Gunter v. Janes

9 Cal. 643 | Cal. | 1858

Lead Opinion

Burnett, J., after stating the facts, delivered the opinion of the Court—Terry, C. J., concurring.

The main conceded facts of this case constitute an authentic chapter in the business history of the early days of California. Kothing could more clearly show the excessive confidence and the delusive anticipations of that period.

The first and main question in the case is one of fact—of intention. Was Starkey, in the purchase of the note and mortgage of Gunter to Wells, the mere agent or trustee of Gunter ? or did he act for himself and for his own interest ? This is the question upon which the decision must rest.

To ascertain the intention of the parties we must consider the then existing circumstances. In other words, we must judge the past by the circumstances existing in the past.

At the time the transaction had its beginning the parties did not anticipate any of the changes in the state of business which afterwards took place. They anticipated no decline in the price of property, or in the rate of rents. The income and value of the property was not expected to become less. All the features of the transaction show this. Starkey was then considered a wealthy man; and there is nothing in the record to show that he intended to commit any fraud, either upon Gunter or Wells. The value of the mortgaged property at that time was estimated at from one hundred to one hundred and fifty thousand dollars ; and the monthly income from the mortgaged premises exceeded the interest upon both mortgages. It was not expected that the money to be advanced by Starkey would long remain unpaid. This is evident from the terms of the instrument and the admitted facts. The interest upon the mortgage to Wells was the only burthen expected to be continuing for any considerable time. Whether the interest upon the notes to Dohrman was to be paid monthly does not certainly appear; but that such was the fact seems plainly inferable from the testimony of Wells. The witness states that Starkey paid to him $1,660 about the first of June, 1850. This payment must have been for interest, as no part of the principal was then due. When the notes to Dohrman were executed they were no doubt ante-dated, so as to be complete substitutes for the notes of Starkey to Wells.

As the plaintiff alleged an express trust, it was incumbent upon him to prove it, as alleged. From the nature of the case, it could only be an express trust. But conceding this to be true, this express trust may be proved by circumstances. And the plaintiff’s counsel insist that the facts proved, taken together, do establish this express trust.

There is nothing in the language of the instrument under date of March 9,1850, that goes either to establish or rebut the allegation that Starkey was the trustee of Gunter, in the arrangement with Wells. The terms of the instrument are expressly confined to the advances thereafter to be made by Starkey. Hot a word is said about any other transaction. The language of the instrument is very clear, showing that it was drawn by a competent professional man. We must, then, look to other proofs to sustain the alleged trust.

It is insisted by the learned counsel for the defendant, that the alleged trust is “so unprecedented in its character as, of itself, to excite suspicion and demand scrutiny.”

Viewing the transaction by the light of subsequent experience, and it must be conceded as extraordinary, in the contemplation of either theory. That Starkey incurred a liability of some $97,000, which he bound himself to meet in thirteen months, is certain. Regarding the transaction of Starkey with Wells as intended for a speculation, on the part of Starkey, it is difficult to see any adequate motive for it.

The interest that Gunter was paying upon the purchased note and mortgage was ample; and, regarding the security as sufficient, there was still no adequate inducement for Starkey to make the arrangement for Ms own benefit; for the reason, that he had no money to pay for the debt, but gave his notes upon long time, and drawing the same rate of interest. What could he expect to make by the transaction ? The interest he received from Gunter he was bound to pay to Wells. The very fact that Starkey paid no money for the debt, and gave his own notes for the whole amount, drawing the same interest, and payable thirteen months after date, is one of the strongest proofs to support the theory that he lent his friend Gunter his credit, for the purpose of ultimately saving a property then valuable and productive. Had Starkey purchased the debt for his own benefit, with the intention of paying for it out of his own means, then he would never have given his notes drawing so heavy an interest, and for so long a time. Conceding that Starkey was honest, there could be no sufficient inducement for him to make the purchase, as a business transaction. But if we concede that he then anticipated his future failure, which occurred in January, 1852, and just before his. death, and that his object was to obtain possession of the rents falling due before his own notes became payable, with the fraudulent intent never to pay the notes he gave to Wells, then we can see how he could expect to gain something by the arrangement. His notes to Wells being due thirteen months after date, and the rents coming in monthly, had such fraudulent purpose been contemplated, it was in his power to have collected a large sum without paying out anything, except the advances agreed to be paid to Gunter. This harsh theory, however, is not supported by the record, and not insisted upon by the counsel on either side.

The risk of loss was the same to Starkey, whether he acted in one character or in the other. His liabilities were the same, and his means of indemnity the same in both. From the nature of the arrangement, there could be little or no prospect of gain to him. At the time the arrangement was made, Starkey must have supposed that the rents of the property and its value would not decline j that the incoming rents, though not equal to the principal and accruing interest upon his notes to Wells, would at least pay all the interest and a large portion of the principal within the thirteen months, and that the property would be amply sufficient to pay the remainder of the principal, should Wells insist upon prompt payment. Starkey held the assigned note and mortgage, and could at any time enforce payment when compelled to pay himself. It is most probable that he anticipated making a further loan, if required. Upon the hypothesis that the rents would exceed the interest, and pay a part of the principal, leaving thereafter less interest to pay, while the rents remained as before, Gunter, no doubt, based his hopes of ultimate relief. It was this view of the matter that led to the arrangement between Starkey and Gunter.

