Mr. Justice Scott
delivered the opinion of the Court:
The object of the bill in this case is to charge appellant with certain funds that, it is alleged, he has in his hands and holds in trust for the estate of James Spence, deceased. Belief was also sought against Charles Butler for an account of funds alleged to be in his hands, and also to have the allowance of a certain claim in his favor in the Cook county court against said estate set aside and cancelled, on the ground that Butler had put an end to the contract between himself and Spence before the allowance of the claim.
Several important questions arise on the record:
First. Is the appellant, Ogden, chargeable, at the election of the cestui que trust, with the sum of $2000, the amount by him bid at the master’s sale for the undivided one-half interest in lots 7 and 8, or is he chargeable only with the sum of $275, the amount for which he afterwards sold the same?
Second. Is the appellant in like manner chargeable with the sum of $531.70, the amount he bid for lots 1 and 2 at the master’s sale, or is he chargeable with the full amount of $10,600, for which he afterwards sold the same lots ?
Third. If an account shall be ordered against the appellant, shall he be charged with interest with annual rests, or only with simple interest?
Fourth. Should the cestui que trust be charged in the account, if one shall be taken, with the value of the tract of land conveyed to Skinner, and if so, at what time, and what fund ought to be charged with the payment of the purchase money ?
Fifth. Had Butler put an end to the contract between himself and Spence before the allowance of his claim against the estate, and, if so, could he afterwards lawfully obtain an allowance or judgment for the same in the county court?
We do not deem it necessary to consider tlie latter question indicated, at any considerable length. The evidence establishes the fact, beyond a doubt, that Butler had sold the remaining half of the parcel of land contracted to Spence, and had conveyed the same to Hewberry, before the allowance of this claim in the county court against the estate of Spence. A party can not rescind an executory contract for the sale of land, and afterwards proceed to collect the purchase money. Staley v. Murphy, 47 Ill. 241.
Butler had previously conveyed the land, and thus put it out of his power to comply with his contract in case of compliance on the part of the vendee, and it would be most inequitable, after that, to allow him to collect the entire balance of the purchase money.
It is said there was no actual declaration of forfeiture of this contract on the part of Butler. It is true, there is no such expressed declaration to be found in the record, but no such expressed declaration is necessary. The act of the vendor, in many instances, will be taken to amount to such a declaration, in law. Chisman v. Miller, 21 Ill. 227 ; Moore v. Smith, 24 Ill. 512.
The sale of the property was a rescission of the contract, and that fact was itself the strongest possible declaration on the part of Butler that the contract was forfeited. Spence liad not performed the contract, and Butler, by the sale of the premises to Hewberry, placed it out of his power further to perform the contract on his part. There was, therefore, no contract existing at the time the judgment or order was obtained ■ in the county court, and the obtaining of it was fraudulent in law, and the same ought to be set aside and can-celled. Ho doubt is entertained of the power of a court of chancery to annul and cancel a judgment at law, if it has been obtained by fraud. It has been so repeatedly held by courts of the highest authority. Webster v. Reid, 11 Howe, 437 ; Wing v. Wing, 9 Mod. 109 ; Dobson v. Pearce, 12 N. Y. 165.
The facts in this record present a proper case for the exercise of that power.
Our inquiry will be directed principally to the questions arising on the four propositions first above named.
On the facts contained in the record, what relation did the appellant sustain to Spence in his lifetime, and to his legal representatives after his death ? Was it that of a trustee holding an estate to their use? If so, could he become a purchaser at his own sale, whether the sale was made by himself or under a judicial decree?
Spence purchased a tract of land from Butler, and held an agreement or bond, conditioned that Butler would make him a deed on the payment of the purchase money at the times and in the manner therein specified. The appellant executed the contract on the part of Butler as his attorney in fact. At the request of Spence, Butler conveyed one half of the parcel of land so contracted to him to Mark Skinner. It was understood between the parties, however, that Spence was to remain responsible to Butler for the entire purchase money. The conveyance to Skinner seems to have been solely for the accommodation of Spence. Shortly after this conveyance to Skinner, Spence, to secure the amount due Butler, for the entire balance of the purchase money due on the parcel of land, assigned and delivered to appellant certain notes and mortgages, with “ full poAver to settle, compromise or exchange the aforesaid mortgages and notes for other property or demands, taking part of the amount due in lieu of a larger part or the Avhole, as he shall think best in his judgment, and to cancel and discharge such mortgage from the records for such consideration as he may think proper, ” and to pay the amount so received to Butler in satisfaction of his indebtedness, and the remainder to Spence, or his heirs or assigns.
