Trice v. Comstock

121 F. 620, 61 L.R.A. 176, 1903 U.S. App. LEXIS 4644

• Court: Court of Appeals for the Eighth Circuit
• Decided: March 24, 1903
• Docket: No. 1,808
• Status: Published

Opinion

SANBORN, Circuit Judge

(after stating the case as above, delivered the opinion of the court). For reasons of public policy, founded in a profound knowledge of the human intellect and of the motives that inspire the actions of men, the law peremptorily forbids every one who, in a fiduciary relation, has acquired information concerning or interest in the business or property of his correlate from using that knowledge or interest to prevent the latter from accomplishing the purpose of the relation. If one ignores or violates this prohibition, the law charges the interest or the property which he acquires in this way with a trust for the benefit of the other party to the relation, at the option of the latter, while it denies to the former all commission or compensation for his services. This inexorable principle of the law is not based upon, nor conditioned by, the respective interests or powers of the parties to the relation, the times when that relation commences or terminates, or the injury or damage which the betrayal of the confidence given entails. It rests upon a broader foundation, upon that sagacious public policy which, for the purpose of removing all temptation, removes all possibility that a trustee may derive profit from the subject-matter of his trust, so that one whose confidence has been betrayed may enforce the trust which arises under this rule of law although he has sustained no damage, although the confidential relation has terminated before the trust was betrayed, although he had no legal or equitable interest in the property, and although his correlate who acquired it had no joint interest in or discretionary power over it. The only indispensable elements of a good cause of action to enforce such a trust are the fiduciary relation and the use by one of the parties to it of the knowledge or the interest he acquired through it to prevent the other from accomplishing the purpose of the relation. .

And, within the prohibition of this rule of law, every relation in which the duty of fidelity to each other is imposed upon the parties by the established rules of law is a relation of trust and confidence. The relation of trustee and cestui que trust, principal and agent, client and attorney, employer and an employe, who through the employment gains either an interest in or a knowledge of the property or business of his master, are striking and familiar illustrations of the relation. From the agreement which underlies and conditions these fiduciary relations, the law both implies a contract and imposes a duty that the servant shall be faithful to his master, the attorney to his client, the agent to his principal, the trustee to his cestui que trust, that each shall work and act with an eye single to the interest of his correlate, and that no one of them shall use the interest or knowledge which he acquires through the relation so as to defeat or hinder the other party to it in accomplishing any of the purposes for which it was created. 2 Sugden on Vendors (8th Am. Ed.) 406-409; Mechem on Agency, pp. 455, 456; Tisdale v. Tisdale, 2 Sneed, 595, 608, 64 Am. Dec. 775; Ringo v. Binns, 10 Pet. 269, 280, 9 L. Ed. 420; McKinley v. Williams, 74 Fed. 94, 95, 20 C. C. A. 312, 313; Lamb v. Evans [1893] 1 Chan. Div. 218, 226, 236; Connecticut Mutual Life Ins. Co. v. Smith, 117 Mo. 261, 295, 22 S. W. 623, 38 Am. St. Rep. 656; Van Epps v. Van Epps, 9 Paige, 237, 241; 1 Lewin on Trusts, 246, *180; Davis v. Hamlin, 108 Ill. 39, 49, 48 Am. Rep. 541; Winn v. Dillon, 27 Miss. 494, 497; People v. Township Board, 11 Mich. 222, 225; Grumley v. Webb, 44 Mo. 444, 454, 10 Am. Dec. 304; Lockhart v. Rollins, 2 Idaho, 503, 511, 21 Pac. 413; Eoff v. Irvine, 108 Mo. 378, 383, 18 S. W. 907, 32 Am. St. Rep. 609; Robb v. Green, [1895] 2 Q. B. 315, 317, 318, 319, 320; Louis v. Smellie (1895) 73 Law Times (N. S.) 226, 228; Gardner v. Ogden, 22 N. Y. 327, 343, 350, 78 Am. Dec. 192.

