Cook v. Martin , 75 Ark. 40 ( 1905 )

Riddick, J.,

(after stating the facts.) This is a contest over the title of one-third interest in two lots in the city of Hot Springs, formerly owned by John J. Sumpter. It is admitted that Cameron, under whom Mrs. Martin, the intervener, holds, obtained a judgment against Sumpter which was a lien on the lots before the attachment of plaintiffs was either issued or levied. But it is said that Sumpter afterwards made a fraudulent conveyance of this property, and that after this conveyance was made he executed a stay bond, staying the Cameron judgment, and that the lien of the judgment was merged in that of the stay bond, and that the lien of the stay bond only relates back to the date of its execution. But in this we think learned counsel for plaintiffs are in error,, for in our opinion the lien of the judgment is continued in the stay bond, and this lien relates back to the rendition of the judgment, so as to protect the judgment creditor against subsequent liens or conveyances by the judgment debtor. As the Cameron judgment antedated the attachment and the creditors’ bill filed by plaintiffs, we think that the lien of this judgment took precedence over the lien acquired by plaintiffs, and it was not affected by the subsequent execution of the stay bond or the fraudulent conveyance made by Sumpter.

It follows, from what we have stated, that the title of Mrs. Martin, who holds under the title acquired by Cameron by virtue of an execution on his stay bond and a sale of the lots under such execution, is superior to that of plaintiffs acquired by a sale under the subsequent attachment and creditors’ bill, and must prevail over their title, unless there are equitable reasons why she cannot assert that title against them. Now, this Cameron title to a one-third interest in these lots was purchased by W. H. Martin for the interevener, his wife, on April 5, 1898. He purchased a one-third interest in the lots for his wife from Mrs. Gaines, to whom Cameron had conveyed it. At the time'he made this purchase for his wife he had charge of the property as receiver, having been appointed such receiver on the 28th day of January in the action by the creditors to subject this property to their claims against Sumpter. The order appointing him receiver directed that he should take charge of the property, collect rents, and pay taxes, and do other things necessary for the preservation of the property. There is no rule of equity better settled or more inflexible than that which declares that a trustee shall not deal with the trust property to his own advantage against the consent of the cestui que trust. “Absolute and most scrupulous good faith is the very essence of the trustee’s obligation,” says Prof. Pomeroy. The first and principal duty arising from his fiduciary relation is to act in all matters of the trust wholly for the benefit of the beneficiary. The trustee is not permitted to manage the affairs of the trust, or to deal with the trust property so as to gain any advantage, directly or indirectly, for himself, beyond his lawful compensation.” 2 Pomeroy, Eq. Jur. 1075.

While a receiver is an officer of the court, he is also a quasi trustee, and occupies a fiduciary relation towards the parties to the action in which he is appointed; and both by reason of the fact that he holds the property as an officer of the court, and also occupies such fiduciary relation, he will not be permitted to deal with the trust estate for his own benefit or advantage. There is no reason why a distinction should be made between a receiver and other persons occupying1 a relation of that kind, and the decisions make none. It has often been held that a receiver occupies a fiduciary relation to the parties to the action, and is trustee for all of them who are interested in the property intrusted to his charge by the court, and he cannot deal with or purchase such property for his individual benefit or for that of any third party. “It is hardly possible,” said the court in Jewett v. Miller, speaking of an attempted purchase by a receiver, “to state the rule of equity too broadly or too strongly. It will not permit a trustee to subject himself to the temptation which arises out of the conflict between the interests of a purchaser and the duty of a trustee. * * * The rule is entirely independent of the question whether in point of fact any fraud has intervened. • It is to avoid the necessity of any such inquiry, in which justice might be balked, that the rule takes so general a form.” Jewett v. Miller, 61 Am. Dec. 751; Gilbert v. Hewetson, 79 Minn. 326; Donahue v. Quackenbush, 75 Minn. 43; Shadewald v. White, 74 Minn. 208; Donahue v. Quackenbush, 62 Minn. 132; Herrick v. Miller, 123 Ind. 304; Johnson v. Gunter, 6 Bush (Ky.), 534; Thompson v. Holladay, 15 Or. 34; Eyre v. McDonnell, 15 Irish Chan. N. S. 534; 23 Am. & Eng. Enc. Raw (2d Ed.), 1085; High on Receivers, § § 193, 194.