These facts Avould undoubtedly constitute the appellant the trustee of Spence to the extent of the funds in his hands, and Avould impose upon him the duty of the faithful application of the trust fund to the purpose intended, viz: the payment of the indebtedness to Butler. The appellant entered upon the discharge of the trust reposed in him, and must therefore be held liable to all the obligations resting on him in the discharge of such duties.
Under proceedings instituted for that purpose in the United States Court at Milwaukee, the mortgages thus assigned to appellant were foreclosed in the name of appellant, and at the master’s sale under the decree rendered therein, he became the purchaser, on the 2d day of September, 1840, of lots 7 and 8, and on the 28th day of September, 1840, he became, in like manner, the purchaser of lots 1 arid 2. Of the amount of these bids, there is no controversy. For lots 7 and 8, the bid was $2000, that is, for the interest of Spence held thus in the name of appellant, and for lots 1 and 2 the bid Avas $531.70. There is some controversy, however, as to Avhether appellant intended to make so large a bid on lots 7 and 8, and there is evidence that tends to show that the bid exceeded the value of the lots at the time. The bid Avas made for him by his authorized attorney at Milwaukee, and if the attorney exceeded his authority, the appellant should, in apt time, have repudiated the bid and had the sale set aside. In due time appellant received a deed for the lots under the bid thus made for him by his attorney, and he must, by that act, be held to have ratified the act of his attorney, and to have made the act of his attorney his own. Having received a deed with full knowledge of the amount bid, and that the bid was for more than the land was worth at the time, the appellant, by his act in receiving the deed, will be estopped on both questions, and must be held to his election to take the purchase at his bid. If he did not intend so to do, he ought to have made his election at the time, and had the sale vacated and' set aside.
Soon after the appellant received the deed for lots 7 and 8, he conveyed the same to Scammon, who had an undivided interest in the same in his own right, for the nominal sum of $275.
We are unable to discover any fact in this case that will take it out of the general rule, that a trustee can not rightfully become a purchaser at his own sale, and hold to his own use. It matters not whether the sale is made by himself or under a decree of court. The rule applies alike in both cases. Thorp v. McCullom, 1 Gilm. 614; Dennis v. McCagg, 32 Ill. 429.
It is insisted that that clause in the assignments of the mortgages to the appellant, invested him with the most ample power to “ settle, compromise, or otherwise sell, arrange or dispose ” of the said notes and mortgages, and that the relation only of pledgor and pledgee existed between him and Spence, and therefore the appellant had the right to become the purchaser of these lots at the master’s sale, and hold the same for the benefit of the pledgee, and under the same power to “ settle and compromise, ” and under the power vested in him by the assignments, he could lawfully sell the property to whomsoever would buy, and would only be chargeable with the amount of the sale which, in the case of lots 7 and 8, would be only $275. We do not understand that these assignments created simply the relation of pledgee and pledgor, but if it be conceded, we do not see that that would essentially change the relations of the appellant to Spence, or that the law in such a case would confer upon him any greater privileges or impose less liabilities in dealing with the pledge than the law imposes upon a trustee in dealing with a trust fund.
Under the power conferred by the assignments, the appellant could, no doubt, have received less than the amounts expressed on the face of the notes and mortgages, and would not have been chargeable for the loss in case he did so. The effect of the agreement was simply to relax the rule that a pledgee of securities could not, without express consent of the pledgor, take less than the amount expressed on the face without rendering himself liable to the pledgor for the amount so deducted.
