Accounting ; Mutual- Accounts ; Presumptions ; Equity Practice ; Answer as Evidence ; Evidence ; Trusts and Trustees; Auditor’s Reports, Exceptions to; Interest.
1. Where cross demands or mutual accounts or dealings exist between parties, and one gives to the other a note or security for the payment of a definite amount growing out of the transactions, or some of them, the presumption arises that the amount for which the note or security is given is the balance due the party to whom it is given upon a statement or settlement of the mutual accounts existing between them at the time, including all the items and demands which each then had against the other; and the burden is upon the party controverting such presumption to prove by clear and satisfactory evidence, not only that some items were omitted from such accounting, but also that they were omitted by the mutual mistake of both parties or the fraud of the party to whom the note or security is given.
2. New and affirmative matter set up in an answer to a bill in equity and not responsive to the allegations of the bill, is not evidence in favor of the defendant.
[468]*4683. A defendant in equity who claims credit for sums alleged to be due him from a complainant executor, for medical services and board furnished the decedent, is an incompetent witness under Sec. 858, R. S. U. S., as it involves his testifying as to transactions with and statements of a decedent.
4. A trustee is incompetent to purchase the property he holds in trust from his cestui que trust; and although no conventional trust relations may exist between parties, yet if a relation of confidence exists, the person in whom confidence is reposed will not be permitted to derive any personal advantage from dealing with the property of the other ; and any sale by' the party reposing the trust to the other will be avoidable at the election of the former, unless he acted with a knowledge of all the material facts affecting the transaction and fully understood he was disposing of the property, and received, approximately at least, the full value thereof.
5. Where an auditor’s report charges a given sum against one of the parties with interest from a certain date, an exception to the allowance of the sum awarded raises the question as to whether the interest was allowed from the proper date.
6. Where in a proceeding in equity for an accounting it is determined that such a relation of confidence existed between the complainant’s decedent and the defendant that a profit made by the defendant on a purchase of property from the decedent during her life time belongs to her estate, the defendant may properly be relieved of paying interest prior to the decree requiring him to account for such profit.
Submitted May 5, 1897.
Hearing on an appeal and a cross-appeal from a decree in a suit for an accounting.
Affirmed.
The Court in its opinion stated the case as follows:
These are cross-appeals from a decree of the Supreme Court of this District, made upon a bill and cross-bill. The original bill was exhibited by Elizabeth A. Walker against William V. Marmion and others. Miss Walker died before final decree in the court below, and the cause was revived by consent in the name of John McClellan, her executor.
The defendant Marmion, in his answer to the original bill, denies that he was the trustee of Miss Walker, but admits that he received $5,000, her distributive share in her [470]*470mother’s estate, and $2,300, the purchase money for her interest in real estate, to invest for her, but denies that she reposed any confidence or trust in him in relation thereto, but avers that he invested the same as she directed, and collected and paid the interest thereon to her periodically as the same fell due, and that he had also collected and received the principal and paid portions thereof to her from time to-time, and that she was indebted to him for board and medical attendance in a sum in excess of the balance of the principal that would otherwise be due her from him on account, of said moneys. He admits the giving of the deed of trust to McClellan and the execution and delivery of the note of $6,700 to her, but denies that he owed her anything at that time, and says that, the whole supposed indebtedness was. fictitious, as Miss Walker well knew, and that it was given for a purpose of which she was cognizant, with an understanding thatthe said deed of trust was not to be recorded except upon the happening of a certain emergency, which has never arisen, and that the $6,700 note was delivered to her to give color to the claim that he was indebted to her in the sum recited in the deed if the occasion therefor should arise. He also admitted that the said deed of trust to Boarman was-for a fictitious indebtedness.
The following facts appearing by the pleadings anti evidence are conceded or not seriously contested, to wit:
“1722 I street, June 22, 1881.”
