Summary
In Case v. Carroll, 35 N.Y. 385, 388, the court of appeals of New York held: "It is a settled principle of equity, that no person, who is placed in a situation of trust or confidence in reference to the subject of the sale, can be a purchaser of the property on his own account.
Summary of this case from Stephens v. DuboisOpinion
June Term, 1866
D.P. Corey, for the appellants.
J.H. Reynolds, for the respondent.
There are two grounds upon which the plaintiffs' complaint may be sustained; either by considering the defendant as the plaintiffs' agent in the purchase of the mortgaged premises, or as occupying the position of an attorney and counsel. The result is the same, whether he is considered in one relation or the other. It is a settled principle of equity, that no person, who is placed in a situation of trust or confidence in reference to the subject of the sale, can be a purchaser of the property on his own account. And this principle is not confined to a particular class of persons, such as guardians, trustees or solicitors, but is a rule of universal application to all persons coming within its principle; which is, that no party can be permitted to purchase an interest where he has a duty to perform inconsistent with the character of a purchaser. ( Torrey v. Bank of Orleans, 9 Paige, 650, and cases there cited.) In Cumberland Coal Co. v. Sherman (30 Barb., 553), this principle was applied to the case of a mere agency. It is not necessary for a party seeking to avoid a contract on this ground to show that an improper advantage has been gained over him. It is at his option to repudiate or to affirm the contract, irrespective of any proof of actual fraud. (DENIO, J., in N.Y. Central Ins. Co. v. National Protection Insurance Co., 14 N.Y., 91.) So an agent who discovers a defect in the title of his principal to lands cannot misuse it to acquire a title for himself, but will be held a trustee for his principal. (Story on Agency, § 211.)
While the principle of these cases was not disputed in the opinion of the two judges who united in affirming the judgment of the Special Term, sustaining the defendant's demurrer to the plaintiffs' complaint in this action, it was denied that the defendant occupied any relation of trust or confidence toward the plaintiffs which prohibited his purchasing the farm in question on his own account. I am unable to concur in this conclusion. The averment is, that the defendant was an attorney and counsellor of this court, and the counsel and adviser of the plaintiffs in relation to the bond and mortgage, and the manner of obtaining and using them for the purpose of enabling them to obtain and give a clear title to the farm; that, after the foreclosure of the McFarlane mortgage was commenced, he called upon the plaintiffs, and proposed to pay the bond and mortgage and take an assignment thereof, and hold it for their benefit, they paying him annual interest on the same; that when they had an opportunity to sell the premises for $2,000, and could not, by reason of the apparent lien of an old judgment thereon, in favor of Aaron Peck and his wife, he advised them to have the foreclosure suit go on, and that a clear and perfect title could be procured by a sale of the premises in the foreclosure suit; which the plaintiffs assented to, and the defendant proceeded with the sale accordingly. Up to this time there can be no pretense that the defendant did not act as their counsel and agent.
Now, what is there in the allegations of the complaint to relieve him from this position? It is said in the complaint that, a few days before the sale the defendant informed the plaintiffs that he should like to have his money on the mortgage. They failed to raise the money; and the defendant, without further notice, bid in the premises, and then for the first time claimed that he bought them on his own account. If he had informed them of his design to bid them in on his own account they would at least have understood his position and might have found another purchaser who was willing to take the defendant's place. But I think they were not required to find another purchaser in order to preserve their equitable right to redeem the property. In equity, the relation between the plaintiffs and defendant was that of mortgagors and mortgagee; and their equity of redemption could not be cut off by him without a strict foreclosure, or foreclosure and sale, in a court of equity. The way to dissolve such a relation is well settled, and that is, to call upon the plaintiffs to redeem or be foreclosed.
If the defendant had sold to a third person, with the plaintiffs' consent, their equity would have attached to the surplus; but, being himself the purchaser, their equity of redemption still continues to attach itself to the legal estate. ( Slee v. Manhattan Co., 1 Paige, 48; Hoyt v. Martense, 16 N Y, 231.)
But it is said that the complaint is defective, in not stating a legal duty or trust on the part of the defendant. When it is alleged that he was their counsel and adviser in relation to the bond and mortgage, and the manner of obtaining and using them, for the purpose of enabling them to obtain and give a good and clear title; and, when it is alleged that he offered to buy the bond and mortgage, and take an assignment thereof, and hold it for the benefit of the plaintiffs; and when it is further alleged that, in order to clear the title, the defendant proposed and advised them to have the foreclosure suit continued to a sale of the property, and that upon such sale it could be bid off for them; the law, without further allegation, will imply an obligation and duty on the part of the defendant, sufficient to create a trust within the principle of all the cases. Connected with this, it is also said that there is no allegation of deceit, artifice or unfair conduct on the part of the defendant. But, when the relation of attorney and client, or principal and agent, is once established, the burden is cast upon the defendant to show perfect fairness in the transaction, and that he did not take advantage of his confidential relations with the plaintiffs to gain a personal advantage. The complaint is not defective in substance for omitting to state conclusions which are to be implied from other facts sufficiently stated. If the case is defectively stated, the remedy of the defendant is by motion to make it more certain and definite by amendment. (Code, § 160.) Thus, in Prindle v. Caruthers ( 15 N.Y. 425), upon demurrer, the complaint was held good under the Code, although it did not aver any consideration for the contract upon which the suit was brought. The complaint in that case also stated, in general terms, that the contract became the property of the plaintiff by purchase, without stating when, from whom or upon what consideration; yet it was held that these defects could not be reached by a demurrer.
But the complaint in the case at bar is not defective for not stating more definitely the circumstances under which the defendant was retained as counsel and undertook to manage the foreclosure suit. The general allegation that he was the defendant's counsel and undertook to conduct it for their benefit, is sufficient to create a trust, which a court of equity will enforce against the defendant by requiring him to convey the legal title of the premises to these plaintiffs, upon being paid what was necessarily expended by him in procuring it, and upon such other terms as the justice of the case may require.
We know nothing of the transaction except what is stated in the plaintiffs' complaint. For the purposes of this appeal, the allegations of the complaint must be taken to be true, however inartificially presented.
We think, upon the complaint, the plaintiffs are plainly entitled to the equitable relief prayed for.
There are some other questions raised by the demurrer, but they are without foundation in law. There is no defect of parties, as all are made parties who have any interest in the relief prayed for. But if there are too many plaintiffs, the defect cannot be reached by a demurrer. (Code. § 117.)
Nor is there any misjoinder of causes of action. The right of the two daughters to have a home in the house of their mother while she lived, was very much restricted, if not rendered entirely valueless, by the agreement under which the possession of a part of it was surrendered to the defendant. They were not parties to that agreement, and have an undoubted right to have it removed out of the way, in case they are entitled to the legal estate. That agreement would necessarily fall with the title upon which it was obtained, Considering the circumstances under which it was obtained, I think the court would have no difficulty in relieving the widow, as well as her daughters, from its incumbrance.
In my opinion the judgment of the Supreme Court, both at General and Special Term, should be reversed, with costs, and that an order should be entered in the Supreme Court, overruling the demurrer, and allowing the defendant to answer upon the usual terms.
Judgment accordingly.