Later decisions that cite Kennedy v De Trafford
[HOUSE OF LORDS.] H.L,(B.) JOHN KENNEDY. » .» « » «© » «» APPELLANT; 1897 — —~ Harel. 192 MARY ANNETTE DE TRAFFORD, HENRY STOURTON (SINCE DECEASED) } RESPONDENTS. AND JOSEPH BOTTOMLEY DODSON Mortgage—Power of Sale—Sale to one of several Mortgagors—Tenants tie Common—Purchase by One Co-Tenant—Mortgagee, Duties of. The only obligation incumbent on a mortgagee selling under and in pursuance of a power of sale in his mortgage is that he should act in good’ faith. In determining whether the mortgagee’s conduct in that respect comes up to the required standard regard must be had to the circumstances of the particular case. Mortgagees under a mortgage by two tenants in common, one of whom became bankrupt, sold by private contract to the other for a sum equal to: the exact amount due in respect of the mortgage for principal, interest and costs, the bulk of the purchase-money being left on the security of the property :— ;: Held, under the circumstances that the transaction was a proper exercise: . of the power of sale, and that the sale was valid for all purposes, giving rise to no claim on the part of the bankrupt’s estate either against the mortgagees or against the purchaser. There is no fiduciary relation between tenants in common of real estate: as such. Nor can one tenant in common of real estate by leaving the management of the property in the hands of his co-tenant impose upon him an obligation of a fiduciary character. 3 The decision of the Court of Appeal, [1896] 1 Ch. 762, affirmed. In 1877, Carswell and the respondent Dodson, tenants in common in fee of freehold property in Manchester, mortgaged it to Sir H. de Trafford for 60,000/., with a proviso for redemp- tion and re-conveyance to the mortgagors as tenants in common, and the usual power of sale after six months’ notice. In 1886 Carswell was adjudicated bankrupt, and the appellant was subsequently appointed his trustee. Sir H. de Trafford having died his executors (now represented by the respondent De Trafford) in 1886 gave notice to pay off the mortgage. In 1887 the mortgagees were threatening foreclosure. The appellant having declined to redeem, the mortgagees in July 1888 gave to him and to Dodson notice of their intention to A.C. AND PRIVY COUNCIL. 181 sell (if they could obtain principal, interest and costs) in the H. 1.) terms set out in Lord Herschell’s judgment. Having advertised for tenders the mortgagees in 1889 sold under their power of sale to Dodson for the amount due for principal, interest and costs, 54,000/. being left on mortgage and the rest paid off. Before the sale the appellant was informed of all the particulars, except the name of the purchaser. In 1891 he discovered that the purchaser was Dodson, and in 1895 he brought this action in the County Palatine of Lancaster against the respondents, claiming (inter alia) to set aside the sale as invalid; redemption and a sale; alternatively, damages against the mortgagees for negligence in the exercise of the power of sale. The Vice-Chancellor being of opinion upon the evidence that Dodson stood in a fiduciary relation towards the appellant, made an order declaring (inter alia) that the sale was not a due exercise of the power of sale and ought to be set aside; and that Dodson was not entitled to retain for his sole benefit the entirety of the property or of the equity of redemption, but that the appellant was entitled to an undivided moiety thereof, subject to the amount owing under or by virtue of the sale; and he ordered accordingly. The Court of Appeal (Lindley, Kay and A. L. Smith L.JJ.) reversed this decision and dis- yissed the action with costs. (1) On the argument of the present appeal by the plaintiff the main contention on his behalf was that Dodson had collected the rents and managed the property as agent for the appellant and also for the mortgagees, but as will be seen their Lordships thought that there was no evidence whatever of this. March. 18, 19. Farwell Q.C. and A. C. Maberly for the appellant. The evidence shews that the respondent Dodson received the rents and managed the property as agent at first for his co-owner and the appellant in succession, and latterly for the mortgagees. Thus he stood in a fiduciary relation to those persons who were his principals, and he could not buy the property. Having once acquired knowledge in that fiduciary yelation he could not use it for his own advantage after the (1) [1896] 1 Ch. 762. 