Same - Agreements Tending To Fraud And Breach Of Trust

163. Any agreement which has a direct tendency to induce a person to commit a fraud upon the rights of others, or a breach of trust and confidence, is illegal as being contrary to public policy,

"Contracts," it has been said, "which are opposed to open, upright, and fair dealings, are opposed to public policy. A contract by which one is placed under a direct inducement to violate the confidence reposed in him by another is of this character. * * * The law will not only avoid contracts, the avowed purpose or express object of which is to do an unlawful act, but those made with a view to place, or the necessary effect of which is to place, a person under wrong influences, and offer him a temptation which may injuriously affect the rights of third persons." 78 Although the act contracted to be done "may be just and beneficial as between the parties immediately concerned in it, and though it be accomplished in good faith and without undue means, yet the contract to procure to be done is held to be against public policy, because its natural effect is to cause the party to abuse the confidence placed in him, * * * and thereby prejudicially to affect the rights of others." 79 In accordance with this principle, a contract by a guardian, trustee, or other fiduciary to resign his trust is void.80 "A trustee may not make use of his relations as such for personal emolument. * * * He may voluntarily resign for reasons not mercenary in character, but has no right to traffic in or make merchandise of the confidence reposed in him." 81 So a contract by which a fiduciary deprives himself of the control of funds intrusted to him is void.82

78Greenh. Pub. Pol. 294; Edwards v. Estell, 48 Cal. 194; Byrd v. Hughes, 84 I11. 174, 25 Am. Rep. 442; Forsyth v. Woods, 11 Wall. 4S4, 20 L. Ed. 207; Rice v. Williams (C. C.) 32 Fed. 437; Gleason v. Railroad Co. (Iowa) 43 N. W. 517; Smith v. Humphreys, 88 Me. 345, 34 Atl. 166; Smythe's Estate v. Evans, 209 I11. 376, 70 N. E. 906; McClure v. Ullmann, 102 Mo. App. 697, 77 S. W. 325; Smith v. David B. Crockett Co., 85 Conn. 2S2, 82 Atl. 569, 39 L. R. A. (N. S.) 1148, in which "graft" is denned by Hall, C. J., as "the receiving of personal gain without rendering compensatory services, by persons holding positions of trust and confidence, and * * * but a form of bribery." A good illustration of such an agreement is where a broker employed to sell property is also employed by the person to whom he sells to buy, thus to receive a commission from both parties. Rice v. Wood, 113 Mass. 133, 18 Am. Rep. 459; Everhart v. Searle, 71 Pa. 256. And see Holcomb v. Weaver, 136 Mass. 265. So, also, where a broker is employed to sell land, an agreement with a person who wishes to buy, by which the broker is to introduce him to the principal, and receive part of the land when purchased, is void. Smith v. Townsend, 109 Mass. 500. An agreement between real-estate agents representing different principals to divide commissions in case they effect sale is void. LEVY v. SPENCER, 18 Colo. 532, 33 Pac. 415, 36 Am. St. Rep. 303, Throckmorton Cas. Contracts, 259; Howard v. Murphy, 70 N. J. Law, 141, 56 Atl. 143, 1 Ann. Cas. 571. See Tiffany, Ag. 415 et seq. An agreement by a client releasing his attorney from all the duties of the relationship is void. In re Boone (C. C.) 83 Fed. 944. A stipulation in a contract that false representations used in procuring it shall not affect its validity is itself invalid. Hofflin v. Moss, 67 Fed. 440, 14 C. C. A. 459. See "Contracts," Dec. Dig. (Key-No.) § 113; Cent. Dig. §§ 521-541.

A contract by a stockholder in a corporation to vote his stock in a particular way,83 or by one owning a majority of the stock in a corporation to sell all the corporate property without the consent of the minority stockholders is void.84 The same is true, also, of a contract by an officer of a corporation that he will use his influence to retain another in office at a fixed salary,85 or for any other use of his position and influence that might interfere with his duty to the stockholders.86

79 Spinks v. Davis, 32 Miss. 152. See, also, Harrington v. Dock Co., 3 Q. B. Div. 549; Atlee v. Fink, 75 Mo. 100, 42 Am. Rep. 385. The rule does not apply to a case in which a broker is acting as agent of both parties with their knowledge. Greenkood, Pub. Pol. rule 202; Shaw v. Andrews, 9 Cal. 73; Pugsley v. Murray, 4 E. D. Smith (N. Y.) 245; Bonwell v. Howes (City Ct. N. Y.) 1 N. Y. Supp. 435; Bell v. McConnell, 37 Ohio St. 396, 41 Am. Rep. 528. See "Contracts," Dec. Dig. (Key-No.) § 113; Cent. Dig. §§ 521-541.

80 Cunningham v. Cunningham, 18 B. Mon. (Ky.) 24, 68 Am. Dec. 718 (guardian); Ellicot v. Chamberlain, 38 N. J. Eq. 604, 48 Am. Rep. 327 (executor); Currier v. Clark, 19 Colo. App. 250, 75 Pac. 927 (executor). See "Contracts," Dec. Dig. (Key-So.) § 113; Cent. Dig. §§ 521-541.

81 Aughey v. Windrem, 137 Iowa, 315, 114 N. W. 1047, per Ladd, C. J. See "Contracts," Dec. Dig. (Key-No.) § 113; Cent. Dig. §§ 521-541.

82 Fidelity & Deposit Co. of Md. v. Butler, 130 Ga. 225, 60 S. E. 851, 16 L. R. A. (N. S.) 994 (contract of guardian to deposit ward's money in bank and not to draw it out except upon the joint check of himself and surety). See "Contracts," Dec. Dig. (Key-No.) § 113; Cent. Dig. §§ 521-541.

83 Ready v. United Rys. Co., 57 Or. 325, 100 Pac. 658, 108 Pac. 197, holding, however, that the contract will be valid if all persons interested have knowledge of it and expressly or impliedly assent to it Contracts for the establishment of a "voting trust," by which stockholders agree that the trustees named shall have power to vote the stock if parties to the agreement have been held void in some states, on the ground that a contract which separates the beneficial ownership of corporate stock from its legal title and control is contrary to public policy. Morel v. Hoge, 130 Ga. 625, 61 S. E. 487, 16 L. R. A. (N. S.) 1136, 14 Ann. Cas. 935; Warren v. Pirn, 66 N. J. Eq. 353, 59 Atl. 773; Bridgers v. First Nat. Bank, 152 N. C. 293, 67 S. E. 770, 31 L. R. A. (N. S.) 1199; Sheppard v. Rockingham Power Co., 150 N. C. 776, 64 S. E. 894. But in other cases such agreements have been sustained. Gray v. Bloomington & N. Ry., 120 I11. App. 159; Boyer v. Nesbitt, 227 Pa. 398, 76 Atl. 103, 136 Am. St. Rep. 890. See "Contracts," Dec. Dig. (Key-No.) § 121; Cent. Dig. § 504.

84 Bias v. Atkinson, 64 W. Va. 486, 63 S. E. 395. See "Contracts," Deo. Dig. (Key-No.) § 121; Cent. Dig. § 504.

The courts have even gone so far as to hold void any contract that has for its object the practice of deception upon a third person or the taking advantage of confidential relations with him to draw him into a bargain by which the person undertaking to use his influence will secretly receive a benefit from the other party to the contract.87

It is impossible to go further into the various rules growing out of this principle. They have been admirably stated, and the illustrations and authorities collected, by Greenhood in his work on Public Policy.88