Fidelity & Deposit Co. of Md. v. Stordahl

• Decision Date: 15 July 1958
• Docket Number: A,No. 11,11
• Citation: 353 Mich. 354,91 N.W.2d 533
• Parties: FIDELITY & DEPOSIT COMPANY OF MARYLAND, a Maryland corporation; National Surety Corporation, a New York corporation; Hartford Accident & Indemnity Company, a Connecticut corporation; The Aetna Casualty & Surety Company, a Connecticut corporation; New Amsterdam Casualty Company, a New York corporation, and Indemnity Insurance Company of Norty America, a Pennsylvania corporation, Plaintiffs and Appellees, v. Calmar M. STORDAHL and Grace A. Stordahl, jointly and severally, Defendants and Appellants. pril Term.
• Court: Michigan Supreme Court

Page 533

91 N.W.2d 533

353 Mich. 354

FIDELITY & DEPOSIT COMPANY OF MARYLAND, a Maryland corporation; National Surety Corporation, a New York corporation; Hartford Accident & Indemnity Company, a Connecticut corporation; The Aetna Casualty & Surety Company, a Connecticut corporation; New Amsterdam Casualty Company, a New York corporation, and Indemnity Insurance Company of Norty America, a Pennsylvania corporation Plaintiffs and Appellees, v. Calmar M. STORDAHL and Grace A. Stordahl, jointly and severally, Defendants and Appellants.

No. 11, April Term.

Supreme Court of Michigan.

July 15, 1958.

Capizzi, Valenti & Kwetcher, Detroit, for appellants.

Crawford, Sweeny, Dodd & Kerr, Detroit (J. Cameron Hall and Robert G. Russell, Detroit, of counsel), for appellees.

Before the Entire Bench.

BLACK, Justice.

The plaintiff fidelity insurers, having duly succeeded to the presently unveiled rights of the Commonwealth Bank of Detroit, filed this bill for declaration of a constructive trust and related relief against defendants Calmar M. Stordahl and Grace A. Stordahl, husband and wife. The chancellor, following trial of issues made by the bill and separate answers filed by Mr. and Mrs. Stordahl, entered a decree vesting title to 3 lots (comprising in all the home premises of Mr. and Mrs. Stordahl) in plaintiffs as designated tenants in common and as beneficiaries of a trust identifying Mr. Stordahl as trustee ex maleficio. By the decree plaintiffs were required to pay Mrs. Stordahl the total sum of $1,293.12, representing decreedetermined payments made by her (from her own earnings following Mr. Stordahl's arrest in 1951) toward retirement of the home purchase money mortgage. In addition to the 3 lots, plaintiffs by the decree were awarded title to an automobile of the defendants and 26 shares of the capital stock of the bank, which stock theretofore was owned by Mr. and Mrs. Stordahl and valued (in the decree) at the sum of $4,524. Other lesser items of personal property were similarly awarded to plaintiffs.

For many years Mr. Stordahl was a teller, and later an officer, of the bank. Between 1933 and the date of what is known in the record as his confession, ¹ Mr. Stordahl embezzled funds of the bank amounting net to $130,313.07. Mrs. Stordahl had no knowlelge of the husband's conduct in such regard. The chancellor's finding, of innocence on her part, is fully sustained by the record. Evidence was adduced tending to show that the 'defalcation was wasted on horse racing and other forms of gambling.' The chancellor found as against such proof that Mr. and Mrs. Stordahl did not, during the presently described period of home-acquisition, have sufficient funds with which to live and at the same time acquire 'some of these assets' without making use of 'part of the embezzled money.' Accordingly, and having found circumstantially that the 3 lots in fact were purchased by and with misappropriated funds of the bank, the chancellor in appropriate terms constructed the trust outlined above.

We are concerned here only with Mrs. Stordahl's claimed rights and interests in and to the mentioned real estate. It is said that the testimonial record does not sustain outright award thereof to plaintiffs, over and above the lien so granted her. Such is the issue we are asked to resolve--an issue which turns more on evidentiary facts than a controlling point or points of law.

The Stordahl home was originally constructed on lot 3038 (of the designated subdivision) by a Dr. Madision. The Stordahls became tenants of the home in 1937. They negotiated at the time for its purchase, only to find that Dr. Madison, although willing to sell, was unable to do so on account of pending marital trouble. It appears without dispute that the Stordahls orally arranged with Dr. Madison at the time that they 'would have the first opportunity to buy it' when the doctor was ready to sell and, by further arrangement, that the Stordahls would be allowed to make repairs and improvements with purchase in mind as they remained tenants. The Stordahls ultimately purchased (by warranty deed naming them as tenants by entirety) said lot 3038 in August of 1945, having previously purchased from separate grantors adjacent and vacant lots 3039 and 3040. The purchase of lot 3038 was for the stated consideration of $8,100, ² $2,100 of which was paid down with the remainder financed by a purchase money mortgage in the sum of $6,000. The 3 lots are now, by finding and order below, valued at the sum of $24,500.

First: This Court, having declared itself unequivocally in Massachusetts Bonding & Insurance Co. v. Josselyn, 224 Mich. 159, 194 N.W. 548, is firmly committed to these rules:

'Where money held upon trust is misapplied by the trustee and traced into an unauthorized investment in property of any nature, the investment thus made, in the absence of a claim of bona fide ownership by a third person, may be treated by the cestui que trust as made for his benefit. The consideration for the investment is trust money and the beneficiary of the trust becomes the equitable owner of the property purchased therewith. His right is a property right, not one created by a court of equity, and, if such money has been used in the purchase of real estate or personal property of any kind, the title of which is taken in the name of any other person except a bona fide holder for value, such property, irrespective of whether it has increased or decreased in value, may be seized upon as the property belonging to the trust' (Long v. Earle, 277 Mich. 505, 525, 526, 269 N.W. 577, 584).

Have plaintiffs sustained the burden, exacted by their bill and the rules just quoted, so as to justify a decree awarding them outright title to the 3 lots in question? If they have, the required proof must be found in tenuous if not imaginary circumstances. The chancellor said:

'No proof was offered directly tracing any of the embezzled funds into these assets, and probably none was available. There was no proof of commingling of embezzled funds with other funds in a common fund. However, there was proof, which established to the satisfaction of this Court, that from 1943 to 1951 the Stordahls did not have sufficient money to live and acquire some of these assets without making use of part of the embezzled money.'

To justify a finding that the subject matter of an alleged constructive trust was exclusively acquired through utilization of misapplied trust funds, fair certainty of tracing such funds into the exact property in question must be testimonially established. Further, where the rights of an innocent third person are involved, it is not enough to prove, or to infer circumstantially from proof, that some undetermined portion of the misapplied funds was used to acquire some unidentified portion of variant types or descriptions of the target property, in order to obtain a decree bringing all such property within the trust perimeter. Here the most one may say for plaintiffs' proofs as applied to the 3 lots is that a majon part of the total down payment, on the...