A trustee cannot purchase or acquire by exchange the trust
property.
Where the trustee in a marriage settlement has a power to sell
and reinvest the trust property whenever in his opinion the
purchase money may be laid out advantageously for the
cestui
que trust, that opinion must be fairly and honestly exercised,
and the sale will be void where he appears to have been influenced
by private and selfish interests, and the sale is for an inadequate
price.
Where a discretion is reposed in the trustee and confidence
placed in his judgment by the instrument creating the trust, it is
a case peculiarly subject to this rule; it is contemplated that his
judgment should be free and impartial and unbiased by personal
interests.
Quaere, how far a
bonae fidei purchaser,
without notice of the breach of trust, in such a case, is bound to
see to the application of the purchase money.
Where the purchase money is to be reinvested upon trusts that
require time and discretion, or the acts of sale and the
reinvestment are contemplated to be at a distance from each other,
the purchaser is not bound to look to the application of the
purchase money.
But wherever the purchaser is affected with notice of the facts,
which in law constitute the breach of trust, the sale is void as to
him, and a mere general denial of all knowledge of fraud will not
avail him if the transaction is such as a court of equity cannot
sanction.
A
bonae fidei purchaser without notice, to be entitled
to protection, must be so not only at the time of the contract or
conveyance, but until the purchase money is actually paid.
This Court will not suffer its jurisdiction in an equity cause
to be ousted by the circumstance of the joinder or nonjoinder of
merely formal parties who are not entitled to sue or liable to be
sued in the United States' courts.
Page 21 U. S. 422
The original bill was filed by the respondents, Mary Wormley,
and her infant children, suing by their next friend, against the
appellants, Hugh W. Wormley, her husband, Thomas Strode, as
trustee, Richard Veitch, as original purchaser, and David Castleman
and Charles McCormick, as mesne purchasers from Veitch of the trust
property, for the purpose of enforcing the trusts of a marriage
settlement, and obtaining an account, and other equitable relief.
The bill charged the sale to have been a breach of the trusts, and
that the purchasers had notice.
In contemplation of a marriage between Hugh W. Wormley and Mary
Wormley, (then Strode), an indenture of three parts was executed on
5 August, 1807, by way of marriage settlement, to which the husband
and wife, and Thomas Strode, her brother, as trustee, were
parties.
Page 21 U. S. 423
The indenture, after reciting the intended marriage, in case it
shall take effect, and in bar of dower and jointure, &c.,
conveys all the real and personal estate held by Hugh W. Wormley
under a certain indenture specified in the deed, as his paternal
inheritance, to Thomas Strode, in fee, upon the following trusts,
viz.,
"for the use, benefit, and emolument of the said Mary and her
children, if any she have, until the decease of her intended
husband, and then, if she should be the longest liver, until the
children should respectively arrive at legal maturity, at which
time each individual of them is to receive his equal dividend,
&c., leaving at least one full third part of the estate,
&c., in her possession for and during her natural life; then,
on her decease, the landed part of the said one-third to be divided
among the children, &c., and the personal property, &c.,
according to the will, &c., of the said Mary, at her decease.
But if the said Mary should depart this life before the decease of
the said Hugh W. Wormley, then he is to enjoy the whole benefits,
emoluments, and profits, during his natural life, then to be
divided amongst said W.'s children, as he by will shall see cause
to direct, and then this trust, so far as relates to T. Strode, to
end, &c., and so, in like manner, should the said Mary depart
this life without issue, then this trust to end, &c. But should
Wormley depart this life before the said Mary, and leave no issue,
then the said Mary to have and enjoy the whole of said estate for
and during her natural
Page 21 U. S. 424
life, and then to descend to the heirs of the said W., or as his
will relative thereto may provide."
Then follows this clause.
"And it is further covenanted, &c., that whenever, in the
opinion of the said Thomas Strode, the said landed property can be
sold and conveyed, and the money arising from the sale thereof be
laid out in the purchase of other lands, advantageously for those
concerned and interested therein, that then and in that case the
said Thomas Strode is hereby authorized, &c., to sell, and by
proper deeds of writing to convey the same and the lands so
purchased shall be in every respect subject to all the provisions,
uses, trusts, and contingencies, as those were by him sold and
conveyed. And it is further understood by the parties that the said
H.W.W., under leave of the said Thomas Strode, his heirs and
assigns, shall occupy and enjoy the hereby conveyed estate, real
and personal, and the issues and profits thereof, for and during
the term of his natural life, and after that, the said estate to be
divided agreeably to the foregoing contingencies."
