Miller v. First Nat. Bank of Catawba County

• Decision Date: 31 October 1951
• Docket Number: No. 313,313
• Citation: 234 N.C. 309,67 S.E.2d 362
• Parties: MILLER, v. FIRST NATIONAL BANK OF CATAWBA COUNTY.
• Court: North Carolina Supreme Court

Page 362

67 S.E.2d 362

234 N.C. 309

MILLER, v. FIRST NATIONAL BANK OF CATAWBA COUNTY.

No. 313

Supreme Court of North Carolina.

Oct. 31, 1951

Wade Lefler, Newton, Ratcliff, Vaughn, Hudson & Ferrell, Winston-Salem, for plaintiff appellee.

T. P. Pruitt, and Willis & Geitner, all of Hickory, for defendant appellant.

DEVIN, Chief Justice.

The defendant Bank appealed from the denial of its motion to strike certain paragraphs from the complaint filed in the suit instituted by the plaintiff to surcharge the accounts of First Security Trust Company as executor and trustee of his father's estate. It is alleged the defendant Bank had absorbed by consolidation or merger the named Trust Company and assumed its liabilities. The gravamen of the charge in the complaint is negligence and mismanagement on the part of the Trust Company constituting a breach of trust, particularly in respect to the sale of 754 shares of stock of the Hutton & Bourbonnais Company which had been bequeathed in trust for the plaintiff under his father's will. Plaintiff, now of full age, seeks to recover damages for the loss alleged to have resulted. He alleges that the conduct of the Trust Company, for which the defendant Bank is now liable, under the circumstances set out at legth, amounted to a constructive fraud upon his rights. In order to present the entire matter plaintiff has also set out in his complaint the fact that a judgment of the Superior Court was rendered in a proceeding instituted by the Trust Company as executor in which all interested persons were made parties, including the present plaintiff, approving the sale of the shares of stock now complained of. The judgment roll, including the pleadings, findings and judgment, is attached to the complaint and for the purpose of attack made part of it.

Plaintiff's allegation that the sale of the shares of stock complained of was approved by a judgment of the Superior Court in an adversary action in which the plaintiff here was party defendant and appeared by a guardian ad litem and answered, nothing else appearing, would raise a complete defense to his complaint on that ground, and his allegations of negligence and mismanagement in respect to the sale of this stock would not avail against a valid judgment rendered by a court having jurisdiction of the parties and of the subject matter.

It is alleged that the Superior Court which rendered the judgment was without jurisdiction of the subject matter, but we do not think the judgment is open to attack on this ground, as a court of equity has power to entertain a petition to sell land to pay debts, though personal property remains undisposed of, in order to preserve the personal property from being sacrificed, Settle v. Settle, 141 N.C. 553, 54 S.E. 445; King v. North Carolina R. Co., 184 N.C. 442, 115 S.E. 172. However, no action was taken on this petition, and some time later an amended petition was filed, which the present plaintiff's guardian ad litem and the adult defendants answered, presenting a proposal for the sale of this stock and asking the court's approval and authority to the executor to conclude the sale for the reasons assigned.

The facts set out would seem to indicate the court had jurisdiction both of the parties and of the subject matter. Hence mere irregularities in the rendition of the judgment would not justify an independent action to avoid its effect. Irregularities may be corrected by motion in the cause. McIntosh, sec. 652; Simms v. Sampson, 221 N.C. 379, 20 S.E.2d 554; Carter v. Rountree, 109 N.C. 29, 13 S.E. 716.

The remaining ground left the plaintiff upon which to maintain his action, in the face of the judgment which would otherwise bar his access to the relief demanded, is that of fraud. He alleges the judgment was void for constructive fraud on the part of the Trust Company which entered into the rendition of the judgment.

Constructive fraud differs from active fraud in that the intent to deceive is not an essential element, but it is nevertheless fraud though it rests upon presumption arising from breach of fiduciary obligation rather than deception intentionally practiced. 23 A.J. 756; Rhodes v. Jones, 232 N.C. 547, 61 S.E.2d 725; Hatcher v. Williams, 225 N.C. 112, 33 S.E.2d 617; City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125, 51 N.E.2d 674, 157 A.L.R. 1424; Ryan v. Plath, 18 Wash.2d 839, 140 P.2d 968.