And on the 24th of the same month received the following reply from Mr. Carlisle:
“Under the peculiar circumstances of this case I was [473]*473induced to give for the two-thirds bought at the rate of $9,200 for the whole property just $200 more than Jack and Mr. F. believed to be its full value, and $1,200 more than Mr. Wag.’s estimate of its full value. Neither my wife nor I have the least desire to sell. On the contrary, I wish to purchase for her your wife’s interest and that of Miss Walker, and I am ready immediately to give full value for these interests.”
“6,700.00. Washington, D. C., May 2, 1887.
“Twelve months after date I promise to pay to the order of Elizabeth Agg Walker six thousand and seven hundred dollars, at Riggs’ bank, with interest, at the rate of 3 per cent, per annum, from date until paid, value received.
“This note in lieu of and to take place of that given in 1885.
“(Endorsed:) This note to be extended until May 3rd, 1889. E. A. Walker.”
On the 27th day of January, 1888, Marmion prepared* and at his request Miss Walker executed and delivered to him the following paper:
“Washington, D. C., January 27, 1888.
“In testimony whereof witness my hand and seal the day and date above written.
“Witness:
“ (Signed) Elen Didgs.”
On the 9th of August, 1888, Miss Walker being away from Washington, Marmion wrote and enclosed to her a check for $200, and 25 cents in stamps, saying in the letter that $50.25 was for interest and $150 was to be credited on the note.
On the 20th day of October, 1888, Marmion prepared and requested Miss Walker to sign the following paper:
[476]*476“I, Elizabeth Agg Walker, of Washington, D. C., hereby declare that the promissory notes, numbered 1, 2 and 3, for the following sums, to wit, numbers 1 and 2 being for ten thousand dollars each, and number 3 being for eleven thousand and three hundred dollars, all of which said notes were made by William V. Marmion, payable to me one year after date, at the rate of three per cent, interest, interest payable quarterly, the date of payment being May 2d, 1888, the notes being dated May 2d, 1887, the said notes being described in a certain deed of trust executed by the said William V. Marmion to Joseph Gales McClellan, of St. Paul, Minnesota, as notes Nos. 1, 2 and 3 have been can-celled and fully paid and returned to the said William V. Marmion; and I further declare that the only claim which I hold against the said William V,, Marmion or his property, as described in said deed, is for the unpaid balance due upon note described in said deed of trust as note No. 4, payable May 2, 1888, and extended to May 2,1889.
“In testimony whereof witness my hand and seal this twentieth day of October, 1888.
“--. [Seal.]”
But she did not sign it.
Marmion’s counsel excepted to the auditor’s report on grounds sufficiently comprehensive to r.aise all the questions raised by his answer and cross-bill. x\t the final hearing of the cause, the court below sustained the exception to the allowance of only $450 for nine months’ board, and allowed $550 in lieu thereof for eleven months’ board, on the ground that the auditor had made a clerical error in the number of months that Miss Walker and maid boarded with Marmion after the 27th da}' of January, 1888, and also corrected the auditor’s report in relation to the allowance of interest on the $974.50 from July 7, 1881, and allowed interest only from the 2d day of April, 1895, the date of the interlocutory decree in this cause. In all other particulars the court con[478]*478firmed the auditor’s report, and decreed that there was due from Marmion to the executor of Miss Walker the sum of $4,024.50 with interest on $3,050, the balance due on said note from December 10, 1888, to November 2,1889, at 3 per cent, and at 6 per cent, thereafter until paid, and interest on $974.50 from the 2d day of April, 1895, and that the deed •of trust from Marmion to McClellan of May 2, 1887, is a •security for the payment thereof. From this decree both parties appealed, and the solicitors for Marmion assigned the following errors in said decree:
“1. The court below erred in charging the defendant Mar■mion with the sum of $3,274.50 as the amount of Elizabeth A. Walker’s interest in the proceeds of the sale of premises No. 1722 I street, northwest, instead of charging him with •only $2,300.00 as the amount of her said interest.
