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New Colonial Co. v. Canovanas Sugar Factory.

ness was, we think, the most competent of any either to testify in regard to, or give an opinion upon this subject.

Compound interest in and of itself is abhorrent to a chancellor. We do not mean by this statement to in any manner change the well-known rule that equity follows the law, nor do we mean to intimate that we would not decree such interest in favor of complainant, were it undoubtedly the law that they are entitled to it, but we feel that the rule with reference to compound interest is always that the claimant of it has the burden put upon him to show without any doubt whatsoever, his unquestioned right to it. We do not believe that it is contemplated in the contract, but, on the contrary, we think that a fair construction of the contract of 1883, because of its own terms and other conditions, excludes the idea of compound interest. We do not think that the complainant here has shown its unquestioned right to it, and therefore it will not be allowed in any accounting between the parties. We will cite the law more specifically on this interesting question later in this opinion. Neither do we concede the claim of the complainant that interest on the Hoard and Latimer claims in schedule two should begin in 1879, but, on the contrary, we hold that it is manifest that the compromise which fixed those claims at those figures and all agreements relating thereto merged in the contract of 1883.

The Law of the Case.

Under the view the court takes of the rights of the parties here, it does not deem it of importance to decide what the nationality of the contract of 1883 is. An examination of the question satisfies the court that there is no material difference between English law, American law, and the civil law with

New Colonial Co. v. Canovanas Sugar Factory.

reference to what it requires to constitute a trust relation between parties, nor with reference to the duties which a trustee owes to his cestui que trust.

Neither is there any dispute between the opposing counsel in this case as to what the duties are which a trustee owes to his principal. The effort on behalf of complainant here is to show that the contract of 1883 does not constitute the relation of trustee between the English company and the Porto Ricans, and their further effort is in contending that even though the relation of trustee can be said to exist, as to the contract generally, that still there is nothing in or about the purchase of the Lanman & Kemp mortgage by the English company to render it in any sense whatsoever improper. On this latter point, they respectfully but emphatically insist that they are right.

For the sake of information of the reader of this opinion, to support the general rule, we refer him to: 1 Bispham, Eq. ¶ 92, pp. 152, 153; 1 Perry, Tr. pp. 300, 305, §§ 206, 209, 427, 428; 2 Pom. Eq. Jur. §§ 958, 959, 1075 and note; King v. Cushman, 41 Ill. 31, 89 Am. Dec. 366; Harrison v. Mock, 16 Ala. 616; Fiske v. Brunette, 30 Wis. 102; 27 Am. & Eng. Enc. Law, pp. 177, 198, 207 and many cases there cited.

If a trustee purchases claims against the trust estate at a discount, the court will not permit him to derive a personal profit out of the transaction. A profit inures to the benefit of the estate. He may demand, however, that he be reimbursed the amount of his expenditure in making purchases, with interest. Baugh v. Walker, 77 Va. 99; Fulton v. Whitney, 5 Hun, 16; Slade v. Van Vechten, 11 Paige, 27; Roberts v. Moseley, 64 Mo. 507; M'Clanahan v. Henderson, 2 A. K. Marsh. 388, 12 Am. Dec. 412.

New Colonial Co. v. Canovanas Sugar Factory.

It is even held that the same rules with reference to dealing with a trust property refer to an agent. Tiffany on Agency at p. 420, states the rule as follows: "So an agent employed to buy or to settle a claim will not be permitted, if he buys it in his own name, to hold it adversely to his principal, or to recover from him more than he actually paid." And at p. 422, the same author says: "Good faith demands that an agent shall not, without the knowledge and consent of the principal, make any profit out of the agency, beyond his stipulated compensation, or a reasonable compensation where none is fixed. All profits belong to the principal. He must account for

any commission, discount, or personal benefit received from a third person."

