Source: https://en.m.wikisource.org/wiki/Hugh_Wallace_v._Mary_Wormley
Timestamp: 2019-04-19 17:29:33+00:00

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APPEAL from the Circuit Court of Virginia. 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 M'Cormick, 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.
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, recognising 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 the 16th of September, 1810, the trustee sold the Frederick lands by an indenture, to the defendant, Veitch, for the sum of five thousand five hundred dollars; 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 3000 dollars 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 M'Cormick, 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 M'Cormick, 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 M'Cormick 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 the 5th of 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 M'Cormick, 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 M'Cormick, 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 M'Cormick, 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,' &c.
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 M'Cormick, 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 M'Cormick, 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 5th of August, 1807, &c. 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 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. Feb. 21st.
Mr. Jones, for the appellants, argued, 1. That in point of fact, all the arrangements of the trustee for exchanging and disposing of the trust estate, were not only fair and honest, but a discreet exercise of his authority; highly beneficial to the cestui que trusts, and entirely to their advantage.
2. That whether they were so or not, was no concern of the purchasers under the trustee: he being invested, by the terms of the trust, with a clear discretion, which invited all the world to treat with him, as with one having a complete authority to act upon his own opinion of what was discreet and expedient in the administration of the trust, and not as with one executing a defined duty or authority, either purely ministerial, or mixed with a limited discretion over the subordinate details.
But it might, perhaps, be said, that the authority to sell is combined with that to apply the proceeds. But he contended that they were entirely independent and unconnected. They might indeed be associated in the mind of the trustee, but that remaining a secret in his breast, could not affect an innocent purchaser with the consequences of any subsequent error or fraud of the trustee. Where indeed the cestui que trust is no party to the sale, nor to the original deed creating the trust, there may be more room for the application of the doctrine, as to the purchaser seeing to the application of the money. Such are deeds of assignment for the payment of debts, in which the creditors are frequently not, originally, parties. And in the case cited, the Master of the Rolls says, that the circumstance of the creditors coming in and executing the deed, consummates the authority of the trustee, to give a valid discharge for the purchase money of an estate sold by him. [d] But here the cestui que trusts are not only parties to the deed creating the trust, but assenting to the very transaction now complained of.
There is no such universal, inflexible rule, as that the trustee cannot change the trust estate. [f] If he had a discretionary power, it signifies not how the payment was made, and whether a credit was given or not. Nor is this such a purchase, by the trustee himself, as will invalidate the sale in respect to bonae fidei purchasers. [g] It is not a sale by himself to himself. He does not unite both the characters of vendor and vendee, and, therefore, it does not involve the mischiefs meant to be corrected by the rule. The consent of the cestui que trusts who are sui juris, confirms the sale, at least as to these innocent purchasers.
5. But if all these positions should be overruled, he insisted, that the decree of the Court below was erroneous in its details: because it should, in the first instance, have decreed, as against the trustee himself, an execution of the trust; and, in the alternative of his failure and inability, the repayment of the purchase money by Veitch, the original purchaser from the trustee; and the land in the hands of the appellants, Castleman and M'Cormick, who were purchasers with a general warranty from Veitch, as he was from the trustee, should have been the last resource, after the others had been exhausted; and then only to raise the money due, giving Castleman and M'Cormick option to retain the land by paying the money; instead of decreeing the land to be sold at all events for the benefit of the cestui que trusts. The appellants ought not to have been held to account for the mesne profits; because Wormley, the only person yet entitled to receive them, was a party to the sale, and was clearly competent to alien the estate, and the rents and profits, during his life; he being sole cestui que trust for life; and thus, if the sale is to be set aside at all for the benefit of his wife and children, it can only be to the extent of protecting and securing their future and contingent interests.
The Attorney General, contra, argued, 1. That the trustee had broken every one of the trusts he had undertaken to perform, on assuming the fiduciary character. If he, therefore, were now in the actual possession of the Frederick lands, if he had conveyed them, and taken back a reconveyance to his own use, there could be no question, that a Court of equity would hold these lands in his possession subject to the original trusts. But if the appellants purchased with knowledge of the trusts, and of the breach of trust, equity converts them into trustees, with all the liabilities of the original trustee. [i] He argued upon the facts to show, that they were chargeable with this knowledge. Although they had denied, in the answer, all fraud on their own part, and all knowledge of fraud in others, yet they do not deny a knowledge of such facts as affects them with the consequences of the trustee's misconduct.
