Van Epps v. Van Epps

The Chancellor.

The agreement relative to the occupation of the premises in Oswego county being fully denied by the answer, so much of the injunction as restrains the defendant from proceeding in the suit for the use and occupation of that property, or from proceeding in any other form to collect the rents thereof, must be dissolved ; leaving the complainant E. Van Epps to his defence at law, if he has any. But so far as relates to the farm at Greenbush, and to the trust property, and the rents, profits, proceeds, and income thereof, the injunction must be continued to the hearing and until the further order of the court.

The sale of the Clinton county lands for the defendant’s own benefit, was dearly a breach of trust; which, in connection with his insolvency, or pecuniary irresponsibility, as stated in the bill, is sufficient to authorize the court to remove him from his situation, as trustee. The nature of the estate in the trust property, as created by this declaration of trust, is a valid trust to receive the rents, income, and interest of the property for the use of the complainants for life, and after their deaths to convey rhe remainder in fee to their heirs in severalty. The interest of the complainants in the trust property is consequently inalienable during their lives, under the provisions of the 63d section of the article of the revised statutes relative to uses and trusts. (1 R. S. 729.) They could not therefore authorize the trustee to sell the trust property • nor can .they pledge the future interest or income thereof, or authorize their trustee to anticipate the same as an offset against their previous indebtedness to him. And had the declaration of the trust been duly recorded in Clinton county, as it appears to have been in the county of Rensselaer, it would have been impossible for him to have conveyed any valid title to a purchaser of the trust estate *241 situated in either of those counties. (1 R. S. 730, §64, 65.)

The defendant is also wrong in supposing that he was authorized to become the purchaser of the Greenbush farm, under the master’s sale upon the prior mortgage, for his own exclusive benefit, to the prejudice of the subsequent mortgage which he held in trust for others. The rule of equity which prohibits purchases by parties placed in a situation of trust or confidence with reference to the subject of purchase, is not, as the defendant supposes, confined to trustees or others who hold the legal title to the property to be sold ; nor is it confined to a particular class of persons, such as guardians, trustees, or solicitors. But it is a rule which applies universally to all who come within its principle ; which principle is, that no party can be permitted to purchase an interest in property and hold it for his own benefit, where he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser on his own account and for his individual use. The cases on this subject are nearly all referred to in Hawley v. Cramer, (4 Cowen’s Rep. 717,) and in the very recent case of Greenlaw v. King, decided by Lord Cottenham in January last. (5 London Jurist, 18.)

Here the duty of the trustee, as the holder of the junior mortgage, was to make the mortgaged premises, if possible, produce upon the sale sufficient not only to pay olf the prior incumbrance, and the costs of foreclosure, but also to satisfy the subsequent incumbrance which he held in his fiduciary character; and this duty came directly in conflict with his interest, as a purchaser for his own benefit, to bid in the property at the lowest sum for which he could obtain it. The result of this conflict between his interest and his duty we find to be, that a farm which in April, 1837, was sold for $15,000 is, within three years from that time, bid in by him for the comparatively small sum of $6450; although the holders of the prior incumbrance were willing to let more than two thirds of that sum remain at in *242 terest, for an indefinite period, upon a new mortgage upon the premises. In cases of this kind, the court does not suffer itself to he drawn aside from the application of the equitable rule by any attempt, on the part of the purchaser, to establish the fairness of the purchase. In the language of the learned commentator on American law, the rule is founded on the danger of imposition, and the presumption of the existence of fraud which is inaccessible to the eye of the court. The policy of the rule is to shut the door against temptation ; which, in cases where the relationship before adverted to exists, is of itself deemed to be sufficient to create the disqualification. (4 Kent's Com. 438.)

Although the purchase in this case was in violation of the rule of equity and cannot therefore be sustained, it does not follow that the trustee is to lose the amount of his bid upon the property. But in equity he is allowed to hold it as security for that amount only, unless he elects fully to indemnify the trust estate by paying the whole amount of the principal and interest due upon the bond and mortgage "which he held in trust. In the present case, therefore, the income of the farm, or so much of it < s is necessary for that purpose, must be applied by the receiver from time to time to keep down the interest, on the bond and mortgage to the trust company ; and the residue must be retained by him to abide the decision of this cause.

And the application to discharge the receiver must be denied, with costs.