Case ID: dc_8/html/0305-01.html
Source: Caselaw Access Project
Author: {"author": "Cartter, C. J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

GEORGE HILL, JR., vs. EDWARD SHOEMAKER AND THE FARMERS AND MECHANICS’ NATIONAL BANK OF GEORGETOWN.
    In Equity.
    No. 3214.
    I. The sale of real estate under a deed of trust as a whole, when it is capable of being divided, and when serious injury has been occasioned by that way of selling, furnishes just ground for relief in a court of equity.
    II. If the property has been consolidated and improved into a paper-mill (after the deed was made) with fixed machinery and water-power to operate the same, the sale will be set aside if it is made without reference to this altered condition of the property.
    STATEMENT OP THE CASE.
    The bill is filed in this case to set aside a sale of lands under a deed of trust, for the reason that separate lots were'sold in mass, and without respect to certain improvements and water-privileges, in consequence of which the premises sold for a grossly inadequate price.
    The lots are in the city of Georgetown, two of them fronting 23 feet each on Water street, with a depth of G1 feet; the third, which adjoins the two preceding ones, fronts 19T5¥ on Potomac street and has a depth of 71 feet; and the next, which adjoins the last one on the north, fronts 71 feet on Potomac street with a depth of 71 feet. The complainant alleges that he conveyed said parcels of land on or about the 15th day of January, 1864, in distinct parcels to the defendant Edward Shoemaker, upon certain trusts to secure the payment of three promissory notes, each for the sum of $2,210,33J, payable respectively in one, two and three years after date, which notes were payable to the order of Judson Mitchell and other trustees of the late Farmers and Mechanics’ Bank.
    That the object of the complainant, as both defendants well kuew, in making such purchase, was to establish upon the lots a paper-manufactory ; tbat at the time of said purchase there was no water-power annexed to or belonging to said property; that after his said purchase thereof, the plaintiff; after much trouble and negotiation and the payment of a bonus of $1,000 in cash, obtained from the Chesapeake and Ohio Canal Company a grant of the privilege and right to 200 cubic inches of water for the purpose of propelling machinery upon the property so purchased, at and for the yearly rent of $500 for the use of said water; and after several years occupied in litigation, and the expenditure of large sums of money, the complainant succeeded in obtaining the right and privilege of the use of 217 inches of water from said company upon said property, but upon the payment of a bonus of $1,045 in cash and the yearly rent of $2.50 per inch of said water, making the total water-power available upon said property 417 cubic inches, at the annual rental of $1,042.50 ; that to make said water available upon said property the plaintiff was obliged to expeud large sums of money to effect the proper conduct of the water to the said property, by means of the fore-bay and head-race, and also from the said property, after the power of said water had been availed of, to the Potomac Fiver by what is called generally the “ tail-race” — the length of each race being about three hundred feet; that upon this work, as well as arranging the property for the purpose of a paper-mill, the plaintiff expended large sums of money, at least to the amount of thirty thousand dollars.
    That said defendant bank, who had become owners of said notes, and claiming that the same were overdue and unpaid, caused the said defendant Edward Shoemaker to advertise said property for sale under the said deed of trust aforesaid. Said advertisement does notdescribetheproperty to be sold in the four separate and distinct parcels as described in said deed, but publishes and announces the same as one, and the public are advised by such advertisement that the whole property would be sold together, greatly to the disadvantage of plaintiff. That the plaintiff requested the bank and said Shoemaker to sell the property in parcels, which they refused to do, and that the bank became the purchaser for $7,000. The said complainant, in the notice requesting the property to be sold in parcels, states his object as follows:
    “My object is to have the two southern parcels with the buildings to sell as well as possible ; and my belief is these alone will sell for much more than sufficient to pay the debt, expenses, &c., because Í am the owner of the water-power, (amounting to 200 horse-power,) which is not covered or embraced in the deed of trust, and I propose to distribute this power, allowing 66 horse-power to each of the southern parcels, which will enhance greatly.the value of these parcels.
    ' “ The wheel-pit with two wheels is located upon the central (19 5-12 feet) parcel above mentioned, and I expect to retain this so as to furnish the water-power above mentioned to whoever may become the purchaser.”
    The bank and Edward Shoemaker answer, stating the amount due, the various attempts at settlement, the sale of the premises together, and the request of the plaintiff to sell them in separate parcels. The following is extracted from -Shoemaker’s answer:
    “ 7. I charge and allege that I did exercise a sound and reasonable discretion in the manner of the sale of said real estate, and for the following considerations: I was advised and did believe and do allege that the machinery was not included in, and could not be sold by me under said deed of trust; that I could not, either under said deed of trust or as the agent of said plaintiff, sell the said water-privileges, and that any representations as to the distribution of said waterpower made to encourage the purchase of separate parcels would have been false and fraudulent; that the debt due and to be collected under said deed of trust, and the expenses of sale and other charges, amounted to about the sum of seven thousand ($7,000) dollars; that the premises were originally sold, in the year 1863, to said plaintiff for the sum of eight thousand one hundred and thirty-one ($8,131) dollars; that the same had been re-arranged and made suitable for the purposes of a paper-mill, and were thereby unfitted for other purposes, and could only be applied to other uses at great expense, and that the buildings, being very old, had much depreciated in value since the purchase by said plaintiff, and that the subject to be sold by me was barely sufficient in value to realize, in a sale thereof, the amount of the principal debt and interest due and the cost and charges of the sale; and I do allege that the amount for which the premises were sold to the said cestui que trust, to wit, the sum of seven thousand ($7,000) dollars, is more than they are reasonably worth, after the damage caused by the removal of the machinery and water-power therefrom.”
    The complainant’s witnesses testify that the property in question is susceptible of division, and that each parcel would have a specific value, and that for manufacturing purposes, with the right of using the water-power, the premises are worth from $40,000 to $80,000; and independently of the water-power they would be worth from $4,000 to $6,000. The plaintiff estimates the expense he incurred in getting the water-power and machinery into the building at $30,000.
    
