Reid, Murdoch & Co. v. Sheffy

Mr. Justice Waterman delivered the opinion of the court. That fraud vitiates all acts, and that a vendor from whom goods have been obtained by fraud on the part of the vendee may rescind and retake the goods, are matters concerning which there is no dispute. The question whether a sale, or rather an apparent or attempted sale, is absolutely void, or merely voidable at the instance of the vendor, and whether a bona fide purchaser from the vendee acquires, as against the vendor, a good title to goods intended to be, or apparently sold, has frequently arisen and been discussed; the rule seeming to be that where goods are obtained upon false representations by the vendee as to his character, financial ability and intentions as to-the goods, the sale is merely voidable, and a bona fide purchaser from the vendee will acquire a good title; but where the deception practiced upon the vendor is such that there is in reality no meeting of the minds of the parties, the sale is actually void and a bona fide purchaser from the apparent vendee will acquire no title. That in such an instance as is presented in this case — goods having been sold by appellants, as they believed, to Lillian E. Amphlett, she representing that she was buying them for herself, when in reality she ' bought the goods for three other parties and had no interest in them or their purchase save as the agent of said third parties — it has ever been held that the three concealed and unknown parties could hold goods so obtained against the vendor, we are unaware. In Lindsay et al. v. Cundy et al., Law Reports, Queen’s Bench Div., 2d App., it appeared that one Blenkarn took premises at 37 Wood street and wrote to the plaintiffs at Belfast ordering goods of them. The letters were dated 37 Wood street, and signed A. Blenkarn & Co., in such a way as to look like A. Blenkiron & Co., there being an old established firm of Blenkiron & Sons at 123 Wood street, which the plaintiffs knew. They supplied the ordered goods, addressing them to A. Blenkiron & Co., 37 •Wood street. The defendants purchased some of the goods bona fide of Blenkarn and re-sold them to other persons. The plaintiffs brought an action for the conversion of the goods. The court held that the plaintiffs intended to deal with Blenkiron & Sons and therefore there was no contract with Blenkarn; that the property of the goods never passed from the plaintiffs and that they were accordingly entitled to recover in the action. In Reed v. Barnett, Law Reports, 3d Chancery Div. 123, it appeared that a liquidating debtor who had not obtained his discharge, ordered goods from a wholesale house which sent the goods to him in the belief that the order had come from a firm with whom they were acquainted and whose name resembled that under which the debtor traded. The debtor’s trustee under the liquidation proceedings endeavored to hold the goods. The court say: “ If the law enabled the trustee to keep possession of these goods it would be a very singular law. The trustee has no right to these goods, but is bound to return them to the true owners unless he, indeed, is willing to pay the price of them. He ought not to have resisted the claim of the appellants. It was simply dishonesty to do so.” In Bush et al. v. Fry et al., 15 Ont. 124, it appeared a person at Beardstown, Illinois, had represented to a dealer in Chicago that he had a customer named Johnston to whom he could sell a piano and desired him to ship one in their name to be subject to their order, he, the music teacher, to pay freight charges in case of no sale and return the piano to the plaintiff, he, the music teacher, simply acting as their agent. The piano was shipped to him, whereupon he sent the same to Canada and pledged it for money borrowed. The court held “ that no title to the piano ever passed to the music teacher, as it was never intended that there -should.” Appellants never intended to sell any goods to the judgment debtors of the Plano Manufacturing Company against whom it filed its creditor’s bill, and consequently no title to goods parted with by appellants, with the belief that they were dealing with Lillian E. Amphlett only, was acquired by any of said judgment debtors. Under the finding of the court below that the store carried on by Lillian E. Amphlett was in realty the property and business of the judgment debtors, John B., T. G. and T. L. Amphlett, all goods obtained by Lillian from appellants were obtained by fraud, not only upon her part, but also on the part of John B., T. G. and T. L. Amphlett. The decree of the court below, by which goods so obtained were to be devoted to a payment of the debt of John B., T. G. and T. L. Amphlett to the Plano Manufacturing Company, carries into effect the fraud of the Amphletts, and enables John B., T. G. and T. L. Amphlett to pay their debt to the Plano Manufacturing Company with goods fraudulently obtained from appellant. A court of equity will never “ rob Peter to pay Paul.” It is urged by appellees that appellants, having