But in the view we have of this case, that is not the exact question involved. The power conferred no neAV authority on the appellant to become a purchaser at his oaaui sale, nor Avas it ever intended or contemplated by the parties to the assignments that he should do so. If he chose thus to bar the equity of redemption of the original mortgagors in the premises by taking the title to himself under the master’s sale, he would still hold the property, as he did the original securities, in trust for Spence, to be applied for the purpose originally intended. By no fair construction of the assignments, Avas the appellant authorized to become a purchaser at his OAvn sale, and to hold for his OAvn use, and to dispose of the same to whomsoever would buy, without the consent of the cestui que trust.
We do not mean to be understood that the sale itself is invalid. It was only voidable, at the election of the cestui que trust, It was, doubtless, effectual to bar the equity of redemption of the original mortgagors, and valid and binding on all except the cestui que trust.
For the purpose of foreclosing and barring the equity of redemption of the original mortgagors, the appellant might be authorized to buy at the master’s sale, and after he had bid off the property and thus foreclosed the rights of the original mortgagors, and all claiming under them, he would still hold it as he held the notes and mortgages as trustee for Spence, as security for his indebtedness to Butler. It was simply one step in the execution of the power conferred upon him, and the character of the fund was in nowise changed, nor his relations to it. It was still a trust fund, for the faithful application of which he was still liable to the cestui que trust. This doctrine was fully recognized in .the cases of Slee v. The Manhattan Company, 1 Paige, Chy. 48, and Hoyt v. Martense, 16 N. Y. 231. In Hoyt v. Martense, it was held that the equitable rule which forbids a trustee or a person acting in a fiduciary capacity from speculating out of the subject of the trust, applies as Avell after the foreclosure as before.
In the case of Slee v. The Manhattan Company, the court, in speaking of the effect of a sale, either under the statute or under a decree, Avhere the mortgagees of the debt secured by the mortgage, become themselves the purchasers, say, “in that case they only purchase the equity of redemption Avhich existed in the original mortgagors, and the equity of redemption of the assignor still continues to attach itself to the legal estate Avhich remained unchanged in the purchaser, except by this discharge of the equity of redemption of the original mortgagors, which, by the foreclosure, became merged in the legal estate.”
If the appellant shall be regarded as the trustee of this estate, and we can not regard him in any other light, in víbav of the evidence and the relation of the parties, Avhat are the rights of the cestui que trust in such cases ? Can the cestui que trust, in this instance, elect to hold the appellant to the bid of $2000, or Avill the Iuav require him to receive only the amount for Avhich the lots sold at the subsequent sale, viz: the sum of $275.
It is insisted by the counsel, that the ordinary rule by which to charge the appellant for this property would be its full value at the time he sold it, and inasmuch as the proof shoAvs that the property was sold to Scammon for its full value, that that is the highest amount with which the appellant can properly be charged for lots 7 and 8.
We have not been able to find any case, nor have we been referred to any, that fully sustains this view of the law. We do not understand that the terms of the assignment itself aid the view presented by the counsel. The appellant, in the light of the evidence, can only be regarded as holding the property in trust, and as having purchased it at his own sale. It is wholly immaterial whether the sale was under the power vested in him by the terms of the assignment, or under a decree of court, friendly or hostile to the interests of the cestui que trust.
The general rule is, that the cestui que trust may have his election to hold the trustee to the amount of his bid, or may have the property re-sold; and if at the re-sale the bid is advanced, the cestui que trust will be entitled to the excess over the bid of the trustee. But if the bid is not advanced, the sale will be confirmed, and the trustee required to account for the amount of his bid. This rule has been fully recognized by this court in Thorp v. McCullom, 1 Gilm. 614, and is fully supported by authority. Ex parte Reynolds, 5 Ves. 707; Ex parte Hughes, 6 Ves. 617.
The case of Davoue v. Fanning et al. 2 Johns. 251, is an elaborate review of the English cases on this question, and fully establishes the rule that the beneficiary in all such cases has his election either to acquiesce in the sale and have it affirmed, or to have it set aside and a re-sale ordered, and it makes no difference in the application of the rule whether the sale was at public auction, bona fide, and for a fair price. Mr. Story s'ays that “in all cases where a purchase has been made by a trustee on his own account, of the estate of his cestui que trust, although sold at public auction, it is in the option of the cestui que trust to set aside the sale, whether bona fide made or not. ” Eq. Jur. 2, 322.
