Cumberland Coal & Iron Co. v. Sherman

• Decision Date: 09 October 1863
• Parties: THE CUMBERLAND COAL & IRON CO., v. ALLEN M. SHERMAN, ET AL.
• Court: Maryland Court of Appeals

20 Md. 117

THE CUMBERLAND COAL & IRON CO., v. ALLEN M. SHERMAN, ET AL.

Court of Appeals of Maryland.

October 9, 1863

APPEAL from the equity side of the Circuit Court for Allegany County:

This appeal is taken from a final decree of the Circuit Court for Allegany County, sitting in equity, dissolving the injunction, which had been previously granted and continued and dismissing the complainants' bill. The case was heretofore before this Court on an appeal by the present appellees from the orders of the Court below refusing to dissolve and continuing the injunction until final hearing, and will be found reported in 16 Md. Rep., 456. The statement of the proceedings in the cause there made, will be found to embrace all that is now essential to be presented, excepting the additional testimony taken since the cause was remanded, which is stated in substance in the opinion of this Court.

The cause was argued before BOWIE, C. J., and BARTOL GOLDSBOROUGH and COCHRAN, J. G. A. Thruston and G. W. Dobbin for the appellant:

After the trial of the motion to dissolve, twice in the Court below, and once upon appeal in this Court, an entirely new defence has been taken, never before heard of or intimated but now for the first time brought to light, although the defendants had answered with elaborate minuteness and care, and had never referred to it, and most of the witnesses by whom it is attempted to be sustained, had been fully examined and had never mentioned it.

This defence is, that at the general meeting of stockholders, held on the 1st June 1857, astockholder present, whose name some of the witnesses do not recollect, and others state to have been a Mr. Grosvenor, since dead, moved that the sale made to Sherman and Dean be confirmed, which motion was carried.

The recorded minutes of this meeting make no mention of this resolution, although that part of them which particularly relates to this sale of lands, was drawn by Sherman himself, and they were read at the first meeting of directors held thereafter, at which most of the witnesses who now testify as to them, were present, without any suggestion insufficiency, omission or error.

The main question to be decided on this appeal is, whether the sale of those lands to Sherman and Dean, which this Court by its former judgment has declared to be void, has been ratified and confirmed by the stockholders, under circumstances of full knowledge of law and fact to guide their conduct in a meeting legally competent to make such confirmation.

In the argument of the appellants, it is proposed to discuss this question under three heads, viz:

I. Whether such a resolution ever was in fact passed.

II. Whether, if passed at all, the stockholders, in the language of this Court's decision, " were fully aware of every material circumstance of the transaction, the real value of the subject of the contract, and whether their act of ratification was an independent and substantive act, founded on complete information, and of perfect freedom of volition." And whether, " in addition to all this, the stockholders were not only acquainted with the facts, but apprised of the law how those facts would be dealt with if brought before a Court of Equity. "

III. Whether the meeting of June 1st, 1857, was legally competent to ratify and confirm this sale and contract.

I. Whether such a resolution ever was in fact passed.

Under this head, after an elaborate review of the whole evidence relating to the passage of a resolution of express confirmation, the appellant's counsel argued, that such evidence instead of being of that clear and conclusive character necessary to prove an act which is to deprive a cestui que trust of his estate and give it to his trustee, it was inconclusive and uncertain, with the preponderance the other way.

II. Whether, if such a resolution was passed, it was done under such a course of conduct on the part of the trustee, and such a state of information on the part of the stockholders, as to gratify the decision of this Court with reference to a confirmation by a cestui que trust.

The rule applicable to the case in which the trustee deals directly with his cestui que trusts, and the latter is sui juris and competent to deal independently, throws upon the trustee the entire onus of rebutting the legal presumption against the transaction, and of proving affirmatively, the conditions necessary to give it validity. " If no such proof is established, Courts of Equity will treat the case as one of constructive fraud." Story's Eq. J., sec. 311; Sir William Grant, in Randall vs. Errington, 10 Ves., 427. Lord Brougham, in Hunter vs. Atkins, 3 Myl. R. 113. Vice Chan. Wigram in Edwards vs. Meyrick, 2 Hare., 50, and 68. Note of Am. Ed. to Fox sv. Mackreth, White's Eq. Ca., 65 Law Lib., 146.

Those conditions are:

1. That the cestui que trust knew that he was dealing with his trustee, and had agreed to discharge him from that relation and capacity.

