Frazier v. Jeakins

57 L.R.A. 575, 68 P. 24, 64 Kan. 615, 1902 Kan. LEXIS 254

• Court: Supreme Court of Kansas
• Decided: March 8, 1902
• Docket: No. 12,503
• Status: Published

Opinions

The opinion of the court was delivered by

Dostjer, C. J. :

This was an action of ejectment to recover land which had descended to a minor • upon the death of her ancestor, but which had been wrongfully sold and conveyed by the minor’s guardian. Serena J. Jeakins, the owner of the land, died intestate, leaving as her heirs a husband and children. One of the latter was Clara A. Jeakins, a minor. The others were adults. Mrs. Permilly Scheel was appointed guardian of the property of the minor and thereafter maintained the ward at her expense. She purchased the interests of the adult heirs in the land, taking conveyances therefor in her own name. She procured from the probate court an order to sell the minor’s interest in payment of the cost of her maintenance, and she sold this interest at private sale to her husband, Carl Scheel; the sale was confirmed and the guardian’s deed approved. Some claims of fraud in. making the sale and of lack of full consideration for the land are made by counsel, but we do not take a view of the case which requires us to advert to them. We shall treat the sale as made on fair consideration and free from fraud in fact.

B. Notice from recítalem deed. About three years after the guardian’s sale, Mrs. Scheel and her husband sold the entire tract to N. F. Frazier. The record of proceedings in the probate court did not disclose the relationship existing at the time of the guardian’s sale between Permilly Scheel, the guardian, and Carl Scheel, the purchaser, but Frazier knew they were then husband and wife. Besides, the deed he received from them recited their relationship, and the identity of names in that deed with those of the grantor and grantee in the guardian’s deed imparted a notice which is the equivalent of knowledge. (15 A. & E. Encycl. of L. [2d ed.] 918.) A purchaser of land is always chargeable with the knowledge of whatever facts are suggested by the recitals in his title papers. (Knowles v. Williams, 58 Kan. 221, 48 Pac. 856.)

Clara A. Jeakins brought ejectment against Frazier to recover her undivided interest in the land. Although the cause of action stated was not joined with one for partition, the defendant made no objection in the court below on .the ground of the irreclaimableness of undivided interests by cotenants. Upon the argument of the case in this court, counsel for Frazier disclaimed a desire to raise the question, and, therefore, we are not concerned with any doubts which may exist as to the right to maintain the action. Certain it is that objections to its maintenance, if any can be properly made, do not go to the jurisdiction of this court. Judgment went for plaintiff in the court below, and the defendant has prosecuted error.

The sole question in the case relates to the validity of the guardian’s sale and deed of the land of her ward to her husband, made, as before stated, upon fair consideration, and free from actual fraud. Are they valid ? If not, are they of the class denominated “void,” and, therefore, subject to collateral attack? Our judgment is that they are void, and their nullity, being known to Frazier, the purchaser, no title passed to him, and, therefore, the collateral action will lie.

1. Trustee may not purchase trust property. Nothing in the law of fiduciary trusts is better settled than that the trustee shall not be allowed to advantage himself in dealings with the trust estate. He shall not be allowed to serve himself un- ,, . „ . , . , der the pretense oí serving his cestm que ° *t trust. The most usual way in which evasions of this salutary rule are attempted is in purchases of the trust estate by, or in the interest of, the trustee. That such purchases shall not be allowed the realization of their purpose is the universal holding of the courts, and a citation to the multitudinous decisions would encumber an opinion more than it would elucidate the rule. A large number of the cases are collected in the notes to Tyler v. Herring, 19 Am. St. Rep. 263 (67 Miss. 169, 6 South. 840) ; Tyler v. Sanborn, 15 Am. St. Rep. 97 (128 Ill. 136, 21 N. E. 193, 4 L. R. A. 218) ; Wilson v. Brookshire, 9 L. R. A. 792 (126 Ind. 497, 25 N. E. 131) ; and this court, in Webb v. Branner, 59 Kan. 190, 52 Pac. 429, recently added another to the list. Nor, in such cases, does the fact that the sale and purchase were bona fide and upon full consideration avail to constitute an exception to tlie rule. That was distinctly so declared in Webb v. Branner, supra, in which it was said :

“It was shown that a fair price was obtained for the lot, but there being a manifest conflict between the duties of the trustee and his personal interests, the courts, for the purpose of removing all opportunity for fraud, generally hold such transfers to be void, whether they appear to be fair or not.”

