p. 345for the continuance of its business. His surviving co-partners have transferred to him all their right, title and interest in and to the said policies of insurance and certificates and the proceeds thereof. On December 26, 1890, the agreement which is set forth in the complaint was entered into, under which the said policies and certificates were delivered to the defendant Olin as trustee. He has collected the same, and the proceeds, aggregating $56,706.10, he has deposited with the defendant, the Union Trust Company. The plaintiff has brought this action, alleging (among many other things) the copartnership relations existing between himself and his assignors and the said Arthur C. Gil-man ; and that Gilman wrongfully abstracted and appropriated large sums of money belonging to the co-partnerships ; and that out of such moneys he paid the premiums'and assessments by which the said policies and certificates were either procured originally or continued in force and value; and he demands judgment that the proceeds of the said life policies and memberships “be declared impressed with a trust in favor of the plaintiff,” and that the defendants, the Union Trust Company and Olin, be required to pay the same over to him, with accumulations of interest thereon.
Albert A. Abbott, and George Hoadly, for plaintiff.
Stephen H. Olin, for defendants.
[after stating the above facts.]—Before proceeding to consider the main questions which the case presents, mention should be made of the first ground of defence taken by the learned counsel for Mrs. Gilman, which he has argued with great earnestness and skill. He contends that the proofs submitted by the plaintiff fail to establish Gil-man’s guilt; that is, that they are not so direct and conclusive that they “ exclude every theory consistent
p. 346with Gilman’s innocence.” In my judgement, the circumstantial evidence is of the most convincing character, and demonstrates the criminality of Gilman beyond any reasonable doubt. It more than satisfies ■ what was held to be sufficient in N. Y. & B. Ferry Co.
v. Moore ( 18
Abb. N. C. 106 ); where Judge Earl said that -the circumstances “ all point in one direction. They do not exclude every hypothesis but that of Moore’s wrongdoing, but they all harmonize with that of his guilt. His innocence may be possible. But courts, in weighing evidence and reaching couclusions, do not deal with possibilities, but with probabilities.”
The partnership relation is one of trust and confidence. Judges have used strong language in describing and defining it. “ The principles upon which the relationship of copartners is founded are strict and exacting, demanding entire good faith towards each other, and the highest standard of morality, integrity and fair dealing.” Miller, J., in Manufacturers’ Bank v. Cox ( 2 Hun, 572 ). “ A purer and more elevated morality is demanded of partners than the common morality of trade, and the standard by which they are tried in a court of equity is far higher than the standard of the world.” Barrett J., in Platt v. Platt (2 T. & C. 39).“ The functions, rights and duties of partners in a great measure comprehend those both of trustees and agents, and the general rules of law applicable to such characters are applicable to them.” Earl, J., in Mitchell v. Reed ( 61 N. Y. 123 ). It is a plain proposition, nobody in this case disputes it, that the copartnership moneys of which Gilman was placed in charge were in his charge in trust, and that his duties in respect of them were those of a trustee for his copartners.
We have, then, the case of trust funds embezzled by a trustee, and appropriated in part to his own uses, and in part invested for the future benefit of a third party, without her knowledge, and without any consideration
p. 347moving from her. Such a wrong the law is ever eager to redress. It permits no man “ to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime ” (Riggs
v. Palmer, 115
N. Y. 511 ; Silsbury
v. McCoon, 3
Comst. 379). An abuse of trust can confer no rights on the party abusing it, nor on those who claim in privity with him (Taylor
v. Plumer, 3
M. & S. 574). Equity will follow trust funds through any number of transmutations and preserve it for the
cestui que trust so long as it can be identified. In Pennell
v. Defell (4
DeG. M. & G. 372, 388), Lord Justice Turner said : “ It is, I apprehend, an undoubted principle of this court that as between
cestui que trust and trustee, and all parties claiming under the trustee, otherwise than by purchase for valuable consideration, without notice, all property belonging to a trust, however much it may be changed or altered in its nature or character, and all the fruit of such property, whether in its original or its altered state, continues to be subject to or affected by the trust.” The rule is stated fully and clearly by Judge Andrews in Newton
v. Portef (
69 N. Y. 133 ). “ In courts of 'equity the doctrine is well settled, and is uniformly applied, that when a person, standing in a fiduciary relation, misapplies or converts a trust fund into another species of property, the beneficiary will be entitled to the property thus acquired. The jurisdiction exercised for the protection of a party defrauded by the misappropriation of property, in violation of a duty owing by the party making the misappropriation, is exceedingly broad and comprehensive. The doctrine is illustrated and applied most frequently in cases of trusts, where trust moneys have been, by the fraud or violation of duty of the trustee, diverted from the purposes of the trust and converted into other property. In such case a court of equity will follow the trust fund into the property
p. 348into which it has been converted, and appropriate it for the benefit of the beneficiary. It is immaterial in what way the change has been made, whether the money has been laid out in land, or land has been turned into money, or how the legal title to the converted property may be placed. Equity only stops the pursuit when the means of ascertainment fail, or the rights of
bona fide purchasers for value, without notice of the trust, have intervened.” The books abound in cases holding this familiar and reasonable doctrine (Day
v. Roth, 18
N. Y. 452 ; Van Allen
v. Am. Nat. Bank, 52
Id. 1; Haddow
v. Lundy, 59
Id. 320; Stephens
v. Board of Education, 79
Id. 186; Barry
v. Lambert, 98
Id. 300; Price
v. Brown, 98
Id. 395; Matter of Gavin, 105
Id. 256 ; Hooley
v. Gieve,
9 Abb. N. C. 8 ; May
v. Le Claire, 11
Wall. 236 ; Cook
v. Tullis, 18
Id. 341 ; Sadler’s Appeal, 87
Penn. 154 ; Englar
v. Offutt, 70
Md. 78 ).
