Cooke v. Berlin Woolen Mill Co.

• Decision Date: 30 January 1883
• Parties: COOKE v. BERLIN WOOLEN MILL CO. AND OTHERS.
• Court: Wisconsin Supreme Court

56 Wis. 643

14 N.W. 808

COOKE

v.BERLIN WOOLEN MILL CO. AND OTHERS.

Supreme Court of Wisconsin.

Filed January 30, 1883.

Appeal from circuit court, Green Lake county.Finches, Lynde & Miller, for appellant, George W. Cooke.

George D. Waring, for respondents, the Berlin Woolen Mill Co. and others.

COLE, C. J.

In the judgment appealed from, the purchasers are allowed to recover $8,000, the purchase money for the mill and machinery, with interest on that sum from the day of purchase; also to recover the taxes paid on the property for the years 1874, 1875, 1876, 1877, and 1878, and interest on such taxes from the time of payment. They were not allowed to recover anything for repairs rendered necessary for the proper use of the mill and machinery, nor for insurance. They were charged with the rental value of the mill and machinery from the date of purchase to the time the receiver took possession at the rate of $500 per year. The amount found due the purchasers on this basis at the date of the judgment was made a lien upon the property, and the propperty was ordered to be sold if such amount was not paid within 90 days.

This judgment is vigorously attacked by the learned counsel for the plaintiff as being unjust and inequitable to his client and other stockholders of the corporation. He insists that the vendees were guilty of actual, positive fraud in making the purchase; consequently if entitled to recover anything it should only be the amount of the mortgage on the property when they purchased. It seems to us quite idle and unnecessary to inquire what the proper rule of indemnity would be were the sale vitiated by the presence of actual fraud. That is not this case. On the contrary, Chief Justice RYAN, at the close of his opinion on the former appeal, uses this language: “Nothing said is intended to impute positive fraud to the respondents, except so far as the reserve of the superintendent may possibly be so regarded; no positive fraud is imputed by any of the evidence to any of the respondents. Like the decree in Parker v. McKenna, the judgment in this case is rested on the doctrine of constructive fraud only, reluctantly applied under the circumstances.” 43 Wis. 448. The sale was set aside in obedience to the settled rule in this state that trustees cannot purchase on their own account any interest in the property of their cestui que trust. Much stress is laid by plaintiff's counsel on the clause of the order of the circuit court which adjudges the sale to be “ fraudulent, null, and void.” This order was entered pursuant to the directions of this court and its language should be construed with reference to our decision. This court set aside the sale, not because there was any actual fraud in the transaction, but for the reason that officers of the corporation were prohibited from becoming purchasers of the property of their principal. This rule was held applicable to the superintendent as well as the directors of the corporation; a rule which inflexibly forbids one holding a fiduciary relation from dealing on behalf of the cestui que trust with himself, where personal interest and duty conflict, and where constructive fraud is imputed to the transaction, however fair and innocent in fact it may be. That was the ground on which the sale was rescinded, as a reading of the masterly opinion of the chief justice will show.

The question, then, is, on what terms is the sale rescinded, where there is only constructive, but no actual or positive fraud in the transaction? We suppose that the purchaser, at least, is allowed to recover the actual compensation paid, with interest thereon. Some of the cases go much beyond this in the measure of reimbursement. Lewin says that in such a case “the trustee will have all just allowance made to him for improvements and repairs, which are substantial and lasting, or such as have a tendency to bring the estate to a better sale, as in one case for a mansion house erected, plantations of shrubs, etc.; and in estimating the improvements, the buildings pulled down, if they were incapable of repair, will be valued as old materials, but otherwise they will be valued as buildings standing. Should the property have been deteriorated by the acts of the trustee, his purchase money will suffer a proportionate reduction.” Lewin, Trust, 444. Where the cestui que trust objects to the purchase, it is a common practice for the court to order a resale of the property at a fixed price, which is called the upset price, which includes the purchase money paid, and interest, with costs of all the substantial and permanent improvements made by the purchaser, charging him with the profits or the fair annual rent of the property. That was the decree in Davoue v. Fanning, 2 Johns. Ch. 251, where that great equity judge, Chancellor KENT, discusses the doctrine of purchases by persons standing in the relation of actual trustees for the sale in a most elaborate and able opinion. Sometimes the court orders the sale to be set aside entirely, and the purchase money refunded. As bearing on this question see Mason v. Martin, 4 Md. 124;Spindler v....