Roby v. Colehour

Per Curiam : As we are disposed to concur, substantially, with the views expressed by the learned chancellor who heard this case in the court below, we shall content ourselves with considering briefly two or three propositions which are very earnestly pressed upon our attention by the counsel for the plaintiff in error in his argument here. The facts involved in the cáse are numerous and complicated, and the evidence is very voluminous and as to almost every material matter it is directly conflicting. We have given the record as thorough and exhaustive an examination as the time at our disposal has rendered possible, or as the questions argued here have seemed to demand. Upon such examination we have reached the conclusion that the construction placed upon the evidence by the chancellor, and the findings of fact made by him are fairly warranted by the record. • The evidence shows—and as to this there is no dispute—that at the time of the original purchase of the land in controversy from the Clarkes in 1871, and the conveyance of it to William H'. Colehour, as trustee, Hansbrough, Morrill, Corby and Charles W. Colehour embarked in a joint enterprise, in which they undertook to purchase 406 acres of vacant land near the city of Chicago, with a view of subdividing and platting it into blocks, lots, streets, etc., and of otherwise improving it as suburban property, and of then selling it at a profit, the net profits to be divided between them in certain proportions then agreed upon. Morrill and Corby subsequently surrendered or abandoned their interests, and in 1873, the Hansbrough interest was, for a certain consideration, assigned and transferred to Roby, the plaintiff in error, and Charles W. Colehour, and by a declaration of trust then executed by William H. Colehour, it was provided' that the net profits of said enterprise, after the payment of all incumbrances and all moneys, advanced by either party, should be participated in by said parties in the following proportions, viz: one-half by Charles W. Colehour, one-fourth by Boby and one-fourth by William H. Colehour. 'From that time manifestly these parties sustained the same relation to each other that existed between Hansbrough, Morrill, Corby and Charles W. Colehour in the original enterprise. In Morrill v. Colehour, 82 Ill. 618, we had before us the declaration of trust executed by William H. Colehour to Morrill, Corby and Charles W. Colehour, providing for their joint participation in one-half of the net profits arising from the •sale of said land, and we there held that the beneficiaries under that instrument took no interest in or title to the land itself, but that their interest was only in the profits, as to which their relation was that of partners. The declaration of trust between the parties in this case is, so far as this question is concerned, in substantially the "same terms, and must therefore receive the same interpretation, and it must be held, in effect, to establish between them the relation of partners, and to give them the rights and impose upon them the duties and disabilities incident to that relation. We are of the opinion also that the evidence fully justified the court below in finding that Boby, from the time he acquired his interest in said joint enterprise up to a short time prior to the filing of the bill in this case, sustained in fact to the Cole-hours the relation of attorney and legal adviser, and that during a large portion of that time he was frequently in the office where the business of said trust or joint adventure was being carried on, examining the books and advising and consulting as to the business, and that the Colehours received and relied upon his legal advice in the matters in which they were jointly interested. Counsel now takes the position, if we correctly understand him, that, admitting the facts to be as found by the court below, namely, that Roby was jointly interested as partner with the Colehours in the profits to be realized from the improvement and sale of said land, and also that he held the confidential relation to them of attorney and legal adviser, these facts constituted no obstacle to Roby’s acquiring title to said land adverse to the Colehours, and that the court therefore erroneously held that, in obtaining title to said land through said sheriff’s sales, he must be deemed to have purchased and to hold the legal title to the land, as trustee for himself and the Colehours, subject only to the right to be reimbursed for the moneys expended in making such purchases. The doctrine on this subject is too well settled to make it our duty to follow counsel through his labored argument and his voluminous citation of authorities, or even justify us in ,so doing. The general principles universally recognized in matters of this character are well stated by .Lord Chelmsford in Tate v. Williamson, L. R. 2 Chan. App. Cas. 55, as follows: “The jurisdiction exercised by courts of equity over the dealings of persons standing in certain fiduciary relations has always been regarded as one of a most salutary description. The principles applicable to the more familiar relations of this character have been long settled by many well-known decisions, but the courts have always been careful not to fetter this useful jurisdiction by defining the exact limits of its exercise. Whenever two persons stand in such a relation that, while it ■continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person availing himself of his position will not be permitted to retain the advantage, ■although the transaction could not have been impeached if no ■confidential relation had existed.” The relations to which these principles are applied are very numerous, and among those to which they are so applied by a, substantial concurrence of all the authorities are those of attorney and client, trustee and cestui que trust, principal and agent, partners, and part owners of property. Willard’s Eq. Juris. 