Relying upon these principles, the plaintiff’s contention is that the policies in question were purchased with and represent or stand in the place of moneys belonging to Labaree & Co., feloniously taken by Gil-man in violation of his duty as trustee, and that the plaintiff as assignee of Labaree & Co. is entitled to the policies and to, substantially, the whole of their proceeds, on the ground that such proceeds are the profits or products of the trust moneys so embezzled. This the defendant Bessie L. Gilman strenuously denies. She admits that (I quote from her counsel’s brief), “ If Arthur Gilman had stolen money from the plaintiff, and with it had bought a jewel or certificate of stock as a gift for his wife, the plaintiff could take the jewel or the stock, even if it was worth more than the purchase price.” This is undoubtedly correct. Her second proposition is that if the stolen money had been mingled with money of the stealer, or with money of his wife, and then expended for the jewel or the stock, or used in improving land
p. 349or other property belonging to the wife, then the plaintiff would have a lien, or could enforce a trust only for the amount of the stolen money, and the surplus would be the property of the wife. This is also correct. It is then insisted that, assuming that all the premiums upon the policies in question were paid by Gilman out of the stolen moneys, the proceeds of the policies are not the fruit of those premiums only, because Mrs. Gilman had an insurable interest in her husband’s life, which was property, and which she contributed to the contract of insurance ; and therefore, the policies were produced by the commingling of this insurable interest with the stolen moneys. This strikes me as a novel proposition. I will re-state it in the learned counsel’s own language. “ The insurable interest, which the law recognizes as her property, a real right of property, was entrusted to him, and was by him mingled with the money stolen by him.’’ And in his brief he says : “ If Arthur Gilman used stolen moneys to pay the premiums on policies of insurance, based on his wife’s insurable interest in his life, he was insuring her own property, property recognized and protected by our laws, and the proceeds of the insurance belong to her, subject, at most, to a possible obligation to account for the premiums paid by him.” And again : “The plaintiff's money was mingled with her property without her knowledge and without her fault.”
It seems to me that this argument rests on a false foundation. One error consists in regarding a wife’s insurable interest in her husband’s life as property. What is an “insurable interest” in a human life? In Warnock v. Davis ( 104 U. S. 775 ), the court said : “ It is not easy to ’define with precision what will in all cases constitute an insurable interest so as to take the contract out of the class of wager policies. It may be stated generally, however, to be such an interest, arising from the relations of the party obtaining the
p. 350insurance, either as creditor or surety for the assured, or from the ties of blood or marriage to him, as will justify a reasonable expectation of advantage or benefit from the continuance of his life. It is not necessary that the expectation of advantage or profit should be always capable of pecuniary estimation. . . . But in all cases there must be a reasonable ground, founded upon the relation of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured.” A child has such an interest in the life of a parent, a creditor in the life of his debtor, a partner in the life of a co-partner, a master in the life of his servant. If a policy upon a life is obtained by one who has no interest in the life, it is void as a wager policy (Ruse v. Mutual Benefit Co., 23 N. Y. 523 ). The insurable interest of a wife in the life of her husband existed at common law (Baker v. Union Mutual Co., 43 N. Y. 287 ; Brummer v. Cohn, 86 N. Y. 14 ). Yet the common law denied a widow any pecuniary redress from a wrong doer, by whose negligent or crimnal act her husband’s life had been destroyed. The remedies given by statutes for such wrong are “ unknown to the common law, created by the acts, for damages or injuries also created by the acts; for in a legal or judicial sense, damages or injuries for which there is no legal redress are not damages or injuries. These acts which create the remedy for the benefit of the widow and next of kin, also create the wrong as to them ” (Beach v. Bay State Co., 30 Barb. 436 ). I can see nothing in a wife’s insurable interest in her husband’s life that can be correctly described as property, or that resembles property, or that is capable of being contributed by the wife towards a contract of insurance, or of being “commingled” with the premiums paid, so that the proceeds of the policy can be properly described as
p. 351the joint product of such an interest and premium.,. The law permits the insurance to be made if the interest exists, and the insurance is upon the husband’s life, not simply upon the wife’s insurable interest therein.