The rule has been nowhere stated with more clearness and precision than by Chancellor Kent, in his Commentaries, where he says: “ it may be here observed, as a general rule applicable to sales, that when a trustee of any description, or a person acting as agent for others, sells a trust estate'and becomes himself interested, either directly or indirectly, in the purchase, the cestui que trust is entitled, as of course, in his election, to acquiesce in the sale, or to have the property re-exposed to sale under the direction of the court, and to be put up at the price bid by the trustee, and it makes no difference in the application of the rule that the sale was at public auction, bona fide, and for a fair price. A person can not act as agent for another and become himself the buyer. He can not be both buyer and seller at the same time, or connect his own interest in his dealings as agent or trustee for another. It is incompatible with the fiduciary relation. ” 4 Kent, sec. 438.
The rule seems to be uniform and inflexible, that where a trustee of any kind buys property, directly or indirectly, of which he is the trustee, the cestui que trust may, at his option, without reference to the fact whether it was to his interest or not, and without proof that he is damnified, or even inquiring into that question, have the sale set aside, and have the property re-exposed to sale, or he may elect to have the sale, affirmed at the bid of the purchaser, or, where the property has been sold by the trustee to a third party, to have the value of the property, or the amount realized by the sale.
In many instances this rule may be found to work very serious hardships, but it has never for that reason been relaxed by the courts. It has been found by many year’s experience, that the temptation to the trustee to take advantage of his peculiar position and misapply the trust fund to his own gain and profit, is so great that it is necessary to enforce the rigid principles of the law in every case. The rule has a wider and broader meaning. It may be said to have its foundation in a sound public policy, to secure the enforcement of all fiduciary obligations in which the public have a varied and ever increasing interest. In the multiplied and complicated transactions of the present day, there seem to be still stronger reasons for enforcing these just principles of the law than in former times. Fortunes Avere only amassed in those earlier days after long years of patient labor; indeed, only a few were successful. In the SAvift desire that now prevails, and by the opportunities afforded by the rapidly changing values of real estate, stocks and articles of merchandise, fortunes are realized in a comparatively short period. It is no time, therefore, to relax those wise and salutary rules that have been established by the judicial wisdom of the past to govern the relations between the trustee and the cestui que trust, but these facts, constantly occurring, which can not escape our common observation, constitute strong and controlling reasons for the most rigid enforcement of them.
It is insisted that the court erred in alloAving the cestui que trust to elect to hold the appellant to the bid on lots 7 and 8, and to charge him Avith the amount realized on the sale to Townsend of lots 1 and 2. It is urged that but one rule of accountability should be applied to them, in Avhich the appellant Avould be charged with $2000 for the first bid, and $531.70 for the second; or, if the cestm que trust elects to take the amount realized at either subsequent sale, he should be required to take both, in which event he would be compelled to receiAre $275 for lots 7 and 8, and $10,600 for lots 1 and 2.
The cases of Jennison v. Hapgood, 10 Pick. 77, and Hapwood v. Jennison, 2 Ver. 294, do, to a certain extent, sustain the rule contended for by the counsel, that the courts will require parties who elect to consider sales void, and have the property again brought to sale at a price at Avhich it was bid off by the trustee, to have it put up at the re-sale, in lots or en masse, accordingly as it Avas bid off by the trustee. We think those cases state the law correctly on that question. The authorities all seem to agree that the right of election on the part of the cestui que trust to hold the trustee bound to carry out his bid or to relinquish it for the benefit of the trust, is confined to bids as they took place, whether in one lot or several, even at the same sale. Ex parte Lacey, 6 Ves. 625 ; Ex parte James, 8 Ves. 351.
In King v. Talbot, 40 N. Y. 77, the court say,' there is “ no reason for saying that where the trustee has divided the fund into parts and made separate investments, the cestui que trust is not at liberty, on equitable as well as legal grounds, to approve and adopt such as he thinks it for his interest to adopt. ” In this instance the bids were separate and distinct and distant and apart, and for separate pieces of property, and no reason or authority to the contrary is perceived why the party should not be permitted to affirm the sale in one instance and hold the trustee to his bid, and disaffirm in the other case, and have an account taken of the profits arising from a subsequent sale. We think the court ruled correctly and in accordance with the adjudged cases on that question, and is fully sustained on principle.