Why is not the case at bar governed by these rules of law? The defendant C. W. Comstock was the agent of the complainants to conduct to them in Barton county, Mo., probable buyers of land, to the end that they might sell land in that county to them, and gain a profit of the difference between the price at which the owners were willing to sell it and the price at which the complainants might be able to dispose of it. Comstock accepted this agency and acted under it. He conducted Mr. Shirk, his acquaintance and a possible customer, from his residence in Iowa to Barton county, Mo., and accepted from Trice and Beamer his traveling expenses for his service under his contract of agency. By means of this agency he learned what he probably never would have known otherwise, the location, quality, value, products, and probable income of the 1,925 acres of land in controversy. One of the objects of the agency which the complainants gave him was to enable them to sell this land. The subsequent purchase of it by Comstock prevented the accomplishment of this end. . Could he lawfully take the information and advantages which Trice and Beamer conferred upon him through this agency to the end that they might make a sale of this land by means of his services under it, and then use this information and these advantages to make such a sale impossible, to deprive his principals of all the benefits which they hoped to derive from the payment of his expenses, and the exhibition of this land to the possible customer? Could he lawfully appropriate to himself the land and all the benefits derived and expected from the agency? The answers to these questions do not seem to be difficult or doubtful. The law imposed upon this agent, Comstock, the duty to use all the knowledge and all the benefits he derived from his agency to accomplish the purpose of his principals, and it implied an agreement on his part that he would faithfully discharge this duty. It forbade him to use them for his sole benefit or to prevent his principals from obtaining the object of the agency, and charged everything' which he acquired by a violation of this inhibition with a constructive trust for their benefit. Why were not the lands in his hands charged with this trust for the use of the complainants?

It is contended that no trust arose because Trice and Beamer had no interest in or control over the lands. But no interest or control •of the property to which the agency relates is essential to the raising of the trust. The fiduciary relation and a breach of the duty it imposes are sufficient in themselves. Winn v. Dillon, 27 Miss. 494, 497; People v. Township Board, 11 Mich. 222, 225; Grumley v. Webb, 44 Mo. 444, 454, 10 Am. Dec. 304; Lockhart v. Rollins, 2 Idaho, 503, 511, 21 Pac. 413. If one employs and pays an agent to investigate the title or the character of land for the purpose of purchasing it, and the agent uses the knowledge he acquires in this way to forestall his principal and obtain a title to the property for himself, it is no answer to the suit of the former to recover the land from his agent that the employer never had any title or interest in it, or that he was not injured by the action of the agent. In Winn v. Dillon, 27 Miss. 494, 495, the complainant, Winn, employed Dillon for the agreed compensation of $200 to search out and furnish to him the numbers or descriptions of state lands which he might enter under an act of the Legislature of the state of Mississippi Dillon furnished the descriptions pursuant to the contract. But before Winn had completed his entry of the lands Dillon entered them in his own name and for himself. Neither of these parties had any interest in, or control over, this property during the time that the contract of employment or agency was in force, but the court said: “Winn’s object was to enter the lands; he had engaged the services of Dillon to that end, and this created the relation of private trust and confidence which disabled Dillon from doing any act or acquiring any interest in the property adverse to the interest of Winn;” and it declared that the title in the hands of Dillon was charged with a trust for the use and benefit of his employer, Winn. Concede that the complainants had no contract for the purchase of this land from its owners, Reid and Green, yet they knew that it could at any time be purchased for the price of $20 per acre. Their scheme was to buy it at that price and sell it at a higher one. This was a legitimate business enterprise. The object of the agency of Comstock was to carry out this plan. His use of the knowledge he acquired through his agency to prevent his principals from accomplishing this purpose and to appropriate the benefits of the scheme to himself alone was as flagrant a breach of confidence and as fatal to his title to this property as it would have been if Trice and Beamer had held an unassailable agreement for the purchase of the land.