( a. ) No single fact can be so material or the knowledge of it so necessary to put the cestui que trust on his guard, or the ignorance of it so sure to mislead him, as the fact that his trustee had reversed their relations, and converted himself from a protector to an adversary in the transaction. Ignorance of that fact brings the case within the policy of absolute disability, for the dealing is not really between the trustee and cestui que trust, but by the trustee with himself. It becomes the common case of an agent to sell, being himself the buyer, besides the concealment, which is an actual fraud, for which, sales in all other respects capable of being sustained, have been set aside. Randall vs. Errington, 10 Ves., 526. White's Eq. Ca., 65 Law Lib., 130. Story's Eq., sec. 316.

( b. ) The cases not only require that the consent of the cestui que trust should be free, full and unequivocal, but will not consider the relation dissolved unless all the duties of the trustee as to the transaction are shown to have been completely fulfilled. Lord Eldon, ex-parte Lacey, 6 Ves., 627; and his comment on Fox vs. Mackreth, in Coles vs. Trecothic, 9 Ves., 234.

2. That the trustee had communicated all the information which he possessed or could acquire, to the cestui que trust.

( a. ) It is a duty in this and other confidential relations, to disclose all information possessed.

( b. ) It is also a duty to acquire all the information that can be attained by reasonable diligence, (all the information " possible," the cases say,) Ex-parte James, 8 Ves., 348, & c., for the benefit of the cestui que trust.

If a disclosure should be omitted because the trustee was not aware of the duty, or of the materiality of the information, the omission would still be a constructive fraud. " There must be," said Lord Eldon, in Gordon vs. Gordon, 3 Swans., 409, (where it was the policy of the law, as far as possible, to uphold the transaction as a family arrangement and amicable settlement, not to discountenance it as a dealing between trustee and cestui que trust, ) " there must be not only good faith and honest intention, but full disclosure, and without full disclosure, honest intention is not sufficient." Farnum vs. Brooks, 9 Pick., 234. Hugenin vs. Basely, 14 Ves., 300.

If the trustee fail to get information which might be procured by diligent enquiry, and by want of that information a third party should be enabled to obtain an advantage in the bargain, it would be contrary to good conscience to allow the trustee, by coming in as the purchaser, to avail himself of that advantage for his own benefit. Gibson vs. Jeyes, 6 Ves., 280.

" The defendant is in this situation, being the person who is to acquire the interest, and also the person who is to advise the grantor; he imposed upon himself the duty of informing himself fully of the value, and of acting in favor of his employer, as adversely against himself as he would against any other person with whom, acting fairly for his employer, he was making the best bargain he possibly could." Lord Eldon in Harris vs. Tremenhere, 15 Ves., 40. Howell vs. Ransom, 11 Paige, 541. 65 Law Lib., 137. Generally, as to disclosure. White's Eq. Ca. 65 Law Lib., 146, and cases above cited under this point. Story's Eq., sec. 316, (A. ) See especially Farnum vs. Brooks, 9 Pick., 234. Walker vs. Symonds, 3 Swanst., 73.

3. That the trustee derived no advantage whatever from his situation as trustee, or from any knowledge acquired in that character. 49 Law Lib., 146, and remarks on Keech vs. Sandford, Id., 371. Lord Brougham in Hunter vs. Atkins, 3 Myl. & K., 113, which is a case qualifying rather than extending the doctrine.

4. That the trustee had advised his cestui que trust in the same manner as if the dealing of the latter had been with a third party. 65 Law Lib., 133 and 146. Lord Eldon in Gibson vs. Jeyes, 6 Ves., 278. Lord Brougham in Hunter vs. Atkins, 3 Myl. & K., 113.

5. That the price was fair, the consideration adequate, and the whole bargain just and reasonable. 65 Law Lib., 146. Gibson vs. Jeyes, 6 Ves., 280. Peacock vs. Evans, 16 Ves., 540. Edwards vs. Myrick, 2 Hare, 68. See Butler & others vs. Haskill, 4 Dessausure, 652, for a collection of the cases on inadequacy. See also Story's Eq., sec. 321.

Again, as to confirmation of actual or constructive frauds, or of acts of persons in confidential relations.

The rules of law applicable to such cases, are much more strict than in the ordinary dealings between independent and equal parties where there is a merely technical defect of power, or where it is the policy of the law to uphold the transaction. In all dealings between persons in confidential relations, or having just emerged from them, the policy of the law is to look with great...