Holmes v. Gilman

Citation138 N.Y. 369,34 N.E. 205
PartiesHOLMES v. GILMAN.
Decision Date30 June 1893
CourtUnited States State Supreme Court (New York)

OPINION TEXT STARTS HERE

Appeal from judgment of the General Term of the Supreme Court, First Department (reported in 28 Abb. N. C. 288,) which reversed a judgment for plaintiff entered upon report of a referee (reported in 27 Id. 341. Decision on motion for injunction is reported in 27 Id. 75.)

PECKHAM, J.

It is stated in the order which reverses the judgment herein that it is reversed upon questions of fact as well as of law. In such case it is the duty of this court to review the determination of the court below upon both questions of fact and of law ( Code Civ. Pro. § 1338). A careful review of the case convinces us that the findings of facts made by the referee are amply sustained by the evidence, and that the judgment should not be reversed on the facts. We are confirmed in the correctness of this view upon a perusal of the opinions delivered by the learned judges at the General Term. We there find that the order reversing the judgment upon questions of fact as well as of law was formal merely, the judgment being actually reversed because the court below took a different view of the law from that adopted by the referee upon his own findings of fact.

The claim of the plaintiff to recover the moneys arising from the payments of these policies is based upon the principle which allows a cestui que trust to follow trust funds and to appropriate to himself the property into which such funds have been changed, together with the increased value of such property, provided the trust fund can be clearly ascertained, traced and identified, and provided the rights of bona fide purchasers for value, without notice, do not intervene.

The right has its basis in the right of property, and the court proceeds on the principle that the title has not been affected by the change made of the trust funds, and the cestui que trust has his option to claim the property and its increased value as representing his original fund. The right to follow and appropriate ceases only when the means of ascertainment fail. It is a question of title (Van Alen v. American National Bank, 52 N. Y. 1;Newton v. Porter, 69 Id. 133;Ferris v. Van Vechten, 73 Id. 113, 119;Matter of Cavin v. Gleason, 105 Id. 256, 260; 7 St. Rep. 13; In re Hallet's Estate, L. R. 13 Ch. Div. 696). It is somewhat akin to the principle decided in Silsbury v. McCoon (3 N. Y. 379), where corn was wrongfully taken from its owner and converted into whiskey. The court held the property was not changed in the hands of the wrongdoer, and the whiskey belonged to the owner of the original material, no matter how much it had been increased in value. The case of Pennell v. Deffell (53 Eng. Ch. 372, 388, 389) discusses the principle as thus stated and agrees to it.

That a partner occupies a fiduciary position with regard to his copartners and the funds of the firm, and will not be permitted to make a personal profit out of the use of such funds, is, I think, clearly established (1 Lindley on Part.[ 2nd Am. ed.] 303; Featherstonhaugh v. Fenwick, 17 Ves. Ch. 298; Anderson v. Lemon, 8 N. Y. 236;Mitchell v. Reed, 61 Id. 123;Riddle v. Whitehill, 135 U. S. 621). Although partners do not in the strict sense of the term occupy the position of trustees toward each other and towards the firm funds, yet the position is one of a fiduciary nature, calling for the maintenance and exercise of the greatest good faith between them. Such a relationship authorizes the same remedy on behalf of the wronged partner as would exist against a trustee, strictly so called, on behalf of a cestui que trust (Per JESSEL, M. R., In re Hallett's Estate, L. R. 13 Ch. Div. 696, 712). While legally incorrect to describe the fraudulent abstractions made by Gilman of the funds of the firm as embezzlements, the description is harmless. It was a monstrous and gross breach of the duty he owed the firm, and the right of the firm to follow the funds is not affected because the act could not be regarded in law as an embezzlement. The right to follow the funds springs from the fiduciary nature of Gilman's position with regard to them. These general positions are not really denied by the defendant.

It is claimed, however, that the tracing and identification of the funds have not been sufficiently proved in fact, and it is also urged that there has been an actual mingling of firm funds with the private funds of Gilman in the purchase and maintenance of the policies. I have looked carefully through the evidence upon these questions of fact, and I think the findings of the referee are fully sustained, and that no exception can prevail on such grounds.

If these preliminary questions be decided against him, the counsel for defendant then urges that the rule clearly is, if the trust fund has become mingled with money or property of the trustees or others, equity impresses the proceeds with a trust to an amount equal to the original trust fund and interest, and will go no further. He then claims that the firm funds which went to the purchase of the policies and the payment of the annual premiums were mingled with the property right of the wife, called her insurable interest in her husband's life, and so the policies were not wholly the result of the use of those firm funds, and therefore, the plaintiff can have only a lien on the policies or the moneys arising from their payment to the amount of the premiums paid with the firm funds, and the interest thereon. This is really the chief question in the case.

Where moneys have been misapplied and have been used as a portion of a larger amount which has been invested in other property, the property thus acquired does not, as a whole, belong to the owner of the moneys misapplied. It does not belong to him because it has not been purchased or acquired wholly with his money or funds, and hence it is that such property is held charged with a lien at least to the amount of the trust funds invested in it. It is not necessary to here decide it, because we take another view of the facts, but I am not at all prepared to admit that under no circumstances is the cestui que trust entitled to recover back anything more than the amount of his property and interest, where there has been a mingling of funds. In case the trustee took a thousand dollars of trust funds and five hundred of his own, and purchased property which advanced in value to twice its original sum, I have seen no case where the point has been determined that the whole increased value belongs to the trustee, and that only the original sum wrongfully taken, and interest, can be given to the cestui que trust, although it was by reason of the wrongful use of the trust funds that the trustee was enabled to realize such value. If, in such case, the cestui que trust were not allowed to at least participate proportionately in this increased value, it would appear to be a violation of the principle that the trustee cannot ever be permitted to make a profit out of the use of the trust funds. It seems to me to be a case for the application of the doctrine that the parties became co-owners of the property at the option of the cestui que trust, in the proportion which their various contributions bore to the sum total invested.

In this case, however, the defendant is enabled to claim a mingling of funds and property only by treating the right of a wife to insure the life of her husband for her benefit as a species of property which has been mingled with the funds of the firm, the result of the combination being the procurement of the policies.

We do not regard this right as property in any such light as to bring the case within the principle of the authorities upon the subject of a mingling of funds in the purchase or acquisition of other property. The right of a wife to insure the life of her husband for her own benefit is not property. It is more in the nature of a power or a privilege to make a valid contract. It is a status and not a property right. The common law upon motives of public policy held that there must be what was termed an insurable interest in the life which was insured or else the policy was a dangerous kind of a wager and, therefore void.

To take a policy out of such a class it was necessary to show that the insured had some interest in the continuance of the life of the cestui que vie. Who had such an interest as to give a right of insurance was frequently a matter of some discussion and of possible doubt. It may not even now, perhaps, be said that the precise nature, character, and extent of the interest in another's life, which shall render that life insurable, have been formally and plainly laid down. It is said by the Federal supreme court that one essential is that the policy shall be obtained in good faith and not for the purpose of speculating upon the hazard of a life in which the insured has no interest (Connecticut Mutual Life Ins. Co. v. Shaefer, 94 U. S. 457, 460).

An interest which is insurable must be an interest in favor of the continuance of the life, and not an interest in its loss or destruction. If any person could be thought to have an interest in the continuance of the life of another, it would be a wife in the life of her husband. Jud...

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