Scott v. Gamble

The Chancellor. The doctrine as laid down by Sir Edward Sugden, in reference to the incapacity of a person in the exercise of his duty as trustee, becoming the purchaser of the property of his cestui que trust, has always been recognized as the law in Hew Jersey. lie says, (2 Sugd. Vendors and Purchasers 109,) “ It may be laid down as a general proposition, that trustees, unless they are nominally such to preserve contingent remainders — agents, commissioners of bankrupts, assignees of bankrupts, solicitors to the commission, auctioneers, creditors who have been consulted as to the mode of sale, or any persons who, by their connection with any other person, or by being employed or concerned in his affairs, have acquired a knowledge of his property, are incapable of purchasing such property themselves, except under the restraints which will shortly be mentioned. Eor if persons having a confidential character were permitted to avail themselves of any knowledge acquired in that capacity, they might be induced to conceal their information, and not to exercise it for the benefit of the persons relying upon their integrity. The characters are inconsistent. Emptor emit quam mínimo potest, venditor, vendit quam máximo potest.” The courts of law in this state have carried this doctrine to the extreme, in its application to executors and administrators purchasing the property, which in such representative capacity they were authorized to sell; They have declared that a deed to them, as such purchasers, could not be set up in an action at law against the cestui que trust and those claiming under them; and that a person who has a right to avoid such a deed, may make his objection to its validity in an action of ejectment, and is not obliged, in order to impugn it, to resort to the Court of Chancery. Winans v. Brookfield, 2 South. 847; Den v. Wright, 2 Hal. 179; Den v. McKnight, 6 Hal. 385; Den v. Hammer, 3 Harr. 74. And the Court of Errors and Appeals, at the term of March last, in the case of Mulford v. Merrick and others, — 236 — gave its sanction to the principle as it had been heretofore maintained by the courts of law in this state. There is no case reported where the principles applicable to such purchases have undergone an examination in the Court of Chancery in this state, but the doctrine as laid down in Davoue v. Fanning and others, 2 Johns. Ch. R. 252, and Michoud et al. v. Girod et al., 4 How. 552, has always been recognized and approved. An executor selling land in the execution of a trust expressed in the will, either at public or at private sale, or under an order of the court, cannot, either directly or through the agency of another, become the purchaser or interested in the purchase, at such sale. It matters not how fairly the sale may have been conducted, or that the property was sold for its full value, it is at the option of .the cestui que trust to avoid it at his pleasure. The sale is void as to him, if he shall elect so to treat it, and it is his right, which a Court of Chancery will not refuse, to have the purchase set aside, and the property re-exposed to sale under the direction of the court. It was argued by the defendant’s counsel, that the rule thus laid down is too stringent — and in very many cases would operate to the prejudice of the cestui que trust — that a child, an executor to his father’s will, desirous of purchasing the estate of his ancestors, and willing to give more than its value, pretium affectionis, is prohibited by so stringent a rule, not from making a good bargain, but from gratifying the most honorable promptings of the heart. If this were true, yet the particular hardships it may work, are much more than counterbalanced by the general beneficial tendency of the rule. It is a rule as essential to sound morals as it is to pure administration of justice. A relaxation of it, by compelling the party seeking to set aside a sale to show inadequacy of price, unfairness or positive fraud, would. be a protection to fraud in nine cases out of ten. The seller, whose duty it is to procure the highest price, not being allowed, by the temptation of making a good bargain for himself, will exercise a diligence and make — 237 — efforts, the relaxation of which would follow the abandonment of the rule, and must necessarily operate to the disadvantage of the cestui que trust, and amount in fact to a fraud upon him, which the court would not be able to reach upon the mere ground of inadequacy of price. A positive fraud committed upon the rights of an infant, after a lapse of years, in consequence of the death of witnesses, and numberless other incidents, could but seldom be proved. But the principle has been so ably vindicated by Chancellor Kent, in the case in 2 Johns., already referred to, and by the ablest Chancellors of England, whose opinions are reviewed by Chancellor Kent, that a reference to the Chancellor’s opinion renders anything I can say in support of it superfluous. I adopt the rule in the broadest extent as recognized by him. Subsequent decisions in New York have followed the principles laid down by Chancellor Kent. Rogers v. Rogers, 3 Wend. 503; De Cater and wife v. Le Ray, De Chaumont and others, 3 Paige 178 ; Van Epps and wife v. Van Epps, 