It is held in this State that a life insurance is not, like a fire insurance, a contract of indemnity, but “ a mere contract to pay a certain sum of money on the death of a person, in consideration of the due payment of a certain annuity for his life. Like every other contract to pay money, such a policy is a chose in action, with all the ordinary incidents of every other chose in action ” (Olmstead v. Keyes 85 N. Y. 598 ; Rawls v. American Life Ins. Co., 27 Id. 289). Therefore a party may insure his own life for the benefit of a stranger who has no interest therein. So a policy, valid in its inception, may be assigned, like any other chose in action, and will continue valid in the hands of the assignee, although he may have no interest in the insured life. Same cases. So a creditor, who procures insurance upon the life of his debtor, may enforce the policy, although, before it becomes payable, his debt be paid or his debtor be discharged in bankruptcy (Ferguson v. Mass. Mutual Ins. Co., 32 Hun, 306 ). It is true that where the insurance is upon the life of a husband for the benefit of his wife, the assignability of the policy before its maturity is regulated and restricted by the statue, but this does not in any respect affect the nature or the character of the contract of insurance; it is a contract to pajr money, and the instrument that evidences it is a chose in action.
Now it is conceded that if the monej's embezzled by Gilman and paid for premiums had been invested by him, in his wife’s name, in notes, or bonds or stock, or in any speculative enterprises, the plaintiff would be entitled to demand and recover such investments. All increase of values and all profits resulting from the investments would belong to him. Why is not his
p. 352right equally clear and certain to an obligation of an insurance company to pay a sum of money to Mrs. Gilman upon Gilman’s death, the entire consideration for which obligation was paid by Gilman with the stolen moneys? It is said that Gilman never had any title to or interest in the policies in question ; that the contracts of the insurance companies were not made with him, but with Mrs. Gilman; that the policies became her separate and absolute property as soon as they were issued ; and that she is consequently entitled to receive the proceeds free from any claim or interference on the part of the husband’s creditors. The case of the Central Bank
v. Hume (
128 U. S. 195 ), is pressed upon me as establishing this doctrine, and as decisive of the present action.
In that case Hume had obtained insurance upon his life in several companies for the benefit of his wife. The applications were made by him in her name, and the policies were pajmble to her. Some of the premiums were paid by Hume out of moneys belonging to his wife ; some were paid by him out of his own moneys while he was insolvent. Upon his death his creditors sought to reach the proceeds of the policies and have ■ the same appropriated to the payment of their claims. Their contention, as stated by Chief Justice Fuller, was as follows : “ Mr. Hume having been insolvent at the time the insurance was effected, and having paid the premium himself, it is argued that these policies were within the provisions of 13 Elizabeth, c. 5, and inure to the benefit of his creditors as equivalent to transfers of property with intent to hinder, delay and defraud.’’ But the court held that the statute of Elizabeth applied only to property which the debtor could have made available for the payment of his debts : that it “ is the general rule that a policy, and the money to become due under it, belong, the moment it is issued, to the person or persons named in it as beneficiary,
p. 353or beneficiaries and that there is no power in the person procuring the insurance,' by any act of his, by deed or by will, to transfer to any other person the interest of the person named;” that the interest insured (in Hume’s case) was neither the debtor’s nor his creditors’; that the contracts were not payable to the debtor or his representatives or his creditors: that there had been no fraud on the part of the wife or the insurance companies; that although Hume had paid the premiums out of his own funds when insolvent, and such payments were within the statue of Elizabeth, yet that would not give the creditors any interest in the proceeds of the policies, which, for the reason stated, belonged to the beneficiaries ; and that the creditors were not entitled to recover even the premiums paid because they formed no part of the proceeds of the policies. The court said.: “ This argument in the interest of creditors concedes that the debtor may rightfully perserve his family from suffering and want. It seems to us that the same public policy which justifies this, and recognizes the support of wife and children as a positive obligation in law as well as morals, should be extended to protect them from destitution on the debtor’s death by permitting him, not to accumulate a fund as a permanent provision, but to devote a moderate portion of his earnings to keep on foot a security for support already, or which could thereby be, lawfully obtained, at least to the extent of requiring that, under such circumstances, the fraudulent intent of both parties to the transaction should be made out. And inasmuch as there is no evidence from which such intent on the part of Mrs. Hume or the insurance companies could be inferred, in our judgment none of these premiums can be recovered.’’