1897 —o~ KENNEDY v. Dr Trar- FORD, 182 - Hy) 1897 —™~ KENNEDY Vv Dr TRAF- FORD. HOUSE OF LORDS [1897] agency ceased. These propositions are too well established to be now disputed: Hx parte Lacey (1); Eyre v. M‘Donnell (2) ; Orme v. Wright (8); Carter v. Palmer (4); Martinson v. Clowes. (5) If the sale cannot now be set aside the appellant is entitled to share the benefit of Dodson’s purchase. . Independently of agency a tenant in common stands in a fiduciary relation to his co-tenant. One of several tenants in common who distrains is bailiff for the others: Leigh v. Shepherd (6); 2 Co. Litt. 166a. In cases of limited ownership there is a duty to act for the benefit of the whole interests. One of two tenants in common cannot ‘“ without the consent of the other buy in an outstanding title and appropriate the whole subject to himself”’; such a purchase will enure to their common benefit: per Chancellor Kent in Van Horne v. Fonda. (7) There is no decision to that effect in the English Courts with regard to tenants in common, but the doctrine has been applied in England to the case of the renewal of a lease by one of several persons jointly interested in a lease: Palmer vy. Young (8); Hamilton v. Denny (9); and see notes to Keech v. Sandford (Rumford Market case). (10) If a mortgagee renews a lease, the renewal will be for the mortgagor’s benefit: Rushworth’s Case. (11) The sale was at an undervalue. The mortgagees did not take all reasonable pains to secure a purchaser at the best price as they were bound to do: Farrar v. Farrars, Limited. (12) The transaction was really not a sale but a redemption, being for the exact amount due for principal, interest and costs, and was in pursuance of a scheme by Dodson to get a redemption for his sole benefit, which should have been for the benefit of both co-owners. | Warmington @.C. and T. Clarkson for the respondent De Trafford, and Astbury Q.C. and G. Dodson for the respondent Dodson, were not heard. (1) (1802) 6 Ves. 625. (7) (1821) 5 Johns. Ch. (N.Y.) 388, 406. (2) (1864) 15 Ir. Ch. Rep. 534. (8) (1684) 1 Vern. 276. (3) (1839) 3 Jur. 19, 972. (9) (1809) 1 Ball & B. 199. (4) (1841) 8 Cl. & F. 657, 705. (10) (1726) 1 W. & TT. 6th ed. pp. 53, 58. (5) (1882) 21 Ch. D. 857. (11) (1676) Freem. Ch. 12. (6) (1821) 2B. & B. 465, (12) (1888) 40 Ch. D. 395. A. ©. AND PRIVY COUNCIL. 183 Lorp HzarscHetn. My Lords, I confess I think this as H.L.(&) hopeless an appeal as has ever been presented to your Lord- ships. The action is brought against the mortgagees of some pro- perty in Manchester to set aside a sale made by them under the power of sale contained in their mortgage deed. The property mortgaged was held by two persons, the defendant Dodson and a Mr. Carswell, as tenants incommon. They were co-owners, each possessing an undivided moiety. The mort- gage was for a sum of 60,000/. to Sir Humphrey de Trafford, who is represented, he being dead, by the respondent De Trafford. It appears that the mortgagees became uneasy about their security, it matters not why, and gave notice calling in the money and pressing for payment. Payment was not made. Various proposals from time to time were made, none of which came to any effect. At the time to which I am referring Carswell had transferred his interest by a voluntary settlement to Brown, and he afterwards became bankrupt, and on the occasion of his bankruptcy Dr. Kennedy, the appellant, was appointed trustee. The rents no doubt were collected from time to time by Dodson, one of the defendants in this action, and one of the co-owners. I will come in a moment to the circumstances under which they were collected, but I will deal first with the questions raised with regard to the circumstances of the sale. Having, as I have said, called in their money, and payment not having been made, as they desired to reduce the mortgage debt, the mortgagees, then represented by their solicitor Mr. Taylor, stated that they must be paid the rents of the property as received instead of their being held by the co-owners for their own benefit subject to the payment of the interest. Accordingly, from a date in the year 1887, the rents were paid over from time to time by Mr. Dodson, who received them, to the mortgagees. But they were not satisfied to let that state of things continue indefinitely ; they kept pressing for payment and insisting upon payment. Ultimately they gave notice that they would take proceedings to foreclose. It was suggested that there should be a conveyance of the equity of redemption 1897 waa Krnnepy Uy Dr Trar- FORD. 184 H. L. (E) 1897 —~ KENNEDY uv, De TRaAr- FORD. Lord Herschell. HOUSE OF LORDS [1897] to save the trouble of foreclosing. Then they gave to Dr. Kennedy, the trustee in the bankruptcy who represented one moiety, this notice: ‘Our clients’ instructions are to realize this security if they can obtain principal, interest