Terwilliger v. . Brown , 44 N.Y. 237 ( 1870 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The law exacts scrupulous good faith on the part of him who acts as trustee for another, or holds any other fiduciary relation to another. A trustee is not permitted to purchase the trust property, or be directly or indirectly interested in such purchase. He is not permitted to make the purchase as agent for another, or through an agent for himself. And it matters not if he pays all the property is worth, nor if the sale is advantageous to the cestui que trust. It is a matter, of course, for courts of equity to set the sale aside upon the application of the cestui que trust. The object of the rule is to afford the cestui que trust the most ample protection against fraud and injustice, and to remove out of the way of the trustee all inducements and temptations to speculate upon the trust property, or to manage and manipulate the same for his own benefit. This rule applies to executors and administrators as well as to other agents, and it prohibits one from being the purchaser of property which he is under a duty to sell for another, and from being the seller of property which he is under a duty to purchase for another. Willard, in his Equity Jurisprudence, at page 189, says: "It is a rule which applies universally to all who come within the principle, which principle is, that no party can be permitted to purchase an interest in property, and hold it for his own benefit, when he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser on his own account, or for his individual use. And a sub-agent is just as much disqualified as an agent is to make a purchase in opposition to the rights and interests of his principal."

These are familiar principles which have always been recognized and acted upon in courts of equity. (De Caters v. Le Ray DeChaumont, 3 Paige Ch., 179; Davoue v. Fanning, 2 Johns. Ch., 257; Hawley v. Cramer, 4 Cow., 735; Cruger v. Ring, 11 Barb., 364; Moore v. Moore, 5 N.Y., 262; Story's Eq. Jur., 322.)

Sales and purchases made by trustees in violation of this rule were not held to be absolutely void, but voidable at the election of the cestui que trust. (Forbes v. Halsey, 26 N.Y., 65.) But this rule was extended by the Revised Statutes (2 R.S., 104, § 27) so as to make such sales when made in violation of the rule by executors and administrators under the order of a surrogate, in proceedings to sell real estate for the payment of debts, absolutely void. This section is as follows: "The executors or administrators, making the sale and the guardians of any minor heirs of the deceased, shall not directly or indirectly purchase or be interested in the purchase of any part of the real estate so sold. All sales made contrary to the provisions of this section shall be void." In this case, the defendant, Ellis, made the sale through Brown as his agent, and Brown became the purchaser. Brown held the position of a sub-agent in making the sale; and, aside from and independently of the statute above cited, within the equitable principles above stated, he could no more become the purchaser than his principal, Ellis. If the statute had never been passed, any one of the parties interested could have come into a court of equity and had the sale set aside. The reason of the rule embraces this case just as fully as if Ellis had made the sale in person and himself become the purchaser. Hence, if the statute had never been passed there would have been abundant reason for sustaining the decision below invalidating the sale in question.

But I think the statute clearly embraces this case. The statute (2 R.S., 105, §§ 29 and 30) requires the executor or administrator immediately after the sale, to make a return of his proceedings to the surrogate, who is required to examine the proceedings, and he may examine the executor or administrator, or any other persons, touching the same; and if he shall be of opinion that the proceedings were unfair, or that the sum bid is disproportionate to the value, he shall vacate the sale and direct a new sale; and if it shall appear to him that the sale was legally made and fairly conducted, and that the sum bid is not disproportionate to the value, he is required to make an order confirming the sale and directing a conveyance. It will thus be seen that the sale is inchoate until the final order of the surrogate. All the proceedings until this order shall be made are but successive steps in making the sale. Until such order, the fidelity of the executor or administrator is required and relied on. There are strong reasons why the statute inhibition should continue and the executor or administrator should not obtain an interest, in the sale or the real estate sold, hostile to those whom he represents until such order shall be made. He is expected to make a faithful report of the sale, and he should be in a position where he would have no temptation to sacrifice the interests of those whom he represents in the investigation which the surrogate is required to make.

Here the executor, after the sale and before his report to the surrogate, became interested to the extent of one-half in the real estate sold, and hence within the meaning of said section 27 he was interested in the purchase, and the sale was therefore void.

It is claimed on the part of the appellant that the objection to the sale should have been made before the surrogate, and that the order of confirmation is final and conclusive. The statute does not require any notice to be given to the parties interested in the proceedings to confirm, and in this case it does not appear that any notice was in fact given. The order was made exparte, and it does not appear that the surrogate or any of the parties interested knew of the objection. The objection was not made to the surrogate, and the question was not litigated before him, and there was no opportunity to litigate it, and it would be quite extraordinary if the parties interested were, under such circumstances, concluded by the order, particularly in the face of the statute declaring the sale void. In Forbes v. Halsey (26 N.Y., 53) the sale had been confirmed, and yet it was held void in an action of ejectment for the land against subsequent innocent purchasers for value. It was held, notwithstanding the confirmation by the surrogate, that the sale was absolutely void, and that the title to the land remained in the heirs-at-law of the intestate.

It is also claimed on the part of the appellant that because the contract to purchase, made by the executor with him, was not in writing, the executor did not legally become interested in the purchase, within the meaning of the statute; his contract to purchase being void under the statute of frauds. It has never been held that the interest of a trustee in the purchase at a sale made by himself should be evidenced by some writing valid within the statute of frauds, in order to be condemned. The reason of the law does not require this, and it has always been held otherwise. There was no writing to evidence the interest in the purchase, which was condemned in the cases of Moore v.Moore and Forbes v. Halsey, above cited.

It is further claimed that the court erred in not deducting from the amount allowed to the plaintiff his share, one-seventh, of the debts paid by the executor with the proceeds of the sale. If the executor had appealed and made this claim, I should have been inclined to hold that the allowance should have been made. But he has not appealed. He does not claim that any part of the money he has paid upon the debts should be refunded or allowed to him. The appellant paid no debts of the testator, and I do not see how he can claim any allowance on account of such payment.

The evidence of the husband of the respondent, who was a party plaintiff with her, was wholly unimportant, and could not have had any influence upon the case, and hence the objection to his competency as a witness cannot be available here.

Having thus given careful consideration to all the questions involved on this appeal, I come to the conclusion that the judgment should be affirmed with costs.

All concur. Judgment affirmed with costs.