In re Frazin & Oppenheim

• Decision Date: 16 August 1910
• Docket Number: 303.
• Citation: 181 F. 307
• Parties: In re FRAZIN & OPPENHEIM.
• Court: U.S. Court of Appeals — Second Circuit

181 F. 307

In re FRAZIN & OPPENHEIM.

No. 303.

United States Court of Appeals, Second Circuit.

August 16, 1910

No finding of facts appears in the record. The facts hereafter stated, however, are not disputed, and formed the basis of the action of the District Court which is sought to be reviewed in this proceeding.

Early in September, 1909, John Hoerle, Clifford Ludvich, and I. V Rosenbach were appointed appraisers of the bankrupt estate of the firm of Frazin & Oppenheim. On September 25, 1909, the appraisers signed an appraisal of the contents of one of the stores belonging to the estate located at Sixth avenue and Twenty-Second street, New York City, as follows:

Stock	$10,662 20
Fixtures . . .	1,295 30
Total . . .	$11,957 50

On September 28, 1909, said appraisers signed an appraisal of the leases of said store, fixing the value thereof at $4,400. On October 1, 1909, said appraisals were filed with the referee in bankruptcy. On September 28, 1909, said John Hoerle-- one of the appraisers-- entered into an agreement in writing with Sallye Frazin and Rose Oppenheim, the wives of the bankrupts, for the purchase from the trustee of said estate of the stock, fixtures, and leases of said store, wherein said Hoerle agreed, in substance, to produce a purchaser for said property at the trustee's sale thereof advertised to be held on September 30, 1909, provided the same could be secured at a price not exceeding $40,000, and also provided said wives of the bankrupts would repurchase from such purchaser at a price 10 per centum in advance of the price paid to the trustee, and wherein said wives agreed to repurchase at the advanced price stated and to pay the same within six months from the date of the trustee's sale. The agreement also contained provisions concerning the formation of a corporation which might repurchase, instead of the wives of the bankrupts, the control of such corporation by Hoerle pending the payment of the price with interest, the employment of one of the bankrupts as manager, the furnishing of collateral, etc. The parties had negotiated for several days at least regarding this agreement-- which was most elaborate in its provisions--before it was signed.

Hoerle arranged with one Struse, a lawyer, to bid for the property at the trustee's sale which was to be by auction. Accordingly at the sale-- held on September 30, 1909-- Struse bid $28,350 for said property, and his bid was accepted and the sale subsequently confirmed. The testimony is not entirely clear regarding Struse's interest in the transaction. He testifies that he was equal partner with Hoerle. Hoerle testifies that Struse acquired no interest in the matter until after he had made the purchase; that he got Struse to do the bidding because he was a lawyer, and because he considered it improper for him (Hoerle) to bid because he was an official appraiser.

Of the purchase price at the sale $5,000 was obtained from the wives of the bankrupts on account of their agreement, and the remainder was supplied by Hoerle, who obtained $12,937.50 thereof from Joseph H. Wichert, the trustee of the bankrupt estate, in payment, to the extent of $12,900, of an alleged loan from Hoerle to Wichert. The amount obtained from Wichert was just one-half the balance required after deducting the $5,000 payment from the purchase price plus an item of rent falling due at that time.

An application was made to the District Court to set aside the aforesaid sale, upon the ground, among others, that it was invalidated by the fact that Hoerle was an official appraiser of the estate. The District Court denied the motion. This petition is brought for the revision of the aforesaid action of the District Court, and also for the revision of its action in other matters affecting said bankrupt estate. The facts relating to such other claims for relief are considered so far as necessary in the opinion.

Seldon Bacon and Guthrie B. Plante, for petitioner.

Montague Lessler, for respondents Frazin et al.

J. T. Smith, for respondents Wichert et al.

James C. Church, for respondents Struse & Hoerle.

Augustus H. Skillin, pro se and for receivers.

Before LACOMBE, WARD, and NOYES, Circuit Judges.

NOYES Circuit Judge (after stating the facts as above).

The question of primary importance in this case is whether an official appraiser of a bankrupt estate may, prior to the filing of the appraisal, purchase property of the estate. The District Judge held that he has a perfect right to become a purchaser, and the correctness of this ruling is presented as a question of law upon this petition for revision.

It is a long-established principle of equity jurisprudence that a trustee cannot become a purchaser of the trust estate. And not only trustees, strictly speaking, but agents, attorneys, and all persons acting in behalf of other persons and obtaining confidential information concerning their affairs, cannot purchase their property, except under certain restraints not necessary to be considered here. Lord St. Leonards thus stated these elementary principles in his treatise on Vendors and Purchasers (Sugden on Vend. and Purch. (2d Am. Ed. from 5th London Ed.) p. 422), and his statement has many times been quoted with approval by judges and text-writers:

'It may be laid down as a general proposition that trustees, unless they are nominally so, as trustees to preserve contingent remainders, agents, commissioners of bankrupts, assignees of bankrupts, solicitors to the commission, auctioneers, creditors who have been consulted as to the mode of sale, or any persons who, by their connection with any other person, or by being employed or concerned in his affairs, have acquired a knowledge of his property, are incapable of purchasing such property themselves, except under the restrictions which will shortly be mentioned; for, if persons having a confidential character were permitted to avail themselves of any knowledge acquired in that capacity, they might be induced to conceal their information, and not to exercise it for the benefit of the persons relying upon their integrity. The characters are inconsistent. ' Emptor emit quam minimo potest, venditor vendit quam maximo potest."

The application of these principles is not dependent upon the engagement of one person by another in a confidential capacity. There need be no contract of employment at all. There need be no formal relation of trust. The disability grows out of the duty. In our opinion the rule of equity should be so broadly applied as to embrace all persons who have a duty to perform with respect to the property of others and with the proper performance of whose duty the character of a purchaser of such property may be in any degree inconsistent.

In King v. Remington, 36 Minn. 15, 26, 29 N.W. 352, 358, the Supreme Court of Minnesota said:

'Nor is the application of the rule confined to a particular class of persons as guardians, solicitors, attorneys, etc. It applies universally to all who come within its principle, which principle is that no party can be permitted to purchase an interest in property and hold it for his own benefit, where he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser on his own account and for his individual use.'

See, also, Michoud v. Girod, 4 How. 503, 11 L.Ed. 1076; Gardner v. Ogden, 22 N.Y. 327, 78 Am.Dec. 19i; Tracy v. Colby, 55 Cal. 67; York Buildings Associations v. Mackenzie, 3 Paton, 378; Ex parte Hughes, 6 Ves. 617; Ex parte James, 8 Ves. 337; Oliver v. Court, 8 Prince, 127; Ex parte Burnell, 7 Jur. 116; Poillon v. Martin, 1 Sandf.Ch. (N.Y.) 569.

But there are other considerations underlying these equitable principles where the question is presented whether an officer of a court who has duties to perform with respect to property in the custody of the court can buy it for his own benefit. These are considerations of public policy. And no consideration of public policy is deeper grounded upon fundamental principles--upon principles which reach the very foundations of judicial authority-- than that courts and court officers must be disinterested in the management of estates committed to their charge. It cannot be permitted that officers appointed by courts to perform duties...