Bank of the Old Dominion v. Dubuque & Pacific Railroad

Stockton, J". -For the railroad company, it is contended that the purchase of the bonds by the bank, was illegal and unauthorized, and that the title did not pass by the sale, but remains in the railroad company, subject to the original agreement between the parties. For the bank, it is contended [280] that the title of the bonds became absolute in the bank by the purchase. There can be no doubt of the power and authority of the plaintiff to sell the bonds of the railroad company, for the payment of the debt; and a sale to'a third person, would have passed the property. But, as was held in the case of the Middlesex Bank v. Minott, 1 Metc., 325, the bank could not itself become the purchaser; and nothing passed by the form of a sale at auction, in which the bonds were bid in by the plaintiff. They must be considered as still held by the bank, under its original title, as collateral security for the money borrowed by the railroad' company. The relations existing between the trustee and cestui que trust, and, as resulting therefrom, the principles establishing the rights of the parties in this case, have been very fully examined by Chancellor Kent, in Davone v. Fanning, 2 Johns. Ch., 258, in which it is held, that if a trustee, acting for others, sells an estate, and becomes himself the purchaser, the cestui que trust is entitled, in a court of eqixity, to set aside the purchase, and have the property re-exposed to sale. And whether the cestui que trust be an infant or an adult, and whether the sale be public or’private, the trustee is equally disabled from becoming a purchaser of the trust estate. However innocent, says the Chancellor, the purchaser may be in the given case, it is poisonous in its consequences. The cestui que trust is not bound to prove, nor is the court bound to judge, that the trustee has made a bargain advantageous to himself The fact may be so, and the party not have it in his power to show it.. There may be fraud, and the party not able to prove it. It is to guard against this uncertainty and hazard of abuse, and to remove the trustee from temptation, that the rule does, and will, permit the cestui que trust to come, at his own option, and without showing actual injury, insist upon having the experiment of another sale. 1 Story’s Eq., sec. 322; Story on Bailments, sec. 319 ; 1 Pars, on Cont., 602. [281] The judgment of the district court will be reversed, and the cause remanded, with directions to enter judgment for the amount due the plaintiff on the acceptances; and the farther judgment that the plaintiff holds the bonds of the railroad company, under the original agreement of the parties, as collateral security for the payment of the amount borrowed by the company — the purchase of the said bonds by the plaintiff being held invalid. Judgment reversed.