Lewis v. Boling

257 S.E.2d 486 (1979)

42 N.C. App. 597

Kenneth C. LEWIS v. Jesse Robert BOLING, Jr., and wife, Betty Jean Boling.

No. 783SC811.

Court of Appeals of North Carolina.

August 21, 1979.

*490 Bennett, McConkey & Thompson by Thomas S. Bennett, Morehead City, for plaintiff-appellee.

Ward & Smith by Grady L. Friday and J. Randall Hiner, New Bern, for defendants-appellants.

PARKER, Judge.

Appellants first contend that the trial court erred in admitting evidence relative to conversations between the plaintiff and the male defendant prior to and contemporaneously with the signing of the written partnership agreement dated 8 May 1974. Appellants contend admission of such evidence violated the parol evidence rule. The short answer to this contention is that the written partnership agreement was neither contradicted, added to, nor varied by plaintiff's evidence at trial, and no violation of the parol evidence rule has been shown.

Appellants next contend it was error to permit the plaintiff to testify to such conversations prior to the signing of the 10 May 1974 deed by which legal title to the property was conveyed to the corporation which was solely owned and controlled by the defendants. In support of this contention, appellants cite the well established general rule that in the absence of evidence sufficient to establish fraud, undue influence, or mistake, evidence of a parol agreement in favor of a grantor, entered into at the time of or prior to his execution of a deed and at variance with the written conveyance, is inadmissible. Willetts v. Willetts, 254 N.C. 136, 118 S.E.2d 548 (1961); Loftin v. Kornegay, 225 N.C. 490, 35 S.E.2d 607 (1945); Gaylord v. Gaylord, 150 N.C. 222, 63 S.E. 1028 (1909). "To permit the enforcement of such an agreement would be tantamount to engrafting a parol trust in favor of a grantor upon his deed, which purports to convey the absolute fee-simple title to the grantee. A parol trust in favor of a grantor cannot be engrafted upon such a deed." Loftin v. Kornegay, supra, 225 N.C. at 492, 35 S.E.2d at 608.

The principle of law cited by appellants is not controlling of our disposition of the present case. There was evidence here that a partnership existed between the plaintiff and the male defendant at the time the 10 May 1974 deed was executed. For approximately a year they had been working together erecting a dwelling on land owned jointly by them, and only two days earlier they had executed a formal written partnership agreement. "It is elementary that the relationship of partners is fiduciary and imposes on them the obligation of the utmost good faith in their dealings with one another in respect to partnership affairs. Each is the confidential agent of the other . . ." Casey v. Grantham, 239 N.C. 121, 124, 79 S.E.2d 735, 738 (1954). The grantee in the deed, J. B. Builders, Inc., was a corporation wholly owned and controlled by the male defendant and so far as disposition of this case is concerned is properly to be considered his alter ego. Where, as here, a fiduciary relationship is shown to exist between the grantor and the grantee, the grantee is more than morally bound to act in the best interest of the grantor, and the grantor is justified in imposing a special trust and confidence in the grantee's fidelity. If in such a case the grantee violates the confidence justifiably imposed in him and breaches his fiduciary obligations, a court of equity will enforce those obligations by imposition of a constructive trust, even though there had been no fraud in the original procurement of the conveyance. Under such circumstances it has been said that "the law presumes fraud in transactions where confidential relationships exist between the parties," Sorrell v. Sorrell, 198 N.C. 460, 465, 152 S.E. 157, 160 (1930).