“2. The court below erred in refusing to allow the defendant Marmion’s charge against the complainant Elizabeth A. Walker for board and lodging at the rate of $35.00 per month from August, 1881, to December, 1888, instead •of allowing him only $550 for such board and lodging.
3. The court below erred in refusing to allow the defendant Marmion credit for his charges against the complainant Elizabeth A. Walker for the medical services rendered to her by him at her request.”
And the counsel for McClellan, executor, assigned as error fhe refusal of the court to allow interest on the $974.50 from the time the money was received by Marmion.
1. There is no proof that, with respect to the real estate referred to, Marmion occupied to Miss Walker the relation of trustee. There is no hint of any such relation in the record outside of the allegations contained in the original •bill, which do not constitute proof of any fact. There is no proof anywhere that with respect to Miss Walker’s interest [479]*479in the real estate Marmion was ever her trustee, and hence it must follow that he was just as competent to purchase from Miss Walker as was Mr. Carlisle. “The trustee may purchase of the cestui que trust property not embraced in the trust fund, care being taken that the influence of the relation does not affect the transaction.” 1 Perry on Trusts (3d Ed.), 238; Eldridge v. Smith, 34 Vt. 484.
In this country at least, if is well settled that a trustee may purchase from his cestui que trust, if no advantage be taken by the trustee by misrepresentation, concealment or undue influence, and the cestui que trust understood the nature and effect of the transaction. Brown v. Cowell, 116 Mass. 465; Jennison v. Hopgood, 7 Pick. 1; Farnham v. Brooks, 9 Pick. 212. The trustee is not forbidden to buy directly of his cestui que trust, but the burden is on him to show a full, fair and sufficient consideration, and it must appear that the cestui que trust had power to sell, and had the fullest information concerning the transaction. 27 Am. & Eng. Encyc. 213, and cases cited; 1 Perry on Trusts (3d Ed.), p. 238; Smith v. Townshend, 27 Md. 368; Breckett v. Tyler, 3 MacArthur, 319; Spencer’s Appeal, 80 Pa. St. 317. It appears from the complainant’s own evidence that the price paid by Marmion was the full value of the property, and it further appears that Miss Walker had full knowledge of the negotiations between her nephew, and Mr. Carlisle, and that she sold to Marmion with full knowledge of all the facts.
3. The nature of an account stated is that the parties consider the claims and strike a balance, after which the vouchers may be destroyed and the balance may not be disputed. It is an agreement by both parties that the items are true. There must be a mutual examination of the claim of each other by the parties, and a mutual agreement as to the correctness of the allowance or disallowance of the respective claims. 6 Wait’s Actions and Defenses, 424. Assuming that the $6,700.00 note was intended to be a valid security in the hands of Miss Walker, the giving of such a note would only be prima facie evidence of a settlement and would still be open to explanation. Morton v. Rogers, 14 Wendell, 576.
1. If, as claimed by the complainant, relations of peculiar trust and confidence subsisted between the complainant and the defendant, and by reason of those relations he acquired the possession and control of her property; if, in addition to these circumstances, she was a helpless invalid, and he acted as her physician, then the situation was such as, under [481]*481the law, precluded him from making any profit or advantage out of her estate, or any part of it. Huguenin v. Beaseley, 2 Wh. & Tud. Ld. Cases in Eq. 1156, and cases cited in notes; Michaud v. Girod, 4 How. 503, 554; Brooks v. Martin, 2 Wall. 70; Perry on Trusts, Secs. 3 94-210; Story’s Eq. Jur., Secs. 322, 323; 2 Sugden on Vend. (7th Am. Ed.), Sec. 3, Par. 1, p. 362.
Where a technical trust is shown to exist, the law presumes confidence, influence and power in the trustee from that circumstance alone and dispenses with other proof. Where no technical trust exists, the confidence, influence and power must be proved by satisfactory evidence; but when proved by whatever means, the result is the same.
