Clarke v. Deveaux , 1 S.C. 172 ( 1869 )

The opinion of the Court was delivered by

Moses, C. J.

The counsel for the defendant, Deveaux, submits, as a preliminary objection — fatal, in his judgment, if sustained — that there is no one but Joseph Pringle Clarke (his co-defendant) who has any interest in the subject-matter of the suit, he being still the owner, and the sole and absolute owner, of the whole property included in the deeds.

While the deeds convey the securities to the trustee, in trust, to pay the interest to Clarke,'for life, or suffer him to receive it for the maintenance and support of himself and wife, and the support and education of his child and any children which he might thereafter have — so that neither the premises settled or the income should be in any wise liable for his debts — they convey interests, upon his death, to the wife and children, and it is not necessary to enquire whether they are vested or contingent.

In either event, they have the right to claim the interposition of the Court against the trustee for the security of the fund ; and the relation in which they stand to the deeds under the first provision they direct, authorizes them to demand of him an exhibition of his accounts, so that they may have the means of knowing on what they could calculate for maintenance and education. The power reserved to the trustee, to receive payment of the securities settled, or, at the written request of Clarke, to sell the same, or any property purchased by virtue of the authority conferred, and invest the proceeds of said payment or sales in other property, to be held subject to the same rises, powers and provisoes as in the deeds are expressed, did not chaDge or affect any rights of the plaintiffs.

If the remainder is only contingent, still the party representing it, as we have said, is not prevented from seeking the aid of this Court for its safety and preservation.

A cestui que trust, though entitled to a mere contingent benefit, may, upon reasonable cause shown, apply to this Court to have his interest properly secured. — Lewin on Trusts, 728.

In Carson vs. Kennedy, 8 Rich. Eq., 269, the Court said: “ That it would be unwise and unsafe to hold that no contingent interest shall be protected by a remedy for the preservation of the property in case the contingent interest becomes vested. It would be unwise and unsafe to hold that no contingent interest should be protected in this way. An interest might be contingent, and yet so certain as to amount in value to a vested estate.”

In Simons and Wife vs. Logan, reported in a note in 9 Rich. Eq., 184, Chancellor Harper, in a Circuit decree, not only maintains the same doctrine, but carries it further.

The bill here, in point of fact, seeks no more than to compel the original trustee to pay into the hands of the substituted trustee the securities which belong to the trust. It avers that he withheld the true and valuable securities for his own use, against his duty, and against equity and good conscience, and, in their stead, has transferred to tbe new trustee Confederate Treasury notes of no value; and that he did this, leaving the parties interested to suppose that he had received payment in the said notes, when the truth is conclusively established to the contrary. It comes within the principle of the cases referred to. The first trustee, whose office had entirely ceased by the appointment of the second, has now no right to retain the specialties returned by him, or the money which he may have received on them in payment; they should be in the hands of the legal owner, to be held and preserved by him for the persons beneficially interested.

It might not, probably, be stretching the jurisdiction of equity too far to say that one who holds for a contingent remainderman, and who fraudulently converts the estate confided to him to his own-use, may be held to answer for such disposition, either by requiring an account, and the payment of the money into Court, or, if the property is still under his control, to transfer it to the succeeding trustee.

An express trust, under the deeds, is declared in favor of the wife and children during the life of Clarke. The trust assumed by Deveaux was to pay over the interest or income to Clarke, or permit and suffer him, for life, to receive the same for the maintenance and support of himself and his wife, and for the support and education of his child, and of any children ■ he might thereafter have, so that neither the premises settled, nor the income thereof, should be, in any wise, liable for his debts, contracts or engagements. The wife and children were the beneficiaries contemplated during the life of Clarke. As against him, a trust is created in their favor ; and the fact that the income is not to be liable to his debts shows that he has no power to abridge or destroy it.

There are no powers so reserved to Clarke, by the deeds, which constitute him still the whole owner of the property, as averred in the third ground of appeal. On their execution, his legal title was conveyed to the trustee on the conditions, limitations, and for the purposes expressed; and, although he holds, under them, interests and powers, he cannot be regarded as having the legal title. It would be a contradiction in terms to say that the very deeds which were to change the legal ownership so operated as to confer the title on the donor.

The power of the trustee, on the written request of Clarke, to sell the securities settled, or any property purchased by virtue of the authority expressed, and invest the money or proceeds of sale in other real or personal property, made no change in the relations of the parties, or alterations of the trusts, under which the trustee held. Whether, on payment of the securities, the money remained in the hands of the trustee, or was invested in property, the trusts of the deeds attached to the same extent as they did on the original fund.

It is claimed that the covenants in the deeds are voluntary, and can not be enforced in equity. If they are, however purely voluntary, they will, notwithstanding, -be held good and binding between the parties.