In Koefoed v. Thompson, 73 Neb. 128, 102 N.W. 268 (1905), the Supreme Court of Nebraska was confronted with a case strikingly similar on its facts to the *491 case presently before us. In that case the plaintiff and the defendant had been working together, farming and carrying on other business ventures, in Nebraska. They jointly purchased the land in question, each contributing one-half of the first payment and borrowing on a mortgage the funds to pay the balance of the purchase price. Plaintiff thereafter moved to Chicago, leaving defendant in sole possession of the premises. The mortgage became subject to foreclosure. For the purpose of enabling the defendant to renew the mortgage or secure a new loan, plaintiff executed a quitclaim deed to the defendant. Thereafter, defendant refused to recognize plaintiff as having any interest in the property. The trial court entered a decree finding plaintiff to be owner of a one-half undivided interest in the property. In affirming the decree, the Supreme Court of Nebraska said:

The transaction in the case at bar was between parties who, as shown by the testimony, believed themselves to be partners, and who, we conclude, were such, although no formal agreement of partnership existed between them. The relation of partnership is fiduciary, in its strictest sense, and involves the greatest confidence between the parties thereto. The confidence which the appellee in this case reposed in the appellant had its origin in their previous dealings, and their previous partnership arrangements in farming and other matters. So that when it became necessary to place the title of the premises in the appellant, as a matter of convenience in securing a new loan, and executing the proper papers in that behalf, in order to save the property from the foreclosure sale for their mutual benefit, there was no reason why the appellee should not repose the strictest confidence in the good faith of his former partner, and execute a conveyance in the nature of a quitclaim deed, without other and further consideration, and for that sole purpose. The betrayal of this confidence by the appellant, and his subsequent refusal to carry out his contract to account for the property or its proceeds to the appellee, is sufficient to raise the presumption that he intended from the first to defraud his partner of his interest in said land, and gives rise to a constructive trust.

73 Neb. at 133, 102 N.W. at 269.

In the present case we find no error in the court's admitting evidence of the conversations between plaintiff and the male defendant which explain the reasons for plaintiff joining in the deed dated 10 May 1974 by which title was conveyed to defendants' corporation. Appellants' assignment of error and the exceptions on which it is based directed to that question are overruled.

Appellants next contend that the court erred in permitting the plaintiff to amend his complaint at the close of the evidence to allege a constructive trust rather than a resulting trust. They argue that there was no evidence introduced at trial which would justify the amendment under G.S. 1A-1, Rule 15(b). We do not agree.

A resulting trust is normally imposed to carry out the presumed intention of the parties, as where one person pays part or all of the purchase price for property but title is taken in another. A constructive trust, on the other hand, is an obligation imposed by a court of equity irrespective of, and often contrary to, the intent of the grantee.

A constructive trust is a duty, or relationship, imposed by courts of equity to prevent the unjust enrichment of the holder of title to, or of an interest in, property which such holder acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it against the claim of the beneficiary of the constructive trust. (Emphasis added.)

Wilson v. Development Co., 276 N.C. 198, 211, 171 S.E.2d 873, 882 (1970).

A constructive trust is frequently imposed to enforce obligations incurred as result of transactions between persons occupying a confidential relationship to each other. *492 Such a relationship "exists in all cases where there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence." Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896. Intent to deceive is not an essential element of such constructive fraud. Miller v. Bank, 234 N.C. 309, 67 S.E.2d 362. Any transaction between persons so situated is "watched with extreme jealousy and solicitude; and if there is found the slightest trace of undue influence or unfair advantage, redress will be given to the injured party." Rhodes v. Jones, 232 N.C. 547, 61 S.E.2d 725.

Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971).

Plaintiff's evidence was amply sufficient to show grounds for imposing a constructive trust in this case, and the court did not err in permitting him to amend his complaint to conform his allegations to his evidence. G.S. 1A-1, Rule 15(b).

Defendants have not excepted to any of the trial court's findings of fact. They do except and assign error to its conclusions of law. We find the court's conclusions amply supported by its findings of fact, and the court did not err in decreeing a constructive trust in this case.

Finally, appellants contend that plaintiff is barred from maintaining this action by the general rule that one partner may not sue another upon a demand arising out of a partnership transaction until there has been a complete settlement of partnership affairs and a balance has been struck. This position is untenable. There are numerous exceptions to the rule laid down in Pugh v. Newbern, 193 N.C. 258, 136 S.E. 707 (1927), one of them being where joint property has been wrongfully converted.

The judgment appealed from is

Affirmed.

MITCHELL and HARRY C. MARTIN, JJ., concur.