Mr. Justice Cole, of the Supreme Court of the District of Columbia, who sat with the court on the hearing of this cause in the place of Mr. Justice Morris, delivered the opinion of the Court:
It will be most convenient to first consider the question arising upon the second and third assignments or error by Marmion’s counsel, which is that it was error to refuse Marmion credit for the amounts claimed by him for the board of Miss Walker, and for medical attendance to her prior to the 27th day of January, 1888.
The giving of the note for $6,700 by Marmion to Miss Walker in 1885, the renewal of it on the 2d day of May, 1887, and the giving of a deed of trust on the last mentioned date to secure it, and the preparation and acceptance by him of the written acknowledgment by Miss Walker of the 27th day of January, 1888, of the receipt of certain payments on said note, and stating the balance due thereon at that date, and extending the time for the payment thereof, was the equivalent of an account stated between these parties at each of the dates above mentioned.
Where cross demands or mutual accounts or dealings exist between parties, and the one party gives to the other a note or security for the payment of a definite amount growing-out <?f said accounts or transactions, or. some of them, the presumption arises that the amount for which such note or security is given is the balance due the party to whom it is given upon a statement or settlement of the mutual accounts existing between them at the time, including all the items or demands which each then had against the other, and the burden is upon the party controverting such presumption to prove by clear and satisfactory evidence, not only that [483]*483some items were omitted from said accounting, but also that they were omitted by the mutual mistake of both parties or the fraud of the party to whom the note or security is given. Chappedelaine v. Dechenaue, 4 Cranch, 306; Lake v. Tyson, 6 N. Y. 461; DeFreest v. Bloomingdale, 5 Denio, 304; Maybury v. Berkery, 102 Mich. 126; Rice’s Ev., p. 103; 1 Taylor Ev., Sec. 124; Gaskin v. Wells and others, 15 Ind. 253.
In the case of Chappedelaine et al. v. Dechenaue, above referred to, Chief Justice Marshall, speaking of the effect of a stated account, uses the following language:
“The stated account is pleaded in bar of so much of the bill as requires that the subject should again be opened, and the particular errors assigned, with the exception of one in the addition, are denied in the answer.
“That the plea in bar must be sustained, except so far as it may be in the power of the representatives of Chappedelaine to show clearly that errors have been committed, is a proposition about which no member of the court has doubted for an instant. No practice could be more dangerous than [485]*485that of opening accounts which the parties themselves have adjusted, on suggestion supported by doubtful or by only probable testimony. But if palpable errors be shown, errors which can not be misunderstood, the settlement must so far be considered as made upon absolute mistake or imposition, and ought not to be obligatory on the injured party or his representatives, because such items can not be supposed to have received his assent. The whole labor or proof lies upon the party objecting to the account, and errors which he does not plainly establish can not be supposed to exist.” The situation in this case is similar to the one in the case from which the foregoing quotation is made, the main difference being that in that case the stated account was attacked by the bill, while in this case it is assailed by the answer. Marmion’s answer admits the giving of the note and security and the acknowledgment by him of a balance due on the 27th day of January, 1888, and seeks to avoid the presumption arising therefrom by the allegation of new or affirmative matter. Counsel for Marmion contended that his answer claiming the right to charge against the note his bills for board and medical attendance occurring prior to January 27, 1888, is evidence in his favor. But the conclusive answer to that argument is that that part of the answer is affirmative matter and is not responsive to the allegations of the bill, which is necessary in order to render the statements of an answer evidence for the defendant. Nor is that allegation of the answer supported by any competent evidence. Marmion is the only witness who testifies tending to prove that his bills for board and medical attendance were not settled, adjusted or paid at or before the times of the giving by him of the notes, and the making of the acknowledgment of the 27th of January, 1888. But he is an incompetent witness to prove such facts in this case, as it involves his testifying against an executor as to transactions with and statements by the testatrix, which would be in violation of both the letter and spirit of Sec[486]*486tion 858 of the Revised Statutes of the United States, relating to the incompetency as witnesses of parties to a suit.