2. It may be laid down as a general proposition, that trustees are incapable of becoming the purchasers of the trust subject. The two characters of buyer and seller are inconsistent: Emptor emit quam minimo potest, venditor vendit quam maximo potest. [j] Where the trust is for persons not sui juris, as Femes covert, infants, and the like, the Court will, under no circumstances whatever, be they ever so fair between the parties, (as consulting friends, & c.) confirm a purchase of the trust property by the trustee, unless it be done under the immediate authority and sanction of the Court. [k] It cannot be established even by a sale at public auction, or before a master. [l] The only mode in which it can be done, is by a previous decree of permission, which the Court will not grant, unless where it is clearly for the benefit of the cestui que trust. [m] A sale made without such permission, may, or may not, be confirmed, at the option of the cestui que trust. [n] And in order to set aside a purchase by a trustee, it is not necessary to show, that he has made any advantage by his purchase. [o] But the whole of this subject has been so thoroughly examined by Mr. Chancellor Kent, in several cases determined by him, that it is unnecessary to do more than to give the Court a general reference to the authorities cited by him. [p] The rule is applicable with peculiar force to the present case, because here the purchase was not under the sanction of the Court, nor at a master's sale, nor at auction, where the trustee resists a fair competition; there was no payment of the purchase money to the use of any of the cestuis que trust; and (if we were bound to show, that the trustee has made an advantage) he has made all the advantage. If Strode had been a trustee merely for the purpose of sale, he could not have acquired the trust fund by purchase. But his was not a mere power to sell; it was a power to sell, whenever he could, in his honest opinion, invest the proceeds of the sale advantageously in other lands, to be settled to the same uses. The sale, without a reinvestment, was a breach of trust. Those who purchased under him had notice of the breach of trust.
3. The general principle is, that a purchaser from a trustee is bound to see to the application of the purchase money. But that principle is stated with this limitation, that he is only thus bound where the trust is of a defined and limited nature, and not where it is general and unlimited, as a trust for the payment of debts generally. [q] That is, if the trust be of such a nature that the purchaser may reasonably be expected to see to the application of the purchase money, as if it be for the payment of legacies, or of debts which are scheduled or specified, the purchaser is bound to see that the money is applied accordingly; and that, although the estate be sold under a decree of a Court of equity, or by virtue of an act of parliament. [r] And Mr. Sugden says, that those most strongly disposed to narrow this rule, do still hold, that where the act is a breach of duty in the trustee, it is very fit that those who deal with him should be affiected by an act tending to defeat the trust of which they have notice. [s] This is what Sir W. Grant says, in the case cited on the other side, with this addition, that 'where the sale is made by the trustee, in performance of his duty, it seems extraordinary that he should not be able to do what one should think incidental to the right exercise of his power; that is, to give a valid discharge for the purchase money.' [t] But here the sale was made, not in performance of the trustee's duty, but in violation of it; and the supposed assent of the husband and wife, to the breach of trust, will not cure it. [u]March 12th.
^a Balfour v. Welland, 16 Ves. 150.
^c Co. Litt. 290 b. Butl. Note 1. s. 12.
^d Balfour v. Welland, 16 ves. 157.
^f 2 Fonbl. Eq. 88. note f. 1 Fonbl. Eq. 191-196. Fraser v. Bailey, 1 Bro. Ch. Rep. 517.
^g Whitecote v. Lawrence, 3 Ves. jr. 740. Lister v. Lister, 6 Ves. 631. Ex parte James, 8 Ves. 348. Coles v. Trecothick, 9 Ves. 246. Randall v. Errington, 10 Ves. 423.
^h Strawbridge v. Curtis, 3 Cranch's Rep. 267. Corporation of New-Orleans v. Winter, 1 Wheat. Rep. 94.
^i Adair v. Shaw, 1 Scho. & Lefr. 862. Sanders v. Dehew, 2 Vern. 271. 2 Fonbl. Eq. 152. 15 Ves. 350. Bovey v. Smith, 1 Vern. 149. S.C.. 2 Cas. in Ch. 124.
^j Sugd. Vend. 422, 423. and cases there cited.
^n 5 Ves. 678. 6 Ves. 631.
^o Ex parte James, 8 Ves. 348. Ex parte Bennett, 10 Ves. 393.
^p Green v. Winter, 1 Johns. Ch. Rep. 27. Schiefflin v. Stewart, id. 620. Davoue v. Fanning, 2 Johns. Ch. Rep. 252.
^t Balfour v. Willard, 16 Ves. 151.
^u Thayer v. Gold, 1 Atk. 615.

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