Nor is it any defense to the suit to enforce this trust that the agency had terminated before the confidence was violated. The duty of an attorney to be true to his client, or of an agent to be faithful to his principal, does not cease when the employment ends, and it cannot be renounced at will by the termination of the relation. It is as sacred and inviolable after as before the expiration of its term. Eoff v. Irvine, 108 Mo. 378, 383, 18 S. W. 907, 32 Am. St. Rep. 609; Robb v. Green [1895] 2 Q. B. 315, 317-320; Louis v. Smellie (1895) 73 Law Times (N. S.) 226, 228. In Eoff v. Irvine, after an attorney had examined an abstract of title for a client and after the relation had ceased, he, by the use of the knowledge he had acquired in the examination, secured the title to the property for himself and his friends, but the court decreed that they held it in trust for his former client.. In Robb v. Green, a manager of a business copied the names of the customers from the order book of his master, the proprietor. After the manager’s term of service had ended, he established a business in competition with that of his master, and proceeded to use the names of customers he had copied to divert business to himself, but the court decided that he held this information in trust for his former master, and enjoined him from using it against him.

Another objection earnestly urged against the equity of the complainants is that Comstock had no discretionary power, no authority to sell the land; that his only agency was to solicit and conduct probable customers to his principals; and that, if he was disabled from purchasing this Buckwater tract, he was disabled from buying any land in Barton county. It does not follow that Comstock was forbidden to purchase any land in Barton county because he was disabled from buying the Buckwater tract. He was prohibited from using the information and advantages he had secured by means of his agency to prevent or hinder his principals from accomplishing the purpose of the agency. His disability extended to all land by the purchase of which through the information and benefits he had derived from the agency he would hinder or obstruct his principal’s business of buying and selling lands in Missouri. But it extended no farther. He was at liberty to deal in any lands in Barton county concerning which he had learned nothing by the means of his agency. But he could not lawfully use any information or interest acquired thereby to destroy or to injure the business of his principals.

Nor was discretion or authority to sell these 1,925 acres of land requisite to disable this agent from buying and holding them adversely to his principals. Every agency creates a fiduciary relation, and every agent, however limited his authority, is disabled from using any information or advantage he acquires through his agency, either to acquire property or to do any other act which defeats or hinders the efforts of his principals to accomplish the purpose for which the agency was established. In Gardner v. Ogden, 22 N. Y. 327, 343, 350, 78 Am. Dec. 192, the clerk of the brokers of the plaintiffs, was held to be disabled from buying the plaintiffs’ property, although he never had any discretion or authority relative to the sale of it. In Winn v. Dillon, 27 Miss. 494, 497, Dillon was declared to be disabled from purchasing the lands he acquired, although the only authority he ever had was to search out and report their descriptions. In Davis v. Hamlin, 108 Ill. 39, 49, 48 Am. Rep. 541, an agent of a lessee to procure amusements for his theater, who never had any authority to deal with the leasehold estate, was held to be disabled from taking a renewal of the lease himself, and was adjudged to hold the leasehold interest which he had secured for the exclusive use and benefit of his principal.

The truth is that the principle of law which controls the determination of this case is not limited or conditioned by the interests, powers, or injuries of the parties to the fiduciary relations. It is as broad, general, and universal as the relations themselves, and it charges everything acquired by the use of knowledge secured by virtue of these trust relations and in violation of the duty of fidelity imposed thereby with a constructive trust for the benefit of the party whose confidence is betrayed. It dominates and controls the relation of attorney and client, principal and agent, employer and trusted employé, as completely as the relation of trustee and cestui que trust. In Greenlaw v. King, 5 Jur. 19, Lord Chancellor Cottenham, speaking of this doctrine, says: “The rule was one of universal application, affecting all persons who came within its principle, which was that no party could be permitted to purchase an interest when he had a duty to perform which was inconsistent with the character of a purchaser.” In Hamilton v. Wright, 9 Cl. & Fi. 111, 122, Lord Brougham declared that it is the duty of a trustee “to do nothing for the impairing or destruction of the trust, nor to place himself in a position inconsistent with the interests of the trust.” And on page 124 he said: “Nor is it only on account of the conflict between his interest and his duty to the trust that such transactions are forbidden. The knowledge which he acquires as trustee is of itself sufficient ground of disqualification, and of requiring that such knowledge shall not be capable of being used for his own benefit to injure the trust.” The rule upon this subject was clearly and not too broadly stated in the American note to Keech v. Sandford, 1 White & T. Lead. Cas. in Eq. (4th Am. Ed.) p. 62, *page 58, in these words: “Wherever one person is placed in such relation to another, by the act or consent of that other, or the act of a third person, or of the law, that he becomes interested for him, or interested with him, in any subject of property or business, he is prohibited from acquiring rights in that subject antagonistic to the person with whose interests he has become associated.” The facts of the case in hand brought it squarely within this rule, charged the title which the agent Comstock acquired with a constructive trust for the benefit of his principals, and furnished substantial ground for their application to a court of equity for appropriate relief.

