Hammond Others v. Stanton Others , 4 R.I. 65 ( 1856 )

Ames, C. J.

This bill is filed by the complainants, as creditors of Nathan Stanton, in their own behalf and in behalf of his other creditors, against him and his assignees under a voluntary assignment, and against a mortgagee of said Nathan who has got in the equity of redemption by purchase from the assignees, for the double purpose, of obtaining from the assignees an account of the trust estate, and of setting aside certain conveyances of four parcels of the reál estate assigned, made by the assignees, as alleged, in fraud of the rights of the creditors of said Nathan Stanton, entitled under the assignment.

So far as John R Tennant, the mortgagee, is concerned, the bill totally fails. He appears, from the evidence, to have been a fair mortgagee of one of the parcels of land assigned, who, upon the exposure of the equity of the mortgagor therein to public sale by the assignees', bought it in, as the highest bidder, to complete his title; and the bill accordingly must, as to him, be dismissed with costs.

The contest in the case, has really been between the creditors and the assignees; and certainly, in its general aspects, bears hardly against the latter.

In the latter part of December, 1848, Nathan Stanton, a small trader in country produce in Newport, professedly assigns all his property, real and personal, to his son, Job F. Stanton, and his brother, Gilbert Stanton, for the benefit of his creditors, without preference. The assignees appear to have been quite diligent in making sale of the personalty assigned to them; for, as is shown by the account exhibited by them as a part of their answer, on the 3d day of January, 1849, they sold at- auction, for cash, all his stock in trade, and on the 10th of January, 1849, all his farming stock and utensils ; and within'three weeks of the assignment, thus realized as the net amount of those sales, .the sum of $1,108.32. There were also assigned to them, debts by note and account due to the assignor, amounting, according to the schedule exhibited bythem, to about $2,000; and a part of which, at least, must have been collected by them ; but how much, or when, nowhere appears. They admit, however, that out of all the assets, real and personal, they have received $1,689.80, from which .they claim to deduct, as the amount by them paid out and retained for their services, $640.79 ; leaving a net balance on hand for distribution of $1,049.01. Nothing further appears to have been done by them until the fall of 1851, when a portion of the real estate' assigned was sold at public sale to Tennant, the mortgagee, for a nominal consideration, subject to his mortgage; another portion to Francis B. Peekham, subject to Simon Newton’s mortgage, for the sum of $245.^; and the three remaining parcels were conveyed, for a nominal consideration, by the assignees to Gilbert Stanton, under an arrangement to which we shall in a moment direct attention, who now claims, by virtue of the same, to hold the lands discharged from the trust. It is said by the assignees that this real estate was mortgaged for an amount exceeding its value at the time of the assignment. If this be so, what more simple than to sell it all at auction subject to its mortgages, and at least stop the accumulation of interest, and promptly close up the assigned estate. The answer discloses no reason for this delay, except that by the terms of the assignment they had the power to order the time and manner of sale; as if a discretion of this kind in a trustee were not always subject to the revision of a court of equity when called upon, as in this case, to scan his proceedings by parties interested in the trust. Two years more elapse after the whole assigned estate, according to the admission pf the assignees, has been converted into money, and yet no attempt to distribute the proceeds of it amongst the creditors according to the direction of the deed of assignment which they had covenanted to obey — making nearly five years from the- date of the assignment; when, in October, 1853, this bill is filed against them for an account of the funds so long kept back from its proper destination. The only excuses given for such gross delay by the answers is, generally, that the creditors threatened suit and did not bring in their claims. The time when these threats were made is not even alleged, and neither the fact of threats, nor the time when made, proved. If made, as is probable, shortly before the suit, so far from being an excuse for not distributing the proceeds of the assigned property, they were justly caused by the gross neglect to distribute them, which justified the worst suspicions of the creditors against the honesty of the assignees. The other excuse, that the creditors had not all brought in their claims, is still less countenanced by proof or probability, or even by any special averment in the answer. It nowhere appears that they ev.en advertised for the creditors to-bring in their claims, and still less stated in the advertisement that the creditors were called upon to do so, for the purpose of enabling the assignees to strike a dividend in their favor. It is, besides, wholly incredible that the son and brother of a small trader could not, with reasonable diligence, in such a community as Newport, having the assistance, too, of the debtor, have easily found out all his creditors and the amount of their respective debts, in one tenth of the time of this long delay. Indeed, a very minute and long list of the creditors of the' assignor is now presented by the assignees, which gives additional reason to .suppose that this excuse is wholly groundless. Equally unavailing is the plea urged in the answer, though not supported by proof, that they acted in this matter under the advice of counsel learned in the law. The advice of counsel is given upon facts stated ; 'and we have listened in vain to counsel, equally learned probably with the advisers, upon the facts proved and admitted to exist, for a tolerable reason for this gross delay to settle a small estate assigned for the benefit of creditors, the affairs of which seem to have been involved in no complexity whatsoever. Whilst claiming, however, that all this time was needed by the assignees to settle the estate, it is said that the creditors have, by their delay to prosecute, lost their right to look into the doings of the assignees, and have even acquies'ced in the purchases made by one of them out of the assigned estate. Both these positions certainly cannot be well founded ; and we think that neither of them is. The fraudulent neglect of assignees under an express trust for the benefit of a numerous body of small creditors, can hardly be met in a court of equity, by their forbearance to commence a suit for an account of their own property, or be construed into a relinquishment by acquiescence of the consequences of a gross breach of trust. The creditors are clearly entitled to an account from the assignees, and the case must go to a master for the purpose of taking it, the question of compensation and costs being reserved until the coming in of the master’s report.