taken a bill of sale from Lillian E. Amphlett of the goods in her store, and therefore canceled her debt 'to them, thereby ratified the action under which the goods were obtained from them, and lost all right to retake their goods. It does not appear that appellants, when they took this . bill of sale, were aware that the store in reality belonged to John B., T. Q-. and T. L. Amphlett, and that the goods therein had been obtained by fraud. But if they did know these facts, we do not perceive that it would have made any difference. Having ascertained that the goods had been obtained by fraud, appellants might have replevied the goods which they had parted with, but if Lillian Amphlett was willing to surrender them without such action, we see no reason why they should not have accepted her surrender; and, necessarily, the retaking of the goods, either by replevin or by voluntary surrender, would have discharged the obligation of Lillian Amphlett to pay for them. Mor do we think that if the first petition filed by appellants placed their right to hold the goods upon the surrender of them, or the bill of sale to them made by Lillian Amphlett, it deprived them of their right to insist that the goods had been obtained from them by such a fraud as that against them, none of the Amphletts obtained any title thereto. Taking the bill of sale, as appellants did, apparently without any knowledge of the fraud perpetrated by the Amphletts, or of the creditor’s bill filed by the Plano Manufacturing Company, it was quite natural for them to file their first petition, relying upon the title-they had acquired under the bill of sale. Indeed, while the right to hold the goods, because they had been induced to part with the possession of them by fraud, was set up in the amended petition which we are now considering, it does not seem to have been clearly urged, on argument, to the chancellor before whom the demurrer to said position was heard. Can appellants, of the goods surrendered to them by Lillian Amphlett, hold other than those which they had themselves parted with the possession of, under the fraudulent representations made to them? In other words, have they a fight to goods which, while not directly obtained from them, are the proceeds of goods which they parted with in consequence of the fraudulent representations and practices of the Amphletts? The Plano Manufacturing Company did not, as it might, have their execution levied upon the goods in the store carried on by Lillian E. Amphlett. They have resorted to a court of equity, and, being now in a court of equity, the goods kept by Lillian Amphlett in her store, and by her voluntarily surrendered to appellants in satisfaction of her debt to them, are to be treated and disposed of in accordance with equitable principles. Obtaining goods from appellants as she did, neither Lillian, John B., T. Gf. or T. L. Amphlett acquired title thereto; delivered, as the goods were, into the possession of Lillian, in the view of a court of equity, she received them merely in trust, holding them for the benefit of their true owners — appellants. A constructive trust arises whenever another’s property has been wrongfully obtained, appropriated and converted into a different form. If a trustee or other fiduciary person wrongfully converts goods held in trust into a different species of property, taking to himself the title, or if an agent or bailee wrongfully disposes of his principal securities and with the proceeds purchases other securities in his own name, in these and all similar cases, equity impresses a constructive trust upon the new form or species of property, not only while it is in the hands of the original wrongdoer, but as long as it can be followed and identified, into whosesoever hands it may come, except those of a bona fide purchaser for value and without notice. As a necessary consequence of this doctrine, whenever property subject to a trust is wrongfully sold and transferred to a bona fide purchaser so that it is freed from the trust, the trust immediately attaches to the price or proceeds in the hands of the vendor, whether such price be a debt yet unpaid due from the purchaser or a different kind of property taken instead, or even a sum of money paid to the vendor, so long as the money can be identified and is left in his hands or under his control. Pomeroy’s Equity Jurisprudence, Sec. 1044-1848-1051. It is not essential for the application of this rule that an actual trust or fiduciary relation should exist between the original wrongdoer and the beneficial owner. Whenever one person has wrongfully taken the property of another and converted it into a new form or transferred it, a trust arises and follows the property or its proceeds. Pomeroy’s Equity Jurisprudence, Sec. 1051. The decree of the Circuit Court is reversed and the cause remanded with directions to overrule the demurrer to appellant’s amended petition and for further proceedings in this cause not inconsistent with this opinion. . Beversed and remanded with directions.