Lord Eldon, in Ellison vs. Ellison, (6 Vesey, 661,) says: “I take the distinction to be, that if you want the assistance of the Court to constitute you cestui que trust, and the instrument is voluntary, you shall not have that assistance for the purpose of constituting you cestui que trust; as upon a covenant to transfer stock, &c., if it rests in covenant, and is purely voluntary, this Court will not execute that voluntary covenant; but if the party has completely transferred stocks, &c., though it is voluntary, yet the legal conveyance-being effectually made, the equitable interest will be enforced by this Court.”

Mr. Story, in the 2d volume of his Equity Jurisprudence, Sec. 793, a, says: “If the transfer is actually made, it will be held valid against the donor and his representatives.” It would be difficult to find any authority contravening the rule thus laid down. The trustee accepted the trust with provisions in favor of the very cestuis que trust to whom he now denies the right to claim the benefit devolving on them by the very instrument to which he is a party.

It is assumed by defendant, Deveaux, that the instrument filed as an exhibit to his answer, dated October 28, 1863, but not delivered till 3d or 4th November following, connected with the receipt of Richards, (the substituted trustee,) concludes Clarke, and that it is not competent for any who claim through him to complain.

It is a great mistake to regard the said paper as a release. It was never so intended — does not, on its face, pretend to be — and has not about it any of the essentials ^bich would constitute a bar against Clarke, if he was a plaintiff seeking the relief asked by the bill.

The whole purpose of it was to execute the power conferred by the deeds, to wit: to assent to the discharge of the original trustee, and to nominate and appoint a successor. It no where discharges Deveaux from any liability for an account of the trust, or even refers to the fact that any supposed settlement has been made.

It is true that, on the same day, Deveaux had submitted what he averred was a statement of the trust fund in his hands, to wit: Confederate Treasury notes to the amount of $45,192.78, which were delivered over to the new trustee, through a check, and a receipt was given by him, expressed tobe “in full for principal of said trust in his (Deveaux’s) hands,” and that the accounts leaving that balance due had before been .seen and examined by Clarke. From these facts, is it possible to deduce the conclusion which the defendant, Deveaux, desires should be accepted by the Court?

The receipt was nothing but an admission of the amount received by Richards from Deveaux. It was sufficient to impose a liability on the latter, but in no way prevented Richards or Clarke, or any one who had an interest under the deeds, to require Deveaux to account for bonds which, at the time, he retained in possession, leading those with whom he dealt, as trustee, to suppose that he had received payment of them in a depreciated currency. A receipt is never conclusive when fraud or mistake is alleged against it.

If, however, Clarke had executed a formal release, founded on the knowledge and information which he had derived from De-veaux as to what constituted the trust estate, and had the right, under the deed, to discharge him from all liability to account, and was himself seeking to charge Deveaux, under this bill, by reason of the allegations it contains, could such a release be successfully interposed ?

Chancellor Harper, in Gist vs. Gist, Bail. Eq., 346, quoting from Lord Redesdale, in Roche vs. Morgell, 2 Sch. & Lef., 728, says: “Every release must be founded on some consideration, otherwise (as Lord Chief Baron Gilbert says, For. Rom., 57,) fraud must be presumed. That consideration must be either a valuable consideration then given, or the adjustment of depending accounts. In the latter case, the fairness of the accounts is of the essence of the consideration. If they are not fair, the consideration is not fair, and the instrument founded on such a consideration is in itself void, and, therefore, operates nothing.”

Now, what consideration gives validity to the supposed release of Clarke? The bonds retained by Deveaux were of greater value than the Confederate money he paid over; and a trustee is not permitted to favor himself, in a pecuniary regard, at the expense of those whose interests he was appointed to preserve.

Two of tlie grounds of appeal seek a reversal of the decree: First, “ because the bill, as to Deveaux, is a bill for discovery and relief; and, as to the other defendants, it is simply a bill for discovery; and the Chancellor has not only not given Deveaux the benefit of his answer, but has evidently used the other answer, contrary to all rule and reason, as evidence against Deveaux, though it was perfectly competent for the complainants to examine the defendants as witnesses;” and, secondly, “ because Deveaux’s answer, denying the fact of fraud or misrepresentation charged, and to which he is specially interrogated, is conclusive, unless contradicted by two witnesses, or one witness and strong circumstances.”

Deveaux’s answer in the. important particular, to wit, the fact that he misled the parties with whom he was treating as to his retention of the three bonds, is contradicted by the two witnesses, Hon. J. B. Campbell and Mr. F. S. Richards. It is true that neither the answer of Clarke or of Richards could be used as evidence against the co-defendant, Deveaux; but there is no rule of law which forbids effect to the testimony of Richards, because he was a party defendant to the record. He, with the other witness, according to the report of the Chancellor — by which we must be governed — testified “ that, from the representations made by De-veaux, at the time the settlement was made, they inferred that he ^had collected all the claims in -action belonging to the estate, and that the estate consisted entirely in Confederate money.”