The property conveyed by the indenture consisted of about 350
acres of land, situate in Frederick County in Virginia. The
marriage took effect, and there are now four children by the
marriage. For a short time after the marriage, Wormley and his wife
resided on the Frederick lands, and a negotiation was then entered
into by Wormley and the trustee for the exchange of the Frederick
lands for lands of the trustee, in the County of Fauquier. Various
reasons were suggested
Page 21 U. S. 425
for this exchange, the wishes of friends, the proximity to the
trustee and the other relations of the wife, and the superior
accommodations for the family of Wormley. The negotiation took
effect, but no deed of conveyance or covenant of agreement
recognizing the exchange was ever made by Wormley, and no
conveyance of any sort or declaration of trust substituting the
Fauquier lands for those in the marriage settlement was ever
executed by the trustee. Wormley and his family, however, removed
to the Fauquier lands and resided on them for some time. During
this residence,
viz., on 16 September, 1810, the trustee
sold the Frederick lands by an indenture to the defendant Veitch
for the sum of $5,500, and to this conveyance Wormley, for the
purpose of signifying his approbation of the sale, became a party.
The circumstances of this transaction were as follows:
The trustee had become the owner of a tract of land in Culpepper
County in Virginia, subject to a mortgage to Veitch, and one
Thompson, upon which more than $3,000 were then due and a
foreclosure had taken place. To discharge this debt and relieve the
Culpepper estate was a leading object of the sale, and so much of
the trust money as was necessary for the extinguishment of this
debt was applied for this purpose. At the same time, Strode, as
collateral security to Veitch for the performance of the covenant
of general warranty contained in the indenture, executed a mortgage
upon the Fauquier lands, then in the possession of Wormley. In
Page 21 U. S. 426
1811, Veitch conveyed the Frederick lands to the defendants
Castleman and McCormick for a large pecuniary consideration in
pursuance of a previous agreement, and by the same deed made an
equitable assignment of the mortgage on the Fauquier lands. About
this time, Wormley having become dissatisfied with the Fauquier
lands, a negotiation took place for his removal to some lands of
the trustee in Kentucky, and upon that occasion a conditional
agreement was entered into between the trustee and Wormley for the
purchase of a part of the Kentucky lands in lieu of the Fauquier
lands at a stipulated price if Wormley should, after his removal
there, be satisfied with them. Wormley accordingly removed to
Kentucky with his family, but, becoming dissatisfied with the
Kentucky lands, the agreement was never carried into effect.
Afterwards, in April, 1813, Castleman and McCormick, by deed,
released the mortgage on the Fauquier lands in consideration that
Veitch would enter into a general covenant of warranty to them of
the Frederick lands, and on the same day the trustee executed a
deed of trust to one Daniel Lee subjecting the Kentucky lands to a
lien as security for the warranty in the conveyance of the
Frederick lands, and subject to that lien, to the trusts of the
marriage settlement if Wormley should accept these lands,
reserving, however, to himself a right to substitute any other
lands upon which to charge the trusts of the marriage settlement.
At this period, the dissatisfaction of Wormley was known to all the
parties, and Wormley was neither a party nor assented to the deed,
and
Page 21 U. S. 427
Castleman and McCormick had not paid the purchase money. In
August, 1813, the trustee sold the Fauquier lands to certain
persons by the name of Grimmar and Mundell without making any other
provision for the trusts of the marriage settlement.
At the hearing, the court below pronounced a decree
declaring
"That the exchange of land made between the defendants, Hugh W.