170; 2 Pomeroy’s Eq. Juris. sec. 955, et seq.; 1 Story’s Eq. Juris, sec. 307, et seq.; Bispham’s Eq. sec. 231, and authorities cited in notes. Indeed, as said by Mr. Pomeroy, “It is settled by an overwhelming weight of authority, that the principle extends to every possible case in which a fiduciary relation exists in fact, in which there is confidence reposed on one side, and the resulting superiority and influence on the other. The relation and the duties involved in it need not be legal; it may be moral, social, domestic or merely personal.” 2 Pomeroy’s Eq. Juris, sec. 956. In cases of partnerships, which usually involve also the relations of joint ownership, trust and agency, the utmost good faith is due from every member of the partnership towards every other -member, and if any dispute arises between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honor. 1 Lindley on Partnership, 303; 1 Bates on Partnership, sec. 303; Parsons on Partnership, 222. If one partner therefore buys an outstanding adverse title to property belonging to the firm, or acquires an interest in its property without his copartner’s assent, which would be beneficial to the firm, the purchase will be deemed to be for the firm. 1 Bates on Partnership, sec. 305. The authorities in support of these rules are ample. Thus, in Forrer v. Forrer’s Exr. 29 Gratt. 134, certain partners bought a tract of land for partnership purposes and it was conveyed to them. After the death of one of them, it was ascertained that the title to one-third of the land was defective, and the surviving partner purchased this one-third interest and took a conveyance to himself. It was held that he purchased for the joint benefit of himself and the heirs of the deceased partner, and that they were entitled to claim it upon paying their shares of the expense of the purchase. The court say: “Whenever two or more persons having a community of interest hold an imperfect title, and one of them buys in an outstanding title, such purchase will enure to the common benefit, upon contribution made to repay the purchase money. The rule is based upon the community of interest in a common title, creating such a relation of trust and confidence between the parties that it would be inequitable to permit one of them to do anything to the prejudice of the other in reference to the common property.” So, in Lamar’s Exr. v. Hale, 79 Va. 147, it was held that partners stand in the relation of mutual agents and trustees, and can therefore acquire the property of the firm only for the benefit of the firm. In Kinsman v. Parkhurst, 18 How. 289, the same principle was applied to a partnership between a patentee and another person, where the latter, after becoming a part owner of the patent and agreeing to conduct the business of manfacturing the patented machine on their joint account, set up, as against his copartner a right to manufacture said machine under a license from a third person. See also, Farmer v. Samuel, 3 Dana, 187; Eakin v. Shumaker, 12 Texas, 51; Gillett v. Gaffney, 3 Colo. 351. On the same principle it is held that if a partnership have a valuable leasehold property of which the lease is about to expire, a partner can not privately, either during the continuance of the partnership or before its assets have been sold, obtain a renewal of the lease for his own benefit, but will be held to have obtained it in trust for the firm. Featherstonhaugh v. Fenwick, 17 Vesey, 298; 1 Lindley on Partnership, 307, and authorities cited. In Davis v. Hamlin, 108 Ill. 39, this court applied the same principle in case of a confidential agent. So far then as this branch of the case is concerned, it would seem to be quite immaterial whether, prior to Roby’s purchases of the titles acquired through the execution sales and sheriff’s deeds, he agreed to make such purchases and hold the titles purchased for the benefit of himself and the Colehours, as Charles W. Colehour testifies, or whether he made such purchases entirely of his own accord and for his own benefit and without any consultation with his copartners, as his own testimony would seem to show. In either case the purchases must be deemed to have been made, and the titles purchased must be deemed to be held, for the benefit of the partnership, Roby, however, being entitled to be reimbursed by the Colehours for three-fourths of the moneys expended by him in buying in said titles. Nor is the trust thus created within the operation of the Statute of Frauds. It is not an express trust, but one arising by construction of law. One of the most ordinary forms of constructive trusts is that which grows out of the rule of law which forbids a trustee or other person who occupies a fiduciary or quasi-fiduciary relation, from gaining any personal advantage touching the thing or subject as to which such relation exists. Bispham’s Eq. see. 92. Constructive trusts are expressly exempted from the operation of the Statute of Frauds. R. S. 1874, chap.59, sec. 9. We are of the opinion that the court below properly held the deed of January 6, 1887, from William H. Colehour and wife to Roby to be inoperative and void so far as the rights of Charles W. Colehour are concerned, for the reasons stated by Judge Tuley in his opinion. We are also of the opinion that said court properly set aside and vacated said deed in accordance with the prayer of the cross-hill, on the ground of inadequacy of consideration and undue influence. The inadequacy of consideration results from the evidence as a conclusion of fact, and after duly considering all the evidence bearing upon that question, we perceive no reason for holding that the court below was not fully warranted in drawing that conclusion. So far as the evidence of undue influence is concerned, the preponderance seems to be clearly in favor of William H. Colehour, and if the account of the transaction given by his witnesses is to be believed, the propriety of the decision of the court in this respect is manifest, especially when taken