Court Opinion

ID: 6964779
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:51:52.933137+00
Date Added: 2024-06-11T16:08:34.139040
License: Public Domain

Mr. Justice Wilkin delivered the opinion of the Court: The doctrine sought to be invoked by the complainant in this cross-bill is purely and strictly an equitable doctrine, adopted by courts of chancery only in cases of necessity, to prevent injustice and wrong. That the relation existing between the parties to the. loans mentioned, as created by their contract, was that of debtor and creditor, must be conceded. The most that can be or is claimed by the appellant is, that on account of false representations made by the borrowers such contract was voidable, at its option, for fraud. When the fraud was discovered does not appear, and there is no pretense whatever that any attempt has been made to rescind; therefore, up to the time of filing the cross-bill, the relation of debtor and creditor existed, and if that relation can be changed to that of trustee and cestui que trust it must be done by construction, under the rule that “where the acquisition of the legal estate is tainted with fraud, actual or equitable, or where the trust depends upon some equitable rule, independently of the existence of fraud,” courts of chancery, in order to prevent injustice, “will"raise a trust, and fasten it upon the conscience of the legal owner, so as to convert him into a trustee for the parties who, in equity, are entitled to the beneficial enjoyment.” (Hill on Trustees, 144.) As before said, this is a doctrine of necessity, and it was said by Lord Nottingham in Cook v. Fountan, 3 Swanst. 585 : “The law never implies, the court never presumes, a trust, but in ease of absolute necessity.” In the effort of counsel for appellant to establish a broad equity in favor of their client on which to predicate this necessity, the rights of other creditors of Goetz & Co. are wholly ignored. In fact, it is said that the question here involved is purely one “between appellant and the parties who wrongfully-obtained its money.” This position is wholly untenable. The very object of this cross-bill is to obtain priority over the general creditors of the firm, both the original and cross-bills showing it to be insolvent. In our view of the case it is unimportant to determine whether or hot the fraud alleged in the cross-bill would, under other circumstances, be sufficient to authorize a court of chancery to declare the relation of trustee and cestuis que trust between appellant and John W. Goetz & Co., because if it be conceded that that relation should be held to exist, still the bill shows that the so-called “trust fund” has passed beyond the reach 'of the court in this proceeding. It will be observed that so far-from attempting to identify any particular property in the. hands of the receiver as having been purchased with the moneys borrowed from appellant, or the proceeds thereof, it is expressly averred that such identification is impossible, and all that is attempted by way of tracing those moneys into the assets held by the receiver, is the averment that “merchandise so paid for by said trust fund, or other merchandise bought with the proceeds thereof, to which said trust also attached, were in the store of said defendants when the same was taken possession of by the receiver, and passed into his possession, and so remained unless disposed of by him, in which case the proceeds thereof are in his hands subject to said trust.” The present value of the merchandise purchased with said money, or its proceeds, is not even stated. Every allegation may be true and still the chief value of the assets sought to be taken have resulted from other funds or credits of said Goetz & Co. Justice Story, in his Equity Jurisprudence, speaking of the right of the owner to follow a trust fund, says: “The general proposition which is maintained, both at law and in equity, upon this subject, is, that if any property, in its original state and form, is covered by a trust in favor of the principal, no change of that state and form can divest it of such trust, or give the agent or trustee converting it, or those who represent him in right, (not being bona fide purchasers,) any more valid claim in respect to it than they had before such change. * * s It matters not in the slightest degree into w’hat other form different from the original the change may have been made, * * * for the product of a substitute for the original thing still follows the nature of the thing itself, so long as it can be ascertained to be such. The right ceases when the means of ascertainment fail, which, of course, is the case when the subject matter is turned into money, and mixed and confounded in a general mass of property of the same description.” (Yol. 2, -sec. 1258.) The same doctrine is announced and practically applied by the learned justice in