NEWMAN et al. v. SCHWERIN et al., 109 F. 942

LURTON, Circuit Judge, having made the foregoing statement of facts, delivered the opinion of the court. Under the admitted facts of this case it is most obvious that the defendant Morris Schwerin was the actual purchaser of the lands sold under the decree in the case of John H. Co'ther, Adm’r, against Morris Schwerin and others. His agreement with his associates' in the promotion of a corporation to be known as the Central Land & Coal Company w-as, in substance and legal effect, that he would sell these lands to that corporation for $150,000 in its capital stock.

To carry out this plan; it was necessary that he should buy the lands at the pending sale. Most probably for the purpose of concealing the fact that he was the purchaser from the complainants, he arranged that the lands should be bid off in the name of the projected company by one of its promoters, and that he should pay the purchase price to the commissioner. This he did by transferring his decree to the fictitious corporation, and by subsequently paying the deferred purchase-money notes executed in its name. The plan was calculated to mislead and deceive Mrs.

Newman by inducing the belief that the land had been bought by a stranger, and not by Schwerin, and that she had, therefore, no interest in them. The third clause of the agreement distinctly provides that, “should said property be bid off by Schwerin, or for him, then he is to hold, or cause said property to be held, subject to” the uses and trusts therein stated. The property was “bid off by Schwerin, or for him,” and came at once under the terms of the trust.

That he was not obliged to bid more than $21,000 if more than that sum should be offered by a third person, may be conceded; and, if it had been shown that the property-had been bought by a third person at a price in excess of $21,000, Schwerin would be under no further obligation by reason of his contract. So, if he had been limited to a maximum, he might buy for himself, by bidding in excess of the maximum amount he might bid as trustee.

But under the second clause of the agreement it was expressly provided that he might run up the property “to any price necessary to buy said property, he being unlimited as to the maximum amount he shall bid in order to secure and purchase said property at said sale.” The contention, therefore, that he was at liberty to buy for himself if his bid should exceed the. amount he was obliged to bid against a third person, has no foundation. When Schwerin bought this property, or caused it to be bought for himself, he became a trustee for Mrs.

Newman, and the lands in his hands constituted a trust estate for the uses and purposes defined in the third clause of the agreement set out in the statement of .the case. But it is urged very strenuously that the complainants are estopped to claim any interest in the land, having received one-half the surplus purchase money arising from the sale. 11 is very obvious that Mrs. Newman cannot be entitled to both the land and its proceeds.

If she has received her share in the proceeds of the sale with full knowledge of all the facts essential to a reasonable exercise of iier right to determine whether she would confirm the purchase by her trustee, Schwerin, and receive the proceeds of the sale, she should not be now heard to assert an interest in the land inconsistent with her election to take the purchase money.

But, before she can be held to have waived or confirmed Schwerin’s purchase of this property for himself, and in repudiation of her rights and his duties as trustee, it should clearly and fully appear that she knew all of the facts and circumstances necessary to enable her to act intelligently in respect to her interests. In neither the report of sale nor the decree confirming it and directing that she should be paid one-half of the proceeds of sale was there anything to indicate that Schwerin was himself the purchaser, or that it had been bought for him.

Indeed, the report of sale and the decree,of distribution proceeded upon the assumption that the property liad been bought by a third person. She had, therefore, a righ t to suppose that the trust agreement between herself and Schwerin had become null and void by the purchase of the property by a third person, and that the proceeds of sale were properly distributable upon the basis of the rights of the tenants in common as fixed in the original decree infer partes. It was Schwerin’s duty to execute the trust according fo its terms.

If he bought the property for himself, or had it bought in pursuance of a personal arrangement which would defeat Mrs. Newman’s plans for the preservation of her interests, it was his duty to have fully advised her; and she was under no duty, under the circumstances, to inquire before acting upon the truth of the assumptions of the decree of distribution. 2 Perry, Trusts, §§ 850, 851; Randall v. Errington, 30 Ves. 423, 427. Acquiescence cannot he inferred from the mere receipt of the proceeds of a sale which purported to be to a third person.

To opera to as an acquiescence in the purchase of the lands by Morris Schwerin for his own purposes, and free from the trusts upon which he had agreed to buy, it must be shown that Mrs. Newman had full and explicit knowledge that the lands had, in fact, been bought by Schwerin, and not by a stranger. Acquiescence is a defense which must be made out fully, clearly, and satisfactorily by the party setting it up. That it may be made out by circumstances may be conceded.

There is in this record no direct, positive evidence bearing noon this question, and no such circumstances as to justify us in holding that such a defense is made out by that degree of full, distinct, and satisfactory evidence which should be required when a trustee defends his breach of trust by asserting the acquiescence of his cestui que trust in his own wrongful conduct.

The agreement by which Schwerin should hold a one undivided one-third interest in these lands in trust for the complainant Mamie Newman is binding upon him, and upon all who took the lands under him, except a purchaser for value, in good faith, and without notice of the trust. The defense of innocent purchasers for value and in good faith is a defense which must be explicitly made by plea or answer. Notice should be denied in the fullest and clearest manner. Pom. Eq. Jur. §§ 784, 785; High v. Batte, 10 Yerg. 335; Smitheal v. Gray, 1 Humph. 491, 34 Am. Dec. 664; Harris v. Smith, 98 Tenn. 294, 39 S.

W. 343; Boone v. Chiles, 10 Pet. 176, 211, 9 L. Ed. 388. The answer of the Central Land & Coal Company contains no such defense. The references in the answer of that company to the contract between Mrs. Newman and Morris Schwerin are indefinite and evasive. Notice of that agreement should have been denied in the fullest and clearest manner, as well as of all circumstances referred to in the bill from which notice might be inferred, and the answer should include all those particulars which are necessary to constitute a bona fide purchaser. Pom. Eq. Jur. § 785.

The answer is grossly defective in all that is necessary to the proper making of such a defense. When was the stock of the corporation issued to Schwerin? It may have been issued after the filing of Mrs. Newman’s bill from all that appears. We conclude that the Newman lands are subject to the trust of the agreement, and that the Central Land & Coal Company must be declared to hold an undivided one-third of the lands obtained from Schwerin through and under the judicial sale made April 20, 1897, subject to the trusts stated in the agreement of February 11, 1897. Inasmuch as Mrs.

Newman seeks equity,, she must do equity. The purchase money received by her must be paid back to the defendant Schwerin, and a lien upon her interest in the land should be declared to secure it. If within a reasonable time, to be settled by the court below, she does not pay into the registry of the court the purchase money received by her, the court should direct a sale of her undivided interest in the land recovered herein, or so much as may be necessary for the purpose of restoring to defendant Morris Schwerin the purchase money so unadvisedly received by her. With respect to the liability of Mrs.

Newman’s lands for her one-third of the decree in favor of Schwerin this court makes no direction, as that liability is fixed by the trust agreement itself, and the court has not been called upon to enforce it by any pleading in this cause. The costs of the court below and of this court will be paid by defendants Schwerin and the Central Land & Coal "Company.