Third Nat. Bank of St. Paul v. Stillwater Gas Co.

• Decision Date: 22 November 1886
• Citation: 30 N.W. 440,36 Minn. 75
• Parties: THIRD NAT. BANK OF ST. PAUL v STILLWATER GAS CO., IMPLEADED, ETC.
• Court: Minnesota Supreme Court

36 Minn. 75

30 N.W. 440

THIRD NAT. BANK OF ST. PAULvSTILLWATER GAS CO., IMPLEADED, ETC.

Supreme Court of Minnesota.

November 22, 1886.

(Syllabus by the Court.)

A person obtaining property by fraud acquires no title to it, but it is held by him, and all persons claiming under him with notice, in trust for the original owner.¹

Equity will follow money or other property through any number of transmutations, and preserve it for the owner, either in its original or substituted form. So long as it can be traced and identified, either in its original or substituted form, it belongs to the original owner if he elects to claim it.

Although the relation between a bank and its depositor is that merely of debtor and creditor, yet the fund does not change its character from the fact that the money has been deposited in bank to the credit of the depositor. If the money in his hands was impressed with a trust in favor of another, the deposit will remain subject to the same trust.

Appeal from an order of the district court, Washington county.

C. E. & A. G. Otis and Fayette Marsh, for respondent, Third Nat. Bank of St. Paul.

Searles, Ewing & Gale, for appellant, Stillwater Gas Co., impleaded, etc.

MITCHELL, J.

Appeal from an order overruling a demurrer to the complaint. The question raised by the appeal is whether, upon facts alleged in the complaint, the respondent is entitled to have a trust in its favor impressed upon a certain sum of money in the hands of appellant.

These facts, so far as they bear upon the question, are, we think, fairly stated in the brief of respondent. They may be, perhaps, even more briefly stated, according to their legal import, as follows: R. W. Kerr, by fraud and deceit, obtained from respondent a loan of $3,500, the amount being placed to his credit, and subject to his draft or check, in respondent's bank. Kerr afterwards drew out the money, and placed it in the possession and control of E. W. Kerr, as his agent, by causing it to be deposited in a bank in Stillwater to the credit, and subject to the check, of said E. W. Kerr. Subsequently the appellant, by fraud and false pretenses, induced E. W. Kerr, as agent of R. W. Kerr, to pay over the money to it, (the appellant,) which he did, by check upon the Stillwater Bank. Subsequently R. W. Kerr died insolvent.

To impress this money in the hands of appellant with a trust in favor of respondent, and to recover the same, this action is brought. It is elementary that a person obtaining property by fraud acquires no title to it, but it is held by him, and by all persons claiming under him, with notice, in trust for the original owner. So long as the property can be identified in its original or in a substituted form, it belongs to the original owner, if he elects to claim it; and, if it passes into the hands of an innocent purchaser for value, the title of the defrauded owner, at his option, at once attaches to the avails, so long as their identity is preserved, no matter how many transmutations of form the property has passed through. So long as the trust property can be traced and followed into other property into which it has been converted, that remains subject to the trust. The product or substitute has the nature of the original imparted to it. The depositing of trust money in a bank, although it creates the relation of debtor and creditor between the bank and the depositor, does not change its character, or relieve the deposit from the trust. It is not the identity of the form, but the substantial identity of the fund itself, which is the important thing. In support of these propositions, and as illustrating the extent to which courts of equity have carried this principle, see Taylor v. Plumer, 3 Maule & S. 562; ...