Lowe v. Jones

• Decision Date: 18 May 1906
• Citation: 192 Mass. 94,78 N.E. 402
• Parties: LOWE v. JONES et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

192 Mass. 94

78 N.E. 402

LOWE v. JONES et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 18, 1906

COUNSEL

Powers & Hall, for plaintiff.

Warner, Warner & Stackpole, for defendant.

OPINION

KNOWLTON C.J.

The defendant's intestate, one Merriam, held stock of the plaintiff under an arrangement which established a relation of truse between the parties, and made it his duty to continue to hold it until the conditions should change. It is averred in the bill that he sold a part of it and received the proceeds as his own, and pledged the remainder of it to the defendant bank as security for a loan made to him personally. On the facts averred there is nothing to show that the bank did not take the pledged property in good faith, under such circumstances as would enable it to hold it as security for the loan. Indeed, this part of the stock with Merriam's note which it was pledged to secure, has been taken up by the plaintiff under a stipulation that the redemption should be without prejudice to the right of any of the parties. There is no doubt of the plaintiff's right to hold this part of the stock as trust property, except as to the claim of the bank under its loan. Were it not for the bank's claim he could redeem it from the defendant, in accordance with the arrangement under which it was originally held. The present contention as to this stock relates only to that part of its value which is represented by the loan. As to that part the rights of the parties are substantially the same as they are in regard to the other stock which Merriam sold in violation of his trust.

The plaintiff avers that Merriam's estate has been represented insolvent, and he seeks to establish a trust against the general assets of the intestate in the hands of the administrator, in such a way as to obtain the full value of the stock to the corresponding diminution of the amount to be divided among the creditors. All the stock that was sold and the interest of the bank in that which was pledged have gone into the hands of holders in good faith for a valuable consideration. The plaintiff therefore cannot obtain it in specie. His only right, if he has any beyond that of the general creditors, is to follow the money received on account of it, and establish his trust against that.

The rule stated in some of the early cases that a trust cannot be enforced against money mingled with other money in a common fund, because money has no earmarks, has been relaxed, and it is now held that if the proceeds of trust property can be traced into a particular fund, the trust may be established and enforced as a charge upon the fund. This principle has often been recognized both in England and America. A leading case on this subject is In re Hallett's Estate, 13 Ch. Div. 696. The opinions in this case have sometimes been understood as carrying the law further in the direction of following proceeds to enforce a trust than it was actually carried. As a consequence, there have been decisions in some of the American states to the effect that, if one's general estate has been enriched by the proceeds of trust property, the trust may be established against the general assets, even though the estate is insolvent. See McLeod v. Evans, 66 Wis. 401, 28 N.W. 173, 214, 57 Am. Rep 287; Davenport Plow Company v. Lamp, 80 Iowa, 722, 45 N.W. 1049, 20 Am. St. Rep. 442; Myers v. Board of Education, 51 Kan. 87, 32 P. 658, 37 Am. St. Rep. 263; Carley v. Graves, 85 Mich. 487, 48 N.W. 710, 24 Am. St. Rep. 99. But these cases have all been either expressly overruled or greatly limited and qualified. Nonotuck Silk Company v. Flanders, 87 Wis. 237, 58 N.W. 383; Burnham v. Barth, 89 Wis. 362, 366, 62 N.W. 96; Bradley v. Chesebrough, 111 Iowa, 126, 82 N.W. 472; Fire Commissioners v. Wilkinson, 119 Mich. 658, 670, 78 N.W. 893, 44 L. R. A. 493; Travelers' Insurance Company v. Caldwell, 59 Kan. 156, 52 P. 440; Kansas State Bank v. First State Bank, 62 Kan. 788, 64 P. 634. In some states it is held that, while it is not enough to show that trust property went into the general assets, it is enough to charge the whole estate with a trust, if it can be shown that the proceeds remain unexpended somewhere in the estate. See Slater v. Oriental Mills, 18 R.I. 353, 27 A. 443; Bradley v. Chesebrough, ubi supra: Hopkins v. Burr, 24 Colo. 502, 52 P. 670, 65 Am. St. Rep. 238; Pearson v. Haydel, 90 Mo.App. 264; Lincoln v. Morrison, 64 Neb. 822, 90 N.W. 905, 57 L. R. A. 885. But by the great weight of authority, a trust cannot be established against the proceeds of trust property which has been disposed of, unless the proceeds can be identified and traced into some specific fund or property. This is the doctrine of In re Hallett's Estate, to which we have already referred. In the later case of In re Hallett & Company (1894) 2 Q. B. 237, 244, it was said in the opinion: 'There is nothing in our decision in the present case which is in conflict with the decision in Re Hallett's Estate. In order to follow trust money there must be specific property, capable of being identified, into which the money has been converted, and in that case this doctrine was applied in this way. It was said that where a trustee pays his own money and also trust money in his banking account, it is the same thing as though he had placed them in a box, and his drawing for his own purposes must be assumed to be out of his own money. That decision in no way qualifies the rule that there must be a specific thing capable of being followed.' See, also, In re Stenning (1895) 2 Ch. 433; In re Oatway (1903) 2 Ch. 356. The rule in Massachusetts has always been held, with considerable strictness, to require the identification of the trust property as passing into some other specific property or fund, as distinguished from the general assets of one's estate. Howard v. Fay, 138 Mass. 104; Attorney General v. Brigham, 142 Mass. 248, 7 N.E. 851. In Little v. Chadwick, 151 Mass. 109, 23 N.E. 1005, 7 L. R. A. 570, this court said: 'When trust money becomes so mixed up with the trustee's individual funds that it is impossible to trace and identify it as entering into some specific property, the trust ceases. The court will go as far as it can in thus tracing and following trust money, but when as matter of fact it cannot be traced, the equitable right of the cestui que trust to follow it fails. * * * There is nothing to the contrary in National Bank v. Insurance Company, 104 U.S. 54, 66, 71, 26 L.Ed. 693, and In re Hallett, 13 Ch. Div. 696, 708, 721, which are chiefly relied on by the annuitants. In Wisconsin a majority of the court has declared that it is not necessary to trace the trust fund into any specific property to enforce the trust, and that if it can be traced into...