Harrop v. Cole

• Decision Date: 10 September 1915
• Docket Number: No. 27/592.,27/592.
• Parties: HARROP et al. v. COLE et al.
• Court: New Jersey Court of Chancery

95 A. 378

HARROP et al.

v. COLE et al.

No. 27/592.

Court of Chancery of New Jersey.

Sept. 10, 1915.

Bill by John T. Harrop and others against Louis E. Cole and others. Pinal hearing on bill, answer, and proofs taken in open court. Decree for complainants.

William W. Watson, of Passaic, for complainants. Cornelius Doremus, of Ridgewood, N. Y., for defendants.

STEVENSON, V. C. As to the facts, the weight of evidence and the probabilities are on the side of the complainants. The defendant's story rests upon his uncorroborated testimony, and in many respects his story and his manner of narrating it upon the stand discredit his cause.

I find that the complainants verbally employed the defendant to negotiate on their behalf the purchase of a parcel of land in Passaic county. The defendant thus charged with this business, in which he had the confidence of his employers, violated his duty, purchased the land with his own money, and took a deed thereof to himself. With the view of the evidence which I entertain, the case resolves itself into a well-defined question of law, about which there has been a remarkable diversity of opinion expressed in decisions of the courts and in the text-books.

Mr. Perry seems to accept as established law that:

"Parol proof cannot be received to establish a resulting trust in lands purchased by an agent, and paid for by his own funds; no money o£ the principal being used for the payment." 1 Perry on Trusts, § 135.

Mr. Browne, in his authoritative work on the Statute of Frauds, appears to favor the contrary view. Browne on Statute of Frauds, § 96.

In volume 15 of the American & English Encyclopedia of Law (2d Ed.) at page 1187, cases on both sides of this question are cited, and it is stated that:

"It seems to be held by the weight of authority that a court of equity cannot grant relief" by holding the agent "a constructive trustee."

We have the Supreme Court of the United States, and the English courts, and the courts of several of the states, firmly supporting the rule that the derelict agent can be decreed in equity to hold in trust for his betrayed and defrauded principal. Other courts of various states of high authority have held otherwise.

It is important to note that the whole basis of objection to the granting of relief to the deceived principal rests upon the statute of frauds. The argument as stated by Mr. Perry is that:

"The relation of principal and agent depends upon the agreement existing between them, and the trust in such a case must arise from the agreement and not from the transaction, and where a trust arises from an agreement it is within the statute of frauds and must be in writing."

I think that this view is entirely erroneous, and the trend of the decisions is toward its rejection. A trust, which is more correctly classifiable as a constructive trust (1 Pom. Eq. § 155; 1 Perry on Trusts, § 166) than as a resulting trust (1 Perry on Trusts, § 135), is established by proof of the betrayal of confidence—of the violation of duties arising out of a fiduciary relation. The fiduciary relation may be established in a large number of ways. It is a mere accident that in this particular case, and in large numbers of others, the fiduciary relation grows out of a verbal promise. As the authorities abundantly show, equity will not tolerate the betrayal of confidence, and it makes no difference how this confidence has been obtained.

When one man assumes to act as agent for another, as the representative of another, he necessarily establishes a fiduciary relation between himself and the other person, who stands as his principal. This is in the very nature of the transaction, because the agent undertakes to act, not for his own benefit, but for the benefit of his principal, and his principal stays out of his own business, and confides in the agent to attend to this business for him. It is the assumption by the agent of his representative status and the confidence necessarily reposed in him by the principal which create the agent's peculiar liabilities and cast special limitations and obligations upon him. The agency may be established by a written contract, or a verbal contract, or no contract whatever, the assumption and confidence involving a purely gratuitous service, for which the agent is to receive no compensation in any form.

In a large class of cases analogous to the one in hand, equity intervenes where a fiduciary relation is found to exist between contracting parties, and sets aside or modifies the most solemn written contracts, and for that purpose admits parol evidence. 2 Pom. Eq. § 956; 1 Perry on Trusts, § 210. In the case of Lillis v. P. Ballantine & Sons, decided by me about three years ago, but not reported, I held that:

"An obligation and a disqualifying fiduciary relation may be created contemporaneously, and the latter may infect the former, precisely as if the fiduciary relation...