Constructive fraud has been frequently defined as 'a breach of duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive, to violate confidence, or to injure public interests. * * * Neither actual dishonesty nor intent to deceive is an essential element of constructive fraud.' 37 C.J.S., Fraud, § 2, page 211; Greene v. Brown, 199 S.C. 218, 19 S.E.2d 114.

The plaintiff alleges in substance that the sale of the shares of stock by the trustee, to the injury of plaintiff, under the circumstances set out in the complaint, constituted a breach of the fiduciary obligation imposed upon the Trust Company in good conscience to guard the interests of the infant beneficiary, and was hence constructively fraudulent.

But if plaintiff's complaint be sufficient to allege constructive fraud, he is confronted by another hurdle.

In order to sustain a collateral attack on a judgment for fraud it is necessary that the allegations of the complaint set forth facts constituting extrinsic or collateral fraud in the procurement of the judgment. It is well settled that the fraud for which a judgment may be vacated or enjoined in equity must be in the procurement of the judgment. Horne v. Edwards, 215 N.C. 622, 3 S.E.2d 1; McCoy v. Justice, 199 N.C. 602, 155 S.E. 452; Mottu v. Davis, 153 N.C. 160, 69 S.E. 63; United States v. Throckmorton, 98 U.S. 61, 25 L.Ed. 93; Freeman on Judgments, sec. 1233. 'Extrinsic or collateral fraud operates not upon matters pertaining to the judgment itself but relates to the manner in which it is procured.' Freeman on Judgments, sec. 1233.

In McCoy v. Justice, supra [199 N.C. 602, 155 S.E. 455], Justice Adams quotes with approval from Freeman on Judgments: '\For judgments are impeachable for those frauds only which are extrinsic to the merits of the case, and by which the court has been imposed upon or misled into a false judgment. They are not impeachable for frauds relating to the merits between the parties. All mistakes and errors must be corrected from within by motion for a new trial, or to reopen the judgment, or by appeal.' ' Where the fraud is extrinsic or collateral, operating without, the remedy also is without, and the judgment may be collaterally attacked or set aside by an independent action. McIntosh 745; Carter v. Rountree, 109 N.C. 29, 13 S.E. 716.

To avoid a judgment on this ground there must be shown extrinsic fraud, or fraud collateral to the matters in issue and heard by the first court, and not fraud in the matter on which the judgment was rendered. United States v. Throckmorton, supra. 'The fraud which warrants equity in interfering with such a solemn thing as a judgment must be such as is practiced in obtaining the judgment, and which prevents the losing party from having an adversary trial of the issue.' Mottu v. Davis, supra [153 N.C. 160, 69 S.E. 64].

The question here is whether the fraud charged relates to inequitable conduct on the part of the trustee which prevented the court from considering the plaintiff's case, or whether the court was imposed upon to the extent that facts material to the present plaintiff's case and in his interest were concealed or were not presented. McLean v. McLean, 233 N.C. 139, 63 S.E.2d 138.

The plaintiff's position is that the allegations of his complaint considered in the light favorable for him are sufficient to make out a case of constructive fraud. He contends the facts alleged show that the Trust Company, executor and trustee under the will, in breach of its trust negligently failed in 1938 to sell a portion of the shares of stock referred to at a time when a price of $50 per share was obtainable, and that in the suit it instituted in 1939 it was seeking to extricate itself from the consequences of its mismanagement; that in the proceeding now attacked it occupied inconsistent positions, and that in consequence of interlocking directorates and close business associations among those who controlled the defendant Bank, its subsidiary the Trust Company, and the Hutton & Bourbonnais Company, the corporation whose stock was the subject of negotiation and sale, interests represented by the executor and trustee were conflicting, and that the trustee in breach of the trust did not act in the interest of the plaintiff who was then 18 years of age; that as result of negligence valuable shares of stock were sold for an inadequate price; that at the same time the sale of 700 shares of stock in the same corporation were being negotiated and sold by the Hutton Estate of which the Trust Company was one of the executors and trustees; that some of the officers and directors of...