
    JENNINGS v. HINTON.
    (Filed May 7, 1901.)
    1. PLEDGES — Fiduciary Relations — Contracts — Sale — Burden of Proof — Collateral Security.
    
    Where a married woman, assigns to the mortgagee of her husband an insurance policy upon the life of her husband as collateral security for the mortgage debt, the law presumes fraud in a subsequent absolute sale of the policy to the mortgagee, and the burden is upon him to show that the purchase was tona fide and for a fair consideration.
    2. AGENCY — Declarations.
    Evidence of declarations of agent to prove agency is incompetent.
    3. HARMLESS ERROR — Error—Evidence.
    Where evidence erroneously admitted could not have damaged a party, its admission was harmless error.
    ActioN by Sarah E. Jennings against John L. Hinton, beard by Judge T. A. McNeill and a jury, at July Term, 1900, of Pasquotank County Superior Court. Erom a judgment for tbe plaintiff, tbe defendant appealed.
    
      B. F. Aydleli, for tbe plaintiff.
    
      Shepherd & Shepherd, and Pruden & Pruden, for tbe defendant.
   Eueches, C. J.

Tbis case was here at February Term, 1900 (126 N. C., 48), but tbe only question then passed upon was as to wbetber tbe busband bad given bis written assent to tbe assignment of tbe wife [while tbis appeal presents a question of fiduciary relations, presumptive fraud, and equitable relief.

Tbe facts may be bad by reference to tbe case as reported, when here before, as to plaintiff’s execution of tbe assignment to tbe defendant.

But this appeal develops the fact that B. F. Jennings, husband of plaintiff, owed defendant $1,500, secured by mortgage on real estate; and that on tbe 19th of August, 1892, tbe policy of insurance for $5,000, payable to tbe plaintiff, was put into tbe bands of tbe defendant, as collateral security, in addition to tbe mortgage. To show this, tbe plaintiff put in evidence tbe following paper writing:

“August 19, 1892. Mrs. S. E. Jennings: — Your husband has given me the policy you assigned to secure yours and bis note given to me for $1,500. I have banded to him tbe $1,500 in currency, and when said note is paid you shall have tbe policy. Respectfully, John Ii. Hinton.”

The defendant kept tbe policy under this agreement, until 1897, and on tbe 22d of April, 1897, tbe defendant got from tbe plaintiff tbe following instrument of writing:

“For value received I hereby assign and set over to John L. “Hinton all my right and interest in Benefit Certificate No. “73836, in The American Legion of Honor Insurance Com“pany, tbe same being insurance on tbe life of my husband, “Benjamin F. Jennings, dated 23d June, 1884, tbe said certificate or policy being in tbe sum of $5,000, being for my “benefit. The said Hinton to have tbe said $5,000 in the “policy absolutely with power,, at tbe death of said Benja“min F. Jennings, to collect the same and apply to bis own “use.
Sabah E. JeNNINGs. (Seal.) •
“Witness: B. F. Jennings.”

Tbe last instrument was signed at the bouse of tbe plaintiff, and plaintiff and her two daughters and a son testified that the defendant came to their house about one o’clock in the afternoon, stood at the gate, which is about fifteen yards from the bouse, until tlie paper was signed late in the evening; that B. F. Jennings, husband of plaintiff, stood at the gate with defendant the greater part of his time; that they could hear defendant and the said B. E. Jennings talking at the gate, but could, not understand what they said; that occasionally the said B. E.- Jennings would come in the house and talk to plaintiff; she did not know what they were talking'about at the gate, except what her husband told her.

She was then asked whose agent the said B. E. Jennings was on that occassion, and she answered that he was the defendant’s agent. She was also asked what he told her. These questions and answers were objected to, but allowed and defendant excepted.

If the first question and answer, that “B. E. Jennings was the agent of defendant,” were competent, the second question and answer were competent; but if the first question and answer were not competent, then what B. F. Jennings told the plaintiff was not competent.”

The plaintiff says she had no talk with the defendant, and it would seem that any information the plaintiff had, as to B. F. Jennings being the agent of the defendant, must have been received from B. E. Jennings, the alleged agent. This was not competent to prove the agency, as we have decided at this term in Summerrow v. Baruch. It thus seems that this first question and answer being improperly allowed, the declarations of B. F. Jennings were incompetent. And if they are material, or, in other words, unless they are harmless, the defendant is entitled to a new trial.

But it is shown that the defendant received this policy in 1892 as collateral security for a $1,500 debt, the plaintiff’s husband owed him. At the time he received this policy in 1892, it was expressly stipulated that he received it as collateral security, and that when the $1,500 debt was paid, he would return it to the plaintiff. The defendant admits that be continued to bold it under tbis agreement until April, 1897 (wbat time in April be does not state), when be returned it to tbe husband, and afterwards took tbe absolute assignment, dated 22d April, 1897, for wbicb be paid $25; while tbe plaintiff testifies that it was never returned, and was never in the possession of herself or husband after it was delivered to tbe defendant in 1892, and that the defendant paid nothing for tbe assignment of 1897. These questions were submitted to tbe jury, and they found that said policy was assigned to tbe defendant as collateral security. Tbe defendant objected to tbis issue and all evidence introduced to sustain it, contending that it was to contradict tbe written contract of tbe 22d of April, 1897. He also says that said contract is under seal and needs no consideration to support it.

In a court of law, under tbe old practice, this would have been so, and it is so now under’ our present practice, where tbe action is purely legal; but where it is equitable in its nature and a question of fraud is involved, it is not so. Fraud vitiates all contracts, whether under seal or not.

When tbe defendant took bis policy in August, 1892, as a collateral security for bis debt of $1,500, with tbe agreement to return tbe same to tbe plaintiff when that debt was satisfied, it established a fiduciary relation between tbe plaintiff and the defendant — tbe same as that of trustee and cestui que trust, or mortgager and mortgagee. This being so, tbe law not only looks upon any purchase of tbe absolute title, or reversion in the res, with suspicion, but presumes fraud. And tbe burden is cast upon such purchaser (tbe defendant in this case) to show that such purchase was fair, open and bona fide, and for a fair consideration. Hall v. Lewis, 118 N. C., 509; McLeod v. Bullard, 84 N. C., 515. And tbe defendant failing to allege and show that tbis transaction of tbe 22d of April, 1897, was fair, open, bona fide, and for a fair consideration, it is void. Indeed the jury finding there was no consideration, it falls to tbe ground, and, tbe parties stand upon tbe original contract, and tbe fiduciary relations between them still exist.

It therefore appears to us that the evidence erroneously admitted could not have damaged tbe defendant and its admission harmless error.

Affirmed.  