The above-quoted remarks imply that there maybe, perhaps, exceptions to the rule’, but we know of none. In fact, the main rule that a trustee may not profit himself out of the trust estate is no better settled than the subsidiary one that lack of fraud in the trustee’s dealings will not validate the transaction. The fiduciary relation of trustee and cestui que trust is one which does not call so much for rules to redress accomplished wrong as for rules to prevent its accomplishment. The one in question, therefore, is not intended to be merely remedial of wrong actually committed, but,'rather, to be preventive, or deterrent, in effect. The opportunities which are open to an unfaithful trustee to advantage himself out of the trust estate are so many and so tempting, and the condition of the beneficiary in the trust ordinarily so helpless and confiding, that the law gives warning in advance against all transactions out of which it is possible for the former to make gain at the expense of the latter. Hence, as was tersely and wisely said by Chief Justice Beasley, in Staats v. Bergen, 17 N. J. Eq. 554: “So jealous is the law upon this point, that a trustee may not put himself in a position in which to be honest must be a strain on him.”

2' aaíe°touulsband or -wife. Do the foregoing considerations apply to a sale by a guardian of the ward’s land to the guardian’s husband or wife, as the case may be ? We have no hesitation in affirming that they do. It is true that the common-law fiction of the legal identity of the husband and wife and the very nearly.complete merger of the latter in the former does not now have recognition. In this state, as allowed by statute, the wife may contract with her husband. They may own separate estates free from any present claim of interest by one in the property of the other — that is, as against the other; but it is not true that, as to their respective possessions, they are strangers in such sense as to take a trustee’s sale by one to the other from out the operation of the rule in question. Upon the death of either of them, one-half of his or her property descends, under the statute, to the survivor, and under the statute neither one, without the other’s consent, can, by will, devise more than one-half his or her property. It is true the interest of the one in the property of the other is contingent and uncertain, and dependent upon survivorship. It is true that the interest of the one in the land of the other is not of the character of any of the estates known to the common law, but it nevertheless possesses the elements of property. This was distinctly so ruled in Busenbark v. Busenbark, 33 Kan. 572, 7 Pac. 254; and, on the strength of the quality of property attaching to the inchoate interest of a wife in her husband’s land, she was allowed in that case to maintin an action to prevent its fraudulent alienation.

However, over and beyond that property interest which husband and wife have in each other’s estate, and which possesses the element of pecuniary value, there is a larger consideration. It was well expressed by counsel for defendant in error, who said :

“The affection existing between husband and wife, the marital relation which in a sense makes them one, the implicit confidence which each must have in the other, their natural desire for each other’s material prosperity, the relation which enables one to derive and enjoy personal comfort and pleasure from the property of the other, independent of the question of direct or indirect ownership in such property, are all so well recognized in law and understood by all civilized people, that it would be arguing against the experience of centuries to contend that one would-not be interested in the welfare of the other, and do all that could be done to enhance the pecuniary interests of the other ; therefore, by reason of the relation, no guardian could be impartial in the sale to husband or wife of the property of the ward.”

In Tyler v. Sanborn, supra, the supreme court of Illinois, after adverting to the fact that under the statutes of their state husband and wife may contract with each other, that the wife may own property separate from the husband, but that each has contingent interests in the other’s property dependent on survivor-ship (the same being in such respects substantially like our statute), and after holding that such mutuality of interest forbade one to sell trust property to the other, further remarked :

“There is, moreover, apart from this pecuniary interest, an intimacy of relation and affection between husband and wife, and of mutual influence of the one upon the other for their common welfare and happiness, that is absolutely inconsistent with the idea that the husband can occupy a disinterested position as between his wife and a stranger in a business transaction. He may, by reason of his great integrity, be just in "such a transaction ; but unless his marital relations be perverted, he cannot feel disinterested — and it is precisely because of this feeling of interest that the law forbids that he shall act for himself in a transaction with his principal.

“ It is believed to be within general observation and experience that he who will violate a trust for his own pecuniary profit will not hesitate to do it, under like circumstances, for the pecuniary profit of his wife. In our opinion, the policy of the law equally prohibits the wife of the agent, as it does the agent himself, from taking title to the property which is the subject of his agency without the knowledge and express consent of the principal.”

One of the earliest cases on this particular question was Davoue v. Fanning, 2 Johns. Ch. 252. In that case, it appeared that an executor had sold the testator’s property to a person to be held by him in trust for the executor’s wife. Chancellor Kent held that the sale could not stand, because, as he said, “whether the trustee buys in for himself or his wife, the temptation to abuse is nearly the same.” In Dundas’s Appeal, 64 Pa. St. 325, it appeared that an executor had sold parf of the testator’s estate to his wife. The court said:

“We cannot doubt that a sale by a trustee to his own wife would be set aside on the application of the cestui que trust, not on the ground of coverture, but of her relationship to the trustee. It would be evidence of unfairness quite as much as if the sale were made to the trustee himself, and falls within the spirit of the rule which forbids his own purchase.”