9 Paige 237 ; Torrey v. Bank of Orleans, 9 Paige 649; Conger v. Ring, 11 Barb. Sup. C. Rep. 356. See also 1 S. Eq., '§ 322. But the hardship referred to by the defendants’ counsel is not without a remedy. A trustee may purchase at his own sale with the consent of this court, and that consent may be obtained by bill, or perhaps by petition. In Campbell v. Walker, 5 Ves., Jr., Rep. 678, the master of the rolls, in replying to a like suggestion, says: “ The only thing a trustee can do to protect his purchase is, if he sees that it is absolutely necessary the estate should be sold, and he is ready to give more than any one else, that a bill should be filed, and he should apply to this court, by motion, to let him be the purchaser. That is the only way he can protect himself; and there are cases in which the court would permit it; as, if only five hundred pounds was offered, and the trustee will give one thousand pounds. The consequence would be, the court would do that which this rule is calculated to procure. The court would divest him of the character of trustee, and prevent all the consequences of his — 238 — acting both for himself and for the cestui que trust; for the reason of the rule is, that no man shall sell to himself; a. case in which it is impossible for the court to know that he did not do all he ought to have done. In no other way, that. I can figure to myself, except that I have mentioned, can the trustee become the purchaser, without being liable to be called upon to give up the purchase.” And again, in speaking of the rule, he says, “ I know it very often turns to the disadvantage of the infants, but I cannot help that. It is better to adhere to the general rule. I wish it to be understood upon what terms trustees may purchase, so as to-be protected from this equity; and I repeat, there is no other way than that I have mentioned — a bill filed, and the trustee saying so much is bid, and he will give more. The court would examine into the circumstances, ask who had the conduct of the transaction, whether there is any reason to suppose the premises could be sold better, and upon the result of that inquiry would let another person prepare the-particular, and let' the trustee bid.” The history of this case, (further reported in 13 Ves. 600,) is a most triumphant-vindication of the propriety of the rule itself. The conduct-of the trustees who had purchased was not impeached, and the master of the rolls ’ took occasion to say that he did not wish to be considered as reflecting upon them. He ordered a reference to a master for inquiry. The master reported the value of one of the estates to be near double the price given by - the trustees, and upon the re-sale it actually produced double. It remains to apply the principle to the case before us. Philip Gamble intermarried with Lucretia Gamble, who was the executrix of her late husband, and who had proved and taken upon herself the execution of the will. By his marriage he assumed all the duties and responsibilities which devolved upon his wife as executrix. She could only act. under his control and with his assent; his interest was one with hers; they are one in the law. The husband is liable in law and equity, as long as both parties are alive, for the acts of his wife as executrix, for, as she has no power to act — 239 — alone, his assent will be presumed. He acts in his wife’s right, for his own safety. It was the interest of the executrix, that the husband should buy the property at a small price. But it is unnecessary to pursue this branch of the case further, as it was not pressed by the defendant’s counsel. If Philip Gamble, the husband of the executrix, purchased the property, the rule, as it has been laid down, is applicable. 1 cannot give my entire approbation to the manner of the sale. The eestuis que trust were infants. The step-father, one of the defendants, had erected buildings on the lots, as he alleges, in ignorance of his rights. It was of great importance to him to become the owner of the lots, and not be put to the expense of removing the buildings. By his marital rights, the control of the property of these infants had devolved upon him. Under these circumstances, more than ordinary caution was necessary in conducting the sale. Yet the advertisement was for only two weeks, in a weekly newspaper, and no other notice of the sale was given. The evidence as to what took place at the time of sale, shows that not much effort was made, if any, to procure bidders. But, notwithstanding all this, the evidence, I think, establishes the fact that the lots brought their full value. It is true, there are witnesses of the complainant’s who rate the value of the lots at a much higher price than they were struck off at, but their means of information do not entitle their judgment to the same weight as that of the defendants’ witnesses. If the price really was an inadequate price, or anything below the real value of the property, there could be no difficulty, situated as these lots are in the city of Trenton, where property has a fixed value, in the complainant’s establishing the fact. The evidence in the case proves that the property brought its value. Did Gamble purchase at the sale ? It is denied by the answer, and was earnestly