The testimony of Lydia Marmion, tending to prove the admission of Miss Walker that she was to pay Dr. Marmion hoard, does not reach the point, as it has no tendency to rebut the presumption arising from the settlements. But if Marmion were a competent witness, his testimony does not go far enough to impeach the account stated. It only tends to prove that the items of board and medical attendance were not included in the settlement. It does not tend to show that they were left out either through a mutual mistake of the parties or the fraud of Miss Walker, one of which is necessary to impeach the balance admitted. He knew of those items at the time, and the presumption is that if they were justly due him at the time of those settlements he would have insisted upon their going in reduction of liquidation of the balance due from him, and this presumption is conclusive upon him until he proves not only that they were not considered in those settlements, but some reasonable grounds why they were not, consistent with their being due him at the time. There was no error, therefore, in the action of the court below in rejecting the claim of Marmion for board and medical attendance prior to the 27th day of January, 1888. Miss Walker remained in the family of Dr. Marmion, with her maid, for eleven months subsequent to the last mentioned date, and he was allowed $550 therefor; and there is no error assigned upon that action of the court. But it is contended that there was error in not allowing Dr. Marmion for medical attention after the last named date. The item of his bill is $1,200 for medical and surgical services from January 1, 1888, to September 20, 1888. The evidence in relation to it is exceedingly meagre and unsatisfactory. The conclusion of the auditor in relation to this charge is as follows:
“The claim of $1,200 for medical and surgical services rendered from January 1st, 1888, to September 20th, 1888, is not sufficiently explained in the proof. I am not able to [487]*487estimate the character, extent, or value of the services. That Miss Walker, in her condition, required some assistance and attention beyond that of her maid, and that he rendered such service, appears in the testimony of the defendant Marmion'; but whether such as he describes comes within the designation of medical or surgical service, and, if so, the extent and value of the same, are matters left uncertain.”
This characterization of the evidence met the approval of the court below, in which we concur, and we think there was no error in rejecting that item.
The remaining assignment of error made by the attorneys for Marmion is that the court erred in charging him with the sum of $974.50, the difference between $2,300, the sum for which Marmion claims to have purchased Miss Walker’s interest in premises 1722 I street, and the sum of $3,274.50, the amount which Mrs. Carlisle paid Marmion therefor.
It is undoubtedly the doctrine of equity that where a conventional ti;ust relation exists between parties, the trustee is incompetent in law to take the property which is the subject of the trust by purchase from the cestui que trust, [488]*488and that although no conventional trust relation may exist between the parties, yet if there be in fact a relation of confidence, the person in whom the confidence is reposed will not be permitted to derive any personal advantage from dealing with the property of the other party, and that any sale by the party reposing the trust, to the other, will be voidable at the election of the former, unless he acted with a knowledge of all the material facts affecting the transaction, and fully understood that he was disposing of his property, and received approximately, at least, the full value thereof. The latter part of the foregoing proposition is stated by the Supreme Court in the case of Brooks v. Martin, 2 Wallace, 70, in the following language:
“If the parties are to be regarded in this transaction as holding towards each other no different relations from those which ordinarily attend buyer and seller, and as therefore under no special obligation to deal conscientiously with each other, we are satisfied that no such fraud is proven as would justify a court in setting aside an executed contract. But there are relations of trust and confidence which one man may occupy towards another, either personally or in regard to the particular property which is the subject of the contract, which impose upon him a special and peculiar obligation to deal with the other person towards whom he stands so related, with a candor, a fairness and a refusal to avail himself of any advantage of superior information or other favorable circumstance not required by courts of justice in .the usual business transactions of life.”