The only other question left in the case is concerning the conveyances' of portions of the assigned lands made by the assignees to William Turner and Jonathan James, and by them to Gilbert Stanton, one of the assignees. The bill avers, in substance, that these were fraudulently made by the assignees under an arrangement with the ostensible purchasers to reconvey the same in whole or part to one of the assignees, and for the purpose of wronging and defrauding the creditors of the value of the assignor’s interest in those parcels of land. The answers of the assignees do not in terras-deny that those conveyances were made under the arrangement charged; and in fact the arrangement is amply proved by the testimony of the ostensible purchasers, Turner and James, and by the deeds executed by the assignees to them, and by them to Gilbert Stanton, who seems to have been the active man in the business of the assignment. The answers simply set up in reply the formal conveyance of these parcels of land, for. a nominal sum, to the purchasers, and state that in these, and in all their transactions’ and doings, they acted in good faith and for the best interests of the creditors of the assignor ; not denying the fact charged, but relying upon the purity of the motive with which they acted in the matter. In short, the answers in this particular amount to this: the lands were so incumbered that the value assigned to us amounted to nothing, and so one of us took them for nothing, through a secret arrangement made by us with an ostensible purchaser at a nominal price. The three lots of land in question were not offered at public sale, and the value was not in that way ascertained. The only lot thus offered was that mortgaged to Tennant, who had pressed the assignees for his money, and under threat of suit had obtained possession of the premises mortgaged to him, and became the purchaser of them substantially for the amount of his mortgage. The sale seems to have stopped with that offer;' and the only direct evidence given to us of the value of the lots in question, is that of Mr. Thomas R. Hazard, who admits that he was no judge of their value, and says that in his own refusal to' purchase them at $300 per acre he was guided by his judgment that $300 per acre was all that they were worth for farming pwposes. There is nothing either in his testimony, or in the other testimony in the cause, to indicate to us that such a standard of value is the true standard of value to be applied to land so near Newport; and it will hardly do in such a matter to rely upon the declarations to the value of the land made by the respondents in their answers.

The reason given by Gilbert Stanton to Jonathan James for the desire of the former to become, through a formal convey anee to the latter, the real purchaser of two of the lots of land at a nominal sum over the mortgages, was, that at that price the land was cheap, and would pay both mortgages on it, and something over. It is hardly necessary to cite numerous authorities to show that such a taldng by a trustee of the trust property to his own use, and for such a motive, is a fraudulent abuse of his trust, and of the power which it gave him over the trust estate. Considering the position of the real purchaser, the motive was a corrupt one; and considering the manner of the sale and purchase, — the seller and purchaser being in effect the same person,: — the transaction must be regarded rather as-a contrivance than a contract.

