Boerum v. . Schenck

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] It cannot for a moment be contended, that the sale made by the executor in this case was binding upon the other children of the testator, who held the legal title and were interested in the execution of the power of sale given to the executor by the will, and entitled to share the proceeds of such sale. If this is not formally conceded by the counsel for the appellant, the contrary is not insisted upon. Although the sale was in form to Joseph Conselyea, it was in fact a device of the executor to buy the land himself by the interposition of a third person, who should receive the conveyance for him and immediately convey the land to such executor.

A trustee or the donee of a power in trust, cannot sell to himself either directly or indirectly; and this circuitous mode of effecting the transfer of the legal title cannot avail for that purpose.

It is unnecessary, at this day, to discuss the grounds upon which this important rule for the protection of cestui quetrusts and beneficiaries against fraud or bad faith in the trustee depends, and it is needless to recall the multitude of cases, by which the rule is recognized and firmly established.

Nor does it affect the right of the beneficiaries to repudiate the transaction, that there may have been no actual intent to cheat or defraud them. In the present case, although there was in the complaint a charge of some artifice in changing the day appointed for the sale, and in selling in too large parcels, so as to mislead and prevent competition, and a charge that the executor acted fraudulently in the matter, no such fraud is found; and the whole case proved is entirely consistent with an honest effort on the part of Charles Schenck, the executor, to procure for the property the largest price which the property would bring at an open, fairly conducted public sale, and with an honest belief that he might, if he pleased, lawfully instruct the auctioneer to cause the property to be bid in for himself, if the price bidden should not equal a sum at which he (being himself one of those entitled to share the proceeds) was willing to part with the property. The case therefore does not involve any impeachment of his integrity, or his purpose to discharge his trust with fidelity and with just regard to the interests of his brother and sisters.

This, however, does not avail to secure to him the title. The rule is inflexible; he was, by his fiduciary character, incapacitated to purchase, and neither upright intention nor the payment of a fair price will overcome the impediment.

But, on the other hand, the right to avoid the sale is the privilege of the cestui que trusts or beneficiaries only. They have an election to affirm it, if they see fit; oftentimes, in such cases, it may be for their interest to do so, and they may hold the trustee to the consequences of his act. Hence, in the present case, if the property had greatly depreciated, the executor could not have denied the sufficiency of the execution of the power of sale and refused to account for the sum bidden, as the proceeds of a sale.

In other words, the conveyance by the executor to Joseph Conselyea, and by the latter to the executor, might operate, according to their legal import, to transfer the title. The sale was not void, but voidable only at the election of the beneficiaries.

That election they declare by the present action; and that election is operative to avoid the sale and those conveyances, unless the plaintiffs, by something subsequent thereto, are concluded.

Three grounds are relied upon to defeat the plaintiff's action, viz.: Lapse of time; receipt of their shares of the purchase money in affirmance of the sale; and as to the plaintiffs, Lane and wife, a former judgment against them denying their claim to set aside the sale.

1. As to the lapse of time; it will suffice to say, that, irrespective of other considerations, the sisters of the executor, who are plaintiffs in this action, were each of themfemmes covert at the time of the attempted execution of the power of sale; the other sister was an idiot; and by the death of the latter and of Stephen Schenck, before this action was commenced, the further period of eighteen months was added to the statute limitation (so far as the plaintiffs derive their right through such deceased). The statute limitation therefore does not bar the action.

So far as the lapse of time is relied upon as importing acquiescence in the sale, which should lead a court of equity to refuse its interposition, the answers are, first, the coverture of the female plaintiffs; and, second, the evidence that there has been no acquiescence in part, but dissatisfaction with, and objection to the sale, while on the part of the executor, he has not been misled, or been shown to have placed himself in any new relation to the subject, in any reliance upon the supposed assent to the transaction by the other parties.

2. As to the receipt of the money, which is claimed to be an affirmance of the sale.

It is not necessary to deny, nor do I think it can be truthfully denied, that an acceptance by the beneficiary of the proceeds of a sale made by a trustee or donee of a power indirectly to himself, may operate as an affirmance of the sale, and as such may conclude the beneficiary. The beneficiary might consent to such a sale before it was made, and there is no legal nor equitable objection to his or her affirmance thereof afterward. But there must exist no legal incapacity; the act must be voluntary, with full knowledge of all the facts, and be free from undue influence arising out of the relation of the parties; and the act must be clear and unequivocal, fairly indicating an intent to affirm the transaction.