It is contended, however, that the complainants are entitled to no remedy in equity because they have been guilty of iniquity. It is said that their plan of obtaining from owners options to purchase their lands at fixed prices, of then selling at an advance, and retaining the profits, and of obtaining agreements from owners that they might sell the lands at a price above that fixed in the contracts, and retain the balance for their compensation,,was reprehensible, and that they conspired with Bowling to induce Reid and Green to sell their lands at a low price. There are two sufficient answers to these arguments. They are (1) that the record discloses nothing unfair or inequitable in the plans or acts of the complainants, and (2) that the acts to which the defendants object neither conditioned nor affected the equity which the complainants now seek to enforce. There was nothing evil in itself, forbidden by law, or obnoxious to the strictest rules of fair dealing in the plan of business which the complainants had adopted. It contemplated no deceit of the owners of lands. In each case these owners were completely informed either that the complainants proposed to buy their property at the prices which the owners fixed and to make a profit for themselves by selling it again at a higher price, or that they proposed to sell the lands at as high a price as they could obtain, to return to the owners the price which the latter fixed, and to retain the difference as their profit in the transaction. There is no suggestion of iniquity, injustice, or unfairness in such a method of dealing. Larow v. Bozarth, 68 Mo. App. 406.

Nor was there anything reprehensible in the endeavors of complainants to obtain from the owners of the lands here in controversy a contract for their purchase at the lowest possible price. They were not the agents of the owners. Bowling was their agent. The complainants are not responsible for his acts and transactions. They are not in issue in this case, and they will not be discussed. Bowling and the owners of the land whom he represented stood upon one side, and the complainants upon the other, in the negotiations for the sale of these lands to the latter. The complainants were prospective buyers. Reid and Green were sellers. The complainants were dealing with the vendors at arm’s length. To them the low'est, to Reid and Green the highest, price, was the desideratum, and Trice and Beamer had the right to use all fair and reasonable means to buy the land from their owners at the lowest price which they were willing to receive for it. There is no evidence in this case that they made any false representations to the executors or to Bowling, or that they used any unfair means to obtain a contract for the purchase of the lands, while the fact that the agent, C. W. Comstock, was willing to take them, and Reid and Green sold them to him at the same price at which the complainants were expecting to buy them, is very persuasive evidence that no fraud was perpetrated upon the executors.

Moreover, if the charges which the defendants make against the complainants were true, they would constitute no defense to this suit. Their alleged offenses were not against the defendants, but against the former owners of this property. These owners have made no complaint and their rights and remedies are not here in question. The only issue here is whether or not the constructive trust which the betrayal of confidence by the agent Comstock has raised shall be enforced. General iniquitous conduct, reprehensible acts toward third parties, do not deprive a suitor of his right to justice in a court of equity. Wrongful conduct in the very act or matter which constitutes the complainant’s ground of action, and that alone, will repel from a court of equity on the ground that “he who -comes into equity must do so with clean hands.” This rule does not disqualify any complainant from obtaining relief who has not dealt unjustly in the very transactions concerning which he complains. Shaver v. Heller & Merz Co., 48 C. C. A. 48, 61, 108 Fed. 821, 834; Woodward v. Woodward, 41 N. J. Eq. 224, 225, 4 Atl. 424; Dering v. Earl of Winchelsea, 1 Cox, Ch. 318, 319; Lewis & Nelson’s Appeal, 67 Pa. 153, 166; Bateman v. Fargason, 4 Fed. 32, 33, 2 Flip. 660; Bisp. Fq. 61; Mahoney v. Bostwick, 96 Cal. 53, 61, 30 Pac. 1020, 31 Am. St. Rep. 175. The acts charged against the complainants, even if they had been committed, did not tend to perpetrate any wrong or inflict any injury upon the defendants, raised no equity in their favor, and constituted no defense to the enforcement of the trust which their violation of duty established.

