Persons who knowingly join with a receiver in purchasing real
estate at a sale made by the trustee of a deed of trust mortgage
securing a debt due the receivership are jointly and severally
liable to the receivership for all profits realized from the
purchase. P. 254 U. S.
48 App.D.C. 565 reversed.
The case is stated in the opinion.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
Smith and Wilson were sued in the Supreme Court of the District
of Columbia by the receiver of the First Cooperative Building
Association of Georgetown, D.C., for the amount of profits made by
them and a former receiver of the association in the purchase at a
foreclosure sale and subsequent resale of land mortgaged to secure
a note owned by the association. The Supreme Court held them liable
for the full amount of the profits, $743.68, with interest and
costs. The Court of Appeals of the District reversed the decree and
ordered that the bill be dismissed with costs. 48 App.D.C. 565. A
writ of certiorari was granted by this Court. 250 U.S. 655. The
Page 254 U. S. 587
us is whether the respondents are liable upon the following
facts, and, if so, in what amount.
In 1908, the Supreme Court of the District appointed William E.
Ambrose, a member of its bar, receiver of the First Cooperative
Building Association of Georgetown, D.C. Among the assets of the
association so entrusted to the receiver was a note of Schwab for
$2,700, secured by a mortgage deed of trust of land. The note being
in default, Ambrose as receiver requested the trustee under the
deed of trust to advertise the land for sale at public auction. The
auction sale was held, and a bid of $350 was made by Edwin L.
Wilson, a member of the bar; but the trustee withdrew the property
from sale because the bid was inadequate. Thereafter, it was
arranged between Wilson, Ambrose, and another lawyer, John Lewis
Smith, who was counsel of the receiver, that the trustee should
again advertise the property for sale; that Wilson should at the
second sale use his own judgment whether to bid, and, if so, what
amount, and that, if he should happen to become the purchaser, the
three should be jointly liable for the purchase price and any
expenses incident to the purchase and should be jointly interested
in the property purchased. The second sale was duly advertised.
Smith and Ambrose were present, but gave no instructions or
directions in regard to the sale either to the trustee or to his
auctioneer. Wilson also attended and, in the exercise of his own
judgment and without previous conference with either Smith or
Ambrose, bid $491 and became the purchaser of the property. There
was no evidence of any improper influence at the sale to prevent
competition or to close competitive bidding or to bring about the
sale to Wilson in preference to anyone else. On the contrary, it
affirmatively appears that the sale was fairly conducted, that
there was competitive bidding, and that the property was finally
knocked down to the highest bidder.
Within a few days after the second sale, Wilson and
Page 254 U. S. 588
Smith found, through the aid of real estate agents, a purchaser
named Kite who was willing to pay $1,400 for the land. In order to
convey a good title it was necessary to clear the land of tax liens
and an outstanding tax title. This required $550 -- that is, $59
more than Wilson had bid. He voluntarily raised his bid by that
amount. The land was conveyed by the trustee to Wilson and by
Wilson to Kite, the deeds being recorded simultaneously when Kite
paid the $1,400. Of this amount, $652.32 was used to discharge
taxes, tax liens, and expenses of sale. The balance, $473.68 was
divided equally between Wilson, Smith and Ambrose individually.
Wilson had paid out in making the purchase no money of his own or
theirs. The estate of which Ambrose was receiver got nothing, as
the amount required to discharge the tax liens exceeded the amount
bid by Wilson. Much later, the facts were brought to the attention
of the Supreme Court of the District. Ambrose resigned as receiver;
Jackson was appointed in his stead, and, as receiver, brought this
suit against Wilson and Smith to recover the profits which had been
made by them and Ambrose.
Ambrose, had, as receiver, the affirmative duty to endeavor to
realize the largest possible amount from the Schwab note. Baker
v. Schofield, 243 U. S. 114
Robertson v. Chapman, 152 U. S. 673
152 U. S. 681
To this end, it was his duty to endeavor to have the land, when
sold under the trust deed, bring the largest possible price. J.
H. Lane & Co. v. Maple Cotton Mills,
232 F. 421. When he
agreed with Smith and Wilson to join in the purchase if Wilson
should become the successful bidder, he placed himself in a
position in which his personal interests were, or might be,
antagonistic to those of his trust. Michoud v.
4 How. 503, 45 U. S. 552
It became to his personal interest that the purchase should be made
by Wilson for the lowest possible price. The course taken was one
which a fiduciary could not legally pursue. Magruder
Page 254 U. S. 589
235 U. S. 106
235 U. S.
-120. Since he did pursue it and profits resulted,
the law made him accountable to the trust estate for all the
profits obtained by him and those who were associated with him in
the matter, although the estate may not have been injured thereby.
Magruder v. Drury, 235 U. S. 106
others who knowingly join a fiduciary in such an enterprise
likewise become jointly and severally liable with him for such
profits. Emery v. Parrott,
107 Mass. 95, 103; Zinc
Carbonate Co. v. First National Bank,
103 Wis. 125, 134;
Lomita Land & Water Co. v. Robinson,
154 Cal. 36.
Wilson and Smith are therefore jointly and severally liable for all
profits resulting from the purchase, the former although he had no
other relation to the estate, the latter without regard to the fact
that he was also counsel for the receiver.
It is said that at a sale made under a mortgage deed of trust,
the duty to obtain the highest possible price rests not upon the
note holder, but upon the trustee under the deed of trust, and that
the creditor may bid at the sale or refrain from so doing, as he
may see fit. Richard v.
18 How. 143, 59 U. S. 148
Smith v. Black, 115 U. S. 308
115 U. S. 315
This is true so far as it concerns the duty of the note holder to
the debtor or other owner of the mortgaged property. But the many
cases cited to this effect in Smith's and Wilson's behalf do not
bear upon the question before us. Smith and Wilson are held liable
for knowingly confederating with one who, as receiver of the estate
of the note holder, owed a duty to it, and who put himself in a
position where his personal interest conflicted with his duty.
We have considered the many other arguments urged in defense,
but find in them nothing which should relieve Smith and Wilson from
this liability. The decree of the court of appeals of the District
of Columbia is reversed, with costs, and that of the Supreme Court
of the District is affirmed.