Briefly stated, the doctrine of the Hume case is that the appropriation by a debtor in failing or insolvent circumstances of a “moderate portion” of his income
p. 354to the procuring or continuing of insurance upon his life for the benefit of his wife or family, is not a fraudulent use or diversion of so much of his property of which his creditors can complain; that it is a use which public policy approves and the law defends; that, therefore, the premiums paid cannot be followed and reached by creditors of the insolvent, in the absence of a fraudulent intent on the part of the party or parties to be benefitted by the insurance contract; and that the moneys paid for premiums being the moneys ■of the debtor, and lawfully expended by him in the purchase of a policy for the benefit of his wife, and payable to her, her title to such policy is perfect from the moment it is issued, and the right to receive the' proceeds of it is absolute as against all parties. As the policy never belonged to the debtor, his creditors can have no claim to its proceeds ; neither can they recover the premiums out of the proceeds because, as the court said, “ the premiums form no part of the proceeds of the policy; ” neither can they have a trust impressed upon the proceeds to the extent of the premiums paid by the debtor, because such payments were lawfully made, and were not, in any sense, in fraud of creditors.
The statute of this state is in exact accord with, the principle of public policy referred to in the opinion in the Hume case. It permits a husband, although insolvent, to pay out of his “property or funds ” for premiums for the benefit of his wife, a sum not exceeding :$5oo annually; and it declares that “ the amount of the insurance becoming due and payable by the terms of the insurance shall be payable to her, and for her own use, free from the claims of the representatives of the husband, or of any of his creditors, or any party or parties claiming by, through or under him.’’ Laws 1870, chap. 277. But both the Hume case and the statute have reference to funds or property belonging to the husband, of which he has the right of disposition,
p. 355and which he, in fact, uses for the benefit of his wife and children. A man who is indebted is said to sustain two distinct relations to his property—that of owner and that of quasi trustee for his creditors (Candee
v. Lord, 2
N. Y. 274 ). “ The laws lays upon him an obligation to pay his debts, and holds him, in behalf of his creditors, to the exercise of good faith in all transactions relating to the fund upon which they must depend for payment.” Creditors have an equitable interest in their debtor’s property and the means he has of satisfying their demands (Seymour
v. Wilson, 19
N. Y. 418 ). Now, in the Hume case, the court holds that notwithstanding the fact that a man is indebted to the degree of insolvency, yet he may take from his assets and resources a reasonable sum annually, and devote it to making provision by insurance upon his life, for the support of his family after his death, in defiance of the claims of his creditors, and without perpetrating upon them a legal fraud. And by the New York statute the rights of the husband’s creditors are disregarded and denied in favor of the wife, to the extent, annually, therein provided. In both cases the controlling principle is public policy. In this state an insurance in favor of the wife upon her husband’s life, the premiums for which are paid by him out of his own funds, is valid, and the proceeds of the insurance belong to her as against the world, not because she has parted with any consideration, or contributed her “ insurable interest” to the contract, or commingled her property with the premiums to produce the policy, but because of the peremptory declaration of the statute.
But there is in the present case a fact which in my judgment forbids the application of the rule declared in Central Bank v. Hume. Here the money with which the premiums were paid and the policies procured (except as stated hereinafter) were not the moneys of the defendant or of her husband. They
p. 356.were stolen moneys—stolen by Gilman from the plaintiff an.d his assignors. He acquired them by crime. All his subsequent dealings with them—retention, posession, use, investment,—were criminal—continuations or extensions of the original felonious acts. Having no title to them, he could confer no title upon any other person not a transferee for value and in good faith. He could confer no title upon his wife by gift. He could not invest the moneys in any way for her benefit, so that she could acquire title to or interest in the investment as against the party from whom the moneys had been stolen. He could not contract with them for the. future benefit of his wife, purchasing for her the bond or obligation of an insurance company to pay her money upon his death. It is error to say that all these policies, when issued, became the property of Mrs. Gilman. No matter what her rights to them and their proceeds may be as against mere creditors of her husband, it is certain, I think, that she can have no claim to either, beyond what is allowed her in this action, as against the plaintiff.