This view is supported by all the acts of Starkey. From a written account, signed “ J. J. Starkey, Trustee,” and rendered September 23, 1851, it appears that all the advances by Starkey to Gunter, amounting to 811,940, were made before the seventh of May, 1850, and that by the first of June, 1850, he had received the sum of @19,100. After this time, namely, the sixth day of October, 1851, he executed a written instrument of compromise with Laffan and others, which he signed “ J. J. Starkey, trustee of Henry Gunter.” He also receipted in the same manner for moneys paid to him by different persons on the twenty-third of October, 1851.

But there is one circumstance that seems to be inexplicable upon any other theory than the one which supposes Starkey to have acted for Gunter in making the arrangement with Wells. In the account rendered September 23, 1851, Starkey charges Gunter with this item : “ 1850, April 7. To p. n. given to T. J. Wells, amount of mortgage, 141,856.”

It seems clear, from all the testimony, that the note and mortgage of Gunter to Wells, amounted, including principal and interest, at the time of the assignment to Starkey, to the sum of 841,856. For this sum Starkey gave his notes, and charges Gunter, not with the principal of Gunter’s note and mortgage, but with the amount of Starkey’s notes to Wells. In this account a balance is struck, “ exclusive of interest,’’ showing that Starkey only intended to charge Gunter with the principal, not including the interest. If, then, Starkey had purchased the note and mortgage upon his own account, he should have charged Gunter with the amount of his note to Wells, “exclusive of interest.” But upon the theory that Gunter was only to pay him what he was to pay, the account, as rendered, was correct.

Besides these circumstances, it is stated by Wells, that the transfer of Gunter’s note and mortgage Avas made at the instance and request of Gunter. In the language of the witness, 11 the plaintiff made the whole transaction with my assent,” “ the said assignments were made by direction of Mr. Gunter.”

There are circumstances referred to by the learned counsel for the defendant, tending to rebut the evidence for the plaintiff. But we think they are not sufficiently strong to overcome the proofs on the part of Gunter. The fact that Starkey continued to act as trustee long after the advances made by him to Gunter had been fully paid, is certainly very difficult to account for, except upon the theory of the plaintiff.

It is true that the conditions of the trust should have been reduced to writing, and we might naturally expect to find them in the article of March 9,1850. But this omission can be accounted for upon the ground of the great confidence Gunter reposed in Starkey. So far as Starkey Avas concerned, it made but little, if any, practical difference to him whether the conditions of the trust were reduced to writing, or not. He had the assignment of the note and mortgage, and was as safe in that position as in any other. Gunter, on his part, was not in a situation to make strict terms, and was compelled to place confidence in Starkey’s good faith. It is evident, from all the circumstances, that Gunter was not an accurate business man ; but that he was careless, rash, and confiding. He wished to pay his debts, and at the same time save his property. His business was complex and confused; and he seems to have plunged into everything that offered any prospect of success, however small.

It is urged by the counsel of defendant, that there is a vital distinction between a mortgagee and a trustee. But, conceding that there is some difference between a trustee who is no creditor, and a trustee who is, we can not perceive how it can affect the merits of this case. An ordinary trustee is a person who sustains but one character, and has no lien upon the trust funds, except for his compensation; while a mortgagee, let into the possession of the mortgaged property, is both a creditor and a trustee. So far, however, as regards his capacity of trustee, he is just as strictly bound as an ordinary trustee. Starkey was compelled to act with strict fidelity, and could not be allowed to manage the property exclusively for his own benefit, and to the injury of Gunter. The mortgagee, who is also a trustee, is as strictly bound to fulfill his trust faithfully, as he would be were he not a creditor, but acting for the benefit of another cestui que trust.

Another point urged by the counsel of the defendant is, that Gunter did not present his account to the administrator for approval or rejection, as the Probate Act requires. But to this, it is a sufficient answer that the scope and purpose of the bill of Gunter was not the recovery of a debt against the estate, but to enforce his right to trust funds that had found their way into the hands of the administrator. He was compelled, from the complex nature of the case, and the kind of relief sought, to go into a Court of Equity. The trust funds properly constituted no part of the assets of the estate. Where the executor or administrator has property which belongs to another, the owner is not required to present his account, as if he were a creditor. The claimant of specific property, and not of a debt, can not properly be called a creditor, within the meaning of the Probate Law. The facts of this case are substantially the same as those of the People v. Houghtailing, (7 Cal. R., 348.)

There are several other points, made by the counsel for the defendant, that we do not consider of material importance. Upon the whole, we think substantial justice was done by the decision of the Chancellor. The referee seems to have given the case a very patient investigation, and his report appears to be substantially correct.

The judgment of the Court below is affirmed.

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Rehearing

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.

From 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.

But 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 administrator 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.