One of the defenses to this suit was that the defendant James C. Comstock, who now holds the title to the lands in question, was a bona fide purchaser thereof for value without notice of the claim of the complainants. The court below found that this defense was not sustained by the evidence, and that James C. Comstock stood in the shoes of his brother, C. W. Comstock, the agent of the complainants. 'Counsel for the defendants have not argued-or suggested in this court that there was any error in this conclusion. But, as the case must, now be remanded for final decee, the evidence and the law upon this question have been carefully re-examined. James C. Comstock was a brother of C. W. Comstock. C. W. Comstock procured his option to purchase the land on September 15, 1899. He paid $75 for it at that time. About October 16, 1899, he paid $1,925 in part payment of the purchase price. On March 1, 1900, $6,000 more w?« paid. The deed was taken to James C. Comstock, and the latter made his note and trust deed for $30,000. C. W. Comstock managed the land, conducted all the correspondence and business, caused the leases to be taken to himself, acted in every way as the owner, and his brother, James C. Comstock, acted as his agent in the entire transaction. On January 4, 1900, James C. Comstock deposited with his brother, C, W. Comstock, $10,000, and they say that out of this deposit the $2,000 which C. W. Comstock had paid in September and October was repaid to him, and the $6,000 was paid on March 1, 1900. The option to purchase the land was assigned to James C. Comstock about October 12, 1899. He never paid his brother $1 for the assignment of this option or for the land, although the evidence is conclusive that the latter considered it of much greater value than the amount of the purchase price he had agreed to pay for it. In February, 1900, before the $6,000 was paid, James C. Comstock was notified of the claim of Trice and Beamer. These facts compel the conclusion that James C. Com-stock cannot defeat this suit on the ground that he is a bona fide purchaser without notice, because the evidence convinces that he is the mere agent and representative of his brother, holding the property for him, and because he received notice of the claim of the complainants before he had paid more than $2,000 on account of the purchase of the property, and probably before he had paid anything. The actual payment of the money which constitutes the purchase price before the receipt of notice is indispensable to the maintenance of the claim that one is a bona fide purchaser without notice. Jewett v. Palmer, 7 Johns. Ch. 64, 67, 68, 11 Am. Dec. 401; Hardingham v. Nicholls, 3 Atk. 304; Harrison v. Southcote, 1 Atk. 538; Story v. Lord Windsor, 2 Atk. 630; Kiefer v. Rogers, 19 Minn. 32; Wallace v. Wilson, 30 Mo. 335.

The result is that the complainants are entitled to the relief which they sought by their bill. The evidence in this case has been carefully examined. It does not lead to the conclusion that the defendants or either of them intended to perpetrate any injustice or wrong upon the complainants or to do any act which they deemed inconsistent with the rules of honor and fair dealing. But the fiduciary relation through which the agent, C. W. Comstock, procured his information and knowledge of the location, character, and value of this tract of land, his acceptance of the agency, his leading of the probable purchaser to the property,.his receipt from his principals of the expenses of his trip, forbade him frotn purchasing this land for himself, and thereby preventing his principals from effecting a sale of it, and charged it in his hands with a constructive trust in their favor.

The decree below is accordingly reversed, and the case is remanded to the Circuit Court, with directions to enter a decree to the effect that the defendants hold the title to the 1,925 acres of land described in the bill in trust for the sole use and benefit of the complainants; that upon the payment to the defendants or their attorneys of the amount of money which they have expended in purchasing the lands, with interest thereon at the legal rate, from the respective times of their payments, and upon the payment and surrender to James C. Comstock of his note for $30,000, which he executed in part payment of the purchase price, or upon the execution and delivery to him of a bond, with sufficient sureties, approved by the judge and conditioned to pay the note of $30,000, and to hold the defendant James C. Com-stock harmless therefrom and from the trust deed or mortgage securing the same, the defendants shall convey the lands in dispute to the complainants; that in default of such conveyance the title shall be passed by decree; and that the defendants shall pay the costs of the suit