nor the answer contained any matter to which the proof was applicable, and therefore it would be a surprise to the other party, and the witnesses not guilty of perjury if they swore falsely. But it is not necessary that the facts upon which the validity of the deed depend should be put in issue in any particular part of the pleadings, as in the bill or by a special replication. It is sufficient if the issue is formed anywhere in the record. If the answer state the deed not only as existing, but also the circumstances which are relied on as giving it validity, and insist upon it as a fair deed freely given, claiming the benefit of it as an executory agreement which the court ought to execute by reason of the considerations upon which it is alleged to have been founded, and the purposes for which it was given: if also the deed be exhibited with and made a part of the answer, and upon its face contains recitals which were meant to give a color to and sustain it; moreover, if the defendant sets up under this deed, not a discharge barely, but a satisfaction of the demands made on him in the bill, and also an original charge against the plaintiffs surely, a general replication to the answer puts in issue, as directly as can be, every circumstance specially stated in support of the deed, the general affirmations that it was fair and voluntary, and also the facts recited in the deed itself. All this is necessarily as much in issue by a general denial of the truth of all that is in the answer as is the execution of the deed. In the present case no fact is in proof which does not directly admit or deny some allegation of the answer, and the defendant himself insists in the answer that the cause shall be tried on the merits, and he assisted upon the footing of the agreement being valid under the circumstances disclosed by him.

But there is in truth no necessity for restoring to testimony for (217) the ground on which the court decreed.

The matters are confessed in the answer, and the plaintiff, as to the operation of that deed, might have set down the case on the bill and answer; and so the objection of surprise cannot arise. It is like a defendant claiming a set-off upon a bond admitted in the answer or stated on its face to be usurious. The court could not decree in favor of it, if the other party objected; and so here the defendant can found no claim on this instrument. It is true, it cannot be declared void and ordered to be given up; but that is not because it is not an issue, but because the plaintiff has not in any part of his pleading asked such relief against it. It is simply repelled here. The case is like a common one of a vendor bringing a bill against a purchaser for specific performance, which the court refuses on equitable circumstances, but cannot cancel the articles until the purchaser files his bill for that purpose. The Court must, therefore, allow the complaint's exception to so much of the report as is founded on the interests supposed to be derived by Hawkins under this agreement.

The question remains, What decree is the complainant entitled to? The bill is confined in its charges to the deed of trust for Boyd's estates in North Carolina, and sets out as a reason for not charging any matter relating to the Virginia deed, that a suit is pending in that State for an account under it. But the bill prays for a conveyance of the North Carolina property and for general relief. This prayer necessarily involves a general account of the whole trust fund, because the plaintiff cannot have even the specific relief prayed for until all the debts are paid and his trustees indemnified upon the whole transaction, as they had a right to look to all parts of the property for their outlays, as well as for the debt to the bank. Such an account has been taken; and the defendant insists in his answer upon a full account, and that the whole controversy ought to be settled here, notwithstanding the suit in Virginia. The pendency of that suit is not considered an obstacle to a full investigation here, as it does not appear that any rights have been (218) determined in it; for the decrees cannot come in conflict, and the parties here, being under the control of this Court, can be made to dispose of that suit as may be deemed right. Both cannot be carried on together, and the Court would put the parties to an election if they had not already made one — the defendant in his answer, and the plaintiff by asking for a general account, and bringing this cause to a hearing upon the whole merits. Besides, the plaintiffs Thornton and Davidson are not parties to the suit in Virginia, and have no rights in the fund in litigation there, but are subsequent mortgagees of the North Carolina property conveyed in the first deed of 2 July; and they have a right to a conveyance, if it appear that upon taking the accounts all the prior encumbrances upon it are discharged.

