Sypher v. McHenry

Weight, Ch. J. Tbe fact that tbe contract between plaintiff and Eobertson was tainted with usury is admitted, and knowledge thereof on tbe part of defendants is not contested. No question is made as to tbe tender, nor as to tbe right of plaintiff to redeem, if for any cause tbe sale made by tbe trustee to bis co-defendant'shall be held to be invalid. So that all our inquiries are to be confined to this part of tbe case; it being, in effect, admitted, that if this was regular, and in accordance with tbe power conferred upon tbe trustee, tbe bill should be dismissed, and tbe purchaser remain undisturbed in bis title. Plaintiff relies upon [234] various grounds for setting aside this sale, which may be summed, up as follows: 1. That it was not made at.the place designated in the trust deed. 2. That notice thereof was not given as required by the power. 3. That the amount for which it sold was grossly inadequate. 4. That defendants acted fraudulently in advertising and selling said property. 5. That plaintiff had a large amount of other property, real and personal, unincumbered and subject to execution at the time of the sale, which should have been exhausted before disposing of this, which constituted his homestead. 6. That the notices of sale stated falsely (excessively) the amount due, and thus discouraged bidders. 7. That the trustee, though a disinterested party at the time of his appointment, afterwards, and before the sale, became interested, and hence could not act. 8. That said trustee was directly interested in the purchase; that the same was made for his benefit, as well as that of his co-defendant and partner. As we conclude that the decree below must be affirmed upon the last point made, it is unnecessary to examine the others in detail; and yet it is due to defendants, perhaps, to state that none of these (unless it may be the seventh), in view of the testimonjq strike us as entitled to much weight. True, some of them are not entirely free from doubt, in the minds of a portion of the court; but while we might treat them all as insufficient to invalidate the sale, we should still have to meet the last objection, which we unite in holding fatal to its validity. [235] 1. Trustee: purchase. [234] Before leaving these other points, however, we may remark, that there is no fair ground for charging defendants with fraud in advertising or conducting said sale. We are satisfied that it was conducted fairly, and that they are not obnoxious, to any extent, to the charges made on this subject in the bill. And yet the sale cannot be upheld, for [235] the reason that the trustee was interested jointly ]jjs co-defendant in the purchase. And here the parties differ more upon the facts than the law. The rule is, in effect, admitted as stated in The Bank of the Old Dominion v. Dubuque and Pacific Railroad Company, 5 Iowa, 277, and similar authorities: That when a trustee, acting for others, sells an estate,- and becomes interested in the purchase, the cestui que trust is entitled, in equity, to set aside the purchase and have the property reexposed to sale; and this without inquiry whether the bargain was or was not advantageous to the trustee. This case is sustained by the following among other authorities, and of its correctness there can be no doubt: Davoue v. Fanning, 2 Johns. Ch., 252, where many of the English and American decisions are thoroughly and ably discussed; Jackson v. Van Dalfsen, 5 Johns., 43; 3 Binney, 54; 4 Id., 43; Fox v. Mackreth, 6 Vesey, 627, reported in 1 Eq. L. Ca., 172; 1 Story’s Eq. Juris., § 322; Clark v. Lee, 14 Iowa, 425; McGregor v. Gardner, Id., 326; Moore v. Same, 1 Seld., 256; Michaud v. Girod et al., 4 How., 503; Wormsley v. Wormel, 8 Wheat., 421; 2 Sug., 109; Church v. Insurance Company, 1 Mason, 341. We need not stop to inquire into the reason of the rule. It is sufficient that it is well settled by an almost unbroken series of decisions, and that it is founded in the plainest principles of reason and j ustice. Leaving the authorities, then, for the present, we come to the facts. It is admitted that the trustee and purchaser were partners, and jointly purchased the demand against plaintiff from Eobertson; that they were jointly interested in the debt and security. The facts, in relation to the interest of the trustee in the purchase, are derived from 'the depositions of the defendants themselves, and are as follows : To the fourth cross-interrogatory, W. H. McHenry says: “ It was agreed between me and M. D. McHenry, [236] when the sale was about to be made, a short time before, that if he had to buy in the property it should be charged to him, and that he vyas to make the purchase on his own account. When we bought this, and other debts of Robertson, M. D. Mo. made an advance payment, which had not been refunded ; therefore, there was money coming to him.” He is asked if the amount of the bid was placed on the books of the firm as a debit against him, said M. D. Me., and answers, “Not that I know of. We have intended to obtain a book for the especial purpose of keeping the Robertson business in, but as yet have never done so.” Cross-interrogatory 6 : “Is it or not the arrangement between you and M. D. Me. that the amount at which said M. D. bid off said property should be credited by said M. D. upon what he had advanced for the benefit of the firm in the purchase of the Robertson claim on Sypher ?” Ans.: “There was no special arrangement to that effect, but of course I expect he will allow me what is right for my interest in that ■ claim, on the settlement of our affairs.” 