Meyer v. John D. Butt & Brother

McCay, Judge. Did this case turn solely on the evidence of complicity or positive fraud, with intent to take an unfair advantage of Mrs. Miller, we would not interfere with the discretion of the Court. But it is clear to us, from the reasons given by the Judge, that he placed his judgment largely upon the effect of the previous judgment obtained in the Superior Court. Evidently the Judge considered that an adjudication of the rights of the parties, unless it were shown there was fraud in its procurement, and by fraud he meant acts of duplicity and deception, and in this we think the Judge erred. We recognize fully the principle that a judgment between the parties is conclusive on the subject of dispute, unless attacked for fraud, and we agree that, generally, a trust-estate is bound by a judgment against the trustee. But we do not agree that this rule applies to a case where, by the very nature of the suit, it is the interest.of the trustee to have the judgment rendered. Nothing is better settled than that a [472] trustee can do no legal act binding the trust-estate in his own favor. Had he taken the money of the trust and applied it to the payment of his own debt the cestui que trust could follow it if she could find it. Had he sold the trust property in payment of it, the sale would have been void. •Can it change the principle that he has quietly sat still and allowed that to be done, under the forms of law, which, if he had done by actual interference, would have been illegal ? This plaintiff in the common law suit knew all the facts. He knew that this debt was not contracted for the benefit of the trust-estate. He is also charged with notice of the law, that a married woman cannot charge her separate estate with her husband’s debts, or as security for him. And in obtaining this judgment, he stands precisely in the position of a man who receives from a trustee the trust effects, knowing that the trustee is misapplying them. In such a case, the law implies fraud, no matter how free from duplicity or immorality, in intention, the receiver of this misapplied trust fund may be. The single fact that he has knowingly received, in payment of his debt against the trustee, the fund of the beneficiaries, charges him with implied fraud. And we think it may be laid down as a general rule that a judgment against a trustee, in a suit where he is the sole defendant, and where the plaintiff is seeking to charge the trust-estate with debt, contracted by the trustee, for his own benefit, is-prima facie fraudulent. Being defendant in such a suit, is foreign to the object of the trust, and this the plaintiff is bound to know. The interest of the trustee is with the plaintiff, and is a perversion of the whole intent of the trust to permit his neglect, or his act to bind the trust property for his own benefit. We think, therefore, this judgment is, prima facie, not binding, and that the burden of showing the debt to be a proper charge upon the trust property, is upon the holder of the debt, independently of the judgment. The injunction [473] ought not to have been dissolved, and unless it be proven that, in fact, this was a debt properly chargeable upon the separate property of the wife, the injunction ought to be perpetual. Judgment reversed.