The facts of the case, as found by the referee, present the question, whether an agent having a power of attorney, in the absence of his principal, to make a lease of land, can enter into such a lease with his own son, so as to make it binding as against the principal, or, whether, on the other hand, the case falls within the principle of the general rule of law, that a trustee or other person acting in a fiduciary capacity can not deal for his own benefit.
In considering this question, it will be assumed, as the referee has found, that there was no actual fraud in the case, though, as was well remarked by the court below, the referee would have been apparently justified in arriving at a different conclusion. The true rule in respect to a dealing by a trustee, etc., with the property of the principal is, that fraud is not a necessary ingredient in testing the validity of the transaction. It should be observed, that the present case is not a transaction between the principal and agent, but one taking place in his absence and without his knowledge. Where a trustee deals for his own benefit in such a case, the beneficiary has an option to either affirm or repudiate the transaction, without being bound to assign any reason for his action. The fact that there was no fraud is wholly immaterial. (Boerum v. Schenck, 41 N.Y., 182;Gardner v. Ogden, 22 id., 327; remarks of DENIO, J., in N YCentral Ins. Co. v. Nat. Protection Ins. Co., 14 id., 85.) The beneficiary may, undoubtedly, bind himself by acquiescence in the conduct of the trustee. (Boerum v. Schenck, 41 N.Y., 200, note.) But of this there is no evidence in the present case.
The rule must be extended in all its breadth, not only to pure trustees but to all persons acting in a fiduciary capacity. It, accordingly, includes agents acting for their principals under a power of attorney or other authority. Lord CRANWORTH said, inAberdeen Railway Co. v. Blaikie Brothers (1 MacQueen, 461): "An agent has duties to discharge of a *Page 453 fiduciary character toward his principal, and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. No question is allowed to be raised of the fairness or unfairness of the contract entered into." Cumberland Co. v.Sherman (30 Barb., 553) is a case arising between principal and agent. To the same point are Taylor v. Salmon (4 M. C., 139); Gardner v. Ogden (supra); Conkey v. Bond (34 Barb., 276; S.C., 36 N.Y., 427).
These principles must be regarded as elementary. The only question really open for discussion in the present case is, whether these doctrines can be extended to a case where a trustee does not deal directly with himself, but with others in whom he may be presumed to be interested by the nearness of relationship. This point does not appear to have been decided in the English courts. It is the most satisfactory method to consider it upon general principles. The doctrine on this subject does not turn solely upon the proposition that the trustee cannot make pecuniary profit from the trust relation. It has a wider scope. It is largely founded on public policy. It rests upon a determination on the part of the courts to keep the channels of communication between the parties wholly pure. The position of trustee or agent gives him the opportunity to acquire knowledge concerning the subject of the trust which he could not, otherwise, obtain. He is bound to apply that knowledge solely for the benefit of his principal. He must not so place himself that he cannot regard his principal's interest with an impartial eye. (Ex parte James, 8 Ves., 348.) For this reason he cannot act in respect to the subject of his agency for a third person, for he might make an undue use of information, acquired in a fiduciary character. (Ex parte Bennett, 10 Ves., 381; Coles v.Trecothick, 9 id., 248.) The principal, in employing one to act for him, stipulates for his best judgment, uninfluenced by any relationships calculated to disturb or warp his *Page 454 reason. It is manifest that, if two opportunities to lease had presented themselves in the present case, and the one offered by the son had been less advantageous than the other, there would have been some danger that the terms tendered by the agent's son would have been accepted. The law wisely averts the danger by declaring that the agent shall not lease to his son except upon the terms that the principal may, if he see fit, disaffirm the transaction. If it be objected that if the lease had not been made, the property might have remained unoccupied, the answer is that, in that case, the agent is not in fault. He is only bound to use due diligence in leasing to persons competent to take a lease. If he chooses to make a lease to so near a relative, he must do it at the risk of his principal's disaffirmance. If it be asked how far this principle is to be carried, and what relations are to be included, the answer is, that it is fairly to be extended to those who are so nearly allied to the agent as to be likely to disturb his judgment. Of course, the present case would only extend it to the relationship of a son. Other cases will be decided as they arise. Where the facts of the case justify it, the agent or trustee may ask the consent of the court to deal with his relative. The transaction may then be surrounded with the requisite safeguards. It is so easy at the present time, in this State, to make such applications to courts having equity powers, that there is no plausible reason for conceding to agents and trustees, in general, powers of such doubtful expediency as would allow them to convey the trust estate to near relatives.
These views are confirmed by the recent case of Dundas'Appeal (64 Penn. St., 325, 333 [A.D. 1871]). The question there concerned the validity of a sale by a trustee to his wife. The court said that unless the sale were sustained by an application to the court, it would be set aside at the instance of thecestui que trust; not on the ground of the marriage, but ofher relationship to the trustee. It was added, that it would be evidence of unfairness quite as much as if the sale were made to the trustee himself, and fully within the spirit of the *Page 455 rule which forbids his own purchase. The wife's right to purchase was distinct from the husband's power to sell, and, but for theinfluence of the relation upon him, she had a right to bid for the property. These views seem perfectly sound, and place the position of a trustee above a temptation to be influenced by family interest or affection to sacrifice the interests of a beneficiary to that of near relatives. They apply to a son as well as to a wife. It is no answer to say that honorable men will not be influenced by affection for their sons to swerve from the path of duty. The law establishes a rule for all parents, which is not burdensome to the upright, and is at the same time a necessary support to those who are weak in purpose and prone to yield to the importunities of those they love, while at the same time they are aware that their conduct is irregular.
The son, in the present case, cannot claim that he was a purchaser in good faith, as he was aware of his father's relations to the property, and must take the lease cum onere.
The plaintiff, accordingly, may have the transaction set aside, or may have a declaration that the son holds the subleases as a trustee for him. (Story on Equity, § 1211 a, and cases cited.)
The judgment should be reversed.