It is urged that the court erred in allowing annual rests in computing interest on the account ordered to be taken against the appellant.
The rules of law applicable to trustees who misapply the trust estate without notice to the cestui que trust, often seem harsh and severe in their application to particular cases. They are intended, however, to impose a degree of punishment upon the trustee for the wrongful act. Such rules have their foundation upon the necessity that has been found by experience to exist to compel the performance of duties which the fiduciary relations impose. The courts, by way of making full compensation, will sometimes compel the trustee to purchase other estate of equal value, or they will permit the cestui que trust, at his option, to exact the proceeds of the same, with interest, and even in some instances he has been permitted to demand the present estimated value of the estate, in case of a resale to a third party. The latter rule, where the price and value of real estate advances with such rapidity as in this western country, would be deemed a very harsh, and, in many instances, an inequitable rule, and the party is seldom, if ever, permitted to elect to have that rule enforced. If that rule should be enforced in this case, it would be oppressive in its operation, for the evidence shows that the land sold by the appellant has -greatly increased in value. It would be inequitable, therefore, to permit a party to elect under that rule under circumstances like those presented in this case, even if it be conceded that there has been a wilful misapplication of the trust fund.
If the trustee had kept an exact account, the equitable rule is, that he should account to the cestui que trust for all he has realized by the use of the fund. It is said “ that the true rule in equity, in such cases, is to take care that the gain should go to the cestui que trust.” 2 Story Eq. Jur. sec. 1277.
But if the trustee has not kept such an account, the law will still require him to make adequate compensation, and in order to do this, will at least presume he has made annual interest on the fund used, and will therefore, to effectuate this purpose, and to do justice, charge him with annual, and sometimes with semi-annual, rests, in the computation of interest. The rule seems to be, that in all cases where the trustee has used the trust fund, and the court can see from the evidence that the trustee has realized large gains and profits to himself, and has failed to keep any exact account of the same, or has refused to render an account to the beneficiary, the law will require him, in order that complete justice may be done, to account for the original fund so used, with interest computed with annual rests. Eo better mode has yet been devised to effectuate and promote the ends of justice. This rule may be said to be the settled doctrine of this country and of England, on this question.
In Schieffelin v. Stewart et al. 1 Johns. Chy. 620, the chancellor said: “ It is certain that the allowance of compound interest is often essential to carry into complete effect the principle of the court, that no profit, gain nor advantage shall be derived by the trustee from the use of the trust fund. All the gain must go to the cestui que truest. This is the true equity doctrine. It secures fidelity and removes temptation, and it is the ground of this allowance of annual rests in the taking of the account xvhere the executor has used the property and does not disclose the proceeds. ”
In Barney v. Saunders, 16 How. 539, the court said: “When a trust to invest has been grossly and wilfully neglected, xvhere the funds have been used by the trustees in their own business, or profits made of which they give no account, interest is compounded as a punishment or as a measure of damage," for undisclosed profits, and in place of them.”
In Raphael v. Boehn, 10 Ves. 92, the chancellor allowed semi-annual rests, but it was under peculiar circumstances, where there were large sums to be invested, and perhaps the case does not establish a general rule on that question. The case was again before the court upon a rehearing, and the doctrine advanced in the former opinion was affirmed. It is, perhaps, true, that there are some exceptions to the general rule, that in taking the account against the trustee, he will be charged with compound interest. The application of the rule may be said to depend somexvhat upon the circumstances of each case, as in the case of Raphael v. Boehn, supra.
In Raynor v. Bryson, 29 Md. 473, it was held that compound interest should never be allowed, except in cases where there had been intentional misconduct or gross negligence on the part of the party withholding the money.