and costs. Is Mr. Carswell’s trustee’’ (that is Kennedy) “‘ prepared to pay them off? If not we shall forthwith endeavour to effect a sale by private treaty. We are writing a similar letter to Mr. Dodson.” There was a similar letter written to Mr. Dodson. Now, the mortgagees having given that distinct notice that unless the parties came forward and paid off the mortgage they were prepared to sell at a price which would realize principal, interest and costs, it seems that at a somewhat later period Mr. Dodson entered into negotiations to become himself the purchaser of the property, and ultimately an arrangement was come to in December, 1888, according to which the mortgagees were willing to sell to Dodson for the amount of principal, interest and costs, and they were willing to leave 54,0001. of the money on mortgage after the sale was completed. Mr. Dodson wished for some delay in order to be able to be in a position to carry out that arrangement, and it was agreed that the matter should be completed in the following April. In the month of February, 1889, a communication was made to Dr. Kennedy, or to his solicitors (it matters not which), that the mortgagees were negotiating a sale on the basis of payment of an amount equal to principal, interest and costs; so that that was known to Dr. Kennedy in February, 1889. In May the transaction was completed by a conveyance. In the autumn of 1891 Dr. Kennedy took his first step in the way of making inquiries as to what the mortgagees had done, with a view to this action, which was afterwards brought. My Lords, the appellant seeks to set aside the mortgage, on the ground that the mortgagees have been guilty of a breach of duty in relation to this sale. First of all it is said that they have sold at an undervalue, and that that sale at an under- value has arisen from their not discharging the duties incum- bent upon them as mortgagees. Now, it is not disputed that they sold in good faith. They did not intend to do anything A.C. AND PRIVY COUNCIL. else but properly exercise the power of sale vested in them under their mortgage. But it is alleged that they did not put up the premises for sale by auction, that they only inserted two advertisements inviting a sale by tender, and that they ultimately sold for the amount of principal, interest and costs to Mr. Dodson. My Lords, I am myself disposed to think that if a mort- gagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J., in the Court below, says that ‘it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mort- gagor.”” Well, I think that is all covered really by his exer- cising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words “good faith,” but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith. My Lords, it is not necessary in this case to give an exhaus- tive definition of the duties of a mortgagee to a mortgagor, because it appears to me that, if you were to accept the defini- tion of them for which the appellant contends, namely, that the mortgagee is bound to take reasonable precautions in the exercise of his power of sale, as well as to act in good faith, still in this case he did take reasonable precautions. Of course, all the circumstances of the case must be looked at. To sell in the manner in which the sale here took place might, let us assume for the moment, be under some circumstances improper. What we have to deal with are the existing circumstances. Now here there are the two co-owners, who are not acting in all respects harmoniously together. The mortgagee communi- eates what he is about to do to each of these co-owners. He tells each of them that he is preparing to sell, and that he is 185 H. L. (&.) 1897 —o~ KENNEDY Vv. Der Trar- FORD. Lord Herschell. 186 H. L. (E.) 1897 —_ KENNEDY u, Der TRAF- FORD. Lord Herschell. HOUSE OF LORDS [1897] willing to take principal, interest and costs. To that he has received from the present appellant no remonstrance, no answer. Why is he to suppose for a moment that he would receive no answer or remonstrance if Dr. Kennedy thought that selling on such terms would be an improper sale as being at an under- value, because it must be certain that more than that sum could. easily be obtained ? It is obvious that where such a communi- cation is made, and no answer is received and no objection put forward, the mortgagee may very reasonably suppose that no objection can be taken, and that nobody considers that he will be selling at an undervalue if he sells for principal, interest and costs. My Lords, having regard to the notice given under those circumstances to Dr. Kennedy, and to the fact that he had heard in February, 1889, that the property