Union National Bank v. Goetz

Moran, J. The facts stated in the cross-bill show that the transactions of the parties created between them the relation of debtor and creditor. The loan was obtained by making false representations; but the fact that the subject of the transaction was money instead of merchandise, permits no distinction as to the principle that is to govern. If, for greater clearness of illustration, we suppose that 815,000 worth of goods had been obtained from complainants on credit on the same false representations that induced the loan, and that said goods had been sold and the proceeds of them had gone with other funds into the purchase of the stock in the hands of the receiver, so that neither the goods nor proceeds could be identified or traced, further than that the same went in general augmentation of the assets of appellees, it will be readily seen that the condition of the parties would be such that the creditors could not be permitted to change the relation from debtor and creditor to trustee and cestui que trust. It is not like the case where the first relation existing between the parties with reference to goods or money is a trust relation, created either expressly or by implication. In such case a court of equity enforces a trust created by the parties, but a trust ex maleficio is one raised or constructed by the court upon the acts of the parties wdiere no trust was intended by either party, for the purpose of furnishing to the wronged party-a more complete remedy. How, before equity can charge as trustee one who has obtained the title to goods from the vendor by fraud, not only the fraud must be shown, but it must also appear that the parties are in such a situation that a rescission of the fraudulently induced contract can be effected. A sale of goods or a loan of money, though induced by fraud, vests title to the goods or the money in the vendee or the borrower. The transaction is not void, either at law or in equity, but only voidable, and it is to be taken as valid until rescinded. The effect of a rescission must be to restore the status quo. If the party who obtains the goods has disposed of them, and has obtained money or other goods in their place, there can be no rescission at law or, rather, a rescission at law can not operate to restore the title in the goods to the vendor; but there may be a rescission of the contract so as to allow the vendor to maintain an action for damages for the deceit or fraud practiced upon him. Though he can not reclaim the goods, because the rights of third persons have intervened, or the identity of the goods is lost, he is not confined to the terms of the fraudulent contract for remedy, but may disregard those terms and recover damages for the consequences of the fraud as a substantive cause of action. So money obtained by fraud or under a fraudulent contract, may be recovered at law, in an action for money had and received. How by analogy, the same facts which will prevent the deceived party from reclaiming the title to the goods, at law, will prevent him also in equity. Rescission may be his right because the contract was induced by fraud, but unless the goods obtained by the fraud can be identified in the hands of the vendee, or if money was obtained, and that can not be clearly and distinctly traced, and its substantial identity with the money obtained shown, the conditions do not exist which permit the resumption of title by the defrauded party, and ¡authorize a court of equity to decree the restoration of the goods, or money, as property, the title to which never passed, and which the perpetrator of the fraud held as trustee for the defrauded. In such cases the jurisdiction of courts of law and courts of equity is concurrent, and the principles on which they proceed are identical. A judgment may be obtained at law, and a decree in equity, but they will be for the same thing in substance. In the English courts a decree will go in such case though there is a clear remedy at law. Ramshire v. Bolton, L. R. 8, Eq. 294; Hill v. Lane, L. R. 11, Eq. 215. It is thus seen that though fraud in the vendor or borrower may give rise to the equitable right of rescission in the vendor or lender, whether equity in applying a remedy will impress a trust on the property, and decree its return, depends on the identification of the property in the hands of the vendee, without the attaching of the bona fide rights of third persons, or on tracing the fund with certainty and clearness in such manner as that its identity as a separate fund is maintained, Where the property is in the hands of the vendee, the remedy is complete and adequate at law, and hence there is, ordinarily, no occasion to invoke the aid of chancery ; and though, undoubtedly, money has often been obtained by means of false representations as to credit or by other false pretenses, a court of equity is now asked for the first time, as far as we are advised, to construct a trust upon the fraud, and declare a specific lien on all the property of the debtor, upon the allegation that the money by fraud obtained went to the increase of his general assets. The principles on which the court proceeds, does not authorize the maintenance of the bill. Though general statements found in text books are broad enough to give apparent support to appellant’s contention, when the authorities cited in support of such propositions are examined, none are found which go the length necessary to sustain the application of the doctrine invoked to the facts of this case. It would be unprofitable to enter upon a discussion of the different authorities that illustrate the extent to which the court will go in aid of a cestui que trust. Where there is a strict trust, i. e., where the relation is created by the act and intent of the parties, or where a fiduciary relation exists between them, some courts have gone the length in the execution of the trust, of giving a general lien on the entire fund of a trustee who had wrongfully mixed the trust fund with his individual property in order to destroy its identity. In such cases the court aids the enforcement, of a trust created by the parties and prevents the fraud from defeating the trust, and the remedy of rescission is not necessary to the court’s action, there being nothing to rescind. But even in such cases our Supreme Court has refused the relief where the fund could not be followed as a separate and independent fund distinguishable from any other. The School Trustees v. Kirwin, 25 Ill. 73, Wilson v. Kirby, 88 Ill. 566, and the many cases cited in appellee’s brief decided by courts of last resort in other States, show that the view of our own court is sustained by the weight of authority. This bill does not seek a decree for the amount of money due to the complainant. The relief sought is a specific lien for the amount due upon the general assets. The bill declares that the fund can not be identified or traced. By that allegation the cross-complainant showed that it was not entitled to the relief. The bill makes a case which would probably entitle the complainant to a judgment at law for the money borrowed, on the strength of the false statements alleged to have been made, as for money had and received, or in an action for deceit, but makes no case for the relief asked in a court of equity. Decree affirmed.