in connection with the fact, which as we have said the evidence in our opinion warranted the court in finding, that at the date of said deed Roby was, and for several years prior thereto had been Colehour’s attorney and legal adviser. It is not the doctrine of courts of equity that attorneys are, by their fiduciary position, wholly incapacitated to purchase from their clients, nor does such incapacity ordinarily exist in ease of other fiduciary relations. The rule however is, that the presumption is always against the validity of transactions of that character, and the burden is on the attorney to remove that presumption, by showing affirmatively the most perfect good faith, the absence of undue influence, a fair price, and knowledge, intention and freedom of action on the part of the client, and also that he gave his client full information and disinterested advice. Jennings v. McConnell, 17 Ill. 148; Hess v. Voss, 52 id. 472; Laclede Bank v. Keeler, 109 id. 385; Morrison v. Smith, 130 id. 304; 2 Pomeroy’s Eq. Juris, sec. 960; 1 Story’s Eq. Juris, sec. 311; Mechem on Agency, secs. 877-879; Weeks on Attorneys, sec. 268. Tested by this rule, the transaction by which Roby obtained from William H. Colehour a conveyance of the latter’s interest in the land in question can not be upheld. The preponderance of the evidence fails to show an absence of undue influence, but rather the contrary, nor does it establish a fair and adequate consideration. Even if we disregard all those misrepresentations charged in the bill and cross-bill as to which the evidence is conflicting, it is undisputed that Roby insisted then, as he does now, that by the execution sales the legal and equitable interests of both William H. Colehour and his brother had been extinguished or had been transferred to him, and that no title or interest remained in the Colehours, except perhaps their statutory right to redeem from the sale under the judgment in favor of the Crane Brothers Manufacturing Company which had not then expired and the inchoate right of dower in the wife of William H. Colehour. It is unquestionable that the advice then given by Roby to William H. Colehour and his wife was upon the basis of this assumption as to the rights of the parties. Roby admits that at the negotiation which resulted in the deed from William H. Colehour and wife to him, he produced and exhibited the sheriff’s certificates and deeds evidencing his title under the execution sales and claimed- such title in himself as those instruments purported to convey, and there can be no question that his advice to Colehour and wife as well as the entire negotiation proceeded upon that basis. But this advice, as we have already seen, was erroneous and therefore misleading, as the only equitable right, as against the Colehours, acquired by Roby through the sheriff’s sales was the right to be reimbursed by the Colehours to the extent of three-fourths of the moneys expended by him in buying in those titles. Furthermore, the consideration was undoubtedly fixed and agreed upon by Roby and Colehour on the same basis, viz, that Roby had already acquired both the legal and equitable interests of the Cole-hours. It may be, if that had been the fact, that the consideration would have been adequate, but we think it clearly was not so, in view of the rights of the Colehours as they actually were. We fail to find such evidence of subsequent acquiescence or ratification by William H. Colehour as should now be held to bar his right to have said deed rescinded and cancelled. The evidence shows, it is true, that shortly after the deed was executed, Colehour directed various tenants bn the land to pay rent to Roby, informing them at the same time that he had conveyed all his interest to him, and it also appears that for some months thereafter he remained on friendly terms with Roby and visited him frequently both socially and on matters of business, and that during that time he made no attempt to repudiate said deed. It does not appear, however, so far as we are able to discover, that while this state-of things existed, Colehour was aware of the true nature and extent of his rights, or had ascertained that Boby, in buying in the titles acquired under the sheriff’s deeds, was charged by construction of law as trustee for himself and the Colehours, and that he held the titles thus purchased only in trust. Before William H. Cole-hour can be held to have validated his voidable deed, it must appear that, at the time of the alleged ratification, he had been made aware of the mature and extent of his actual rights or at least that he had learned that the advice received by him from Boby was incorrect. . Nor does the evidence, in our opinion, charge Charles W. Colehour with such laches as should be held to bar his right to relief. According to his testimony, he supposed that Boby, in purchasing the titles under the execution sales, was doing so in the interest of himself and the Colehours, under an express arrangement by which he was to buy in those titles and hold them subject to the same trust, upon which the land was originally held by William H. Colehour. This express arrangement is denied by Boby, but if it was never entered into, still, as we have seen, the law, by construction, constituted Boby a trustee of a trust the terms of which were of substantially the same character as that alleged by Colehour. It thus appears that in any view of the evidence Boby held the titles purchased by him in trust. Now it is not shown at least by a preponderance of the evidence that Colehour was made aware in any way that Boby was disposed to deny the trust relation and claim adversely to the Colehours until about the time of the sale under the Clarke foreclosure decree, and the present bill was filed in apt time thereafter. Being of the opinion that the decree of the court below is fully warranted by the pleadings and evidence, the judgment of this court will be that said decree be affirmed. Decree affirmed.