Wormley and Thomas Strode, is not valid in equity, and that the
defendant, Thomas Strode, has committed a breach of trust in
selling the land conveyed to him by the deed of 5 August, 1807, for
purposes not warranted by that deed, in misapplying the money
produced by the said sale, and in failing to settle other lands to
the same trusts as were created by the said deed, and that the
defendants, Richard Veitch, David Castleman, and Charles McCormick,
are purchasers with notice of the facts which constitute the breach
of trust committed by the said Thomas Strode, and are therefore in
equity considered as trustees, and that the defendants, David
Castleman and Charles McCormick, do hold the land conveyed,
&c., charged with the trusts in the said deed mentioned until a
court of equity shall decree a conveyance thereof. The court is
further of opinion that the said defendants are severally
accountable for the rents and profits arising out of the said trust
property while in possession thereof, and that the said defendants,
Castleman and McCormick, are entitled to the amount of the
encumbrances from which the land has been relieved by any of
Page 21 U. S. 428
the defendants, and of the value of the permanent improvements
made thereon, and of the advances which have been made to the said
Hugh Wallace Wormley by any of the defendants for the support of
his family, the said advances to be credited against the rents and
profits, and the value of the said permanent improvements, and of
the encumbrances which have been discharged and which may not be
abated by the rents and profits, to be charged on the land itself,
and it is referred to one of the commissioners of the court to take
accounts according to their directions, and report,"
&c.
The court afterwards partially confirmed the report which had
been made, reserving some questions for its future decision:
"And it being represented on the part of the plaintiffs that
they have removed to the State of Kentucky and are about removing
to the State of Mississippi, and that it will be highly
advantageous to them to sell the trust estate and to invest the
proceeds of sale in other lands in the State of Mississippi to the
uses and trusts expressed in the deed of August 5, 1807, and it
appearing also that there is no fund other than the trust estate
from which the sum due to the defendants, Castleman and McCormick,
can be drawn, this Court is further of opinion that the said trust
estate ought to be sold and the proceeds of sale, after paying the
sum due to the defendants, Castleman and McCormick, invested in
other lands in the State of Mississippi to the same uses and
trusts,"
&c. The sale therefore was decreed; commissioners were
appointed to make it; the
Page 21 U. S. 429
proceeds to be first applied in satisfaction of the sums found
due by the commissioner's report and the balance to be paid to the
trustee to be invested by him in lands lying in Mississippi
"for which he shall take a conveyance to himself in trust, for
the uses and trusts expressed in the deed of 5 August, 1807 . . . ,
and the court being of opinion that Thomas Strode is an unfit
person to remain the trustee of the plaintiff, doth further order,
that he shall no longer act in that character,"
&c., and proceed to appoint another in his stead, of whom
bond and surety was required.
So much of this last decretal order as directs a sale of the
property therein mentioned was suspended until the further order of
the court
"unless the said David Castleman and Charles McCormick shall
sign and deliver to the marshal or his deputy, who is directed to
make the said sale, an instrument of writing declaring that should
the decree rendered in this cause be reversed in whole or in part,
they will not claim restitution of the lands sold, but will consent
to receive in lieu thereof the money for which the same may be
sold, which instrument of writing the marshal is directed to
receive and to file among the papers in the cause in this
Court."
So much of the decretal order as directs the land to be sold to
the highest bidder was subsequently set aside, and until the
appointment of a trustee, the marshal directed to receive
propositions for the land, and to report the same to the court,
which would give such further directions respecting the sale of the
said land as shall then appear
Page 21 U. S. 430
proper. Whereupon the defendants appealed from all the decrees
pronounced in the cause.
Page 21 U. S. 438
MR. JUSTICE STORY delivered the opinion of the Court, and after
stating the case proceeded as follows:
Such is the general outline of the case, and in the progress of
the investigation it may become necessary to advert to some other
facts with more particularity.