contended, on the argument, that the proof in the case does not establish the fact. The property was struck off to Thomas Gordon. Mr. Gordon had been, and was then the agent of the defend — 240 — ants, and, according to the answer, had “ held in his hands and under his control, the entire personal estate of the said testator, and continued to hold the same until its final distribution.” He was present at the sale, and acted as clerk, and it was made at his suggestion, and under his management and superintendence. He told Gamble, on the day previous, that he, Gamble, could not be permitted, by law, to purchase. The property was struck off to Mr. Gordon. On the day of the acknowledgment of the deed from the executrix to Mr. Gordon, Gordon conveyed to Gamble for the same price that the property had been struck off at the public sale. Gordon paid no part of the purchase money, but it was secured by Gamble, which securities were drawn up by Gordon, and were, received by him, after the execution, as the agent of the executrix, and were held by him until disposed of agreeably to the directions of the will. Mansfield Herbert testifies that in a conversation with Gamble, the witness said to Gamble, if he had been at the sale, Gamble would not have got the lots at the price he did. To which Gamble replied, “You could not have bought them, for my houses were upon them. I got Mr. Gordon to buy them for me.” Isaac Welsh says that he said to Gamble, “You bought this property, Mr. Gamble.” He replied, “ Yes, I bought it.” This was about a month after the sale. The effort to impeach the testimony of these witnesses entirely failed. George Shreve says that after the examination of Mansfield Herbert, in this cause, Gamble told him that the witness had sworn to a falsehood — “ that he, Gamble, had never told Herbert that he, Gamble, had got Judge Gordon to buy those lots for him, but that he had told Mansfield Herbert that Judge Gordon had bought the lots for him, Gamble;” and Gamble told the witness, in this conversation, that Judge Gordon had bought the lots for him, but that he had not asked him to do it. I think the positive evidence and the circumstances attending the whole transaction, make out very clearly that — 241 — the purchase was made by Judge Gordon for Philip Gamble. It is a conclusion which can hardly be resisted, from the evidence, both positive and circumstantial, in the case. The efforts to cover up the fact only make it the more palpable. But the defendants, by their answer, insist that the complainant has ratified the sale by receiving, after she arrived of age, with full knowledge of all the facts, her proportion of the purchase money. Philip Gamble, in payment for the property, executed a mortgage on the premises to Judge Gordon, for the sum of eight hundred and two dollars and fifty cents, to secure the payment of three several bonds, conditioned for the payment of two hundred and sixty-seven dollars and fifty cents each. Under the will of Leonard Scott, the testator, when Amanda, the youngest child, arrived at the age of twenty-one, in consequence of the death of all the legatees, except the complainant and her sister Amanda, the complainant became entitled to one-third of the proceeds of the sale, and her surviving sister to one-third. One-third belonged to the executrix. Two of these bonds went into the hands of Judge Gordon, in trust, for the purposes of the will, and to secure the shares of these two daughters. After the complainant arrived at age, and as soon as by the terms of the will she was entitled to her share of the proceeds of the lots, Judge Gordon assigned one of the bonds to the complainant, and one other to her sister Amanda. The third belonged, as before stated, to the executrix, absolutely. On the assignment of the bonds, the complainant and her sister gave the following receipt: — 242 — We, Elizabeth Scott and Amanda Scott, daughters of Leonard Scott, deceased, hereby acknowledge that we have received the above bonds and mortgage, given to secure our respective shares of the proceeds of the sale of a certain lot, sold under the will of the said Leonard Scott, deceased, the same having been held in trust for us by the said Thomas Gordon, and now assigned to us by him, March 20th, 1847. Elizabeth Scott. Amanda Scott. Witness present — Caleb S. Green This receipt is in the hand-writing of Caleb S. Green, Esq., counselor-at-law, and witnessed by him. At the time of its execution, Mr. Green was acting as the attorney of the complainant and her sister in regard to that business. He had been the guardian, appointed by the Orphans’ Court, of each of them, until they respectively arrived at age. Mr. Green afterwards collected the money on these bonds, after commencing to foreclose the mortgage, and paid over the proceeds. The question arises, under these circumstances and after having received, with full knowledge of the facts, the proceeds of the sale, is the complainant entitled to have the sale set aside, and a re-sale of the property ? The fact of her having received the purchase money is not an absolute estoppel to the complainant’s right of avoiding the sale; for no matter What the ratification by her might have been, whether by the mere receipt of the purchase