In this case, the charges of fraud and collusion on the part of
the defendants are wholly unsupported.
The rule that equity may convert into a trustee a co-tenant who
attempts to buy an outstanding hostile title does not apply where
the common property is sold at
bona fide public sale under
legal process or power in a trust deed. At such a sale, and in the
absence of fraud or deceit, any one of the co-tenants is as free to
buy as any of the general public, and several of the co-tenants may
combine without notice to the others to purchase for
themselves.
A judicial sale for inadequate price resulting from combination
of bidders is voidable, not void, and one who would complain must,
after discovery, seasonably elect whether he will avoid it or not.
A delay of four years where the property is of speculative
character and has largely increased in value meanwhile is
unreasonable.
27 App.D.C. 348, affirmed.
The facts are stated in the opinion.
MR. JUSTICE LURTON delivered the opinion of the Court.
The appellant, George B. Starkweater, was the owner of a parcel
of unimproved land known as the Crescent Heights, in Washington,
District of Columbia, composed of two contiguous lots, one of seven
and the other of three acres. In January, 1892, pursuant to a plan
arranged between himself and certain persons associated with him,
and styled herein the syndicate,
Page 216 U. S. 525
he conveyed this tract to defendants Croissant and Johnson, as
trustees, for the benefit of the persons who should contribute to
the purchase price, as tenants in common, in the share and
proportion in which they respectively contributed, with power to
control, manage, lease, sell, and convey, in their discretion, as
should be desirable or advantageous to the parties interested.
Those contributing or proposing to contribute agreed among
themselves, by a separate paper, that the price, including the
discharge of encumbrances resting upon the property, should be
$75,000, divided into shares of $2,500 each, and each person
accordingly subscribed for such number of shares as they elected to
take, agreeing that Croissant and Johnson should represent them as
trustees in the purchase, with full power to manage, sell, and
convey, receiving a commission for their service. Among those so
contributing originally, or by substitution, were the trustees
Croissant and Johnson, the appellant Starkweather, who was to
receive, and did take, eleven shares, fully paid up, as and for
part of the purchase price, and the appellee Jenner, who ultimately
came to own four of such shares. The full number of thirty shares
contemplated were never subscribed, six remaining unsold in the
hands of the trustees. This fact, from whatever cause, seems to
have led to the inability of the syndicate to pay off the
encumbrances which were to be assumed and paid off as part of the
price. Among these encumbrances were several deeds in trust or
mortgages securing obligations of the vendor appellant.
The certificates to subscribers were issued by Croissant and
Johnson, and recited, among other things, that they held the
property in trust, and that the holder was a contributor to the
purchase price to the extent of $2,500, and the owner of an
undivided one-thirtieth interest, and that such interest
"shall at all times be subject to assessment for its
proportionate part of money necessary to pay expenses incurred in
the execution of the trusts as provided in the deed to said
trustee, . . . and in default of such payment the said
Page 216 U. S. 526
trustees . . . are hereby authorized to sell the interest of
such person so in default,"
etc.
Out of the money paid in by the subscribers, a part was used by
the trustees in paying off encumbrances, keeping down interest, and
in other expenses, but something like $11,000 was paid over in
money to or on account of the vendor, Starkweather.
Among the trusts upon the property was a deed in trust upon the
seven-acre parcel to the appellees Duval and Cole, as trustees, to
secure an obligation created by Starkweather for $7,553.34 to a Mr.
Gaither, executed January 29, 1889, and maturing in four years. In
1893 this debt matured. By agreement, the enforcement of the trust
was postponed upon payment of interest. But finally there was a
default and a sale directed by Gaither. The property was,
accordingly, advertised by the trustees and sold at public outcry
in 1897 and bid in by one Ricker, acting for and as agent of the
appellant. The time for complying with the sale by Ricker was
extended upon the payment by appellant of $300 for each of two
extensions. Default in complying with the terms of sale was,
however, again made, and the property readvertized. Appellant
attempted to forbid such resale, and filed a bill for that purpose,
which was not dismissed until February, 1898, when the property was
again advertised and offered for sale by Duval and Cole, the
trustees, and knocked down to one Silver, acting as an agent for
Starkweather. The terms of this second sale were not complied with,
and the property was at once recried and sold to the appellee
Jenner for $17,100, acting, as it turned out, for himself and
certain others, who, like Jenner, were members of the original
purchasing syndicate, or holders of certificates acquired later
from those who were. Jenner complied with the terms of sale and
paid the full purchase money and accepted a deed from the trustees.