And the first question arising upon this posture of the case is
whether Strode, the trustee, by the sale to Veitch, has been guilty
of any breach of trust. And this seems to the Court to be scarcely
capable of controversy. That there are circumstances in the case
which raise a presumption of bad faith on the part of the trustee
and expose him to some suspicion cannot escape observation. But
assuming him to have acted with
Page 21 U. S. 439
entire good faith, his proceedings were a plain departure from
his duty. In respect to the supposed exchange of the Fauquier for
the Frederick lands, it is impossible for a moment to admit its
validity. In the first place, it was not made between parties
competent to make it. Wormley had no authority over the estate
after the marriage settlement. The chief object of that settlement
was to secure the property to the use of the wife and children
during the joint lives of the husband and wife. And though it is
said in another part of the deed that Wormley shall occupy and
enjoy the estate and the issues and profits thereof during his
life, yet this was to be under leave of the trustee, and to suppose
that he thus acquired an equitable interest for life is to defeat
the manifest and direct intention of the other clauses in the deed,
which avow the whole object to be the security of the estate during
the same period for the use of the wife and children. The true and
natural construction of this clause is that it points to the
discretion which the trustee may exercise as to allowing the
husband to occupy the estate, and take the profits for the
maintenance of the family, whenever the trustee perceives it may be
safely done, without involving the trustee in any responsibility to
which he might be exposed by such a permission without such an
authority. But at all events the right to dispose of the equitable
fee to anyone, much less to the trustee himself, did not exist in
Wormley, and any exchange attempted to be made by him, however
beneficial, would have been utterly void. But no
Page 21 U. S. 440
exchange was in fact consummated.
It is true that the removal to the Fauquier lands took place
upon an agreement to this effect, but no definitive conveyance was
ever made, and the trustee himself never settled and never took a
step towards settling the Fauquier estate upon the trusts of the
marriage settlement, as it was his indispensable duty to do if he
meant to conduct himself correctly. As to the substituted Kentucky
lands, the transaction was still more delusive. The agreement for
the substitution was merely conditional, depending upon the
subsequent election of Wormley, and his dissent put an end to it.
As to the conveyance to Lee, ostensibly for the trusts of the
settlement, it can be viewed in no other light than an attempt to
cover up the most unjustifiable proceedings. That conveyance was
not executed until after the dissent and dissatisfaction of Wormley
were well known, and so far from its containing any valid
performance of the trusts, it expressly gives a prior lien to the
purchasers of the Frederick lands as security for their covenant of
warranty; and to complete the delusion, the trustee reserved to
himself the authority to substitute any other lands, leaving the
trusts to float along without fixing them definitively upon any
solid foundation. If we add that the Fauquier lands were mortgaged
to the purchasers for the same covenant; and that this mortgage was
discharged only for the purpose of selling the property to Grimmar
and Mundell, we shall come irresistibly to the conclusion that the
trustee never was in a situation
Page 21 U. S. 441
to give an unencumbered title on either the Fauquier or Kentucky
lands to secure the trusts, and that if he was, he never in fact
executed any conveyance for this purpose. In every view, therefore,
of this part of the case, it is clear that no valid exchange did or
could take place, and that as there was no equitable or legal
transmutation of the property from the
cestuis que trust,
it remained in the trustee, clothed with all the original fiduciary
interests.
But, independent of these considerations, there is a stubborn
rule of equity, founded upon the most solid reasoning and supported
by public policy, which forbade any such exchange. No rule is
better settled than that a trustee cannot become a purchaser of the
trust estate. He cannot be at once vendor and vendee. He cannot
represent in himself two opposite and conflicting interests. As
vendor, he must always desire to sell as high, and as purchaser to
buy as low, as possible, and the law has wisely prohibited any
person from assuming such dangerous and incompatible characters. If
there be any exceptions to the generality of the rule, they are not
such as can affect the present case. On the contrary, if there be
any cogency in the rule itself, this is a strong case for its
application, for by the very terms of the settlement, the trustee
was invested with a large discretion and a peculiar and exclusive
confidence was placed in his judgment. Of necessity, therefore, it
was contemplated that his judgment should be free and impartial and
unbiased by personal interests. The asserted
Page 21 U. S. 442
exchange, so far at least as it affects to justify or confirm
the proceedings of the trustee, may therefore be at once laid out
of the question.
Then was the sale to Veitch a breach of trust? The power given
to the trustee by the settlement is certainly very broad and
unusual in its terms, but it is not unlimited. The trustee had not
an unrestricted authority to sell, but only when, in his opinion,
the purchase money might be laid out advantageously for the
cestuis que trust. It is true the sale and reinvestment
are to be decided by his opinion, which is an invisible operation
of the mind. But his acts nevertheless are subject to the scrutiny
of the law, and if that opinion has not been fairly and honestly
exercised, if it has been swayed by private interests and selfish
objects, if the sale has been at a price utterly disproportionate
to the real value of the property, and the evidence demonstrate
such facts, a court of equity will not sanction an act which thus
becomes a fraud upon innocent parties.