A doubt has been entertained by the Court upon the propriety of making a decree in favor of R. Boyd alone for the balance appearing by the accounts to be due to him, which arises from the silence of the bill respecting the assignments of Alexander Boyd, and the reassignment thereof by R. Boyd, out of which grew the principal part of the funds in the defendant's hands. But it does not appear by any proof, nor by the full statement of all the transactions given in the answer, that any part of that trust property remains specifically, or that the titles of it, if there be such, are now vested in Hawkins, or that Boyd has any ground of relief against him touching it, or Hawkins a demand on his part in respect of it, except that set up under any agreement which has not been sanctioned by the court. It results that no controversy exists upon that subject but that involved in the accounts of the receipts, disbursements, and charges of the trustees. Those accounts have been taken in this cause, and were necessarily taken; no objection is perceived, in this state of the case, to proceeding to a final decree upon the whole merits, care being taken to prevent the parties from further harassing each other in Virginia, by an order on them to dismiss that suit, which must be at the cost of the plaintiff, whose fault it was not to (219) include all the subjects in one bill; and care being further taken, by an order to that effect, that this decree shall not prejudice any other suit by Boyd, or of an amendment to his present one, if he chooses it, by which he may seek a conveyance of the legal title of any property vested in Hawkins or Robards, or either of them, by any of the conveyances mentioned in the pleadings or the exhibits, or by which he may seek to have the agreement of 13 September, 1824, declared void and canceled. It is the object of the Court not to conclude any of the parties as to the matters not fully tried and determined in this suit; and it is equally our object finally to settle all the matters of controversy of which the merits are fully before us. Such is the fact in relation to the balance of moneys arising out of the whole trust. The creditor is satisfied, and admits it by answer; the defendant Robards never has set up any demand, and disclaims in it his answer; the defendant Hawkins has rendered an account current of his whole trust, and detailed statements of it have been reported by the master, including even the expenses of the suits with Hunt and Goods, to no part of which has he excepted, save that of the allowance of commissions on the payments to the bank; and no exception is taken by Boyd to any omission by the master to charge Hawkins, but only to some of his credits. It must be assumed, then, that the matter of account need not be longer kept open, and may now be finally adjusted upon the basis of the report, as corrected by the court, in the decree; and, therefore, that it is proper that the cause should now proceed to a decree on that part of it.

By the reports the sum of $2,905.16 appears (after disallowing the claims under the deed of 13 September) to be in the hands of the defendant Hawkins, and to have been there, or nearly all of it, since 1825; and but few disbursements have been made since 1826. For this sum, therefore, and interest on it, Hawkins is the debtor of Boyd, subject to such deductions as shall be made for his compensation.

Upon this subject we have had some difficulty. It is not (220) thought justifiable to allow anything as a commission, because if a trustee can receive compensation at all, it must be for his actual time and labor, and not by any arbitrary rule of commission, if not specified from the first. For this reason, the seventh exception of the plaintiff to the allowance for the sales of the North Carolina property is sustained, and the defendants overruled. But the opinion of the Court is that Hawkins is entitled, in this case, to compensation for his time and labor, as well as the expenses with which he has been credited. This opinion has been founded upon the clear understanding at the origin of the business, that he should receive it; for which there is a stipulation in one of the deeds, and upon the express submission in the bill to allow a reasonable compensation. The trust was troublesome and at a distance from the residence of the parties; it required an active agent to manage it; and Boyd seemed to have had more confidence in the zeal and skill of this gentleman than any other, and probably would have been unwilling that Hawkins should, as he had a right to do, substitute the services of another agent for his own. The duties expected, nay required, were beyond the ordinary ones of a trustee, and involved the necessity of personal interposition in instances when perhaps no other agent could have served the same purpose. In general, the trustee can act by an agent, and it is best he should, because he will be under no temptation to pay him too much, though he is under the strongest to demand it for himself. But where that would not answer the purposes of the trust, nor satisfy the cestui que trust, and the trustee has been faithful, and the Cestui que trust submits to what is reasonable, the Court does not think it an improper precedent to allow what the trustee might have fairly given to another competent person. In this case we think $750 per annum would have engaged such an agent, for the parts of the two years during which Hawkins was actually occupied in this business; and the Court allows the sum, namely, $1,500 in the whole, by way of remuneration for all (221) his services touching the whole trust. For the residue of the $2,905.16, and for all the costs of this suit, there must be a decree in favor of the plaintiff Boyd.

PER CURIAM. Decree accordingly.

Modified: S. c., post, 329; Allen v. Bryant, 42 N.C. 281; Baxter v. Costin, 45 N.C. 265; Barnes v. Brown, 71 N.C. 510; Froneberger v. Lewis, 79 N.C. 430; Cole v. Stokes, 113 N.C. 273; Threadgill v. Comrs., 116 N.C. 619.