Byrne v. Jones

• Decision Date: 03 March 1908
• Docket Number: 2,586.
• Citation: 159 F. 321
• Parties: BYRNE v. JONES et al.
• Court: U.S. Court of Appeals — Eighth Circuit

159 F. 321

BYRNE v. JONES et al.

No. 2,586.

United States Court of Appeals, Eighth Circuit.

March 3, 1908

Syllabus by the Court.

A trustee or an agent may purchase the trust property directly from his cestui que trust sui juris, or principal, on condition that the latter intends that the former shall buy that the former discloses to the latter, before the contract is made, every fact he has learned in his fiduciary relation which is material to the sale, that he exercises the utmost good faith, that no advantage is taken by misrepresentation concealment of, or omission to disclose, important information gained as trustee or agent, and that the entire transaction is fair and open.

But the foregoing condition is inexorable.

Any omission by the trustee or agent to disclose any fact material to the sale learned by him as trustee, any material misrepresentation, concealment, or other disregard of the condition renders the sale and the contract for it voidable at the election of the cestui que trust or principal.

A trustee, residing in Arkansas to hold and sell land situated in that state and in Texas for himself and a cestui que trust residing in Massachusetts, sold a right of way to a railroad company for $725, and without disclosing these facts bought the interest of his cestui que trust for $7,500.

Held: The contract of sale was voidable at the election of the cestui que trust.

Where an accounting and a sale of property are required, a settlement of the account and a determination of the extent of the rights of the parties in the property under an interlocutory decree before the final decree of sale is made is preferable in ordinary cases to a decree of sale before the accounting, because in that way parties may have the benefit of a knowledge of the extent of their interests before the sale, and because this course permits the review by a single appeal of questions which two appeals are necessary to challenge when the decree of sale precedes the settlement of the accounting.

A court of chancery has plenary power to affect the title to real estate beyond its jurisdiction by a sale and conveyance thereof by its master in suits to execute trusts, to undo frauds and to enforce contracts regarding such real estate, whenever it has acquired jurisdiction of the persons of the parties interested in the real estate, because equity acts through the person.

L. A. Byrne, pro se (W. H. Arnold, on the brief), for appellant.

Wm. V. Tompkins (Thos. C. McRae, on the brief), for appellees.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

SANBORN Circuit Judge.

On June 2, 1892, Erastus Jones of Worcester county, Mass., made a contract with L. A. Byrne, of Texarkana in the state of Arkansas, concerning a tract of about 2,600 acres of land situated in the states of Arkansas and Texas, to the effect that Byrne, who was an attorney at law, and who held defective titles to the land upon which Jones had vendors' liens for $6,117.42, should, without charge for his services, clear the titles to the land, prepare it for market, sell it as opportunity offered, apply the proceeds first to the payment of the expenses of clearing the title and preparing the property for market, second, to the payment of the amount owing Jones, and that the remainder of the land, or of its proceeds, should be owned by them equally. The larger part of the lands were in Arkansas, the titles of Byrne and Jones to the Arkansas land were tax titles, and they owned only an undivided interest in the lands in Texas. Under this agreement Byrne conducted about 15 lawsuits, purchased some outstanding claims, placed some tenants on the land to acquire title thereto by possession under the two years' statute of limitations of Arkansas, erected some small houses, cleared and fenced some of the land, paid some taxes, sold a right of way over some of the land for $725, and 220 acres of the real estate for $880, between June 2, 1892, and March 28, 1905. On the latter day he accepted an offer made by Jones to sell to him his interest in the lands for $7,500, and on the same day, or within two or three days thereafter, he made a contract with the defendants Heilbron, Wade, and Stribling to sell them about 1,600 acres of the real estate in consideration that they would furnish the $7,500 to purchase the interest of Jones. Within a few days after this contract was made Jones exhibited his bill in the court below to set aside these contracts on the ground that Byrne had induced him to make his offer to sell for $7,500 by withholding material information, which he had acquired while he was acting in a fiduciary capacity, relative to the management, condition, and value of the land. The defendants Heilbron, Wade, and Stribling answered that they made their alleged contract of purchase from Byrne in good faith, that they agreed to pay the full value of the land, that they had rescinded that agreement because they did not care to incur expense in defending it, and they disclaimed all interest in the property. Byrne denied that he had withheld any information to which Jones was entitled, and averred that he had tendered the $7,500, and that his contract of purchase was valid, and he filed a cross-bill to enforce specific performance of it. After the evidence had been taken and a final hearing had been had, the court rendered a decree by which it dismissed the cross-bill, dismissed without prejudice the suit so far as it related to the land in Texas, directed an immediate sale of the land in Arkansas and the return of the proceeds thereof to the court, and appointed a master to take and state an account of the expenses incurred and the moneys received under the contract of 1892, and Byrne appealed.

