Halle v. National Park Bank of New York

Mr. Justice Wilkin delivered the opinion of the Court : The first point made by counsel for plaintiff in error is, that the Superior Court erred in holding that the “merchandise and fixtures” mentioned in said bill of sale were transferred to him by Cohnfeld in-trust, to pay said promissory notes. It is said in 4 Kent’s Commentaries, page 348: “Collateral securities given by a debtor to his surety are considered as trusts, for the better security of the creditor’s debt, and chancery will see that their intention be fulfilled.” Also, in 1 Story’s Equity Jurisprudence, section 499 : “It is generally understood that the surety holds all securities in trust, not only for the other sureties, but for the creditor also, until the debt is paid.” And again, in section 638: “If a principal has given any securities or other pledges to his surety, the creditor is entitled to all the benefit of such securities or pledges in the hands of the surety, to be applied in payment of his debt.” In Pratt v. Adams, 7 Paige, 624, the chancellor said: “And it has been settled by a long course of judicial decisions, that where a person standing in the situation of indorser or surety is furnished or provided by the principal debtor with a fund, or with collateral security for such a purpose, the creditor is, in equity, entitled to have it applied in satisfaction of, the debt, ” in support of which he cites many authorities. We know of no exception to the rule thus announced, and there is therefore no occasion for referring to the numerous authorities to the same effect. While Halle was an accommodation maker of the notes to secure the payment of which he held the property in question, on the facts of the case we think the principle announced in those authorities is applicable here. That the bill of sale by Cohnfeld to Halle, of November 3, 1887, and the receipt back by the latter, show conclusively that the “merchandise and fixtures” therein mentioned were placed in the hands of Halle to secure the payment of the notes described in the bill and decree, is past controversy. To allow parol proof to show that the parties to those instruments intended otherwise, would be to violate the well known rule of-evidence that the terms of a valid written contract cannot be contradicted or varied by proof aliunde. Neither does-the evidence in this record, fairly considered, tend to show a different intention from that expressed in the writings. It is then contended, that although the bill presented a good cause of action, yet when the proof showed that the trustee, Halle, had sold the trust property to innocent purchasers, and had mixed the proceeds of such sale with his own funds, as was found by the decree, the bill should have been dismissed. As a sequence to this last proposition it is insisted that the proper remedy by the complainant was at law, for the value of those goods, as 'for money had and received. An attempt is made to give strength to this position by assuming that the decree of the (Superior Court finds there was no “willful conversion or tortious mixture” of the trust fund on the part of Halle. The decree 'finds that he had in his hands the proceeds of the sale, as a trust fund; also, that he has not kept it separate and apart from, but has mixed it with, his other moneys, and has used the same in his business, etc. Can a trustee mix trust funds with his own, rightfully ? The decree in this case finds what the trustee did, and the law pronounces that conduct wrongful, because it imperatively forbids the mixing of the trust funds with his own, and says, if he does so, the cestui que trust may follow the trust fund and claim every part of the blended property, unless the trustee can identify his own. (Perry on Trusts, 447.) It would be a travesty upon equity to say that a trustee can defeat the jurisdiction of a court of chancery to enforce the application of a trust fund to the purposes of the trust, by appropriating that fund to his own private use. By the findings in the decree, when this bill was filed the proceeds of the sale to Aseher, Barnard & Co. were a distinct and separate fund, evidenced by certain promissory notes which were afterward paid to the trustee. Can it be said that by abusing his trust in destroying the identity of that fund,— that, too, in the face of a chancery proceeding seeking to reach the fund and compel him to execute his trust,—he can oust the court of jurisdiction, and relegate the cestui que trust to a court of law, there to recover the value of the goods ? It need scarcely be said there is no similarity between this case and National Bank v. Goetz, School Trustees v. Kerwin and Taylor v. Turner, cited by counsel for plaintiff in error. ■Here was an express trust. The fund is still in the hands of the trustee. No one is interested in it except himself and the cestui que trust. There is no attempt even to enforce a lien upon his general assets. He is simply asked to pay over the money in discharge of his trust. It is somewhat surprising that Taylor v. Turner, 87 Ill. 296, should be thought to give support to the position that a court of equity has no jurisdiction in this case. Bailments have always been understood to fall within the exception to the general rule that matters of trust and confidence are exclusively cognizable in courts of equity, it being considered that they are remedial in courts of law by an ac tion of assumpsit for money had and received. (3 Blackstone’s Com. 432; 2 Story’s Eq. Jur. sec. 962.) Taylor v. Turner simply decides that the facts in that case established the relation of bailor and bailee, and that the remedy at law being complete, it should have been pursued. We have already seen that the relation of Halle to the property conveyed to him by Cohnfeld ■ was that of trustee, pure and simple,—as much so as though it had been conveyed to him as a third party, to secure said notes. The bill was filed to reach, first, the trust property itself, and if that could not be done, then to compel the application of the proceeds according to the terms of the trust. Manifestly, to accomplish this there was no remedy at law. Sargent v. Howe et al. 21 Ill. 149. It would seem to follow, necessarily, from the foregoing, that we should concur in the conclusion of the Appellate Court that it was error in the Superior Court to refuse to order the trustee to pay over the money in his hands to the complainant iin the bill. The decree, as it stands, is certainly illogical, if ;not contradictory of itself. It gives the complainant its remiedy, in equity, to the extent of establishing the trust, and fixing the trust fund in the hands of the trustee, but refuses him the aid of a court of chancery to compel the trustee to execute .his trust. Although the trustee has in his hands $7143.38 belonging to the complainant, yet, under this decree, unless that fund can be reached by an execution at law, the trustee may keep it in defiance of his trust. Certainly that can not be the law. Under the well settled rules of chancery practice, on the facts found by the Superior Court the complainant was entitled to an order on the defendant, Halle, requiring him to pay the funds in his hands to the complainant on the notes held by it. The judgment of the Appellate Court will be affirmed. Judgment affirmed.