Court Opinion

ID: 9451349
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:14:35.395296+00
Date Added: 2024-06-11T17:32:40.622588
License: Public Domain

SWYGERT, Circuit Judge
(dissenting).
If I understand the majority opinion correctly, this court is holding that if the circumstances do not permit a trust to be implied, those same circumstances will not create a trust even though the parties have additionally agreed to the creation of an express trust. To my mind this is an illogical proposition.
Here, we are asked to enforce an express trust. There is no need to imply one. Paragraph sixteen of the agreement explicitly and unambiguously shows an intent to establish a trust relationship. Even though the trust is mentioned in only one of several paragraphs of the agreement, the terms contained in the other paragraphs are consistent with the explicit provision that amounts received by Lord’s on account of sales in the department leased to Cutter-Karcher should be held in trust for Cutter-Karcher. Other portions of the agreement provide, inter alia, that sales in the department were to be made by Cutter-Karcher’s employees ; that the merchandise was to be purchased by Cutter-Karcher on its credit and that it retained the right to remove its stock and any of its other chattels in the event Lord’s breached the agreement. Further, all of the incidental supplies used in the department were to be furnished by Cutter-Karcher. Casualty insurance on all merchandise, workmen’s compensation Insurance, public liability insurance, and any taxes and licenses were to be paid by Cutter-Kar-cher. Thus, the entire operation of the leased department was under the control and at the expense of Cutter-Karcher. All sales receipts, however, were to be *460turned over to Lord’s which was obligated to keep a true and accurate account thereof. Lord’s paid Cutter-Karcher’s employees from these moneys, but only after Cutter-Karcher’s submission of its payroll.
This method of operation enabled Lord’s to simplify its bookkeeping system and to retain the twelve per cent of Cutter-Karcher’s net sales agreed upon as the cost of leasing the department store space. The balance of Cutter-Kar-cher’s receipts held by Lord’s was to be remitted periodically to Cutter-Karcher.
In re Kline, 7 F.Supp. 850 (W.D.Pa.1934), aff’d sub nom., United States Nat’l Bank v. Blauner’s Affiliated Stores, 75 F.2d 826 (3rd Cir. 1935), concerned the collection of funds by the receiver and the trustee in bankruptcy during their operation of the bankrupt’s business. Although it is not entirely clear, it appears that the funds may have been deposited in a physically separate account. The district court stated that by the agreements under which the claimants occupied space in Kline’s department store, Kline was merely the trustee in the collection of the moneys due from credit sales by the leased departments. “The agreements so plainly state, and provide for a separate account of these items of money collected.”
The majority here, referring to In re Kline, says: “The parties to a department store-leased department agreement may establish a fiduciary relationship * * * where the contract provide [s] for the funds collected to be kept in a separate account for the lessee. The parties have not done that here.” True, the agreement did not require Lord’s to maintain a separate bank account for funds belonging to Cutter-Karcher. But if the majority places its reliance upon the absence of a provision for the physical separation of the trust funds, such reliance is misplaced. Commingling of funds by a trustee does not of itself destroy an express trust. In re Warner-Quinlan Co., 86 F.2d 103 (2d Cir. 1936); Southern Cotton Oil Co. v. Elliotte, 218 F. 567 (6th Cir. 1914); In re Steele-Smith Dry Goods Co., 298 F. 812 (N.D.Ala.1924). Section 179, comment (f), of the Restatement of Trusts, 2nd, reads: “By the terms of the trust the trustee may be permitted to mingle trust property with his own property. It may be expressly so provided by the terms of the trust or the character of the trust may be such as to make this proper.”
On the other hand, the majority may have attached significance to a supposed failure of the parties to provide a separate accounting procedure for the trust funds. But the Cutter-Karcher-Lord’s agreement specifically provides for such procedure. Paragraph ten reads in part: “The Lessor agrees to keep a true and correct account of all moneys received, growing out of the Lessee’s sales, including an account with respect to the Lessee’s credit or charge sales, also an account of all moneys disbursed on the Lessee’s authorization, and exhibit said records to the Lessee or its representatives upon reasonable request to do so.”
I would reverse the order of the district court.