Ordinarily, the acceptance of the money, with full knowledge, and by persons free from disability, would be such an affirmance. But, as between the immediate parties, the act is open to explanation; and it can have no characteristic of an estoppel, unless it was understood and acted upon as an affirmance by the party insisting upon it as an affirmance.

In the present case, Gertrude Schenck was an idiot, and the plaintiff, Sarah Boerum, was a femme covert, acting without the presence or consent of her husband; and therefore as to them, there has been no affirmance, apart from the grounds applicable alike to Mrs. Boerum and the other plaintiffs.

But Stephen Schenck, Lane and wife, and Brouwer and wife were competent to act; they had full knowledge of the facts, and they received their shares of the money upon the terms expressed in their receipt therefor.

Their acceptance of the money was expressed to be on the condition, in substance contained in the receipt, that it should not be deemed an affirmance of the sale, nor prejudice their right to set it aside, or their interest in the premises.

This act is insisted upon, nevertheless, as an estoppel, and it is argued, that a voluntary acceptance of the proceeds of sale estops the beneficiary to dispute its legality and effect; and therefore a provisional acceptance must so operate, because the proviso is inconsistent with the act.

Such a receipt has none of the characteristics of an estoppel. It is a mere consent to receive the money claimed to be the proceeds of a valid sale, but with a reservation of the right to contest that validity; or in another form, with an exclusion of the otherwise apparent and implied intent thereby to affirm such validity. Such a receipt admits nothing; it misleads no one; it can work no fraud upon any person. It is not claimed to be a legal or technical estoppel; and not one of the requisites of an equitable estoppel or estoppel in pais can be found in it.

I know of no possible objection, legal or equitable, to such an arrangement between the parties interested in this or any similar transaction. Cases may easily be suggested, in which claimants receive money pending a litigation, or before suit, with similar reservations or conditions, and litigation, nevertheless, proceeds to the establishment of their rights, unaffected by such receipt. The payment of the money by the executor into the hands of the surrogate did not affect the rights of either party; and in paying it out to these parties, he only acted as the agent of the executor, or of his representatives.

It is entirely obvious, that the beneficiaries were claiming that the land was of much greater value than the price allowed therefor by the executor; and upon that idea, the payment wrought no prejudice to the executor, since, on a resale, a larger sum would be due to these parties, which the money then received would in part satisfy.

I am clearly of opinion, that the acceptance of the money should be permitted to operate according to its actual intent, and the understanding upon which the written instrument, declaring its receipt and the terms thereof, was given and received.

In this view of the subject, neither of the beneficiaries are barred of this action by reason of the alleged affirmance of the sale by an acceptance of the proceeds.

3. As to the former judgment, I am not able to discover any sufficient ground upon which to deliver the plaintiffs, Lane and wife, from the effect of its existence in the former action, against them and in favor of the present defendant, on the precise claim which is made in their favor in this action. If I am right in the views already expressed, that judgment was erroneous; but no appeal was taken therefrom, and it stands unreversed and in full force. The judgment was pronounced on the merits, and not upon any collateral issue, for no such issue was raised by the answer therein. It is, therefore, entirely clear that they could not maintain an action in their own behalf, founded on their original title, to share the proceeds of sale. The former judgment concludes them. Such was the opinion of the court below, and nothing suggested on their behalf raises in my mind any doubt of the correctness of that opinion.

But it is equally clear that such judgment only estops them from claiming under rights existing or claimed to exist in their favor, when that suit was brought. Gertrude Schenck was upon no possible ground concluded. At the time of her death, she had the plainest conceivable right to impeach the sale, demand a re-sale and claim her share of the proceeds. That right passed to her representatives, and was acquired by Mrs. Lane, after the former suit was brought. That right was neither directly nor indirectly in issue nor the subject of adjudication in that action. The same is true of the right or interest devolved upon Mrs. Lane by the death of Stephen Schenck, one or two years after the judgment was rendered.

It follows, that the sale and conveyances in question were properly set aside, and a re-sale ordered. It was properly held that the power of sale must be executed, if at all, by a sale of the property in its entire interest, and not in undivided parts. No one of the beneficiaries could require that his or her undivided share be sold separately, and if either had the right to require a re-sale, it was to require a sale of the whole; not necessarily in one parcel, nor, as the case may be, at one time. The time and manner of sale (whether in single lots or parcels) rested in sound discretion, but no sale of an undivided interest would be a due execution of the power. If, therefore, all the beneficiaries, save one, were concluded by an affirmance of the sale, or even by a release, that one would be entitled to an execution of the power by a sale of the whole property.

