1 S.D. 388 | S.D. | 1890
This is an action brought by plaintiff to enforce a trust against the defendant, for an accounting, and for an injunction. A general demurrer was interposed to the complaint on the ground that it does not state facts sufficient to constitute a cause of action. The demurrer was overruled, and defendant appeals from the order. The complaint alleges, in substance, that plaintiff and defendant are corporations; that on the incorporation and organization of the plaintiff, in August, 18b4, one Gates was made its president, and one Foote its cashier, and that said Gates and Foote were entrusted with the custody and control of plaintiff’s business; that upon the incorporation and organization of the defendant, in November, 1886, said Gates was elected president, and the said Foote secretary; that, immediately upon his entry upon his employment as cash
Before proceeding to examine the complaint and the objections made to it by counsel for appellant, it may be proper to consider the different classes of trusts, and the provisions of our statutes relating to them, as well as the general principles of equity governing cases of this character. Trusts, under Section 3911, Comp. Laws, are divided into voluntary and in voluntary, and by Section 3913 an involuntary trust is declared to be created by operation of law. It is further defined in Sections 3919 and 3920, which are as follows: “3919. One who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner. 3920. One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act is, unless he has some other and better right thereto, an involuntary trustee of the thing gained for the benefit of the person who would otherwise have had it.” And by Section 3933 it is provided: “Every one to whom property is transferred in violation of a trust holds the same as an involuntary trustee under such trust, unless he purchased it in good faith, and for a valuable consideration.” These sections are evidently intended to include that class of trusts known, in equity jurisprudence, as “constructive trusts,” as a resulting trust is defined in Section 2796, and the effect of a transfer of the trust property under that section is provided for in Section 2797. These sections are as follows: “2796. When a transfer of real property is made to one person, and the consideration therefor is paid by or for another, a trust is presumed to result in favor of the person by or for whom such payment is made. 2797. No implied or resulting trust can prejudice the rights of a purchaser or incumbrancer of real property for value, and without notice of the trust. ”
In a resulting trust intention is an essential element, although that intention is never expressed by words of direct
Involuntary or constructive trusts embrace a much larger class of cases, and include all those instances in which a trust is raised by the doctrines of equity for the purpose of working out justice in the most efficient manner, when there is no intention of the parties to create a trust relation, and contrary to the intention of the one holding the legal title. This class of trusts may be usually referred to fraud, either actual or constructive, as an essential element. This extension of the fundamental principles of trusts enables courts of equity to wield a remedial power of great efficacy in protecting the rights of property. They can follow the real owner’s property, and preserve his real ownership, into whatever form it may be changed or transmuted, even into the hands of third parties, so long as the property or fund into which it has been converted can be traced,
The doctrine of courts of equity applicable, to trust property in its original or transmuted form is clearly stated In re Hallett’s Estate, supra, a late and leading English case, substantially as follows: That the modern doctrine of equity as regards property disposed .of by persons in a fiduciary position is that, whether the disposition be rightful or wrongful, the beneficial owner is entitled to the proceeds, whatever be their form, provided only he can identify them. ’ If they cannot be identified by reason of the trust money being mingled with that of the trustee, then the cestui que trust is entitled to a charge upon the new investment to the extent of the trust money traceable into it; that there is no distinction between an express trustee, or an agent, bailee, or collector of rents, or anybody else in a fiduciary position, and that there is no difference between investments in the purchase of lands or chattels or bonds or loans or money deposited in a bank account. Tne master of the rolls in that case adopts the principle of Lord Ellenborough’s statement in Taylor v. Plumer, 3 Maule & S. 562, in which he says: “It makes no difference in reason or law into
