Cavin v. Gleason

• Decision Date: 19 April 1887
• Citation: 11 N.E. 504,105 N.Y. 256
• Parties: In re Petition of CAVIN and another v. GLEASON, Assignee.
• Court: New York Court of Appeals Court of Appeals

105 N.Y. 256

11 N.E. 504

In re Petition of CAVIN and another

v.GLEASON, Assignee.¹

Court of Appeals of New York.

April 19, 1887.

J. B. Gleason, for appellant.

W. H. Johnson, for respondents.

ANDREWS, J.

It may properly be conceded that the $3,000, received by White from the petitioners on the third day of January, 1883, for investment in the Gould mortgage, constituted in his hands a quasi trust fund, which White was bound to use for the specific purpose contemplated, and which he could not divert to any other use without committing a breach of trust. The securities which formed the greater part of the fund were immediately convertible into money, and authority in White to make such conversion was implied, but only as a means of realizing the money with which to make the mortgage loan. The securities, while in the hands of White, remained the property of the petitioners; and, when converted by him, their title attached to the proceeds of the converted property. White collected the securities actually or constructively. He collected the notes against third persons, and drew the money deposited in the Delaware National Bank. The two certificates of deposit issued by himself, amounting in the aggregate to $780, he accepted as money.

It is material to a proper understanding of the question presented, to state a few other facts which appear in the record. White was a private banker. On the fifth of January, 1883, two days after the transaction with the petitioners to which we have alluded, he was taken sick, and on or about the ninth of January a run commenced on the bank, and on the twelfth of January he made a general assignment to the defendant, Gleason, for the benefit of creditors, having at the time on hand in cash assets only the sum of $64.75. The Gould mortgage was never procured by White, and he made no investment for the petitioners of the $3,000 received on the third day of January. On the contrary, it was found by the judge at special term that White, after receiving and collecting the securities, and prior to the eleventh day of January, in violation of his trust, used the entire fund of $3,000, excepting the sum of $30, which came to the hands of the assignee, in paying his personal debts and liabilities. But on the eleventh of January, the day prior to the making of the assignment, for the purpose of securing the claim of the petitioners, he transferred to them a land contract, from which and other sources the petitioners have realized sufficient to reduce their claim to the sum of $877.27. It was admitted on the hearing of the petition, which took place in January, 1885, that the assignee had then on hand proceeds of the assigned estate sufficient to pay the said sum of $877.27, but it was conceded by the petitioners that the assigned estate was insufficient to pay in full the debts of the assignor.

The special term has granted the prayer of the petitioner, and made an order directing the assignee to pay the claim of the petitioners out of the money in his hands, and this order was affirmed by the general term. The order in effect appropriates out of the assigned estate the sum of $877.27 to the payment of the claim of the petitioners, in preference to the claims of the general creditors.

The petitioners, to maintain the order in question, rely upon the rule in equity that, as between cestui que trust and trustee, and all parties claiming under the trustee otherwise than by purchase for valuable consideration, without notice, all property belonging to a trust, however much it may be changed or altered in its nature or character, and all the fruit of such property, whether in its original or altered state, continues to be subject to or affecteed by the trust. Pennell v. Deffell, 4 De Gex, M. & G. 387, TURNER, L. J. This settled doctrine of equity has its basis in the right of property. The owner of personal property which, by the wrongful act of his agent or trustee, has been changed and converted into chattels of another description, may elect to treat the property into which the conversion has been made as his own. Upon such election the title to the substituted property is vested in him as fully as if he had originally authorized the wrongful act, which title he may assert in a legal action to the same extent as he could have asserted title in respect to the original property. The reason of the doctrine is stated by Lord ELLENBOROUGH in the leading case of Taylor v. Plumer, 3 Maule & S. 562, in language often quoted: ‘For,’ he says, ‘the product or substitute for the original thing still follows the nature of the thing itself, so long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail.’ The question in that case involved the legal title to certain stock and bullion which an agent of the defendant, intrusted by his principal with money to invest in exchequer bills, had wrongfully misapplied to the purchase of the stock and bullion, intending to abscond with it and go to America, and the court sustained the defendants' title.

The courts go very far to protect the rights of property against a wrongdoer. They follow it through whatever changes and transmutations it may undergo in his hands, and as against the wrong-doer, transferred to the changed and altered product the original title, however much the original property has been...