The old English rule that, in chancery sales, until confirmation
of the master's report, the bidding could be opened upon a mere
offer to advance the price ten percent has been rejected, and a
sale will not be set aside for inadequacy of price unless so great
as to shock the conscience or where there are additional
circumstances against its fairness, and each case stands upon its
own facts.
While the confidence in the stability of judicial sales should
not be disturbed, a sale under foreclosure of valuable property,
worth at least seven times the amount of the bid, should not be
confirmed in the face of an adverse report by the master and the
trial court.
This is an appeal from a judgment of the Supreme Court of
Page 205 U. S. 286
the Territory of Hawaii, 17 Haw. 96, affirming an order of the
third judge of the First Circuit Court in the Territory of Hawaii,
which refused to confirm a sale of property made by a commissioner
under order of court in a foreclosure suit brought by William O.
Smith, as trustee, against the Pacific Heights Electric Railway
Company, Limited, a Hawaiian corporation, and directed that the
property be again offered for sale. The suit was brought to
foreclose a trust deed of $50,000 executed by the railway company
to Smith, as trustee, on April 1, 1902, and purporting to convey an
electric railway two and one-half miles in length and running up to
Pacific Heights, with its equipment of every kind, and also all
land and other property conveyed to it by deed from one Charles S.
Desky, dated January 25, 1902.
The sale was made on February 4, 1905, for the sum of $1,100. It
was in bulk of the entire property covered by the mortgage, except
a cable and condenser, which were of comparatively little value,
and which, for reasons not at all affecting the merits of this
controversy, were not sold with the balance of the property. The
commissioner who made the sale reported that the amount realized
was disproportionate to the value of the property sold, and
recommended that it should not be confirmed, but that such further
order should be made as to the court should seem meet in the
premises. On the hearing of a motion to confirm the sale, and
objections thereto, the trial court found that the evidence was
overwhelming that the actual value of the property was at least
seven times the amount at which the property was struck off, that
being the highest and best bid therefor.
Page 205 U. S. 289
MR. JUSTICE BREWER delivered the opinion of the Court.
The question presented is whether a court of equity may, prior
to any order of confirmation, set aside a foreclosure sale of
mortgaged property upon the single ground of inadequacy in price,
and further, whether, if it has that power, the inadequacy here
shown is so gross as to justify such action. It does not appear
that there was any fraudulent conduct on the part of the purchaser
or any combination to restrict bidding. The sale was duly
advertised. It was, so far as disclosed, open and public, and the
bid reported was the highest. Nothing in time or place or lack of
attendance of buyers is shown. Many of the considerations therefore
which have influenced courts of equity to set aside judicial sales
are not to be found in the present case. Indeed, the only
substantial objection is that the amount of the bid is largely
below the value of the property. Something may be said on each side
of the question -- on the one, that a court of equity owes a duty
to the creditors seeking its assistance in subjecting property to
the payment of debts, to see that the property brings something
like its true value in order that, to the extent of that value, the
debts secured upon the property may be paid; that it owes them
something more than to merely take care that the forms of law are
complied with, and that the purchaser is guilty of no fraudulent
act; on the other, that it is the right of one bidding in good
faith at an open and public sale to have the property for which he
bids struck off to him if he be the highest and best bidder; that,
if he be free from wrong, he should not be deprived of the benefit
of his bid simply because others do not bid, or because parties
interested have done nothing to secure the attendance of those who
would likely give for the property something nearer its value;
that, if the
Page 205 U. S. 290
creditors make no effort, and are willing to take the chances of
a general attendance, they have no right to complain on the ground
that the property did not bring what it should have brought.
In England, the old rule was that, in chancery sales, until
confirmation of the master's report, the bidding would be opened
upon a mere offer to advance the price ten percent; but this rule
has been rejected, and now both in England and this country a sale
will not be set aside for mere inadequacy of price unless that
inadequacy be so gross as to shock the conscience, or unless there
be additional circumstances against its fairness. But if there be
great inadequacy, slight circumstances of unfairness in the conduct
of the party benefited by the sale will be sufficient to justify
setting it aside.
Graffam v. Burgess, 117 U.
S. 180,
117 U. S.
191-192. It is difficult to formulate any rule more
definite than this, and each case must stand upon its own peculiar
facts.
It was said by Mr. Chief Justice Waite, in
Mayhew v. West
Virginia Oil & Oil Land Company, 24 F. 205, 215, "that in
chancery a bidder at a sale by a master, under a decree of court,
is not considered a purchaser until the report of sale is
confirmed."
See also Magann v. Segal, 92 F. 252, 255;
Jennings v. Dunphy, 174 Ill. 86;
Vanbussum v.
Maloney, 2 Met. 550, 552;
Sumner v. Sessoms, 94 N.C.
371;
Branch v. Griffin, 99 N.C. 173. The power of a court
of equity in reference to a resale was affirmed by this Court in
Pewabic Mining Company v. Mason, 145 U.
S. 349, in which case we said (p.
145 U. S.
356):
"The question in this case is whether the master's sale shall
stand. It may be stated generally that there is a measure of
discretion in a court of equity both as to the manner and the
conditions of such a sale as well as to ordering or refusing a
resale. The chancellor will always make such provisions for notice
and other conditions as will in his judgment best protect the
rights of all interested, and make the sale most profitable to all,
and after a sale has once been made, he will,
Page 205 U. S. 291
certainly before confirmation, see that no wrong has been
accomplished in and by the manner in which it was conducted."
See also Schroeder v. Young, 161 U.
S. 334.
Now in the case before us, the commissioner who made the sale
reported against its confirmation. It was not confirmed, but set
aside by the trial court, which found that the evidence was
overwhelming that the actual value of the property was at least
seven times the amount of the bid. While the testimony is not
preserved, it is stated by the supreme court of the territory that
it was claimed that, only four years before the sale, the property
cost $78,000, exclusive of the right of way. It was, in fact bonded
less than three years before for $50,000. Speaking in general
terms, it consisted of an electric railway two and one-half miles
in length, two freight cars, two passenger cars, and other
appliances for running the railway. All this was sold for $1,100.
The action of the trial court in setting aside the sale was
approved by the supreme court of the territory.
Under the circumstances, we think the order of the supreme court
should be sustained. While we are disinclined to any action which
will impair confidence in the stability of judicial sales, yet,
with the concurrence of judicial opinion adverse to this sale,
considering the amount of property sold, the meager sum bid by the
purchaser, the express finding that the overwhelming testimony was
to the effect that the property was worth at least seven times more
than the sum bid, and also recognizing that the courts which have
passed upon this question are much more familiar with the condition
of things in Hawaii, and therefore more competent to appreciate the
significance of the transactions attending the sale, we have come
to the conclusion that it would not be right to reverse the ruling
below and confirm the sale.
The judgment of the Supreme Court of the Territory of Hawaii
is
Affirmed.
