Lane v. Reserve Trust Co.

HENRY, J. The plaintiff prosecutes error from final judgment rendered upon demurrer sustained to her second amended petition, wherein she prays cancellation of her real estate mortgage to the defendant, given under alleged parental duress, while she still lived with her parents, soon after she attained her majority and to secure a loan to her father. She alleges defendant’s actual knowledge of these facts, save the undue influence, which, she says, it either knew or by the exercise of ordinary care would have known. The parents were originally parties defendant, but Were dismissed by the court below as improperly joined. Under the principles laid down in Berkmeyer v. Kellerman, 32 Ohio St. 239, 253 [30 Am. Rep. 577], the petition here would be sufficient as against the parents, had the mortgage been given to them. At page 252, the opinion by Johnson, J., quotes approvingly from Cocking v. Pratt, 1 Ves. Sr. 400, that “the court will always look with a jealous eye upon a transaction between parent and child just come of .age, and interpose if any advantage is taken.” The fourth paragraph .of the syllabus indicates moreover that the burden of proving the .good faith of such. transactions is upon him who is alleged to have profited unjustly from the fiduciary relation established. But in Jenkins v. Pye, 37 U. S. (12 Pet.) 241 [9 L. Ed. 1070], it is held that a conveyance from child to parent is not prima facie fraudulent; whence it evidently follows that the burden of proof is on him who charges the fraud. In this forum we are of course bound by the English rule, so far as it is sanctioned by our state Supreme Court, in preference to the so-called American rule enunciated by the United States Supreme. •Court. Applying, therefore, the principles of Berkmeyer v. Kellerman, supra, to the case in hand, what duty, if any, rested upon the bank, knowing that it was lending money to the father upon the security of the child’s property, and that a court, viewing the transaction with a jealous eye would call upon the father to vindicate its good faith? Manifestly the bank’s duty was to use reasonable care to ascertain whether or not the father was acting bona fide, and whether' or not the child was actuated only by her own free will. [369] The petition, however, alleges that by the exercise of such care the defendant would have discovered the undue parental influence under which the mortgage was executed, acknowledged and delivered. It is, therefore, chargeable with such knowledge as it would thus have acquired, and stands in no better position than the father himself. It is no answer to this conclusion to say that the notary’s certificate of acknowledgment cannot be varied by parol evidence; for the deed and acknowledgment are alike assailed directly for fraud. Nor is it an answer to say that the requirements of business should be held to relieve banks from the hazard and burden of such a rule. It cannot be time that banks will be greatly prejudiced by having to make reasonable inquiry as to the fact of undue influence in eases where they know that a fiduciary relation exists, and that the proposed transaction can stand only upon the footing of utmost good faith. We do not hold that third parties acting in such a transaction must ascertain bad faith at their peril, but only that they must make reasonable inquiry when the known facts suggest improper advantage taken of a fiduciary relation. The practice of English banks, in having the person reposing confidence exhibit competent independent advice that he is free from undue influence before allowing a gift to his fiduciary to be consummated through the medium of a bank loan or the like, may not always be essential to the validity of gifts of this sort; but though the authorities do not go that far, the practice is manifestly a salutary one. The protection of the property rights of persons in actual or quasi wardship from the greed of their protectors is plainly paramount in importance to the mere convenience of banking houses in transacting business with persons thus related. The principles herein approved were applied in a very similar and exceedingly well considered American case, Noble v. Moses, 81 Ala. 530 [1 So. Rep. 217; 60 Am. Rep. 175], reversing the previous conclusions of the court in the same ease, Noble v. Moses, 74 Ala. 604. While that decision is perhaps not in accord with the current of American authority, we deem it to be the necessary corollary of the holding in Berkmeyer v. Kellerman, supra. A majority of the court, therefore, our Brother Winch dissenting, hold that the judgment of the court of common pleas must be and the same is reversed, and the cause remanded. Marvin, J., concurs.