Court Opinion

ID: 9577314
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:33:45.940565+00
Date Added: 2024-06-11T13:20:19.578088
License: Public Domain

THOMAS, J.,
delivered the opinion of the Court.
In this appeal we decide whether a substitute co-trustee under a deed of trust, who does not act as trustee at a foreclosure sale, can bid on the subject property on behalf of another.
Forest R. Smith was delinquent in payments on a note held by Credico Industrial Loan Company (Credico) and secured by a deed of trust. On February 7, 1983, John R. Patterson and Hilda E. Morin were substituted as trustees under the deed of trust. The substitution of trustees form was signed on behalf of Credico by “Hilda E. Morin Authorized Agent.” Morin was a manager and according to her testimony “the principal” of Credico.
The foreclosure sale was held at the Carroll County Courthouse on February 24, 1983. Present were Patterson, Morin, and a lawyer who represented Smith. Patterson, according to his testimony, was the sole acting trustee. However, he admitted that at the time of the sale, Morin had not resigned as trustee. Morin bid $25,000 on the property on behalf of Credico. Patterson accepted that bid.
Smith sued to set aside the sale upon the ground, among others, that a trustee cannot purchase at her own sale. The trial court ruled against Smith. The trial court was of the view that Morin did not breach any confidential relationship with Smith, because she did not act as trustee in foreclosing upon the property. The trial court went on to say that, “[t]he fact that she bid for the *516noteholder is not forbidden by Virginia law . . .” and that “it is not improper, even for an acting trustee, to place a bid for a note-holder.” In our opinion the trial court erred; therefore, we will reverse.
We have discussed the conduct of trustees with regard to the sale of trust property in Smith v. Miller, 98 Va. 535, 37 S.E. 10 (1900), and in Whitlow v. Mountain Trust Bank, 215 Va. 149, 207 S.E.2d 837 (1974). What we said in those cases guides our disposition of the present dispute.
In Miller, one of the trustees purchased trust property at a sale where he was one of the acting trustees. The record showed that he did not want to purchase the property but made a bid only to insure that the property brought its full value or a fair price. He explained his purpose to his co-trustee and authorized the co-trustee to sell the property to anyone who would offer the same price as he had. We stated that those particular facts were irrelevant because the case was controlled by an “inexorable principle of public policy” which we described in the following terms:
[I]t is a settled principle of equity that trustees and all persons acting in a confidential character with respect to the subject of sale are disqualified from purchasing the property for themselves. The characters of buyer and seller are incompatible, and cannot be safely exercised by the same person. The validity of a sale in such case does not depend upon its fairness, but the sale is voidable, and when attacked, must be set aside, although the price was fair, or the best to be had, and the motive pure.
98 Va. at 541, 37 S.E. at 12 (emphasis added). We set aside the sale and required the purchaser to make an accounting of rents and profits.
In Whitlow, the acting trustee at a foreclosure sale notified an official in a company, in which he owned stock that the sale was to take place. The trustee’s company was the successful bidder. The owners of the property sued to set aside the sale. In holding that the sale should have been set aside, we stated the following pertinent principles:
1. A trustee under a deed of trust is a fiduciary for both debtor and creditor and must act impartially between them:
*5172. A trustee must not place himself in a position where his personal interest conflicts with the interests of those for whom he acts as fiduciary;
3. When a trustee buys at his own sale a constructive fraud exists; the transaction is voidable; and when attacked, the sale must be set aside; and
4. Where a trustee purchases property indirectly at his own sale, such transaction is also voidable.
See 215 Va. at 152, 207 S.E.2d at 840.
Credico contends that Miller and Whitlow are distinguishable because in those cases, the trustee was an acting trustee and sold either to himself or to a company in which he owned an interest. Credico contrasts the present case, describing it as one where the trustee whose conduct is complained of did not act and did not purchase for herself or for a company in which she owned an interest.
In our opinion, Credico takes too narrow a view of what we said in Miller and Whitlow. Those cases were based upon broad principles of public policy. Central among those principles is that a trustee must not be placed in a position of conflict. As a trustee, Morin was bound to secure the highest price possible for the property. As a purchaser, even on behalf of another, she was bound to obtain the property for the lowest price possible. In Miller, we pointed out the inherent incompatibility between the roles of buyer and seller. We expressed concern that these two conflicting roles could not be safely exercised by the same person.
Morin, as long as she was a named co-trustee and a bidder on behalf of another, was both a buyer and a seller. Morin was not relieved of her duties as a trustee by leaving the active conduct of the sale to another. A trustee cannot hold that position without having the duties of a trustee. We are unwilling to accept the concept of a trustee without duties to her trust. In our view, until Morin resigned or was removed from her position of trust, she remained a trustee, with all attendant duties. By bidding on behalf of Credico, Morin placed herself in competition with the interests she was bound to advance.
In light of the foregoing, we hold that a co-trustee under a deed of trust cannot purchase property on behalf of herself or another at a foreclosure sale, even where that sale is conducted by another trustee, and even where the trustee who makes the *518purchase was not an active participant in conducting the sale. In our opinion, this rule minimizes the possibility of impermissible conflict that would otherwise exist. We will reverse the judgment of the trial court and remand the case for further proceedings consistent with this opinion. See Whitlow, 215 Va. at 153-154, 207 S.E.2d at 841.

Reversed and remanded.