After paying off the Gaither debt, the remainder of the price paid
by Jenner was distributed to other lienors, under a bill in equity
filed for that purpose, under which final
Page 216 U. S. 527
decrees have long since been made, and the trustees
exonerated.
The object of the present bill is to set aside this deed by
Duval and Cole to the appellee Jenner, and revest the title in
Croissant and Johnson as trustees for the syndicate, or, in the
alternative, declare Jenner a trustee holding the seven-acre
parcel, after his reimbursement, for the benefit of the syndicate
subscribers.
The charges of the bill abound in accusations of fraudulent
collusion between Jenner and the other appellees to bring this
seven-acre lot to sale under the Duval and Cole trust, and thereby
the elimination of appellant as the largest holder of certificates
in the syndicate. It is, among other things, said that Croissant
and Johnson willfully suffered a default. That they had
certificates unsold and money in their hands and power to assess
the members of the syndicate to raise means to pay off the
encumbrance and thus save the property for the benefit of all
concerned, but had willfully and collusively let the property be
brought to sale, and in fact persuaded Gaither or his trustees to
proceed under the trust. These charges of collusion or fraudulent
conduct upon the part of either Gaither, the creditor, or his
trustees, Duval and Cole, are utterly unsupported. Their course
was, from beginning to end, so far as this record shows, dictated
by prudent business conduct, and great consideration for appellant
in his natural desire to prevent an enforcement of the trust. So
far as Croissant and Johnson are concerned, it is not shown that
they had in any way colluded with either the creditor, his
trustees, or with the purchaser at the Duval and Cole sale, or that
they had the slightest interest in the acquisition of this
seven-acre tract by Jenner or his associates. They are not shown to
have misapplied the funds of the syndicate, or to have had any
funds with which to meet and pay off either the principal or
interest of the Gaither debt. That they did not assess the
shareholders, as they might have done under the terms of the trust,
to raise money to
Page 216 U. S. 528
pay off this and other encumbrances, is true. Their excuse is
that most of the members could not pay or be made to pay, and that
all were unwilling to pay. That a sale of their certificates would
have been unavailing, as it would have been only to sell the
property subject to heavy encumbrances, and a sale of a mere
equity. But whether they were derelict or not, they are not shown
to have acted in collusion with either Gaither, his trustees, or
with Jenner and his purchasing associates.
But it is said that Jenner's relation as tenant in common to
appellant and those associated with him as owner of the property
sold to pay off this paramount lien, forbade his purchase. That
there is such a community of interest between those who hold a
common title as to forbid one such cotenant from acquiring any
benefit from the acquisition of an outstanding superior title is
undeniable. That a court of equity, upon timely application, will
convert such a purchasing tenant into a trustee for the common
benefit, is true. The doctrine is considered and applied in
Rothwell v.
Dewees, 2 Black 613, and
Turner v. Sawyer,
150 U. S. 578. For
much the same reason, one tenant may not hold adversely the common
property against another, though he may do so, if he act openly,
and, in that event, the statute will run in his favor.
Elder v.
McClaskey, 70 F. 542.
But it is plain that the principle which turns a cotenant into a
trustee who buys for himself a hostile outstanding title can have
no proper application to a public sale of the common property,
either under legal process or a power in a trust deed. In such a
situation, the sale not being in any wise the result of collusion,
nor subject to the control of such a bidder, he is as free, all
deceit and fraud out of the way, as any one of the general
public.