The first question is, was Byrne entitled to a specific performance of his contract of purchase of March, 1905? for an affirmative answer to that question avoids all others. The answer to it is conditioned by the relation of the parties to each other under the contract of 1892, and by the nature of the disclosure which Byrne made to Jones of the management, condition, and value of the property before that contract was made. For wise reasons of public policy, the law peremptorily forbids every one who, in a fiduciary relation, has acquired information concerning, or interest in, the property or the business of his correlate, to use that knowledge or interest, or to take advantage of his correlate's ignorance in the matter, to the detriment of the latter, or for his own benefit. Trice v. Comstock, 57 C.C.A. 646, 649, 121 F. 620, 623, and cases there cited. A trustee or an agent may purchase the trust property directly from his cestui que trust sui juris, or principal, on condition that the latter intends that the former shall buy, that the former discloses to the latter, before the contract is made, every fact he has learned in his fiduciary relation which is material to the sale, that he exercises the utmost good faith, that no advantage is taken by misrepresentation, concealment of, or omission to disclose, important information gained as trustee or agent, and that the entire transaction is fair and open. Michoud v. Girod, 4 How. 555, 11 L.Ed. 1076; Brown v. Cowell, 116 Mass. 461, 465; Mills v. Mills (C.C.) 63 F. 511; Steinbeck v. Bon Homme Mining Co., 81 C.C.A. 441, 447, 152 F. 333, 339. But the condition is inexorable. Any omission by the trustee or agent to disclose any fact material to the sale learned by him as trustee or agent, any material misrepresentation, concealment, or other disregard of this condition, renders the sale and the contract for it voidable at the election of the cestui que trust or principal. Beach on Trusts and Trustees, Sec. 518; Saunders v. Richard, 35 Fla. 28, 16 So. 679; Cornish v. Johns, 74 Ark. 231, 240, 85 S.W. 764; Thweatt v. Freeman, 73 Ark. 575, 580, 84 S.W. 720; Coles v. Trecothick, 9 Vesey, Jr., 234, 246; 2 Pomeroy's Equity Jurisprudence, Sec. 958.

In 1899 Byrne collected $725 for a railroad right of way over some of these lands, and in answer to a request from Jones for a statement of his transactions he made an account, probably about May, 1903, in which he set forth a sale of 80 acres for $240, a collection of $122.45 rent, the expenditure of $451 for improvements on the land, and showed a balance due him of $123.55, but he did not charge himself with the $725, which would have changed the balance of this account from $123.55 in his favor to $651.45 against him. On December 6, 1904, he had offered $5,000 for Jones' interest in the property, and Bemis, the agent of Jones, had asked him for a statement in detail of the expenses and receipts on account of the land 'before going any further in the matter. ' In answer to this request Byrne sent a statement of account in a letter of that date which opens with these words:

'Enclosed you will find a statement of expenditures and receipts on the Byrne-Jones land as expended by me, which statement was requested in your letter of recent date.' This statement, which purported to set forth the expenditures and receipts from 1892 to December 6, 1904, with the exception of the taxes from 1892 to 1899 which had been paid by Jones, shows a balance in favor of Byrne of $487.09, but contains no mention of the $725 which would have changed the result to a balance of $237.91 against him. On December 24, 1904, Byrne wrote that he knew that this statement was correct. He never disclosed, and Jones and his agent Bemis were ignorant until after this suit was commenced, that he had sold this right of way or that he had collected anything on account of it. The sale of the right of way and the collection of the compensation for it were facts material to a determination of the interest of Jones in the property, because th

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