Trecothic v. Austin, 4 Mason, 16. This court held in School .Trustees v. Kirwin et al. 25 Ill. 73, that “it is not necessary, if the trust be moneys, that the particular coin or kind of money or the individual pieces shall be identified in order to pursue it, but its identity as a fund must be preserved, so that it can be distinguished from all other-money. ” And in that case we said: “The means of ascertaining the identity of this fund having failed by the money having been mixed and confounded in a general mass of property in the bank of the same description, the right to pursue it must also fail.” In Thompson's Appeal, 27 Pa. St. 16, the Supreme Court of Pennsylvania said: “Whenever a trust fund has been wrongfully converted into another species of property, if its identity can be traced it will be held, in its new form, liable to the rights of the cestui que trust. No change of its state and form can divest it of such trust. So long as it can be identified, either as the original property of the cestui que trust or as the product of it, equity will follow it, and the right of reclamation attaches to it until detached by the superior equity of a bona fide purchaser for a valuable "consideration without notice. The substitute for the original thing follows the nature of the thing itself, so long as it can be ascertained to be such; but the right of pursuing it fails when the means of ascertainment fail. This is always the ease when the subject matter is turned into money, and mixed and confounded in a general mass of property of the same description. This mixture has taken place in the case under consideration. It is impossible for a chancellor to lay his hand upon a single article of property, or on a single dollar of money included in the assignment, and say that any particular thing or sum of money is either the ■original property of Seth Matthews’ heirs or the product of it. The decree was, therefore, erroneous.” To th$ same effect are ■ Goodel v. Buck, 67 Me. 514; Portland, and Harpivell Steamboat Co. v. Locke, 73 id. 270; United States v. Inhabitants of Waterbury, 2 Ware, 158; Englar v. Offutt, 70 Md. 78; Johnson v. Ames, 11 Pick. 172. Many other like cases might be cited, but enough has been-, shown to clearly indicate the line of decisions holding the doctrine that trust funds can only be pursued when they can be clearly distinguished from other property held by the trustee,, or by those representing' him, and that this court is fully committed to that rule. When it is said that the matters decided in King v. Hamilton, 16 Ill. 190, Clapp et al. v. Emery 98 Ill. 523, or First National Bank v. Schween, 127 Ill. 573, recognize, much less hold, a different doctrine, the scope of these cases is clearly misconceived. They in' no way conflict with School Trustees v. Kirwin, supra. Comment upon the authorities cited by counsel for appellant said to hold a different rule is unnecessary. Many of them are reviewed by Seymour, J., in Philadelphia Nat. Bank v. Dowd, Receiver, L. B. Ann. b. 2, p. 480, and shown to be reconcilable with the rule above announced, which he applies to the facts of that case, and holds to be the one supported by the great weight of authority in this country. It is clear, however, that none of the authorities relied upon, under the most ■ liberal interpretation, can be construed as authority for sustaining this cross-bill, thereby giving appellant a prior lien upon the general assets held by the receiver. The principle-upon which a trust fund is pursued and its proceeds held subject to the trust is, that the trustee has wrongfully, and contrary to the intention of the owner, converted it, and where there is a commingling of funds or property, that has been done without the consent of the cestui que trust. If, as contended here, appellant has a right to a lien upon the whole assets held by the receiver, it must be because Goetz & Co. ivrongfully put its money into some of those assets, and ivrongfully commingled them with others into a general mass, on the principle that a court of equity will not allow the right of thecestui que trust to be defeated by the wrongful, unauthorized act of the trustee. But the cross-bill does not attempt to show such wrongful conversion or commingling. The fair inference from its allegations is, that the money was borrowed with the express understanding that it was to be used by the borrowers just as it was used, in the general business of the firm. The allegations of fraud go "only to the manner of obtaining the money,—might be given the effect to create the relation of trustee and cestui que trust,—but these allegations in no sense charge a misappropriation or wrongful confusion of the trust fund. We are clearly of the opinion that there is no principle of equity upon which this cross-bill can be maintained, and the-judgment of the Appellate Court will be affirmed. Judgment affirmed.