Even a trustee has been held competent to purchase the trust
property at a judicial sale which he has no interest in, nor any
part in bringing about, and which sale he in no way controls.
Twin-Lick Oil Company v. Marbury, 91 U. S.
587;
Allen v. Gillette, 127 U.
S. 589.
Page 216 U. S. 529
But it is said that, if there is no absolute prohibition upon
one co-owner buying at an open sale of the common property to
satisfy a mortgage or other encumbrance thereon, that at least the
fiduciary character and common interest due to such a cotenancy
require of one who buys the utmost fairness of conduct. Concede
this. It is then said that Jenner, at the bidding, held a power of
attorney from three others of the syndicate members, by which he
was to bid the property in for their mutual benefit at the lowest
price possible, and at a price not exceeding $24,000. That he held
this power of attorney, and had undertaken to buy at as low a price
as possible, was not known to appellant, and that this "secret
combination," as it is styled and designated, was a fraud upon him.
It is plain from the facts of this case that the scheme for
exploiting this Crescent Heights property, according to the
agreement exhibited by the share certificates, had practically
collapsed, and that, for the want of means and harmony among the
owners, there was no practical way of clearing the property from
encumbrances, which had turned out to be about $39,000 -- a sum
larger than seems to have been originally supposed. There was
nothing left but for the members of the syndicate to put their
hands into their own pockets and put in a large additional sum or
let the encumbrances be enforced. This latter is just what
happened. In such circumstances, it was plainly the right of each
one to take care of himself, and, if he saw fit to buy at the trust
sale on the chance of making something, he was free to do so,
provided only he took no undue or unfair advantage of his
co-owners, and observed the rules concerning fairness at such a
sale, which prevail in any circumstances. If two or more of those
who had been concerned should choose to unite their fortune in a
new purchase, there was no principle of law or morals to forbid.
That they should agree to buy at the best price obtainable was
their right, if they might buy at all, provided they resorted to no
artifice to deter others from bidding.
Pewabic Mining Co. v.
Mason, 145 U. S. 349.
Page 216 U. S. 530
Mr. Jenner's attitude at the sale was that of an open bidder,
acting in his own interest, and necessarily in opposition to that
of the appellant and other cotenants. There were others present at
the sale, bidding against him, and chief among them was the
appellant himself, who, although he says he intended to give the
syndicate the benefit of his purchase, said nothing of it, and
seemingly sought to secure himself as best he could in the apparent
wreck of the joint enterprise. It was the misfortune of the
appellant that he forced the bidding beyond the maximum price to
which Jenner was authorized to go, and then was unable to comply
with the terms of the sale. This resulted in an immediate
reoffering of the property, as was to be expected. That in this
second sale the property was knocked down for much less only shows
that the former price had been inflated by the competition between
these cotenants, each trying to save himself in the same way. That
the price at which Jenner bought was probably several thousand
dollars less than its then estimated market value may be true. But
it is also true that the property was of a speculative character,
and at that time and for some time later was difficult of sale and
much depressed. But this price was not so grossly inadequate as of
itself to justify relief, even if the bill had been promptly filed.
That sale was in February, 1898. This bill was filed in the spring
of 1903. That appellant did not, at the sale, know that Jenner was
buying for himself and certain others of the syndicate, may be
true, but he, confessedly, learned that fact when Jenner and his
associates fell out and the fact came to light in a bill filed in
December, 1898. At most, the sale was voidable, not void, and he
who would complain must seasonably elect whether he will avoid it
or not.
Twin-Lick Oil Co. v. Marbury, supra.
Appellant did not act with that degree of promptness which
equity demands. He has slumbered over the question of whether he
should elect to let Jenner hold on to his purchase or require him
to give the benefit of his bargain to his co-tenants.
Page 216 U. S. 531
A delay of not less than four years, during which there has been
a large appreciation in the value of the property, is unreasonable.
Two courts in succession have failed to find ground for relief, and
we see no good reason for reversing the decree from which the
appellant has appealed.
It is therefore
Affirmed.