Court Opinion

ID: 5433688
Source: CourtListenerOpinion
Date Created: 2022-01-08 17:49:56.842042+00
Date Added: 2024-06-11T08:31:44.220301
License: Public Domain

Burnett, J.,
on petition for a re-hearing:
In the former opinion delivered in this case, we passed over one point, simply deciding it without giving our reasons for the decision, except by a reference to the case of the People v. Houghtailing, (7 Cal. Rep., 348.) The defendant, in an able and elaborate petition for a re-hearing, again insists, with renewed earnestness, upon this point as being conclusive in favor of the defendant. The importance of the principle involved, and of the case to the parties, induce us to state more at length the reasons that led us to the conclusion heretofore announced.
The proposition is substantially this: that, conceding Starkey to have been a trustee, and to have received trust funds belonging to Gunter—the trust money having been mingled by the trustee with his individual property—there was no distinct trust fund in the hands of the administrator that could be identified as such; that the consequence of this confusion of trust with private moneys was, that Starkey ceased to be a trustee, and thus became a simple debtor of Gunter; and that, as Gunter did not present his claim for this debt to the administrator, within the statutory time, the same was for ever barred. This being purely a technical ground, and one that would work great injustice in this particular case, should be clearly sustained by both reason and authority; otherwise we must reject it.
It is difficult to perceive how, in sound logic or in simple justice, a trustee, by his own voluntary act, may change his capacity, and convert himself into a mere debtor. In cases of express trust, the capacity of the trustee and that of the cestui que trust are created by contract; and all the legal rights and duties, belonging to the one or the other, are but the legitimate results contemplated by the contract itself, and flow from the capacity of each party thus created by the concurrence of the two wills. The same power, and only the same that creates, can destroy. As it requires two or more to make a contract, it requires the same to cancel or change it. The contract is the joint creation of both the parties. It being the result of their concurring wills, can not be dissolved or changed by the single act of one.
If, then, in the theory of the law of contracts, the capacity of the parties can not be changed except by the mutual consent of both, the incidents attached to that capacity must remain, and the rights and duties of each should continue the same. The act of either, without the consent of the other, should never be allowed to change the relation or capacity of the parties. The' cestui que trust has no right to make a trespasser or debtor of the trustee, without his consent. If the trustee does a wrongful act, then he, by the act, consents that he may be treated as a debtor or trespasser, at the election of the cestui que trust. Either party, by consent, express or implied, may place it in the power of the other to change the relation.
*660From the just and legitimate application of these principles, it follows that the trustee should never be permitted to defeat the rights of cestui que trust, so long as it is possible for a Court of Equity to enforce them. Mo mere technical obstacles, not founded in a rule of general practical utility, should be permitted to defeat the ends of justice in such cases.
We can not perceive, upon considerations of principle or utility, why the mingling of trust with private moneys, by the voluntary act of the trustee, should destroy the trust fund, and change the remedy or right of the beneficiary. It is true, money has no ear-marks; and, for that very reason, the mingling of trust, with private funds can injure no one. The value being the same, and it being matter of the most perfect in difference whether parties get the same or other coin, so they get the sum to which each is entitled, there can result no injury to either. Common sense will not discuss the question of identity, when nothing useful can result from its determination.
“If one man,” says Lord Eldon, (15 Ves., Jr., 442,) “mixes his corn or flour with that of another, and they were of equal value, the latter must have the given quantity; but if articles of different value are mixed, producing a third value, the aggregate of both, and through the fault of the person mixing them, the other party can not tell what was the value of his property, he must have the whole.” The same principle was held by Chancellor Kent, (2 John. Ch. R., 108,) and approved by Mr. Justice Story. (Story on Bail, 840.)
But it will be observed, that when articles of different values are mixed, producing a third value, the innocent party is only allowed to take the whole in case he cannot tell the original value of his property. Even in case of such a mixture, if the original value of the property mixed can be ascertained, the party can only claim that value, except the mixture be willfully made, with intent to injure, or from gross negligence.