was being sold. for principal, interest and costs, and then took no objection to it, it seems to me preposterous for him to come forward at this time of day and allege that he has a right on that ground to insist that the sale is invalid on the ground that the mortgagee did not take proper precautions in making the sale. But then it is said that the sale was made to a person who was incapable of buying, because he was in a fiduciary relation, and that that fiduciary relation was known to the mortgagees who sold. My Lords, I do not think it is established here that there was a fiduciary relation between the defendant Dodson and Kennedy. What are the facts? The mortgagors are co-owners, and no doubt one co-owner, Mr. Dodson, had been left by Carswell, in the first instance, I dare say, to collect the rents. Afterwards an arrangement was come to between him and Mr. Brown, who then represented Carswell’s interest, that Dodson should collect the rents and pay the money into a bank, and that each of them should draw on that account for the expenses and for the division of the money which thus belonged to them. But, my Lords, it is a fallacy altogether to say that Dodson only got his right to collect the rents by virtue of that arrangement. Dodson was an owner of this property— the owner of an undivided moiety, it is true, but each owner of an undivided moiety is none the less truly an owner—and Dodson in collecting those rents and profits collected them in the right Ae. AND PRIVY COUNCIL. which he possessed as a co-owner of the property. He did not need agency or the appointment of agent to justify him in collecting those rents. If nothing had ever passed between the two co-owners which constituted an authority from the one to act for the other, his right to collect those rents would not have been one jot or one tittle less than it was. No doubt an " arrangement was come to that these rents when collected were to be paid into a bank upon which both the co-owners were to draw, but that was an arrangement that might have been put an end tojat any time. It was merely an arrangement which was come to by voluntary agreement between the two co-owners. Each co-owner would have an obligation to account to the other in respect of any rents he collected or moneys he received under it, So much, my Lords, for the relation between Dodson and Brown prior to the bankruptcy, or prior to the date of the setting aside of the voluntary agreement; but after that date Dr. Kennedy became a co-owner, and there was no arrangement between Dr. Kennedy and Mr. Dodson at all. What happened was this—that the mortgagees had said to Dodson, ‘“‘ Now you must pay over the rents to us in reduction of our mortgage debt and payment of interest. You must no longer keep them or pay them to your co-owner.” They were in a position to insist upon that. Accordingly, they insisting upon that, Dodson did deal in that way with the rents which he collected. That was the state of things during the time that Kennedy was the co- owner. Dodson not only never received any authority from Kennedy to collect these rents, but he never did collect them for Kennedy otherwise than as paying them over to the mort- gagees to whom he was bound to pay them over. At all events, it is enough to say that there is not a shadow of ground for suggesting that during that time he was the agent of Kennedy. But then, my Lords, it is said that during that period he was the agent of the mortgagees because, they having insisted that he was to collect these rents and pay them over to them, he became their agent in that respect. My Lords, it seems to me to be clear that he was not their agent to collect these rents. 187 H. L. (E) 1897 —~ KENNEDY We Dr Trar- FORD. Lord Herschell, ’ 188 H. L. 2) 1897 —\m JKENNEDY OP De Trar- FORD. Lord Herschell. —_—— HOUSE OF LORDS [1897] He collected these rents in his own right—the right he had as owner. He was collecting his own rents. No doubt they had insisted that those rents should be paid to them; but how the fact that the mortgagees had said, ‘‘ When you have got your rents, pay them to us,” made Dodson their agent to collect them, Iam at aloss to see. Therefore, my Lords, I take it to be abundantly clear that he was not the agent of the mortgagees in collecting the rents any more than he was the agent of Dr. Kennedy or than he had been the agent of Brown. But then it is said, If you look at the evidence of Dodson you will find that he said he was an agent. My Lords, I confess I do not think it is of any importance to look at any particular words of that sort used in evidence, especially when the words originated with the counsel and did not originate