It remains to inquire in what shares or proportions the proceeds of sale should be divided.

On this point, my conclusion is, that the judgment below proceeded upon an erroneous view of the consequences of holding either party entitled to compel a re-sale. And although the court below held, that neither the plaintiffs (Lane and wife) nor Brouwer and wife were, in virtue of their original shares, entitled to compel a re-sale, but on the contrary, were concluded, by the acceptance of the money and by the former judgment; still, as Mrs. Boerum was not so concluded, a re-sale at her instance operated to reinstate them in their original position, and to entitle them to share the proceeds to the same extent, as if they had not affirmed the former sale.

Or, in another mode of stating it, inasmuch as the power of sale cannot be executed by a sale of an undivided share to satisfy the claim of Mrs. Boerum, the sale must be for the benefit of all the parties, according to their original interest in the proceeds.

No such consequences result from the premises, and no reason can, I think, be assigned for such a conclusion, that could not be alleged of the effect of the most distinct and unequivocal affirmance of the former sale by one of the parties in interest.

For example, suppose the brother (Stephen Schenck) had originally consented that the executor should acquire the title; had bargained with him, that, so far as his interest was involved, he might have the property at the price at which it was struck down; that an auction should be had, and if no person bid a greater sum, the executor should take the property through a conveyance to and from a third person, and all was done in precise accordance with the previous arrangement; and thereupon Stephen Schenck, with intent to affirm and ratify the transaction, accepted his share of the money.

As to him, the transaction would be valid and binding. He could not thereafter be permitted to claim the contrary or to demand a re-sale, and yet his sisters would not be bound. As to them, the sale would not be binding. They could compel the executor to execute the power, and could treat him (as he had in part become, by the formal transfer of the legal title to him) as trustee, holding the legal title subject to the execution of the power by a sale for their benefit; and it would be true then as now, that the power must be executed by a sale of the whole, and not of any undivided interests. Nevertheless, on this distribution of the proceeds, the executor would stand by subrogation in the place of Stephen Schenck. He could no more claim a share in the proceeds than he could claim an interest in the land or a right to its re-sale. Indeed, it is because he has no interest in the proceeds, that he could not require such re-sale.

Whether, in such case, the affirmance of the sale by Stephen be regarded as operating to transfer his interest to the executor, or as against the executor, to bar or conclude him, the result is the same. He is concluded of all claim and interest in the land, and, therefore, in its proceeds.

Now, although I think the former action was erroneously decided, its effect as a bar to the claim of Lane and wife is just as conclusive as if they had released the right therein asserted. True, it does not operate as a covenant estoppel to cut off rights subsequently acquired; but in respect of the interest then claimed, to wit, one-sixth of the proceeds, it is final.

The result is, that the plaintiff, Sarah Boerum, is entitled to one-fourth of the final surplus to be divided. Brouwer and wife to one-fourth. Lane and wife to only such share as vested in Mrs. Lane by the death of Gertrude and Stephen Schenck, viz., one-fourth of one-third, or one-twelfth, and the residue remains to the defendant.

If I understand the judgment below, an error in its detail is found in it, which must be the result of inadvertence. It directs that the proceeds of sale, and the balance of the account of the rents and profits be applied to repay to the defendant only the several amounts paid to the plaintiff and Gertrude, and Stephen Schenck, on the distribution before the surrogate, and interest thereon, and that the residue be applied to the costs and final distribution between the plaintiffs and the defendant.

It is obvious that this is unjust to the defendant; her father, the executor, actually paid as proceeds of the sale, $6,644.50. A portion of this went to pay legacies, c., provided for in the will, and only $4,468.38 remained for distribution. As the sale is repudiated, the defendant should receive out of the proceeds of a re-sale, first of all, reimbursement of the $6,644.50, with interest from the time of making his account and not merely that residue or balance thereof, which remained before the surrogate for distribution to the children of the testator.

I am aware, that no such objection to the decree was raised on this appeal; the amount involved in this correction is not large. No doubt, the far greater importance of the main question has caused that error to be overlooked. But the defendant is an infant, and ought not to be permitted to suffer in a court of equity by any purely technical omission, when the court clearly see that an error has occurred to her prejudice.

The judgment should be modified in the two particulars specified, and in other respects it should be affirmed with costs of both parties paid from the proceeds of sale.