However, in that case the sale was allowed to stand, because the court by previous order had permitted the wife to become a bidder. The making of such precedent order was admitted to be within the authority of the court, but it was said : “The power is a delicate one and should always be cautiously exercised, and the sale itself watched with jealousy.”

In Bassett v. Shoemaker, 46 N. J. Eq. 538, 20 Atl. 52, 19 Am. St. Rep. 435, it appeared that an executor had sold to his wife a farm of the testator. It was held that the sale should be set aside, as of course, upon the application of a cestui que trust. Among other things it was said :

“The exclusion of the wife as a purchaser, where the husband sells as'a trustee, is not so much for the reason that he may subsequently become entitled to some interest in her lands, as on account of the unity which exists between them in the marriage relation. The case falls clearly within the spirit of the principle which excludes the husband himself.”

There are other cases the decisions of which were more or less influenced by the considerations expressed in the foregoing quotations. (See Riddle & Parker v. Roll et al., 24 Ohio St. 572 ; The Rome Land, Company v. Eastman et al., 80 Ga. 683, 6 S. E. 586; Bachelor v. Korb, 58 Neb. 122, 78 N. W. 485, 76 Am. St. Rep. 70.)

Admit the separate legal status of husband and wife to be as absolute and clearly differentiated as their physical lives, there is yet, as a matter of fact, an identity of interests and affections between them which utterly precludes the idea of a trustee’s sale by one to the other being different in effect than a sale by the trustee to himself. To say that a husband acting in a fiduciary capacity in effecting a sale would be disposed, as against his wife, to diligence of effort in finding some one who would pay more for the trust estate than she would, is to fly in the face of nature itself and deny the experience of the ages. Nor can we conceive of any reason why it might be different in the case of a wife, were she the trustee negotiating the sale.

To the rule declared by us there is but- one opposing decision, so far as we are aware. It is Crawford, v. Gray, 131 Ind. 53, 30 N. E. 885. The sale in question in that case was made at public auction to the wife as the highest bidder, differing in that respect from the sale under consideration by us. The opinion fails to cite any cases in its support, and, if it can be considered as applicable to private sales by trustees, we have no hesitation in declaring it unsound in principle and opposed to all the authorities.

3. Proper practice suggested. There may be exceptional circumstances justifying sales by trustees to their wives or husbands, or even to the trustee himself. It is said that the sale under consideration was one of the exceptional character. The wife owned all the other interests in the land and therefore could effect a better sale to her husband, as a cotenant to be, than to a stranger. The claim is a reasonable one, but for such cases the law ¡ias a practice which must be followed ; it is to apply to the court controlling the sale for leave to purchase. That was ruled in Dundas’s Appeal, supra, and Bassett v. Shoemaker, supra. In Michoud et al. v. Girod et al., 4 How. (U. S.) 503, 557, 11 L. Ed. 1076, one of the leading authorities on the subject of purchases by trustees at their own sales, the supreme court of the United States, considering the proper practice in such cases, ruled :

“It is, that when a trustee for one not suijuris sees that it is absolutely necessary that the estate must be sold, and he is ready to give more for it than any one else, that a bill should be filed, and he should apply to. the court, by motion, to let him be a purchaser This is the only way he can protect himself. There are cases in which the court will permit it.”

flrmation — res . judicata. It is said, however, that the confirmation of the sale by the probate court was a judicial approval of it which put it in the category of res jvdicoda, and hence beyond collateral attack. J The law in this state does not give such an effect to a mere order of confirmation. The act concerning guardians and wards (Gen. Stat. 1901, § 3290) appropriates, as the rules governing guardian’s sales, those prescribed by the statute relating to sales made by executors and administrators. This latter -statute (Gen. Stat. 1901, §2937) reads as follows:

“And the court, after having carefully examined such return (the return of sale), and being satisfied that the sale has in all respects been legally made, shall confirm the sale, and order the executor or administrator to make a deed to the purchaser.”

The above-quoted statute does not differ in any substantial particular from the statute in relation to the confirmation of sales by the district court, as such statute existed prior to 1893. The civil code, section 458 (Gen. Stat. 1889, *|[4556) provided that

“If the court . . . shall, after having carefully examined the proceedings of the officer, be satisfied that the sale has in all respects- been made in conformity to the provisions of this article, the court shall direct the clerk to make an entry on the journal that the court is satisfied with the legality of such sale, and an order that the officer make to the purchaser a deed for such lands and tenements.”

