Wormley v. Wormley, 21 U.S. 421 (1823)
U.S. Supreme CourtWormley v. Wormley, 21 U.S. 8 Wheat. 421 421 (1823)
Wormley v. Wormley
21 U.S. (8 Wheat.) 421
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.
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.
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
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
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
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
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
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,"
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
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
proper. Whereupon the defendants appealed from all the decrees pronounced in the cause.