Much ingenuity has been exercised in a critical examination of
the nature of the power itself as it stands in the text of the
settlement. It is contended that the acts of sale and of
reinvestment are separate and distinct acts, and the power to sell
is therefore to be disjoined from that of repurchase, so that the
sale may be good though the purchase money should be misapplied.
How far a
bonae fidei purchaser is bound in a case like
the present to look to the application of the purchase money need
not be decided in this case. There is much reason in the doctrine
that where the
Page 21 U. S. 443
trust is defined in its object and the purchase money is to be
reinvested upon trusts which require time and discretion, or the
acts of sale and reinvestment are manifestly contemplated to be at
a distance from each other, the purchaser shall not be bound to
look to the application of the purchase money, for the trustee is
clothed with a discretion in the management of the trust fund, and
if any persons are to suffer by his misconduct, it should be rather
those who have reposed confidence than those who have bought under
an apparently authorized act. But in the present case, it seems
difficult to separate the acts from each other. The sale is not to
be made, unless a reinvestment can, in the opinion of the trustee,
be advantageously made. He is not to sell upon mere general
speculation, but for the purpose of direct reinvestment. And it is
very difficult to perceive how the trustee could arrive at the
conclusion that it was proper to sell unless he had at the same
time fixed on some definite reinvestment which, compared with the
former estate, would be advantageous to the parties. Although,
therefore, the acts of sale, and purchase, are to be distinct, they
are connected with each other, and at least as to the trustee there
cannot be an exercise of opinion such as the trust contemplated
unless he had viewed them in connection. If he should sell without
having any settled intention to buy, leaving that to be governed by
future events, he would certainly violate the confidence reposed in
him.
A fortiori, if he should sell with an intention not
to reinvest but to speculate for the
Page 21 U. S. 444
purpose of relieving his own necessities or of appropriating the
trust fund indefinitely to his own uses.
Now in point of fact what has the trustee done in this case? He
has sold the trust property to pay his own debts. He has never
applied the proceeds to any reinvestment. To this very hour there
has been no just and fair application of the purchase money. The
Fauquier lands are gone, the Kentucky lands have been rejected and
are loaded with liens, and there is nothing left but the personal
responsibility of the trustee, embarrassed and distressed as he
must be taken to be unless the trusts are still fastened to the
Frederick lands. Can it then be contended for a moment that there
is no breach of trust, when the sale was not for the purposes of
reinvestment? When the party puts his right to sell not upon an
honest exercise of opinion at the time of sale, but upon a distinct
anterior transaction, invalid and incomplete, by which he became
clothed with the beneficial interest of the estate? When he claims
to be not the disinterested trustee selling the estate, but the
trustee purchasing by exchange the trust fund, and thus entitled to
deal with it according to his own discretion and for his own
private accommodation, as absolute owner? Where the purchase money
is to be applied to extinguish his own debts and there is no proof
of his means to replenish, or acquire an equal sum from other
sources? In the judgment of the Court, the sale was a manifest
breach of trust. It was in no proper sense an execution of the
power. The power,
Page 21 U. S. 445
in the contemplation of the trustee, was virtually extinguished.
He sold not because he intended an advantageous reinvestment, but
because he considered himself the real owner of the estate. The
very letter as well as the spirit of the power was therefore
violated, for the trustee never exercised an opinion upon that
which was the sole object of the power to sell, an advantageous
reinvestment.
The next point for consideration is whether the defendants
Veitch and Castleman and McCormick were
bonae fidei
purchasers of the Frederick lands without notice of the breach of
trust. If they had notice of the facts, they are necessarily
affected with notice of the law operating upon those facts, and
their general denial of all knowledge of fraud will not help them
if, in point of law, the transaction is repudiated by a court of
equity. If they were
bonae fidei purchasers without
notice, their title might have required a very different
consideration.
