Brownback v. Nelson

The trial judge found that paragraph X was an action in equity. In paragraph X the plaintiff is seeking to recover the profits realized from the sale of a dwelling house purchased with partnership funds. If he were attempting to recover damages for wrongful conversion of partnership property he would be entitled to be compensated for the injury sustained. But he cannot be placed in a better position than he would have been had the wrong not been done. 15 Am. Jur., "Damages," sec. 65, p. 469. Here the plaintiff wants the restoration of the money converted but in addition he wants to share in the profits the defendant received. He is not entitled to such profits in an action in tort or under the common counts in quasi contract. He must recover these damages in a court of equity.

In the case of Wilson v. Wilson, 64 Mont. 533, 543,210 P. 896, 899, this court held: "Partners occupy a fiduciary relation toward one another, and the rule of law is well settled that, where one partner having possession and control of the partnership funds uses the same to purchase land in his own name, the land so purchased inures to the benefit of all the partners, and each of his copartners may demand an interest in the property acquired corresponding in extent to his interest in the funds in the first instance. In other words, under such circumstances, a resulting trust in the property springs up in favor of the partnership, and the grantee holds it as a mere trustee for the partnership." (Citing many cases and text authorities.) See also Restatement on Restitution, sec. 202 and Mather v. Musselman,79 Mont. 566, 257 P. 427.

The reason for the imposition of the constructive trust is: "Where a person by the consciously wrongful disposition of the property of another acquires other property, the person whose property is so used is not only entitled to hold the wrongdoer personally liable for the value of the property wrongfully disposed of but he is entitled as an alternative to the property so acquired. If the property so acquired is or becomes more valuable than the property used in acquiring it, the profit thus made by the wrongdoer cannot be retained by him; the person whose property was used in making the profit is entitled to it. The result, it is true, is that the claimant obtains more than the amount of which he was deprived, more than restitution for his loss; he is put in a better position than that in which he would have been if no wrong had been done to him. Nevertheless, since the profit is made from his property, it is just that he should have the profit rather than that the wrongdoer should keep it." Restatement Restitution, Comment (c), sec. 202.

Note that Wilson v. Wilson, supra, says a "resulting trust" will be imposed and the Restatement says a "constructive trust" will be imposed. As to the distinction between a "resulting" and a "constructive" trust, see Meagher v. Harrington, 78 Mont. 457,470, 254 P. 432; sec. 7887, R.C.M. 1935; 3 Scott on Trusts, sec. 462.1, p. 2315.

The imposition of the constructive trust in Wilson v. Wilson, supra, and the principle enunciated in section 202 of the Restatement on Restitution is based upon the tracing of the converted funds into the actual res which is the product of the property obtained by fraud. In the instant case the dwelling house purchased with the partnership funds has been sold and the money received has been intermingled so that the proceeds cannot be traced. The appellant is demanding a money judgment for the profit received.

In such case equity will grant relief. "The entire profits belong to the cestui que trust, and equity will so mould and apply the remedy as to give them to him." May v. Le Claire, 11 Wall. 217, at page 236, 78 U.S. 217, at page 236, 20 L. Ed. 50; Dow v. Berry, C.C., 18 F. 121, 126.

"Where the claimant would be entitled to enforce a constructive trust or equitable lien upon the product of his property if his property could be traced into a product, but he is unable to trace it, he may be entitled to maintain a proceeding in equity to enforce a personal liability of the wrongdoer." 3 Scott on Trusts, sec. 522, p. 2513; 21 C.J., Equity, sec. 36, p. 59; 30 C.J.S., Equity, sec. 28, pages 354, 355; United States v. Carter, 217 U.S. 286, 317, 30 S. Ct. 515,54 L. Ed. 769, 19 Ann. Cas. 594; Madison Trust Co. v. Carnegie Trust Co., 167 A.D. 4, 152 N.Y.S. 517, 530; Fur Wool Trading Co. v. George I. Fox, Inc., 245 N.Y. 215, 156 N.E. 670, 58 A.L.R. 181; Otis v. Otis, 167 Mass. 245, 45 N.E. 737; Andersen, Meyer Co. v. Fur Wool Trading Co., 9 Cir., 14 F.2d 586; Detroit Trust Co. v. Struggles, 283 Mich. 471, 278 N.W. 385; 2 Perry on Trusts, secs. 837, 843, 844, 847.

An examination of the complaint will show that plaintiff has pleaded a cause of action for a constructive trust. He has established the fiduciary relationship, the wrongful act and the profit made as a result of that act.

The majority state that by consenting to the dissolution agreement he is not entitled to impose a trust. But the trust is imposed by operation of law at the time of the wrongful act of the fiduciary. By fraud and misrepresentation the defendant induced the plaintiff to consent to a dissolution of the partnership but that does not terminate the trust nor relieve the trustee of his obligations.

The trial court was correct in finding that paragraph X was founded in equity. Therefore the action is a transitory one and should be governed by the provisions of section 9096, R.C.M. 1935. McKinney v. Mires, 95 Mont. 191, 26 P.2d 169.

The order should be affirmed.

Rehearing denied June 8, 1949.