with the witness. No word is more commonly and constantly abused than the word “‘agent.” A person may be spoken of as an “‘ agent,” and no doubt in the popular sense of the word may properly be said to be an ‘‘ agent,” although when it is attempted to suggest that he is an “agent” under such circumstances as create the legal obligations attaching to agency that use of the word is only misleading. Therefore whatever expressions Dodson may have used calling himself an agent, and however true or appli- cable they may have been in a popular sense, in point of law and in their legal sense they are meaningless. Dodson was not the agent of Kennedy, and he was not the agent of the mortgagees. If that be so, there is an end of the fiduciary relationship which is supposed to prevent his being a purchaser. My Lords, it is said in the present case, and I think that is the only other point that is urged, that it was concealed by the vendors, the mortgagees, from Kennedy that Dodson was the person who was purchasing, although they informed Kennedy that the purchase was being made and.they informed him of the terms on which it was being made. It seems to me to be utterly unimportant. If there was no fiduciary relation there was no obligation to reveal the name; there was no right in the other party to know it; there was no duty upon them to communicate it. Therefore, my Lords, it seems to me that all the grounds A.C. AND PRIVY COUNCIL. upon which the right to set aside this sale has been rested utterly and entirely fail. Another point has been raised—whether it arises upon the pleadings or not seems very doubtful—namely, that whether the sale is to be set aside or not Kennedy is entitled to claim as against Dodson, that under the circumstances under which Dodson bought he should be declared trustee of the one moiety for Kennedy. My Lords, that depends in the first place upon the question of the fiduciary relationship between them arising out of what has been said to be the management of the property and the collection of the rents. I have already, I think, suffi- ciently dealt with that part of the case. It is quite clear that in all the transactions for some time prior to this sale Dodson was not in any sort of way acting for his co-owner; the two were acting each for himself. The communications: from the mortgagees were made to both of them, and so far from Dodson acting as Dr. Kennedy’s agent, there was a certain amount of hostility between them; at any rate, there was a want of harmonious action. But then it is said the mere fact that Kennedy was co-owner with Dodson of this property creates such a relationship between them that the one co-owner could not take this property and hold it for himself, but that the other co-owner is entitled on equitable grounds to have it declared that the benefit of one half of that purchase should be his. My Lords, no authority has been cited in support of such a proposition. Cases have been referred to, of a very different description, where the owner of an estate under a settlement, a tenant for life for example, has been held incapable of obtaining an enlargement of that estate for himself alone. It has been said that whatever benefit he gets must enure to the benefit of all taking under the settlement. That is a totally different case from this case. The only authority, if it-can be so called, which has been cited is the case before Chancellor Kent ; but he commences his observations by saying that he is not going to lay down a general rule which would be applicable to such a case as this. He deals with the particular case, the circumstances of which were peculiar and of immense complication, and he certainly 189 H. L. (E) 1897 ——~— KENNEDY Vv De Trar- FORD. Lord Herschell. —— 190 HOUSE OF LORDS [1897] H.L.(E.) does not lay down any rule or doctrine of law which supports 1897 the argument which has been addressed to your Lordships. It ast is not necessary to enter into the details of that case. It is Deinar. Cnough to say that even if it is to be taken as enunciating a rorv. rule of law which would be as applicable in this country as in Lord Herschel. America, it does not enunciate any rule of law which would be ~ sufficient for the appellant in the present case. My Lords, I think I have now covered the whole of the ground, and it only remains for me to move your Lordships that this judgment be affirmed and the appeal dismissed with costs. Lorp Macnacuten. My Lords, Iam of the same opinion. Mr. Farwell has argued this case with his usual ability and his usual fairness, but I must say that in the whole course of my experience I have not met with a bolder or more hopeless