In Ferraby v. Hobson, 2 Phillips; 22 Eng. Ch. R. 255, 257, 258, in which the charge in the bill was, that the trustee leased a portion of the trust estates to his' sister, nominally at a low rent, but really for the benefit of himself, Lord Cottenham considered it as charging “ personal corruption, and with appropriating to himself the property of others,” a case, which he, in another part of his opinion, remarks, “ if made out, would be very disgraceful to him (the trustee), as it would have shown an endeavor on his part to enrich himself at the expense of the estate of which he was trustee.” In Lewis v. Willman, 18 Eng. L. & Eq. R. 45, decided by the house of lords in 1852, Lord St. Leonards, lord chancellor, strongly expresses the rule which seems to us precisely applicable to the present case. “I have, been surprised, I confess,” says he, “ at this matter being pursued, when-the rules of equity are so clear. No man in a court of equity is allowed himself to buy and sell the same property. He cannot sell to himself. Even in the case of a fair trustee, he cannot sell to himself. If he has the power or the trust to sell, he must have some one' to deal with. Courts of equity do not allow a man to assume the double character of seller and purchaser; and it is necessary, in order to preserve the interests of persons entitled beneficially to property, to maintain that rule. But here is a case which goes infinitely beyond that. I should lay it down as a rule, my lords, that ought never to be departed from, that if an attorney or agent cm show that he is entitled to purchase, yet, if instead, of openly purchasing, he pu/r chases in the name of a trustee or agent, without disclosing the fact, no such purchase as that can stmd for a single moment. Such a transaction, to stand, must be open and fair, and free from all objection; and if a man purchases, as these appellants purchased, by putting forward a clerk of their own, not as a clerk, not as an agent, but as an actual bond fide purchaser upon .an absolute and independent contract, he does that which, the moment it is stated, renders the deed powerless for which it was framed and executed; and the court will hold the parties responsible for every thing that results from it.”

Now precisely what Lord St. Leonards thus characterizes as infinitely beyond an open purchase of the trust property by a fair trustee, is what this bill charges, and the' testimony proves, upon Gilbert Stanton in respect to the three parcels of land in question. The agents whom he secretly employed to effect his purpose are witnesses to the fact, and one of them to the motive of profit, which' he admitted to have swayed him. The assignees, uncle and nephew, convey one of the lots, as appears from the records, to William Turner, on the 26th day of September, by deed received for record on-the 29th September, 1851; and on the 29th September, 1851, William Turner conveys the same lot to Gilbert Stanton, by virtue of his agreement to that effect made when apparently purchasing for himself, his deed having been received for record on the 4th of October following. On the same 26th day of September, the assignees convey two other parcels of the trust estate to Jonathan James, under a like agreement, by a deed received for record on the 4th day of October following; ■ and on the 26th day of January, 1853, James reconveys the lots to Gilbert Stanton by deed of "that date received for record on the 29th day of January of the same year. The answers, as we have said, contain no reply to the special charges of fraudulent dealing with regard to these lots, contained in the bill; but simply speak of the sales to Turner and James, as if made to them as actual purchasers, and the nominal sums received from them as the consideration- ' money of the sales actually received from them. In other words, the assignees, after having by a secret arrangement conveyed the assigned property to one of their- own number for a nominal sum, now set up the conveyances thus made by them, as actual conveyances for value.; and one of them claims the property in the character of purchaser from his own and coassignee’s grantees. Such conduct with regard to trust property, considering the duties of a trustee, is a gross fraud upon the trust, and upon those interested in it. It may have been caused by ignorance or bad advice, but that cannot alter the character stamped upon it by the commonest principles of justice. It is, and ought to be charged in the bill as a fraud, and the evidence fully proves that it has been committed. Indeed, the assignees seem to have treated this whole assignment as a species of family arrangement of the property of Nathan Stanton made between him and his brother Gilbert and son «Job, in which every one’s interest was to be more regarded than the interest of the creditors, for whose benefit the assignment was professedly made. The keeping back the proceeds of the property sold and admitted to be bn hand from the creditors, for five years, without justifiable cause, is in the same direction with,the appropriation of a portion of it, in the manner proved by one of them, with the expectation of profit.

There is some evidence of concealment of property from the creditors, a day or two before the execution of the assignment, by removing it at night from the store of Nathan Stanton, the assignor, to that of Stephen, another brother, since dead; but there is no evidence in the case connecting the assignees with the concealment, nor any charge in the bill fitted to relief on that ground, if any were desired, against the assignor, or any one else. Although a considerable portion of the argument was directed to this matter,' we have placed no weight upon it in •the conclusion to which we have come.

This cause must be referred to a master to take the account prayed in the bill; the question of compensation to the assignees, and of costs being reserved until the coming in of the master’s report. The decree will declare the conveyances made by Job F. Stanton and Gilbert Stanton, as assignees of Nathan Stanton, to William Turner and to Jonathan James, and by the two latter persons to Gilbert Stanton, to be null and void, and will order the master to sell, under the direction of the. court, all the right, title, and interest, which Nathan Stanton had in the lands therein described at the date of the assignment, at public auction, to the highest bidder therefor, at some favorable time to be ascertained and reported by the master, for the benefit of the creditors of Nathan Stanton, the net proceeds of sale to be brought by the master ¿nto the registry of the court, for distribution-amongst the complainants and such of the other creditors of Nathan Stanton as may intervene and become parties to this proceeding, by appearing and proving their claims- before the master, ,and submitting to bear their proportion of the expenses of this suit.