If the doctrine in that case is to be applied to the present one, the exddence brings it clearly xvithin the rule there stated. There is evidence in this record tending to shoxv gross negligence on the part of the appellant in these transactions, in the application of the trust fund. By his oxvn testimony, he certainly knew, at the time he made the sale to Toxvnsend, that he did not oxvn the property in his oxvn right; that he held it in trust for the legal representatives of Spence, for "he attempted to procure, and perhaps did procure, a release from the heirs. When the sale was effected after the release was procured, instead of applying the proceeds to the benefit of the estate of Spence, as it was his plain duty to do, the appellant applied the proceeds to the credit of what is called “the Hunter purchase, ” in which he was himself personally interested. The appellant had no right to sell lots 1 and 2 after he discovered that he held them in trust for the estate of Spence, and he ought then to have made a fair and full disclosure of the whole facts to the legal representatives. Instead of doing that, he procured the release from the heirs, upon what representations we lcnoAv not, and placed the funds realized from the sale to the credit of the land company, Avhere, doubtless, large profits AArere realized, of which he offers no explanation or gives no account, in his ansAver or otherwise; It further appears that after the contract betAveen Butler and Spence had been annulled and rescinded by the conveyance of the land to Newberry, the appellant, with full knowledge of all the facts, received from the administrator a dividend of $297.80, on the claim alloAved for the purchase money. It is difficult to explain all these transactions consistently with that fair and equitable dealing Avhich the law requires between trustee and cestui que trust. We must, therefore, conclude that appellant has Avilfully misapplied the trust fund, at least so far as the proceeds of lots 1 and 2 are concerned, and under either rule of laAV suggested, he must be charged in the account to be taken Avith interest at annual rests. The appellant has failed to render any account of the profits realized out of the use of the trust fund, and has even denied his liability to be called to an account. The facts in this case present a clear case for the application of the strict principles of the lawn The evidence discloses that the investment of these funds by the appellant must have been very profitable, and he must haAre realized large profits therefrom, of which he gives no account, and it is doubtful Avhether the rule Avhich requires him to account for the original fund, Avith interest computed with annual rests, will do complete justice betAveen the parties.
There is still another question invoNed in the case. It appears that Butler, at the request of Spence, conveyed to Skinner one half of the tract of land contracted to him. The consideration expressed in the deed is $2250, about one-half of the balance of the purchase money due Butler on the original purchase. What the real consideration was, the evidence does not show, and it is, perhaps, immaterial. It is certain that Butler parted with his interest in the land for the benefit of Spence. We can perceive no reason why Spence or the estate should not be charged with a proportion of the purchase money of the land conveyed to Skinner, and it seems to us that it would be most inequitable to allow the legal representatives of the estate to retain the same without making compensation therefor. The appellee comes into a court of equity and asks to have the equities between the parties adjusted, and he must, therefore, himself, do that which is just and equitable. The sale of the land to Newberry, while it put an end to the contract, so far as it remained to be executed, did not and could not affect that part that had already been executed. Spence had received the benefit of the conveyance to Skinner and Butler; had parted with his interest in that portion of the property. The parties, by their mutual agreement, severed the contract, and the vendee received a deed to his grantee for one half the land. To that extent the contract was executed, and Butler was, in law and in equity, entitled to compensation for that portion of the property. If Spence should not be required to pay for the land conveyed to Skinner, it is manifest that he would get one half the land he purchased, for nothing, simply because he failed to pay for the other half. We do not see how the equities between the parties can be adjusted upon any equitable principle, unless the estate should be charged with the just proportion of the purchase money for the one half the property thus conveyed to Skinner at the request of Spence, and for which he received the benefit in his lifetime.
The decree of the court below proceeds upon the correct principle, and we are entirely satisfied with the decree, except in this one particular. The court adopted the true rule for stating the account between the parties, and it is approved by this court in every particular except the one indicated. We are of opinion, however, that the court ought to have directed the master, in stating the account, to charge the estate with one half the original purchase money for the land contracted to Spence on account of the one half conveyed to Skinner. For this error alone this decree must, be reversed and the cause remanded.
The court will direct the master to charge the estate with one half the amount of the purchase money of the tract of land contracted to Spence by Butler, and to apply, in payment thereof, 1st, the $400 cash received at the time the contract was made; 2nd, the $500 received from the sale of the 160 acres of land; 3d, the amount received on the Raynor note; and, fourth, so much of the $2000 bid for lots 7 and 8 as shall be necessary to make up the amount of one half of the original purchase money, and will decree, in all respects, as in its former decree.
Decree reversed.