      W. D. Davidge and Fred. W. Jones for plaintiff:
    I. Deed of trust is in substance a mortgage, with specific provisions for foreclosing or barring the equity of redemption. Woodruff vs. Robb, 19 Ohio R., 212, in which case the subject is treated very fully.
    II. Trustee is bound to act in good faith, and take care of and look to the interest of both parties in the execution of the power. “ Trustees should consider themselves impartial agents for both parties, and act in all sales for the interest of the debtor as well as the creditor.” If a discretion is left with him, he must exercise it in a reasonable manner; otherwise the sale will be set aside, or he be personally responsible. Richardson vs. Holmes, 18 Howard, 147; Johnson vs. Eason, 3 Iredell Eq., 336.
    He should not permit the creditor to force the sale at an inadequate price in the absence of other bidders, and should postpone the sale, if necessary, to obtain a fair price. Johnson vs. Eason, 3 Iredell Eq., 336; Quarles vs. Lacy, 4 Munf., 251; Rosset vs. Fisher, 11 Gratt., 492; Lane vs. Tidball, 1 Gilmer, 132; 11 Lehigh, 556; Singleton vs. Scott, 11 Iowa, 589, 597; Jenks vs. Alexander, 11 Paige, 619; Outwater vs. Barry, 2 Halst. Ch., 63 ; Richardson vs. Holmes, 18 How., 143.
    Not only must he act in good faith, but he must use every requisite degree of diligence to bring the property to sale under the best possible circumstances. Mathie vs. Edwards, 2 Coll., 465, where the vice-chancellor says: “Mortgagee cannot exercise power of sale in manner merely arbitrary, but. is bound to exercise some discretion, * * * and act with a view to obtain as large a price as may fairly and reasonably, with due diligence and attention, be obtained under the circumstances.”
    The mortgagee becomes the trustee of the debtor, and is bound to act bona fide and to adopt all reasonable modes of proceeding in order to render the sale the most beneficial to the debtor. Ch. J. Shaw in 3 Metcalf, 311. (See Hobson vs. Bell, 2 Beav., 17; Goldsmith vs. Osborne, 1 Edw. Ch., 561.)
    For power of equity to control discretion, see 36 Miss., 495; Prewett vs. Land, 11 Gratt., 348; and Hill on Trustees, 715, 725.
    III. Sales u should be watched by the courts with a jealous eye, and should not be sustained unless conducted with all fairness and integrity.” Caton, J., in 15 Illinois, 507.
    Upon the slightest proof of fraud or unfair conduct, they will be instantly set aside. Longworth vs. Butler, 3 Gilm., 32, 44; Ch. J. Taney in Bronson vs. Kinsie, 1 Howard, 321; Vide also 11 Barb., 191; 10 Iowa, 408.
    