But it is said that the rule does not apply here because Martin, before he was appointed receiver,- was the attorney for Cameron, and obtained the judgment against Sumpter upon which the execution and sale by which Cameron obtained the title, was based. But this had nothing to do with the receivership, for, as stated in the brief of counsel who represented Mrs. Martin here, his relation as attorney to Cameron had terminated before he was appointed receiver. This is probably true, for our statute expressly provides that “no party, or attorney, or other person interested in an action shall be appointed receiver therein.” Kirby’s Dig. § 6355. This statute is only declaratory of what the law was before the statute (23 Am. & Eng. Enc. Raw, 1032), but it emphasizes the requirement that the receiver must be and remain a disinterested and impartial agent of the court and parties to the litigation. While it is conceded that Martin’s relations as counsel to Cameron had terminated before he was appointed receiver, still, if this was not so, it could not alter the decision. He could not lawfully act as receiver, and hold the property for the attaching creditors, and at the same time act as counsel for one contesting the rights of those creditors; but if he undertook to do so, he would still be holding this property as trustee; and if he attempted to buy it for himself or another, he would be met by the same unbending rule to which we have referred. Even if we admit that he could, in violation of the statute, continue, after being appointed receiver, to act as counsel for Cameron, still this would not justify him in purchasing an outstanding title; for it is no part of the duty of an attorney to buy the interests of his client in litigated property. It is not in the least necessary that he should do so in order to protect the rights of his cliént, for his client could, sell to other parties, and Martin did not act for his client in making this purchase for his wife. In fact, he purchased this property, not from his client, Cameron, but from Mrs. Gaines, to whom Cameron had sold and conveyed it. So we do not see that the fact that the receiver had, previous to his appointment as such, been of counsel for Cameron has any bearing on this case.

If the fact that the title to this property had become vested in Cameron and the person to whom he sold justified the receiver in buying it for his wife, then the rule that forbids trustees from purchasing a title to the trust property antagonistic to the rights of their cestuis que trust would be of no avail. An exception to the rule that the trustee could purchase whenever the outstanding title was the superior title would completely nullify the rule, for the cestuis que trust can only be injured by such purchase when the title purchased is superior to that under which they claim. If the trustee purchases a title which is not superior to the one held by the cestuis que trust, he pays out his money for nothing; but when he buys a superior title, he could cut off the rights of the cestuis que trust completely, were it not for the rule that forbids him from setting up such title against those towards whom he stands in a fiduciary relation. The main reason of the rule is to shut off the trustee from such temptations.

We are perfectly willing to concede that the facts in this case show that the receiver was actuated by honest motives, and that he purchased the property for his wife because he had become convinced that the attaching creditors had lost the right to subject it to their debts by failing to redeem it from the Cameron sale, and that they could get no benefit from it, whether he purchased it or not. The fact that two of the judges of this court, after a full consideration of the case, have come to the conclusion that the receiver had the right to purchase is sufficient to acquit him of any blame in coming to the same conclusion. But, while we can all agree that the motives that actuated the receiver were honest, a majority of us think that his conclusion that he had a right to purchase this property for his wife was not sourid in law. And, as we have before stated, the motives of a trustee in dealing with the trust property are not material; whether good or bad, the law holds that he can make no profit out of such transactions. If it had been shown that the property purchased by him had not been placed in his charge as receiver, the decision might be different; for the rule only extends to the property held as receiver, and does not forbid the purchase of property not so held. But the record, as we understand it, shows that this property was placed in his charge as receiver; and it follows therefore from what we have said that his wife holds this property in trust for the creditors who were parties to the suit in which he was appointed receiver.

On the whole case, we are of the opinion that the decree should be reversed, and the'cause remanded, with an order that out of the proceeds of the property Mrs. Martin be paid the amount expended by her for such Cameron title and the interest thereon, and that, upon the payment of that sum, she be divested of all interest in the property, and for such further proceedings as may be necessary. It is so ordered.