Opinion
(December Term, 1856.)
Where the trustee of an insolvent purchased the trust property at his own sale, and procured the decree of a Court of Equity to validate such purchases, without making the unsecured creditors (who alone were really interested) parties to the suit, he will not be protected by such decree, but, at the instance of such creditors, the property will be decreed to be resold.
CAUSE removed from the Court of Equity of Pasquotank County.
Moore, for plaintiffs.
Heath, Smith and Pool, for the defendants.
Jesse L. Pool being greatly embarrassed with debt, and, as it afterwards appeared, being in fact insolvent, on the 30th of January, 1841, executed a deed in trust to the defendant Joseph H. Pool, which was duly registered, conveying to him a large real and personal estate, consisting of the tract on which he resided, containing 350 acres; also, an interest in a steam mill in the town of Nixonton, nineteen slaves, and all his stock of horses, cattle, sheep and hogs, all his farming tools, all his household and kitchen furniture, being in fact all he owned, in trust, that he should, when he might deem proper, advertise and sell the same, either for cash or upon a credit, and apply the proceeds of such sale to certain debts, recited in the deed, to which the said Joseph H. Pool was surety, and in the second place, to pay off a debt to one John Pool, and if, after discharging these liabilities, there should be a residue of property, the same was to be re-conveyed to Jesse L. Pool. In the year 1842, Jesse L. Pool died, and the defendant George D. Pool was appointed his administrator with a will annexed, but no assets came to his hands, either then or afterwards.
Shortly after the death of Jesse L. Pool, the defendant Joseph H., as trustee, advertised the property conveyed to him, for sale, and did make sale of the same. Much of this property, embracing all the real estate and the steam mill, also thirteen of the slaves, was bought by the agents of the trustee for his use and benefit, and the title being first conveyed to such agent, was conveyed back to him, and he immediately took possession thereof, and has retained and used it ever since.
The plaintiffs aver that this sale was at a great sacrifice, and that if it had been fairly conducted, it would have produced enough to pay the other creditors, among whom were the plaintiffs, as they showed by divers court-judgments, exhibited in the cause.
The prayer of the bill is that the property bought in by the defendant be resold, and that an account be taken of the defendant's administration of the said trust generally. The administrator cum testamento annexo is a party defendant to the bill.
At the Spring Term, 1843, of Pasquotank Court of Equity, the said trustee, Joseph H. Pool, filed a bill against the infant heirs-at-law of Jesse L. Pool, to which an administrator with the will annexed, afterwards appointed, was also made a party, setting forth that he had, for the purpose of preventing a sacrifice of the property, purchased the plantation, steam-mill, and divers slaves, (setting out the names and prices,) and that the sale was fair and for full prices. He proposes to surrender the said property to these infants, and to the personal representative of J. L. Pool, on being repaid the amount of his purchase, and he prays that these parties may be put to their election thus to redeem the property, or to stand concluded by this proceeding. An answer was filed by the administrator, professing to be satisfied with the sales, and answers pro forma were put in for the infants; and the matter being referred to a commissioner, he reported that the sales of the land were fair and for full value. It was therefore decreed that, as the personal representative of the estate professed to be satisfied that the price for which the personal property was sold was a fair one, that he be perpetually enjoined from setting up title to the same; and as the commissioner had reported the same as to the land, that the heirs-at-law should be enjoined from making claim to the land.
This proceeding in the Court of Equity of Pasquotank is relied on, in the answer, as a bar to the plaintiffs' claim. There were replications, commissions and proofs.
The cause was set down on the bill, answers, exhibits, former orders and proofs, and sent to this Court by consent of parties.
The defendant Joseph Pool admits that he was liable to account for all the property purchased by him, directly or indirectly, at the sale made by him, as trustee, under the deed of trust executed by Jesse Pool; but he insists that he is protected by the decree which he obtained in the bill filed against George Pool, the administrator, and the heirs-at-law of the said Jesse; and he prays to have the same benefit of that decree as if it were specially pleaded in bar of the plaintiffs' Equity. So, the only question is in respect to the force and effect of that decree.
The defendant says "he was advised by an eminent member of the bar to institute the proceeding referred to, against the personal and real representatives of the maker of the deed of trust, being told by him that his purchases were invalid and illegal, at the election of the parties interested in the trust, who could either charge him with his bids, or compel a resale, should property advance. He accordingly filed the bill to compel the parties to make their election, which was done in good faith, to relieve himself from the embarrassment of his position, by which he might suffer, and could not gain, and he is now advised that this was a proper and rightful course on his part."
As the estate of Jesse Pool was greatly indebted, over and above the debts secured by the deed of trust, his personal and real representatives had, in truth, no interest to call for an account of the trust fund. The persons really interested were the creditors not secured by the trust. Their debtor was entitled to the resulting trust or surplus, after the payment of the secured debts; and this trust they had a right to reach, and "to work out their equity" through the representatives of the deceased debtor. Had they been made parties to the bill of the trustee, there would have been some show of justice in the proceeding; but to call upon the administrator and heirs-at-law, who were not interested in the matter, to make an election whereby to deprive the creditors of the deceased debtor of their right to subject this resulting trust, and to avail themselves of all incidental equities growing out of the invalid and illegal acts of the trustee, was a mere farce.
That a trustee can "relieve himself from the embarrassment of his position," growing out of a breach of duty, or fraud on his part, (for such the law considers it,) by putting any one to an election, is a novel application of that doctrine, for which no authority has been cited, and no reason could be assigned.
A mortgagee has a right to call upon the morgagor [mortgagor] either to pay the debt, or have his equity of redemption foreclosed. This is put on the ground that the mortgage is only a security for the debt, and the mortgagee, being in no default, is not obliged to wait upon the pleasure of the debtor; but this principle has no sort of application to the case of a trustee who is in default, and has made himself liable by a breach of duty. The only mode of relief left open for him, is to make retribution by acting honestly, and having a fair, open sale of the property, so as to get it out of his hands. It is not for him to say that he will keep the property, unless the parties interested elect to have a re-sale.
If the creditors not secured by the deed of trust had been made parties to the bill, and offered no objection to the decree, possibly their rights would have been concluded by it; but it cannot be seriously contended that their rights are affected by a decree, in which the administrator and heirs-at-law of the debtor are made to surrender, without any consideration whatever, rights in which they had no interest, but which were valuable to creditors.
There will be a reference to take an account of the trust fund, in which the trustee will be charged with the property actually sold by him at public sale, at the prices bid for it, and credited with the debts secured in the deed of trust which he has paid off. The trustee will also be charged with the present value of such of the trust property as he still has in his possession, together with the rents and profits thereof. He will also be charged with such of the trust property as he has since resold at the prices obtained, together with the rents and profits up to the time of such resale; and he will be entitled to interest upon such amount of the trust debts paid by him, as may exceed the amount of the proceeds of the property sold.
In reference to the steam-mill and the slaves, which the trustee conveyed to his father, John Pool, at the amount bid for them, there is evidence that that was not the real value; for they were afterwards sold for double the amount, including some small repairs. The trustee will be charged with the actual value of this property at the time he made the private sale to his father; and the cause will be retained for further directions.
PER CURIAM. Decree accordingly.