Barrett v. Bath Paper Co.

The opinion of the court was delivered by Willard, C. J. Certain creditors of the defendant corporation seek, with such defendant, to set aside a sale of the property [157] of such defendant made by the sheriff under execution, on the-ground of alleged misconduct of the purchaser, both before and at the time of the sale, tending to depress the selling price by a combination among bidders to prevent bidding, and by other devices- alleged and relied upon, whereby the property sold for a sum grossly inadequate as compared with its actual value. The facts of the case are very fully stated in the Circuit decree and need not be repeated. The leading question grows out of the-fact, that, previous to the sale, the defendant corporation was-largely indebted. Many judgments had been recovered against such defendant, and debts to a large amount not' covered by judgments were outstanding. Prior to the sale, an agreement-was made between certain parties, who afterwards became the purchasers, but who at that time had no interest in the property of the defendant corporation, but desired to become bidders at the sheriff’s sale of such property, and the owners of several judgments recovered against the defendant corporation, by which-it was agreed that such intended purchasers should purchase the property if it did not go beyond a certain sum, and if the sum bid for the property was not sufficient to pay off all the judgments held by the creditors who were parties to the agreement-, that the purchaser would purchase said judgments from such creditors, paying the amounts due thereon and taking assignments of the same. This arrangement was carried out. The owners of the judgments provided for in the agreement did not bid at the sale, and the property was struck off to the persons-thus agreeing to purchase at a sum much below its actual value. The leading question in the case is whether this contract tended to, and did, in fact, directly interfere with the competition-at the sale in such manner as to diminish the biddings and reduce the sum which, it may be assumed, would have been realized on a free and fair competition. Nothing is more important to a complete administration of justice than that auction sales should be conducted in a manner likely to secure the fair market value of property disposed of at such sales. In the last resort, such sales become the means of carrying into effect the judgments of the courts, in the great majority of cases, and the administration of justice is as158 much concerned in the manner of executing judgments as in the methods by which they are obtained. Competition is the life of auction sales, and if the influence of competition is destroyed or impaired, the auction sale ceases to be a fair test of value. It •cannot be pretended that competition at an auction sale is a perfect means of ensuring the sale of property at its value, but it can be affirmed with certainty that anything that impairs the fullness and freedom of that competition tends to impair or destroy the usefulness of such sales and to impair the legal rights of the persons whose property is subjected to such sales. The result of successful bidding is a contract to which the vendor and vendee are parties, -the auctioneer being their mutual agent, by whom the contract is evidenced. If then anything is done of a secret mature by the purchaser tending to prevent the sale from having its full efficacy for the benefit of the vendor, it is clear, upon the plainest principles of equality applicable to contracts generally, that such conduct is a fraud on the rights of the vendor, and vitiates the sale. These principles have been so clearly and firmly settled by the cases in this state and elsewhere, that it is only necessary to make a general reference to them. Carson v. Law, 2 Rich. Eq. 296; Hamilton v. Hamilton, 2 Rich Eq. 355; Martin v. Evans, 2 Rich. Eq. 368; Thrower v. Cureton, 4 Strob. Eq. 155; Johnston v. La Motte, 6 Rich. Eq. 347; Jones v. Caswell, 3 Johns. Cas. 29; Thompson v. Davies, 13 Johns. 112; Doolin v. Ward, 6 Johns. 194; Wilbur v. How, 8 Johns. 444; Bexwell v. Christie, 1 Cowp. 395; Howard v. Castle, 6 Term R. 642; Brawley v. Alt, 3 Ves. 620; Smith v. Clarke, 12 Ves. 477; Crowther v. Austin, 2 Car. & P. 208. It is definitely settled that if two or more persons in a position to become purchasers at such auction sale combine together for the purpose of preventing the property from realizing at such sale the full sum that, upon fair competition, it would be likely to realize at such sale, and one of them becomes the purchaser, the sale is fraudulent and void. Hamilton v. Hamilton, 2 Rich. Eq. 355; Martin v. Evans, 2 Rich. Eq. 368; Dudley v. Odom, 5 S. C. 131; Jones v. Caswell, 3 Johns. Cas. 329; Thompson v. Davies, 13 Johns. 112; Doolin v. Ward, 6 Johns. 194; Wilbur [159] v. How, 8 Johns. 444. Phippin v. Stickney, 5 Metc. 384, does not deny the rule as above laid down, but places the effect of .such combination in vitiating the sale upon the ground of fraud, and only denies that proof of such fraud existed in the case there presented. Piatt v. Oliver, 1 McLean 295, turned on a question of pleading that did not involve the present question. There is entire harmony on this question among all the decisions having authoritative weight, and it must be regarded as settled law. The intention to interfere with full competition is that which constitutes the fraud that vitiates the sale. When this intention appears by express proof, no question of doubt can arise. It is equally clear that if the tendency of the agreement, in legal estimation, is to produce that result, the law will infer a fraudulent intent in the absence of counter evidence. The tendency of a contract and its motive are identical in legal consideration, and the law determines the one from the other, and when nothing is shown tending to intercept or destroy that tendency, it will be assumed to have affected the sale injuriously. One feature of the agreement before us furnishes indisputable •evidence of an intent to prevent full and natural competition at the sale, and this feature has been pointed out by the Circuit decree, and is the principal ground on which it rests. It cannot be denied that parties holding judgments against the defendant corporation, by becoming parties to an agreement by which they would receive the full amount of their judgment without any •effort on their part to compete at the sale, lost their motive for competing at such sale. The question whether they would or would not have competed at the sale independently of the agreement in question, is one purely speculative. It has not been shown that it was out of their power to do so if they had chosen to become bidders, leaving the question of the state of their minds on the subject to the merest speculation, that cannot, in its nature, be investigated upon evidence with any legal certainty. We are left to the conclusion that the agreement canceléd their interest in bidding, and that in itself, if intended, is a wrong to the vendor. If it had appeared that the purchasers had agreed to pay off and discharge the judgments, it might be said that the •defendant corporation was benefited rather than injured by an [160] agreement that provided for the payment of their judgments, independently of the sum that the property brought, whateveieffect that might have in other respects; but as the agreement was that the purchasers should become the owners of the judgments with power to enforce them against any other property of the defendant corporation, the defendant lost the benefit of the competition that might have arisen between the owners of the-judgments and the purchaser, without any corresponding advantage whatever. The purchaser cannot be assumed to have had any other interest in the contract than that of purchasing the property at the lowest rate. They do not appear to have been otherwise connected with the sale than through the motive to-become the owners of the property sold, and such must be assumed to be the case. In this view their sole interest was to-reduce the purchase money, and in making the agreement with the judgment creditors, the natural tendency of which was to-neutralize their interest in the biddings, and thus get rid of competition, they must be deemed to have had that object in view. This is conclusive of the correctness of the Circuit decree in holding the sale invalid. It will be unneceseary to consider the other-exceptions, involving, as they do, merely additional grounds for supporting the Circuit decree, as the ground already examined is sufficient for that purpose. The decree must be affirmed and the appeal dismissed. McIver and McGowan, A. JVs, concurred.