      Charles M. Matthews for defendant Shoemaker:
    I. The real estate when purchased by appellant was treated and considered by him and settled for as one piece of property; and its separate character was not contemplated in the power of sale contained in the deed of trust.
    II. No damage by reason of excessive advertisement. The deed of trust required advertisement in one newspaper, which might have been made daily ; advertisement was made on alternate days in two daily papers and twice in á weekly paper published in Georgetown, the place of location' of property to be sold.
    HI. The consideration of the request that the real estate be sold in parcels was that appellant would distribute the water-power owned by him to the different parcels sold.
    Under the leases and agreements with the Chesapeake and Ohio Canal Company appellant could not thus apportion or distribute his water-privileges, nor is he rightfully possessed of the water-power claimed by him in this request.
    IV. A sale made by trustee and accompanied with representations in regard to water-power would have been false and deceptive.
    V. Neither machinery nor water-power being included in the deed of trust, three very old houses, built early in this century, defaced by use as a paper-mill, specially prepared for its machinery and to be damaged by its removal, and which sold in 1863 for $8,131, before the machinery or water-power were introduced, were bought at sale made by appellee, Shoemaker, for $7,000. This was a reasonable and. fair price for the property.
   Cartter, C. J.,

delivered the opinion of the court, to the-effect following:

In this case the court have unanimously come to the conclusion that the sale should be set aside. The reason stated in the bill for setting aside the sale is, that it took place under a deed of trust, and that the property, which consisted of four lots of ground, was sold collectively when it should have-been sold in parcels. The sale of trust-property as a whole when it is capable of being divided, and when serious damage-has been occasioned by selling in that manner, furnishes just ground in a court of equity for relief. But this does not constitute the gross error of the sale in this case. At the time the deed of trust was executed, the buildings upon the premises, consisted of two brick warehouses and a dwelling-house.. The complainant placed in these structures at great expense-all the machinery necessary to a paper-mill, and procured from the Chesapeake and Ohio Canal Company a water-power,, which he conveyed under ground some three or four hundred feet to the mill-property, for the purpose of operating the machinery, and also incurred heavy expense for an underground tail-race to conduct the water away. He estimates that he has expended thirty thousand dollars on these objects. The property thus improved and consolidated was, according to the uncontradicted testimony, worth from $40,000 to $80,000. The great mischief done by the sale, as we think, was, not in selling the lots together, but in selling them without reference to the fixed machinery and water-power connected therewith. The result is that for $7,000 this valuable-mill-property has been, destroyed. The machinery and waterpower of the mill have been rendered worthless. We are governed in our conclusion in setting aside this sale by the fact that both parties had a right to permanent improvements upon the premises, so far as the same were inalienably fixed thereto, and that there was no exclusive right of either to separate or divide them.

Under the prayer for general relief, we think the sale ought to be set aside, so that the property, without destroying any constituent part of it, may be brought into market and sold for what it is worth. We therefore set it aside, and leave both parties at liberty to apply to the special term to have their rights in the property correctly adjusted.