And first as to Veitch. The deed to him contained a recital of
the marriage settlement and the power authorizing the sale. He
therefore had direct and positive notice of the title of the
trustee to the property. There is the strongest reason to believe
that he was fully cognizant of the exchange of the Frederick and
Fauquier lands negotiated between Wormley and the trustee. The
certificate from Wormley respecting the exchange, and expressing
satisfaction with it, which was procured a few days before the sale
and which Veitch now produces, shows that he
Page 21 U. S. 446
must have had a knowledge of the exchange. Its apparent object
was to ascertain the state of the title. The removal of the Wormley
family and their known residence at this time on the Fauquier lands
strengthen this presumption. If he knew of the exchange, he could
not but know that he purchased of the trustee an estate, which he
claimed as his own, in a bargain with an unauthorized person, and
that the trustee was at the same time the vendor and purchaser. He
also knew that the sale to himself was not in execution of the
power or for the purpose of reinvestment, for according to the
other facts, the exchange had already effected that, and no further
reinvestment was contemplated. He took a mortgage as additional
security for the warranty on the sale of the Fauquier lands, not
even now alleging that he did not know their identity. And under
these circumstances he could not but know that there had been no
actual conveyance or declaration of trust of the Fauquier lands in
execution of the trust, for otherwise the trustee could not have
mortgaged them to him. He therefore stood by, taking a conveyance
from the trustee of the trust estate, knowing at the same time that
no reinvestment had been made which could be effectual and that no
reinvestment was contemplated as the object of the sale, and as far
as his mortgage could go he meant to obtain a priority of security
that should ride over any future declaration of trust.
This is not all. The very sale of the trust fund was to be not
for reinvestment, but to pay a large
Page 21 U. S. 447
debt due to himself upon which a decree of foreclosure of a
mortgaged estate had been obtained, and he could not be ignorant
that the application of the trust fund to such a purpose was a
violation of the settlement and afforded a strong presumption that
the trustee had no other adequate means of discharging the debt or
of buying other lands advantageously in the market. And yet, with
notice of all these facts, the deed itself from the trustee to
Veitch contains a recital that the sale was made "with the
intention of investing the proceeds of such sale in other lands, of
equal or greater value." This was utterly untrue, and could not
escape the attention of the parties. Veitch then had full knowledge
of all the material facts, and he does not even deny it in his
answer, for that only denies the inference of fraud, which is a
mere conclusion of law from the facts as they are established.
Purchasing, then, with a full knowledge of the rights of Mrs.
Wormley and her children and of the breach of trust, Veitch cannot
now claim shelter in a court of equity as a
bonae fidei
purchaser for a valuable consideration.
The next question is whether Castleman and McCormick are not in
the same predicament. In the judgment of the Court they clearly
are. They purchased from Veitch, whose deed gave them full notice
of the trust, and they could not be ignorant of the recital in it,
since their title referred them to it. They must have perceived,
that the sale to Veitch, in order to be valid, must have been with
a view to reinvestment of the purchase money
Page 21 U. S. 448
in other real estate. It was natural for them to inquire whether
the sale had been made under justifiable circumstances and whether
there had been any such reinvestment. Previous to the sale to
Veitch, they had entered into a negotiation with the trustee
himself for a direct purchase of the Frederick lands, and on that
occasion became acquainted with the fact that the trustee was
largely indebted to Veitch, and that one object of the sale was to
apply the proceeds to the payment of that debt. How then could they
be ignorant that the proceeds of the sale, which was very soon
afterwards made to Veitch, were to be applied to extinguish the
same debt and that the transfer was not in execution of the trust,
but to administer to the trustee's own necessities? This is not
all. Before the execution of the deed to them, they knew of the
arrangement respecting the Fauquier lands, and that Wormley had
become dissatisfied with the bargain. They knew that these lands
had not been settled by the trustee upon the trusts of the
settlement, and they took an equitable assignment of the mortgage
from Veitch of the same lands. It may be said that the evidence of
these facts is not positively made out in the record, but if it be
not, the circumstantial evidence fully supports the conclusion. The
answer itself of Castleman and McCormick does not deny notice of
these facts. It states, indeed, that they supposed the transaction
with Veitch fair, because they were satisfied that the trustee
never received more from Veitch than what he has given the
cestuis que trust credit for.
Page 21 U. S. 449
Was it a fair execution of the trust so to sell the estate and
to give credit for the proceeds? To apply them to pay the trustee's
debts, and relieve his necessities? To sell without any definite
intention as to a reinvestment? They also deny all knowledge of
fraud. But this is a mere general denial, and does not negative the
knowledge of the facts from which the law may infer fraud.
