Mortgage Co. v. Clowney , 70 S.C. 229 ( 1904 )

November 24, 1904. The opinion of the Court was delivered by The facts of this case are fully stated in the decree of his Honor, the special Judge, which will be set out in the report of the case. This Court is satisfied with the conclusions announced in the Circuit decree, except that in the matter of the $1,922.50 applied to the extinguishment of the judgment of Witte v. Clowney, the interest should be calculated from the 27th of January, as the record shows that the money was applied to the satisfaction of the judgment on that day, instead of the time mentioned in the decree. The reasons for our concurrence are, however, not the same in all respects as those upon which the special Judge bases his conclusions, as will hereinafter be shown.

The pleadings raise the question whether the plaintiff was a purchaser of the land for valuable consideration without notice of such facts as rendered its title null and void. A plaintiff as well as a defendant may assert this right. McGee v. Jones, 34 S.C. 146. The Circuit Judge finds as a fact that the transaction evidenced by the deed to Mrs. Clowney and the mortgage to the plaintiff was an attempt on the part of the trustee to mortgage the trust property, and that the alleged execution of the power of sale for reinvestment was pretentious, and no money was received by the trustee. After thus finding, he says: "I hold the deed is absolutely void; the deed being void, is a nullity and carries with it the mortgage of plaintiff and his title under the foreclosure based thereon, for no amount of lack of notice can vitalize a nullity. In my view, it is, therefore, unnecessary to decide the question of notice, for conceding the plaintiffs to be without notice, the defendants are entitled to all the relief that the equities of the case would warrant. There are no intervening incumbrances."

The first exception assigns error in the ruling that the deed to Mrs. Clowney was absolutely void, and as a nullity carries with it the plaintiff's mortgage and the title based thereon under the foreclosure proceedings. The authorities cited in the argument of the plaintiff's attorneys fully sustain the position that the deed was not absolutely void, but only voidable. This exception should be sustained.

The third exception assigns error in not finding that the plaintiff did not have notice of any breach of trust on the part of the trustee or Mrs. Clowney, which affected the validity of the deed executed by the trustee to Mrs. Clowney. The defendant's attorneys served notice that they would ask this Court to sustain the decree in this respect upon the additional ground "that it was contrary to the law and public policy and a breach of trust on the part of Wm. J. Clowney, trustee, to execute a deed of trust property to his wife, the said Margaret M. Clowney, of all of which facts the plaintiff had notice before, and at the time of taking its mortgage from the said Margaret M. Clowney."

The plaintiff's attorneys contended that the deed of W. J. Clowney, trustee, to Margaret M. Clowney, does not show on its face that the grantee was the wife of the grantor, and the fact that she was his wife cannot affect plaintiff's rights as a mortgagee or purchaser for valuable consideration without notice. It is, however, a fair and reasonable inference from the testimony that H.A. Gaillard, the plaintiff's attorney, had notice that Mrs. Clowney was the wife of the trustee, especially as it appears in the record that he was a subscribing witness to the execution of this deed. Knowledge of this fact on the part of the attorney is attributed as notice to his principal, the plaintiff herein.Blackwell v. Mortgage Co., 65 S.C. 105.

We are thus squarely confronted with the solution of the proposition whether the conveyance of the land by the trustee to his wife was in itself a breach of trust which public policy demands should have the effect of rendering the transaction voidable. The authorities are in accord as to the general principle that a trustee cannot buy at his own sale. The doctrine, with its limitations, is clearly stated in Anderson v. Butler, 31 S.C. 183. The Court says: "It is a well established principle that a trustee cannot buy at his own sale. He cannot be vendor and vendee at the same time of trust property; that is, he cannot make a binding contract with himself in the purchase of the trust property under his control. On the contrary, all such purchases are subject to be vacated and set aside by the cestui que trust at his option, and this, too, without regard to the fact, whether such purchase was made in good faith, at full price, or was fraudulent and delusive. This doctrine has been long settled, both in England and in this country, and it is a wise and wholesome principle. It strikes at once at the root of danger, and destroys it. It removes from the trustee the temptation to do wrong and guarantees the faithful execution of his trust in the sale of the property of his cestui que trust."

Does a sale by the trustee to his wife of the trust property come within the spirit of this principle, which strikes at the root of danger and removes the trustee from temptation to sell the property in such a manner that he will thereby receive a benefit either directly or indirectly? The husband and the wife sustain towards each other a highly confidential and fiduciary relation; and transactions between them are to be scrutinized with great jealousy, especially when it is made to appear that advantage was taken of the wife. Way v. Ins. Co., 61 S.C. 501. So sacred is this relation, that acts which would be champertous between third parties are not violative of law as between husband and wife. In Exparte Hiers, 67 S.C. 108, this question of champerty was considered, and this Court said: "In many respects the husband and wife are still regarded as one in law. It would be against public policy for the Courts to hold that when a dutiful and confiding wife renders her husband financial aid in securing those rights accorded to him by law, she should be held to be guilty of champerty." As a rule, the husband expects and realizes a pecuniary benefit either directly or indirectly from property acquired by the wife.

This question as to the right of the trustee to sell the trust property to his wife, although new in our State, has been adjudicated elsewhere. In Bassett v. Shoemaker,46 N.J. Eq., 538 (reported in 19 Am. Stat. Rep., 435), it was held that where a trustee sells the trust estate to one who, by previous agreement, purchases for the wife of the trustee, the sale will be set aside on the application of a cestui quetrust, nor is evidence that the sale was fair and for the best price obtainable admissible. Also, that where a husband sells as trustee, his wife is excluded from purchasing at the sale directly from him. If she desires to become a purchaser, she must apply to the Court and obtain an order that the sale be conducted by and under the supervision of a master. The Court says: "The exclusion of the wife as a purchaser, where the husband sells as a trustee, is not so much for the reason that he may subsequently become entitled to some interest in her lands, as on account of the unity which exists between them in the marriage relation. The case falls clearly within the spirit of the principle, which excludes the husband himself." The Court quotes as follows, from the case of Romaine v. Hendrickson,27 N.J. Eq., 162: "So jealous is the law of the interest of the cestui que trust that it will not tolerate the slightest antagonism on the part of the trustee. The object of the rule is to prevent the trustee from using his information and power to the prejudice of the cestui que trust." See, also, Davoue v. Faning, 2 Johns. Ch., 251; Michoud v. Girod, 4 How. (U.S.), 503; and 1 Perry on Trusts, Section 195. This doctrine, so wholesome in its nature, grows out of the principles of equity, and is not affected by the laws of our State relating to the rights and powers of married women. We are the more willing to apply these principles to the case under consideration, as the effect is to bring about substantial justice to all parties concerned; the sale made in breach of the trust is thus avoided, and the plaintiff is enabled to get back its loan with interest.

It is the judgment of this Court, that the judgment of the Circuit Court be affirmed, except in the particular hereinbefore mentioned, and that it be modified in that respect.