To appreciate the extent to which this agency rule is carried by courts of equity, one has but to read the decision in Kimball v. Ranney, 122 Mich. 160, 46 L.R.A. 403, 80 Am. St. Rep. 548, 80 N. W. 992. That was a case where the agent notified his principal of his intended purchase, and still his act was held to be for the benefit of the principal.

Story, in his work on Equity Jurisprudence, vol. 2, § 1211, states the doctrine succinctly. It is too long to quote, but, omitting other portions, he uses this language: "Thus, for example, if a trustee should purchase a lien or mortgage on the trust estate at a discount, he would not be allowed to avail himself of the difference; but the purchase would be held a trust for the benefit of the cestui que trust." And on further, states: "The same principle will apply to persons standing in other fiduciary relations to each other. Thus, for example, if an agent who is employed to purchase for another purchases in his own name or for his own account, he will be held to be a trustee of the principal at the option of another. So if he is employed

New Colonial Co. v. Canovanas Sugar Factory.

to purchase up a debt of his principal and he does so at an undervalue or discount, the principal will be entitled to the benefit thereof, in the nature of a trust."

The same author, vol. 1, § 322, lays down the doctrine that it does not matter whether the trustee or agent makes any profit out of the transaction or not. That this would not be putting the doctrine upon its true ground, which is, that the prohibition arises from the subsisting relation of the trusteeship. See Story on Agency, § 211, p. 244, and from pages 248 to 252.

In the case of Michoud v. Girod, 4 How. 554, 11 L. ed. 1099, it is demonstrated that this same principle applies in the civil law. "In Spain the rule was enforced without relaxation." That is, the rule that the trustee or the agent, when he stands in a fiduciary relation, cannot speculate with or purchase claims against the estate for his own benefit. It may be said that the rule is of universal application. Counsel in their briefs cite so many authorities which uniformly uphold this rule that it would tire the court to cite even a small fraction of them.

Counsel for complainant in the later days of the argument laid particular stress upon the right of his client to refuse to render any accounting to the respondents save, if at all, only up to the date of filing the suit to foreclose the mortgage, on the 28th of September, 1901. And claiming further, that his clients have, ever since the purchase of the mortgage, or certainly since the filing of the suit, been mortgagees in possession under condition broken. The court thinks the fact as to possession is against him; and, on the other point, as to complainant being entitled to the rents and profits of the premises after the date of filing the suit, we think the law is against

New Colonial Co. v. Canovanas Sugar Factory.

him, both in England and America. The doctrine of Moss v. Gallimore, 1 Dougl. K. B. 279, decided by Lord Mansfield, was not a case like the one at bar, and in fact, Lord Mansfield himself in a later case, Chinnery v. Blackman, 3 Dougl. K. B. 391, held that the doctrine of Moss v. Gallimore does not apply against a mortgagor or the vendee of his equity of redemption, and that until the mortgagee takes possession, the mortgagor is entitled to all the profits made.

The Colonial Company, Limited, never, in any manner, as the court believes, changed the character of its possession from the day it took the property, in 1883, to the present time. The Supreme Court of the United States in Teal v. Walker, 111 U. S. 242, 28 L. ed. 415, 4 Sup. Ct. Rep. 420, announces that it is the doctrine of the American courts of equity that a mortgage is a mere security for a debt, and establishes absolutely the rule that the mortgagee is not entitled to the rents and profits until he gets possession under a decree of foreclosure. This decision is binding upon this court.

Finally, it is admitted that no matter what the doctrine with reference to the relations between trustees and their principals that might prevail in the state courts of the United States is,—and it is admitted that in one or two of them, as in Texas, by statute a trustee is not prevented from buying an outstanding claim against the trust property if he is in no manner connected with it, still, if the doctrine of the Supreme Court of the United States in this sort of a case would permit this action of the complainant here, this court would be bound by it. Complainant's counsel cites four cases from the Supreme Court of the United States with great confidence that this is the rule. The first of them is the case of Twin-Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. ed. 328, holding that a director of a cor

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