The subsequent conduct of Castleman and McCormick shows that
they were not indifferent to the execution of the trust, but that
they felt no interest to secure the rights of the
cestuis que
trust. They were privy to the removal to Kentucky and
exhibited much anxiety to have it accomplished. They knew
subsequently the dissatisfaction of Wormley with that removal and
with the Kentucky lands. Yet they, in the year 1813, relieved the
Fauquier lands from their own encumbrance and enabled the trustee
to dispose of it for other purposes than the fulfillment of the
trusts for which it had been originally destined. And throughout
the whole, their conduct exhibits an intimate acquaintance with the
nature of their own title and the manner and circumstances under
which it had been acquired by Veitch, and the objections to which
it might be liable. And they ultimately took the general warranty
of Veitch, upon releasing their claim on the Fauquier lands, as a
security for its validity.
There is a still stronger view which may be taken of this
subject. It is a settled rule in equity that a purchaser without
notice, to be entitled to protection, must not only be so at the
time of the
Page 21 U. S. 450
contract or conveyance, but at the time of the payment of the
purchase money. The answer of Castleman and McCormick does not even
allege any such want of notice. On the contrary, it is in proof
that upwards of $3,000 dollars of the purchase money was paid in
the autumn of 1813 and the spring of 1814. And this was not only
after full notice of the anterior transactions but after the
commencement of the present suit.
It appears to us, therefore, that the circumstances of the case
can lead to no other result than that Castleman and McCormick were
not purchasers without notice of the material facts constituting
the breach of trust, and that therefore the Frederick lands ought
in their hands to stand charged with the trusts in the marriage
settlement. The leading principle of the decree in the circuit
court was therefore right.
Some objections have been taken to the subordinate details of
that decree, but it appears to us that the objections cannot be
sustained. The decree directs an account of the rents and profits
of the Frederick lands while in possession of the defendants. It
further directs an allowance of the amount of all encumbrances
which have been discharged by the defendants and of the value of
any permanent improvements made thereon, and also of any advances
made for the support of Wormley's family. These advances are to be
credited against the rents and profits and the value of the
improvements and of the discharged encumbrances not recouped by the
rents and profits are to be a charge on the land itself. A more
Page 21 U. S. 451
liberal decree could not, in our opinion, be required by any
reasonable view of the case.
An objection has been taken to the jurisdiction of the Court
upon the ground that Wormley, the husband, is made a defendant, and
so all the parties on each side of the cause are not citizens of
different states, since he has the same citizenship as his wife and
minor children. But Wormley is but a nominal defendant, joined for
the sake of conformity in the bill, against whom no decree is
sought. He voluntarily appeared, though perhaps he could not have
been compelled so to do. Under these circumstances, the objection
has no good foundation. This Court will not suffer its jurisdiction
to be ousted by the mere joinder or nonjoinder of formal parties,
but will rather proceed without them and decide upon the merits of
the case between the parties who have the real interests before it
whenever it can be done without prejudice to the rights of
others.
Page 21 U. S. 452
MR. JUSTICE JOHNSON.
After the most careful examination of this voluminous record, I
think it
Page 21 U. S. 453
due to the parties defendant to express the opinion that I
cannot discover any evidence of fraud in any part of their
transactions.
Page 21 U. S. 454
The proposed exchange between the Frederick and Fauquier lands,
was made openly and deliberately,
Page 21 U. S. 455
upon consultation with friends of the
cestuis que
trust, and obviously had many prudential
Page 21 U. S. 456
considerations to recommend it. That Wormley and his family must
have starved had they remained
Page 21 U. S. 457
upon the lands in Frederick is abundantly proved, and no worse
consequences could have
Page 21 U. S. 458
happened to them from either of these exchanges. It is
satisfactorily shown also that the exchange
Page 21 U. S. 459
for the Fauquier land was highly advantageous. Taking money as
the most correct comparison of
Page 21 U. S. 460
value, it appears that the Frederick land, after being long
hawked about for sale and having $1,000 added to its value by
Strode in the extinction of the mother's life estate, sold for no
more than $5,500, a sum satisfactorily proved to be its full value
at the time, whereas the Fauquier land, after Wormley's refusal to
take it, was sold for $8,000. So that the two tracts then stood, in
comparison of value, as $4,500 to $8,000. And that Strode was fully
sensible of the great difference in value and satisfied to bear the
loss is positively proved by the fact that when Wormley resolved to
move to Kentucky,
Page 21 U. S. 461
they established the value of the Fauquier lands between
themselves at $7,000, and Strode actually gave an acknowledgment to
Wormley for $6,500, the balance of the $7,000 after dividing with
him the sum paid for his mother's life estate.
