Kerr v. Blodgett

Sutherland, P. J. The learned judge who dismissed the [144] complaints in these cases at special term, must be deemed, in doing so, to have assumed that the allegations of the complaint, if true, showed that the defendants had been guilty of a breach of trust; that they had knowingly and designedly, under the color or excuse of the judgment in the Reynolds action, suffered a misapplication of the trust-funds, or at least of so much of the trust-funds as the plaintiffs in these actions were entitled to under the trust created by the assignment; for the learned judge dismissed the complaints on the ground that the judgment in the Reynolds action was a bar to these actions, and that the judgment in the Reynolds action could not be attacked in these actions, to which Reynolds was not a party. A breach, of trust in equity creates a debt in favor of the cestmi que trust. (Fonblanque's Eq., bk. 2, ch. 7, § 1, and note b; Vernon a. Vaudrey, 2 Barn. Ch., 280; 2 Atkyn, 119.) If a trustee misapplies the funds of his cestui que trust, the latter may either take the security or other property in which the funds have been wrongfully invested, or demand payment of the trustee. (Story's Eq., § 1211; Steele a. Babcock, 1 Hill, 527.) In. case of a misápplication or wrongful disposition of trust-funds by the trustee, the cestui que trust may, at his election, either look to the trustee for payment, or follow the trust-funds into the hands of any party or parties taking them, with notice of the trust, and of such misapplication or wrongful disposition. Either of these remedies would be in equity. It is not clear that there is any remedy at law against a trustee for a breach of trust. (See Fonblanque’s Eq., note b, above cited.) The judge below'dismissed the complaints in these actions, on the theory that the actions were brought to set aside the judgment in the Reynolds action, and to reach the trust-funds, or so much thereof as the plaintiffs were entitled to, in the hands of the parties to whom it had been distributed under color of that judgment. He was no doubt led to take this view of the actions from the fact that the complaints, unnecessarily and improperly anticipating the defence, attack the judgment in the Reynolds action. If the complaints had not noticed the Reynolds action, or the proceedings and judgment in it, but had simply called upon the defendants to account for and pay over the dividends to which the plaintiffs were entitled, "when on [145] the trial the defendants came to set up the judgment in the Reynolds action as a defence, I do not doubt that the judge would then have permitted the plaintiffs to prove the facts stated in the complaint, to show that that judgment was obtained by collusion, and was at least constructively fraudulent. A breach of trust is a wrong, and a constructive fraud upon the cestui que trust. A trustee cannot take advantage of his own wrong, by setting up his own breach of trust. Hence, we are to presume, if the judge below had looked upon these actions simply as actions to compel the defendants to account as trustees, and to pay to the plaintiffs the dividends or proportions of the trust-funds to which they were entitled, that upon the defendants’ showing on the trial that the trust-funds had been distributed or disposed of, by or under the judgment in the Reynolds action, the plaintiffs would have been permitted to show that that judgment was obtained or suffered by collusion, and under circumstances which showed that such distribution or disposition of the trust-funds, as to the plaintiffs, was a breach of trust. It is plain that these actions should be looked upon simply as actions calling upon the trustees to account and pay over. The unnecessary and premature allegations in the complaints, as to the Reynolds action, and judgment on it, do not alter the character of the actions, and should not prevent the plaintiffs obtaining the relief they ask for. It is true, there .was no necessity for more than one action. The plaintiffs might have joined in bringing an action; or either Kerr & Morgan, or Wilson, might have brought an action in the name of themselves, or himself, and all other creditors similarly situated. But the complaints were not dismissed for any defect in their frame, or of parties plaintiff. And probably any such defect was no ground for dismissal. My conclusion is, that the judgments appealed from should be reversed, and a new trial ordered, with costs to abide the events of the actions. Ingraham, J., concurred. Clbrkb, J., expressed no opinion.