We have been cited by defendant’s counsel to several cases, as authority to sustain the position assumed. In the case of Whitcomb v. Jacob, (1 Salk., 161,) it was held, that where one employs a factor to dispose of merchandise, and the factor sells the goods and has the money, it shall be looked upon as the factor’s estate, and must first answer the debts of a superior creditor. So, in the case of Scott v. Surman, (Willes, 400,) it was held, that the money received by the factor went into the hands of the 'commissioners in bankruptcy, and that the consignor could only come in under the commission. In the case of Hart v. Bulkley, (2 Ed. Ch. R., 70,) it was held, by Vice-Chancellor MeCoun, that where a co-trustee mingles the trust funds with his individual moneys, and dies, the surviving trustee can not follow the fund into the hands of the administrator, but must come in with the creditors of the intestate.
*661But these cases are clearly distinguishable from the case before us. There the rights of creditors were involved, while here the contest is solely between the cestui que trust and the administrator of the trustee. TSTo rights of creditors are involved, but only the interest of the heir. In the case of Hart v. Bulkley, the administrator expressly set up the fact that the estate was insolvent, and only able to pay a portion of the debts.
In the case of Lupton v. White, (15 Yes., Jr., 432,) and Hart v. Ten Eyck, (2 John. Ch. B., 108,) it was held that, where an agent confounds his principal’s property with his own, it devolves upon the agent to distinguish his own portion, otherwise the principal may take the whole. In those cases, the rights of creditors were not concerned, and the question was between the principal and agent.
But the case of Docker v. Somes, (2 Mylne & Keene, 655,) is a ease directly in point, and sustains the view we have taken. In that case, it was held that when a trustee mixes trust funds with his private moneys, and employs both in trade as his own, the cestui que trust may, if he prefers it, insist upon having a proportionate share of the profits, instead of interest on the amount of the trust funds employed. The opinion of the Lord Chancellor is distinguished for its clearness, justice, and force. The authorities are reviewed and some of them questioned.
The former rule had been, to require the trustee, who mingled the trust with his private funds, to pay only legal interest upon the amount; and this, without any regard to what he had in fact made by the speculation. If he had not mingled the trust funds, but had made a speculation, then the cestui que trust ¡¡had the right, also, to the gains. But, under the former rule, justice and expediency had been sacrificed to convenience. And it is to be regretted that too many of the rules of law were originally adopted from motives of convenience, and are still followed from the same motives, and from the hesitation Judges feel in disturbing former decisions.
It can not be well seen why a trustee, who wrongfully mingles the trust funds with his private moneys, should be in a better condition than the one who keeps them separate. “ What avails it,” asks the Lord Chancellor, “ towards preventing such malversations, that the contrivers of sordid injustice feel the power of the Court only where they are clumsy enough to keep the gains of their dishonesty severed from the rest of their stores?” “ When did' any wrong-doer ever yet possess the hardihood to plead, in aid of his escape from justice, the extreme difficulties he had continued to throw in the way of pursuit and detection, saying, ‘You had better not make the attempt, for you will find I have made the search very troublesome ?’ The answer is, ‘ The Court will try.’ ”
If the theory of the defendant be true, neither Starkey nor Ms *662administrator could be charged anything more than legal interest, however great the actual gains may have been. Such a rule gives the trustee, at his own election, the power to borrow at the lowest rate of interest. It rewards him for his own wrong, and holds out to him a continual temptation. The rule, instead of imposing restraints, absolutely offers a bribe to the faithless trustee. It reverses every principle of equity and justice, and bestows rewards where punishment is deserved.
And if the Court, in that case, could follow out and distinguish the proper proportion of the gains, though mixed with the mass, it would seem equally competent to follow and distinguish the proper proportion of the capital, though mixed with the mass. The mixing by the trustee will not be allowed to defeat the efforts of the Court in either case.
We must adhere to our former decision.