The following authorities also support the general rule above stated: Perry' on Trusts, Secs. 194-210; Story’s Eq. Jur., Secs. 322, 323; Michoud v. Girod, 4 How. 503; Rankin v. Porter, 7 Watts. 390; Huguenin v. Basely, 2 Wh. & Tud. Leading Cases in Equity, and other cases referred to in the notes to that case; Smith v. Kay, 7 H. L. 779.
Counsel for Marmion contend that the foregoing rule does not apply to the transaction in question as no relation [489]*489of trust existed at the time in relation to Miss Walker’s interest in the real estate in question. But according to the above cited authorities, the rule applies to all transactions between the parties where a relation of confidence exists generally. Does the evidence in this case establish such a relation ?
These admitted facts bring the transaction fully within the rule under consideration, and subject it to the test stated by Mr. Justice Miller in the case of Brooks v. Martin, supra, in the following language :
“We lay down, then, as applicable to the case before us, and to all others of like character, that in -order to sustain a sale, it must be made to appear, first, that the price paid approximates reasonably near to a fair and adequate consideration for the thing purchased; and, second, that all the information in possession of the purchaser, which was necessary to enable the seller to form a sound judgment of the value of what he sold, should have been communicated by the former to the latter.”
And all the authorities agree that the burden is upon the purchaser to establish these facts by clear and satisfactory evidence. Are those facts established in this case?
[491]*491Marmion claims to have purchased from Miss Walker, on the 25th day of June, 1881, for $2,300, for her interest, which was at the rate of $9,200 for the whole, and at the rate at which Carlisle had purchased the interests of the other joint owners four days previous.
That Marmion considered the property worth more than $9,200 at the time appears from the occurrences both prior and subsequent to the conveyance to him by Miss Walker. When he was informed by McClellan that Carlisle had made an offer at the rate of $9,000 for the whole, he immediately offered $9,100; and when he learned that McClellan had sold the interests controlled by him at the rate of $9,200 to Carlisle, he expressed surprise and immediately, on the 22d of June, wrote Carlisle, asking his price for the interest he had purchased. On the 24th day of June, 1881, he received a reply from Carlisle, saying that he did not wish to sell, but desired to purchase the interests of Mrs. Marmion and Miss Walker, and was ready, immediately, “to givo full value for” them. This was the day before the conveyance of Miss Walker to Marmion. His statement in his testimony of how he and Carlisle entered into competition for this property is as follows:
On the 6th of September, 1881, these negotiations resulted in a sale by Marmion to Carlisle for $4,366, or at the rate of $3,274.50 for Miss Walker’s interest, a sum $974.50 in excess of what he claims to have agreed to give her for it a little more than sixty days previously. The conclusion that at the time he took the conveyance from her he was ready and willing to purchase the residue of the property at a price largely in excess of the rate he claims to have agred to pay for her interest is inevitable. He sold the interest obtained from her for a price more than forty per centum in advance of that for which he says she sold to him. What he was willing to pay for the other interests, and what Carlisle actually paid for that sold him by Marmion, must be considered the reasonable value for the property in the absence of proof to the contrary.
This leaves for consideration the assignment of error made by the counsel for complainant in the original bill, that the court erred in not charging the defendant with interest on the $974.50 from the date it came to his hands, instead of from the 2d day of April, 1895, when the court by interlocutory decree declared it to be a part of the trust fund.
The specification of error in relation to this item of interest is two-fold. The auditor allowed interest on the $974.50 from the 7th day of July, 1881, and the counsel for Marmion filed no exception to the auditor’s report specially objecting to the allowance of interest, and the claim is that the court erred in considering that question in the absence of such an exception. But defendant’s counsel did except to the report of the auditor in charging this sum against Marmion, and this was sufficient to i’aise all questions in relation thereto, and involved a consideration of the interest as well as the principal.
This disposes of all the errors assigned, and there being none found in the record, the decree must be affirmed, each party to pay his own costs on appeal.