money, or by a more solemn act of release under seal, if such ratification had been without a knowledge of the facts, and in ignorance of her rights, it would be no obstacle to her obtaining relief. But, on the contrary, when such act of ratification is done with deliberation, and with a knowledge of the fact which would avoid the sale, it is a bar to any relief which this court might otherwise have afforded. It the case of Michoud et al. v. Girod et al., before referred to, two of the complainants had given receipts and acquittances to the executors.. But the complainants put — 243 — their case, upon the ground that these acquittances were given in ignorance of their rights. That issue was made by the pleadings. See state of case, 524, 525, of 4 Howard. The bill charged that by concealment of facts which they knew to exist, and were bound, as agents, to communicate, the executors obtained from some of them an acquittance or transfer of all claims against the succession; and in page 561 of the case, the court say, “ The receipts or acquittances given by two of the complainants to the executors do not affect their rights. They were obviously given without full knowledge of all the circumstances connected with the disposal and management of the estate. Indeed, it is plain that such information had been withheld by the executors.” In the case of Butler et al. v. E. Haskell, 4 Dessaus. R. 709, a class of eases, very numerous, will be found cited by the court, in reference to the validity of acts of confirmation of contracts originally void or voidable. It will be found that where the court has refused to them its sanction, it has been on the ground of gross fraud or misrepresentation in the original contract, or when the act of confirmation has been executed in ignorance by the aggrieved party of his rights, or procured under circumstances the court will not countenance. But the validity of the act of confirmation by the complainant in this case is not put in issue by the pleadings. The complainant, in her bill, states the fact that she received her portion of the purchase money, and makes no complaint of any concealment on the part of the defendants at the time, or that she was ignorant of any of the facts and circumstances of the transaction. The receipt she gave was in the presence of and under the advice of counsel, drawn up and witnessed by him ; it states that the bonds were given for the purchase money; and the mortgage of Gamble on the very lots to secure the purchase money, is assigned to her. There was no want of time for reflection. The act was a deliberate one; and afterwards the bonds and mortgages were put in suit and, the money collected. — 244 — In Betton v. Briggs and others, 4 Dessaus. R. 465, the land in question was the mother’s during her widowhood, and Thomas and his two brothers had a joint estate in fee simple after their mother’s death. The mother, together with Thomas’ two brothers, sold the land to the complainant, with an agreement that Thomas, when he came of age, should confirm it. With the purchase money they bought another estate. When Thomas arrived at age this last estate was sold, and he joined in the deed of sale, and received his part of the purchase money. This was held a confirmation, and on a bill filed Thomas was decreed to a specific performance of the agreement made by his mother and brothers. Upon the ground that this sale was ratified by the complainant, by her receipt of the purchase money, and that this act of ratification stands in full force, without even an allegation on the part of the complainant, that what she did was in ignorance of her rights, and without the validity of that act as an act of confirmation being put in issue, I do not feel that I should be justified in interfering with the sale. This bill is filed for another purpose, also. It is alleged that the complainant had deposited to her credit in the Saving Fund Bank of Philadelphia, two hundred and eighty-seven dollars, and that the defendant Lucretia induced the complainant to draw this money out of the bank and loan it to the said defendant. This bill is filed against the defendants in their capacity of trustees, and as the representatives of Leonard Scott, the testator, and the prayer of the bill is in conformity thereto. If this money belonged to the complainant, as is alleged, and was borrowed by the defendant Lucretia, or by both of the defendants, why should the defendants account for it as part of the estate of the testator ? The bill is filed against the defendants in their representative characters, and the complainant is entitled to an account in that aspect only. — 245 — As to the prayer of the bill, that the defendants may account for the personal estate and effects of the testator, there is no propriety shown for taking these accounts in this court. Let the bill be dismissed, with costs. Cited in Moore v. Gamble, 1 Stock. 255; Obert v. Obert, 2 Stock. 103; Culver v. Culver, 3 Stock. 219; Holcomb v. Holcomb, 3 Stock. 287; Holcomb v. Holcomb, 3 Stock. 482; Huston v. Cassedy, 2 Beas. 230; Howell v. Sebring, 1 McCar. 90; Staats v. Bergen, 2 C. E. Gr. 307; Booraem v. Wells, 4 C. E. Gr. 87; Blauvelt v. Ackerman, 5 C. E. Gr. 141; Haughwout and Pomeroy v. Murphy, 7 C. E. Gr. 551.