With these preliminary observations, we proceed to examine the complaint in this action. It is quite apparent from an inspection of it, as before stated, that it was drawn, or intende.d to be drawn, upon the theory that the trust sought to - be impressed upon the property held by the defendant is one coming under the head of a constructive or involuntary trust, to be enforced by a court of equity, not in accordance with any presumed intention of the parties, but to subserve the ends of justice by “subjecting the substituted property to the pui-poses of indemnity and recompense” to the plaintiff for its moneys alleged to have been embezzled and fraudulently used in the purchase and creation of the milling property. It appears from the complaint that Foote, while cashier of the bank, and intrusted, in connection with Gates, president, with its management, fraudulently diverted and misapplied the funds of the bank to his own use and benefit, and with the funds so fraudulently obtained from the bank purchased certain mill machinery and fixtures which he subsequently, on the organization of the mill company, of which he was made secretary, of which he
It is further alleged that upon the-organization of the mill company, of which Gates was made president, and Foote secretary, they fraudulently diverted the funds of said bank to the use and benefit of said mill company to the extent of about $10,000, and that the mill company began its business without other capital than that wrongfully and fraudulently obtained from the bank, except about $2,500 contributed by one Hayden, It is further alleged that the value of the mill property is about $15,000, all of which has been created by plaintiff’s said money, assets, and credit so fraudulently diverted and misappropriated by said Gates and Foote, except the $2,500 contributed by Hayden. It is clear, then, from these allegations of
Appellant contends that the plaintiff should have alleged that the milling company had obtained the property or funds and assets of the bank with notice of the fraudulent acts of Foote and Gates. There are two answers to this proposition, and they are: First,That it is alleged that Foote and Gates were general officers of the milling company from its organization, and that they gave their time and attention to the business of the milling company; therefore, there was no time when they could have transferred property or assets to the milling company when they were not officers of said company. No conveyance of property can be made to an incorporated company until it is incorporated, and therefore the knowledge of Foote and Gabes was. presumptively at least, the knowlege of the company. Second. It was not incumbent upon the plaintiff to allege notice, as want of notice, the payment of a valúa
It is also contended by appellant that no sufficient facts are stated in the complaint to require defendant to account to the plaintiff. We think otherwise. If defendant has this property, purchased and created with funds and assets so wrongfully obtained from the bank by Foote and Gates, and so holds it that it is chargeable as a trustee, it should, undoubtedly, be compelled to account to the bank not only for the property it has received, impressed with a tru&t upon it, but for all the profits received therefrom. Again, if the milling property, standing or held in the name of the company, in equity belongs to the bank, subject to the rights of Hayden for his proportionate amount advanced by him, an accounting will not only be proper, but perhaps necessary for the protection of Hayden’s interest; and if it should appear that defendant has contributed any part of the funds creating said milling property, such an accounting might be necessary for its own protection.
• It is also contended that the plaintiff, by its own showing, has no claim against the defendant because it has affirmatively alleged that Gates and Foote have received in payment for the funds and property advanced to the defendant stock of the company, and therefore plaintiff should follow the stock so received by them. This is a question that has caused us some embarrassment, but we are of the opinion that one whose property, money, or assets has been fraudulently obtained and invested by the parties so obtaining it in the property of a cox’poration, and stock of the company received therefor, ought not to be compelled to follow' the stock, but should have the right, at his option, to pursue the property itself, when, as in this case, it is alleged that substantially the entire property has been created with, and the business of the company almost entirely conducted on, the moneys, assets, and credits of the bank, and
It is contended that the plaintiff has not stated definitely the amount of its money, funds, and assets that have been fraudulently diverted by Gates and Foote, and invested in the milling company’s property. The plaintiff in its complaint states, perhaps as definitely as it is able to do, the amount misappropriated and diverted by Gates and Foote of the funds and assets of the bank, when it 'alleges that the amount so diverted and appropriated to the use and benefit of the defendant is about $10,000, with the other allegation of the bonus of $1,250. In addition to these is the allegation that the entire milling property was created by the fraudulently misappropriated and diverted funds, assets, and credit of the bank, except the sum of $2,500. We are of the opinion that the complaint is sufficient, in this respect, on general demurrer. We have not attempted to follow the order of the able briefs of counsel, but have, we believe, considered all the points raised. The order overruling the demurrer is affirmed.