Here is a direct contradiction of the answer by two witnesses. Circumstances, too, corroborate the allegations of the plaintiffs.

On the 1st of July, 1862, Deveaux furnished a statement of the principal of the trust estate, which showed that' it consisted of bonds to the amount of $39,642.78, and a balance of cash of $5,500 due by him. On the 3d or 4th of November, 1863, when the parties met, the estate was transferred to the new trustee, not in the bonds, but in Confederate Treasury notes, to the amount of $45,192.78. Deveaux, in his answer, says that he was authorized by Clarke to receive Confederate currency. Although he denies that he said he had collected the bonds, had not the parties reason to assume that he had done so ? No conversation in relation to the payment of the bonds was had as to .what time received between July, 1862, and November, 1863, within which periods the Confederate currency had largely depreciated. He alleges that Mr. Campbell.was aware that he had the three bonds with him ; but in this the testimony of Mr. Campbell, so far from concurring, is directly contradictory. If be did have the bonds with him, how was it that, of- all the persons present, Mr. Campbell alone had knowledge of the fact?

No question is made as to the liability of Deveaux for the other bonds referred to in his statement of July, 1868. The plaintiffs have abandoned their grounds of appeal, and the question before us is only as to the bonds of C. M. Furman, I. IC. Furman and E. Witsell; and, as to these, what are the facts ?

They are admitted to have belonged to the trust estate which Deveaux held under the deeds. They were in his possession, unpaid, at the date of the supposed settlement. What was his plain duty ? To have transferred them to Richards, who succeeded him as trustee. As they had not been paid, from whom did he purchase them, if he claims to hold them as owner? Suppose that Clarke had power, under the deed, to change the securities, and had so directed De-veaux, was it competent for him so to sell them as to secure a benefit to himself, and induce a prejudice to his cestuis que trust ¶

The relation between trustee and cestui que trust is one of such a delicate and confiding character that the Courts are watchful to preserve it, not only by requiring the utmost good faith, but also by preventing every wrong which might possibly flow from, the advantages which the position affords. It is, therefore, held that, even if a trustee purchases the trust property at its full value, the cestui que trust, at his option, may set aside the sale. The bonafides of the transaction is not involved. The act may bring no loss to the cestui que trust; but, to secure the administration of the trust according to the intention and purpose of the instrument creating it, those who accept this position — so necessary and important to society — must be held to such an accouut as will preserve the estate confided to them to the ends proposed by the trust. If any other rule was substituted the trustee would have an advantage which could be converted to' his own benefit to the prejudice of those whose interests he was intended to promote. “So that, in fact, in all cases, where a purchase has been made by a trustee, on his own account, of the estate of his cestui que trust, although sold at public auction, it is in the option of the cestui que trust to set aside the sale, whether bona fide made ,or not. So a trustee will not be permitted to make any profit or advantage to himself in managing the concerns of the cestui que trust; but whatever benefits or profits are obtained will belong exclusively to the cestui que trust. In short, it may be laid down as a general rule, that-a trustee is bound not to do anything which can place him in a position inconsistent with the interests of the trust, or which have a tendency to interfere with his duty in discharging it.” — 1 Story Eq., § 322.

He cannot purchase or acquire, by exchange, the trust property.— Wormley vs. Wormley, 8 Wheat., 424. And, if he has power to sell and re-invest, he must exercise it justly and fairly, and without the influence of selfish purposes. — Ibid. And, above all, he is not permitted to advance his own interest at the expense of the cestui que trust.— Garrow vs. Davis, 15 Howard, 272; Prevost vs. Gratz, Pet. C. C., 364.

The principles thus intimated have been constantly enforced by the Courts of this State. They are founded in wisdom and morality, and are necessary to guard against the temptation and cupidity by which the best of men may sometimes be betrayed.

We do not perceive how it can be maintained, as claimed by the sixth ground of appeal, that the conduct of the said Richards-and Clarke, in the receipt of the Confederate money, operated as a fraud upon Deveaux. They accepted it under the belief that the said bonds had been bona fide paid to him in the same currency which was depreciated, when compared with gold, to the extent of $12 for one, as is shown by the testimony. This false impression was induced by him; and to hold that, because the currency received was not returned, the plaintiffs are debarred from a remedy through which the bonds may be saved to the trust estate, in which they are interested, and which bonds he, Deveaux, induced them to suppose had been paid, would, in truth, be giving him the benefit of his own wrong.

Deveaux’s trust did not terminate until the third or fourth of November, 1863, and the bill was filed on 29th September, 1866. There is nothing in this lapse of time which can protect him.

The motion is dismissed.

Willard, A. J., concurred.