Corbin v. . Baker

Gray, J. I think that this case is not within the operation of the rule, upon which the appellant relies, making a trustee’s purchase of trust property voidable at the instance of the cestui gue trust, unless permission for the purchase had been applied for and granted by the court. The rule has been long established and is founded upon the equitable doctrine that a person occupying a position of trust should not be allowed to become a purchaser of the trust property, because of the danger, in such a case, that the interests of the beneficiary might be prej udiced. In the conflict of self-interest, the temptation to abuse may become too strong to be resisted. It was to insure the absolute disinterestedness of a person sustaining the fiduciary relation, that the courts have repeatedly held that, in order to validate the purchase by a trustee of trust property, the right to make it must have been conferred upon Mm after a hearing of the parties interested. An interesting historical discussion of the doctrine, as recognized by the English Court of Chancery and, theretofore, in this state, was furnished by Chancellor Kent in Davoue v. Fanning (2 John. Ch. 252); where a sale by an executor was questioned, *133 with respect to his power to sell under the will and with respect to the purchase of the property for his wife, by arrangement with a third party. In Fulton v. Whitney, (66 N. Y. 548), the doctrine was again discussed and affirmed. There the sale was in foreclosure of a mortgage made by the testator. Trustees under his will were made parties to the action, with their beneficiaries. They purchased the mortgaged property at the sale for their own benefit and there-being a deficiency judgment, they paid it, as executors of the will, out of the trust fund ,in their hands for the infant beneficiary. It was, very properly, held that they could not hold their purchase against the claim of their beneficiary. The rights and equities of the infant, as between her and her trustees, had been, in no form or manner, before the court and were not involved in the action. The case of Scholle v. Scholle, (101 N. Y. 167), was upon a motion to compel the purchasers at a partition sale to complete their purchase. The general rule was referred to in the opinion of the court aud its general enforcement approved, without regal'd to the question of good faith, or adequacy of price. It was held that while .the formal leave to buy, usually granted to the parties upon a foreclosure, or partition, sale, was insufficient to obviate, the force of the rule, “ where the trustee has an interest to protect by bidding at the sale of the trust property, and he makes special application to the court for permission to bid, which, upon the hearing of all the parties interested, is granted by the court, then he can make a purchase which is valid and binding upon all the parties interested, and under which he can obtain a perfect title.” The trustees in that case had been granted permission to buy, upon their application made before the sale, and their title was held to be unassailable, then or thereafter. It is contended by this appellant, under the case of Scholle v. Scholle, that the proceedings in the present action were inefficacious to create a perfect title in Bennett; inasmuch as no permission had been granted to him to purchase and it cannot be implied from the judgment of sale. *134 The effect of the decision in Scholle v. Scholle was the reaffirmation of the rule that a trustee may not become a purchaser of the trust property, in his own behalf; with the qualification that the court might, in a proper case, upon a consideration of the facts, authorize the purchase. In effect, the decision holds that the power resides in the court to relieve from the rule. This is, and must always have been, true. Tire court might divest the trustee of his trust, in order that he might be free to act, as it Was suggested in one of the earlier cases, (De Caters v. Le Ray De Chaumont, 3 Paige, 178); or it might, after a hearing of the matter, empower him to buy, or confirm the purchase made. In Scholle v. Scholle authority' to buy was sought prior to the sale; but the same power which could authorize, could confirm and the question, in a given case, is whether it was, in fact, exercised. The rule is one which was adopted by courts of equity for their governance and in ordinary cases must be controlling; but, if the court appears to have exercised, or, necessarily, must have exercised, its power in confirmation of a trustee’s act, upon a hearing, its action is conclusive. I think that was this case and that, although Bennett made no application to be authorized to buy at the partition sale, the proceedings subsequent to the sale were, necessarily, such as to present the question of the. validity of his purchase to the court; which, having jurisdiction of the parties and of all interests, might confirm, or not. The final decree, which confirmed the sale and directed the conveyances by the referee to the purchaser, was rendered upon -his report showing the facts and a hearing thereupon. There was nothing to conceal from the court the situation, Bennett, as plaintiff in the partition suit, suing as an individual and as a trustee, against his sister, the beneficiary of the trust, and her children, the remaindermen, sole defendants, asks for the partition, or the sale, of the real estate devised to them by their father’s will.' The sale is ordered; the plaintiff was the highest bidder for the property and the sale is reported by the referee to the court; which, thereupon, directs *135 its consummation by the referee and that the grantee be let into possession and adjudges that the referee’s deeds shall be effectual to convey to him the estate, right, title, etc., both legal and equitable, of all the parties to the action, and of the •children born, or thereafter to be born, of the defendant beneficiary, Jeannette Bell. I entertain no doubt as to the efficacy of this final decree to confer a perfect title upon Bennett, the purchaser. He had a common interest with the defendants to protect upon the sale; the proceedings after the sale presented a, single question upon the facts and were upon a hearing of all the parties, and the court will be presumed to have acted ■consciously in confirming the purchase by the trustee. Having acted, .with determinative power, upon the very question > quite as valid a title was acquired by the trustee in this case, as was acquired by the trustees in Scholle v. Scholle, in purchasing upon the permission given. The judgment should be affirmed, with costs. Parker, Ch. J., O’Brien, Haight, Landon, Cullen and Werner, JJ., concur. Judgment affirmed.