Whatever may be the law in other states, in this one it is settled that under the statute last quoted the order of the court confirming the sale becomes res judicata as to irregularities only and cures nothing of substance — certainly not, unless the matter of substance is exhibited on the face of the sale proceeding itself. This has been the uniform holding since Koehler v. Ball, 2 Kan. 161, 83 Am. Dec. 451. In De Jarnette v. Verner, 40 Kan. 224, 19 Pac. 666, it was ruled that

“Where a sheriff’s sale of real estate has been made, and the owner thereof moves to set aside the sale for the reason that the property was not sold for two-thirds of its appraised value, and for other reasons, and the motion is overruled by the court and the sale confirmed, he does not thereby waive his right to afterward treat the saleas void, or to sue the sheriff for any injury which he may have sustained by reason of such sale. By being a party to a motion to set aside or confirm a sheriff’s sale, which motion is decided against such party, he does not thereby and for the future waive or cure anything of substance, but only irregularities.”

6. collateral attack -ejectment. We come now to the final question: Was the sale void in the sense that it was subject to collateral attack? Our judgment is that it was ; and inasmuch as its nullity was known to Frazier, the purchaser, no title passed to him, and therefore the collateral action will lie. We do not understand that courts by their use of the term “void” always mean that utter negativeness which is the equivalent of nonexistence, but they more often mean that which, relatively to persons, circumstances, conditions, or forms of action, may be treated as though it were non-existent. In this latter sense there is little distinction between it and the word “voidable.” Really, as often used in the law, there is an interchangeability of meaning between the two words. This is well pointed out in Ewell v. Daggs, 108 U. S. 148, 2 Sup. Ct. 408, 27 L. Ed. 682; Pearsoll v. Chapin, 44 Pa. St. 15 ; Kearney et al. v. Vaughn et al., 50 Mo. 287 ; Brown v. Brown, 50 N. H. 542. Therefore, in order to characterize the guardian’s sale and deed as “void,” in the sense in which that word is most frequently used in the law, it is not necessary to regard them as inexistent. They have a form of existence and, under certain circumstances, they may be allowed or may acquire the substance of existence. The plaintiff in this case might have ratified them by express act or deed; she might have estopped herself by some course of conduct to question their validity, or she might have allowed lapse of time to bar her right to recover on the score of their invalidity; but until, by ratification, estoppel, or limitation, she has given effect to them, she is privileged to treat them as void, and of no effect. As to her, they are void and of no effect, because they failed to pass the title to her land. In order to characterize an act or transaction as void, it is not necessary that it should be a nullity as to everybody and for all time and under all circumstances. If the act or transaction failed to deprive interested persons of their rights or titles, failed to confer them on some one else, the act or transaction is void as to such persons. If the act or transaction requires ratification, estoppel or limitation to transfer the right or title, it is void until the ratification has been made, the estoppel has occurred, or the time has elapsed, and even then the right or title does not pass by virtue of the original act or transaction, but passes by virtue of the ratification, or is founded on the estoppel, or is set at rest by the lapse of time.

The authorities seem to us strong and convincing that ejectment, although a collateral proceeding, will lie to recover a title claimed under a trustee’s sale to himself,-or in effect to himself, as in this case. In Den, ex dem. Obert v. Hammel, 3 Harr. (N. J.), 73, it appeared that an administrator had masked a purchase by himself under the form of a sale and conveyance to another. The transaction was attacked through ejectment by an heir of the estate. The court ruled that the sale was fraudulent in law and therefore void, and might be shown to be such in a law action without compelling the heir to go into equity. In McKay v. Williams, 67 Mich. 547, 35 N. W. 159, 11 Am. St. , it appeared that an attorney in fact had executed a deed to the land of his principal and on the same day took back from the grantee a deed to himself, and a few weeks thereafter conveyed the land to another. It was held that the deed by the attorney and the deed back to him were prima facie fraudulent and void on their face; that they did not show that title had passed; that they imparted notice to the subsequent purchaser, and that title could be recovered in ejectment. Many of the cases are reviewed in the opinion. In Winter v. Traux, 87 Mich. 324, 49 N. W. 604, 24 Am. St. Rep. 160, the same holding was made in a case identical in all its facts with McKay v. Williams, except that the sale was made by a guardian instead of an attorney in fact.

Now, in this case, as hereinbefore shown, the deed under which Frazier claimed showed on its face the relationship existing between Scheel, the guardian, and Scheel, the purchaser at her sale — that is, it contained a recital sufficient to charge him with notice. This was sufficient.

The judgment of the court below is affirmed.

Johnston, Smith, Greene, Ellis, Pollock, JJ., concurring.