13th: “ Are you, as the partner of M. D. Me. in this transaction, to realize the actual value of the property, or are you only interested to the extent of the bid made by him ?” Ans. “Nothing settled about that.” To the last, or 14th cross-interrogatory, he says: there were no other bidders at the sale. The other defendant says: “ W. H. McHenry was my partner in the purchase of the debt; when he was about to sell the property I told him that if it had to be bought in, I would buy it in my own name and on my own account, and allow him, on settlement, what was right for it; to which he assented, and I bought the property under that arrangement. The firm owed me, on the transaction with Robertson, more than the worth of -that property.” We unhesitatingly accept this view of the transaction as developing its true character. Without the aid of the [237] admitted high character of the witnesses for integrity and probity, the testimony bears upon its face the impress of undoubted truth; and yet it seems to us, that no one can read it and escape the conclusion that the trustee was interested in the purchase. True, the purchaser bought it “ on his own account,” but he was to allow his partner on settlement, not what he bid, but “what was right,” or “what was right for his interest in the claim.” In other words, it is but too manifest that if a third person had bought, they would have realized for the property just the amount of the bid. To one-half of such bid would the trustee have been entitled in the adjustment of the film accounts; but now he can require and is entitled to a full half-interest in the property, whatever its value. Nothing can be clearer than that M. D. McHenry bought with the understanding, not that he was to account alone for his bid, but was to hold the property for the benefit of himself and partner, jointly. If he had sold the next day for $3,000, the interest of the trustee would have been $1,500, instead of $700, or one-half the amount for which the property was sold. He became the trustee of his co-defendant, holding the property for their joint benefit. And if so, the interest thus acquired by the trustee would invalidate the sale as clearly as if the bid had been in his own name. It is as though there had been an express understanding that the purchaser was to take the title, and afterwards convey it in whole or in part to the trustee. And that such a transaction could not be upheld, is well sustained by the authorities above cited, and many of those cited therein. The language of many of the cases but demonstrates the correctness of this conclusion. Thus, if the trustee becomes interested in the purchase, the cestui que trust is entitled, as of course, to have the sale set aside. 2 Johns. Ch., 251; 8 Iowa, 277. [238] A trustee cannot act for his own benefit in a matter connected with the trust. Holt v. Holt, 1 Ch. Cas., 190. When a trustee undertakes to act for others, he undertakes not to manage for his own benefit. Ex parte Laney, 6 Vesey, 625. It is not permitted that the agent shall buy for himself or for another. To allow this, would permit him to apply the information acquired by the trust to bis own benefit. Ex parte Bennett, 10 Vesey, 385. The principle referred to is admitted, not only as established by adjudication, but also as founded in indispensable necessity, to prevent that great inlet of fraud, and those .dangerous consequences which would ensue, if trustees might themselves become purchasers, or if they were not in every respect kept within coihpass. Although it ma.y seem hard that the trustee should be the only person of all mankind who may not purchase, yet, for very obvious consequences, it is proper the rule should be strictly pursued and not in the least relaxed. Moore v. Allaine, 2 Caines’ Cases, 183. The danger of temptation does, out of the mere necessity of the case, work a disqualification. Nothing less than incapacity being able to shut the door against temptation,, when the danger is imminent, and the security against discovery great, the wise policy of the law has, therefore, put the sting of disability in the temptation as a defensive weapon against the strength of the danger which lies in the situation. The parts which the buyer and seller have to act, stand in direct opposition to each other in point of interest, and the conflict of interest is the rock, for shunning which the disability has obtained its force, by making that person, who has one part intrusted to him, incapabh of acting on the other side. The York Buildings Company v. Mackenzie, decided in 1795, 8 Bro. C. P. Trustees of every description, who have power to sell, can never, by director indirect means, become the purchaser of the trust property. Litchfield v. Credworth, 15 Pick., 24; Copeland v. Mercantile [239] Insurance Company, 6 Id., 198. A trustee is bound not to do anything which can place him in a position inconsistent with the interest of the trust, or which has a tendency to interfere with his duty in discharging it. 1 Sto. Eq. Juris., 322; and see Farnham v. Brooks, 9 Pick., 212; Hawley v. Cramer, 4 Cow., 717; Scott v. Davis, 4 Mylne & Craig, 87; Prewitt v. Graty, 1 Perciv., 367; S. C., 6 Wheat., 481; Hamilton v. Wright, 6 Clark & Fin., 111. But we need not add authorities, or further discuss the case upon its facts. We unite in the opinion that the trustee had such an interest, or was to derive such a benefit from the purchase made in the name of his co-defendant, as to leave us no alternative but to concur in the decree of the court below setting aside the sale, and said decree is therefore Affirmed. Cole, J., having been of counsel, took no part in the consideration of this case.