appeal. Certainly I never expected to find a proposition which was once thought by a great judge to be so absurd as to suggest a complete answer to a case that had in it some show and appearance of justice, put forward in these latter days as the foundation and starting-point of a serious argument in this House. In the case of M‘Mahon v. Burchell (1), before Lord Cotten- ham, one tenant in common claimed rent from his co-tenant who had been in occupation of the property. The Lord Chancellor says: ‘‘I must therefore take it that the defendant means to raise this proposition—that the fact of the ‘plaintiff having occupied the house not in entirety but as a tenant in common, makes him liable to his co-tenant. A case has been referred to in which the Vice-Chancellor of England is repre- sented to have so decided; but I cannot think that the Vice- Chancellor can have laid down any such doctrine; for the effect would be that one tenant in common, by keeping out of the actual occupation of the premises, might convert the other into his bailiff.” My Lords, that which seemed to Lord Cottenham a reductio ad absurdum was the very ground on which this case was (1) (1846) 2 Ph. 127, 184. A.C. AND PRIVY COUNCIL. opened before your Lordships. It was said that Dr. Kennedy took no part in the management of the property, that he kept aloof and left everything to Dodson, and therefore Dodson was his bailiff. That was the exact position which Mr. Farwell in the opening of his case assigned to Dodson. My Lords, there is no foundation for such a proposition in any of the books or in any of the authorities that have been cited. Nor is there anything in the other ground on which it was attempted to rest the case, the doctrine of principal and agent. In the whole of this bulky volume I cannot find a scrap of evidence to shew that Dodson ever accepted the position of agent in regard to Dr. Kennedy as his principal. On both these grounds it appears to me that the case entirely fails. But I must say I rather think Dr. Kennedy did himself injustice in saying that he left everything to Dodson. He put his moiety up to auction. He employed his solicitors to dispose of it, and I find a bill of costs which shews that they exerted themselves thoroughly for several months, making inquiries here, and making inquiries there, and doing everything that could be expected from persons in their position. Their bill begins in May 1888, and goes down to August. They get all the documents, they write to all sorts of people, they receive several answers, and they charge for several attendances; they communicate with parties requiring particulars of the property, and so on. The bill goes down to August 3, and then, on August 10, there comes this letter from Taylor & Co. to these gentlemen saying, ‘‘ As we have had no communication from you in this matter since your client’s moiety was put up to auction we presume he has abandoned the idea of purchasing, and we shall now deal with the property as we think best in the interests of our clients without any further notice to your client.”” That letter was not answered. It appears to me that as they received no answer to that letter the mortgagees were justified in supposing that Dr. Kennedy had abandoned the property for good and all; and thereupon they sold it, as I think they were entitled to do, to Dodson. I think they did everything that could reasonably be expected of them; but I agree with 194 H. L. (B.) 1897 ——_— KENNEDY Lord Macnaghten. 192 H. L. (B.) 1897 —~ KENNEDY Oe Dr 'TRAP- FORD. Lord Macnaghten, HOUSE OF LORDS [1897] what has fallen from my noble and learned Friend on the Woolsack: if a mortgagee selling under a power of sale in his mortgage takes pains to comply with the provisions of that power and acts in good faith, I do not think his conduct in regard to the sale can be impeached. My Lords, I agree that this appeal must be dismissed with costs. Lorp Morris. My Lords, I concur. There is nothing that I can add with advantage. Lorp SHanp. My Lords, this case has formed the subject of very full opinions in the Court of Appeal. After what your Lordships have said I have nothing to add, except that I entirely concur in what was said by the learned judges in the Court below, and what has fallen from your Lordships. Order appealed from affirmed and appeal dismissed with costs. - Lords’ Journals, March 49, 1897. Solicitors for appellants: Chester, Mayhew, Broome ¢& Griffiths, for Crofton, Craven & Worthington, Manchester. Solicitor for respondent De Trafford: LZ. W. Byrne, for Taylor, Kirkman & Colley, Manchester. Solicitors for respondent Dodson: Pritchard, Englefield & Co., for Boote é Edgar, Manchester.