The case is one in which, it is true, the conduct of the
defendants is greatly exposed to misrepresentation and
misconstruction, but when reduced to order and examined, the
circumstances admit of the most perfect reconciliation with the
purest intentions. It is true that Strode was in debt; that it was
necessary to sell the Fauquier lands to satisfy his creditors; that
the money arising from the Frederick land was applied to the
payment of Strode's debts. But there was nothing iniquitous in all
this. It is perfectly explained thus: the Fauquier land must be
sold to pay Strode's debts; the situation of the Wormleys on the
trust estate was so bad that no change could make it worse; the
removal to the Fauquier lands was thought advisable by all their
friends; where, then, was the fraud in letting them have the
Fauquier lands at an under price and paying his debts out of the
actual proceeds of the trust estate? The money arising from the
latter was, under this arrangement, the price of the former. It was
in fact paying his debts with the price of his own property, not
that of the trust estate.
It has been argued that
Page 21 U. S. 462
the sale of the trust estate was not made with a view to
reinvestment, but the evidence positively proves the contrary. It
goes to show that the reinvestment was the leading object, and
actually took place previous to
Page 21 U. S. 463
the sale of the trust estate. And even if that construction of
the power be conceded which would require the sale and reinvestment
to be simultaneous acts, or that which would render the purchaser
liable for the application of the purchase money, the facts of the
case would satisfy either exigency. For the reinvestment was
actually made simultaneously with the sale, or, if it was not
finally consummated, the cause is to be found altogether in the
anxiety of the defendants to satisfy a capricious man and the
ignorance of Strode in supposing himself justified in yielding to
Wormley's judgment or will.
Had Strode actually sold the Fauquier lands, paid off his
encumbrances from the purchase money, then sold the Frederick land
and reinvested the fund in a repurchase of the Fauquier lands,
there could not have been an exception taken to the sufficiency of
the reinvestment. And then the transaction would, in a moral point
of view, have been necessarily regarded as favorably as I am
disposed to regard it. Yet it is unquestionable that, thus stated,
it presents a correct summary of the whole transaction as made out
in the evidence. It has, however, been put together so as to admit
of distorted views, and such will ever be the case where men expose
themselves to suspicion by mixing up their own interests with the
interests of others placed under their protection. I can see
nothing but liberality in the conduct of Strode towards Wormley,
and little else than improvidence, caprice, and ingratitude in the
conduct of the latter.
Page 21 U. S. 464
Nevertheless there are canons of the court of equity which have
their foundation not in the actual commission of fraud, but in that
hallowed orison "lead us not into temptation."
On of these is that a trustee shall not be permitted to mix up
his own affairs with those of the
cestui que trust. Those
who have examined the workings of the human heart well know that in
such cases, the party most likely to be imposed upon is the actor
himself, if honest, and if otherwise, that the scope for imposition
given to human ingenuity will enable it generally to baffle the
utmost subtlety of legal investigation. Hence the fairness or
unfairness of the transaction or the comparison of price and value
is not suffered to enter into the consideration of the court on
these occurrences; but the rule is positive and general that the
cestui que trust may be restored to his original rights
against the trustee at his option. And where infants, &c., are
interested, they will be restored or not with a view solely to the
benefit of the
cestuis que trust. It is unquestionable
from the evidence that both Veitch and Castleman and McCormick must
be affected by both legal and actual notice of the transactions of
Strode. They are therefore liable to the same decree which ought to
be made against the latter.
It is, however, some satisfaction to me to be able to vindicate
their innocence, while I feel myself compelled to subject them to a
serious loss. The rule which requires this adjudication may in many
cases be a hard one, but it is a fixed rule, and has the sanction
of public policy.
Decree affirmed with costs.