The case of Shaler v. Trowbridge ( 28 N. J. Eq., 595 ), is very similar in its facts to the case in hand. Trowbridge was a partner in business with the plaintiffs. He had charge of the books, and the financial matters of the firm. After his death, discovery was made that the accounts kept by him were false, and that he had embezzled and appropriated large amounts of the moneys of the firm, some of which he had invested in policies of life insurance, payable to himself. These policies he afterwards had transferred and made payable to his wife. The surviving partners brought their action in equity to have their right established to the entire proceeds of the policies, and it was held that they were entitled to the relief demanded. The court said that, “ in equity, a distinction can never be drawn between the money misappropriated and the results
p. 357of the investment in favor of the fraud-doer. Nor does it make any difference that the investment turns out to be a profitable one, for, whatever the profit may be, it must belong to the cestui que trust. The fact that this property has been passed into the hands of the wife does not prevent the application of these equitable principles. She received it as a gift from her husband, without paying any consideration whatever for it. When once a fraud has been committed, not only is the person who committed the fraud precluded from deriving any benefit from it, but every innocent person is so, likewise, unless he has in good faith acquired a subsequent interest for value ; for a third person, by seeking to derive any benefit under such a transaction, or to retain any benefit resulting therefrom, becomes jparticefis criminis, however innocent of the fraud in the beginning. It is urged that a life policy should be exempt from the equitable rule which applies to other transactions, because it differs in its character from ordinary investments, and is a beneficial provision for the family, which should be favored. Public policy clearly forbids the adoption of this suggestion. It would invite the commission of the wrong by assuring the wrong-doer that there is one mode in which he could surely profit by his turpitude in securing a provision for his family. The policy is the thing which the partnership’s money purchased, and it stands in the place of what was corruptly abstracted..... The fact that it has a contingent value does not distinguish it in principle from an investment in the purchase of stock, or of an annuity, and can give no support to the claim of the widow that nothing should be exacted of her beyond the amount of the premiums paid upon it out of the firm funds......It would be idle to denounce his turpitude, and at the same time to reward it by allowing him to transmit its fruits to his family. His wife can derive, through so corrupt a
p. 358source, no equitable rights to these policies : neither public policy nor the intrinsic justice of the case would be promoted by permitting her to do so.,” .
The learned counsel tor the defendant has vigorusly contended that Shaler v. Trowbridge does not apply to the present case “ because the status of married women was so different in New Jersey, that the rights on which Mrs. Gilman’s claim rests were not possessed by Mrs. Trowbridge.” But the question in both cases is the same. It is whether a wife can acquire by gift from her husband title to moneys misappropriated by him, or title to property into which such moneys have been converted by him. It is whether a widow can retain the fruits of her husband’s wrongdoing to the injury of the person to whom the wrong was done. It must be answered by a reference to the fixed and certain principles of equity jurisprudence, and the answer must be the same in every civilized jurisdiction. I am unwilling to believe and should be sorry to discover that the State of New York had, either by statute or judicial decision, conferz-ed any special or extraordinary rights or privileges upon a wife or widow in such case.
The remaining question is as to the respective rights of the plaintiff and Mrs. Gilman in the proceeds of these several policies. The first in order of date is a policy of the New York Life Insurance Co. for $5,000. It was issued on March 9, 1880, and is in terms payable to Mrs. Gilman. It is not denied that the premiums on this policy down to April, 1882, were paid by Gilman with moneys which he had honestly acquired, and which the law authorized him to apply in such manner for the benefit of his wife. The contract of insurance becazne complete upon the payment of the first premium on March 11, 1880. It belonged to Mrs. Gilman. Whitehead v. N. Y. Life Ins. Co. ( 102 N. Y. 143 ). It is like the policy of the Life Insur
p. 359anee Company of Virginia in the Hume case, of which the court said : “ It is conceded by counsel for the complainants that this contract was perfectly valid as against the world ”—the first premiums having been paid by Hume before he became insolvent or financially embarrassed. The ' proceeds of this policy belong to Mrs. Gilman, charged with a lien for the amount of later premiums paid by her husband out of the misappropriated funds. These later premiums amount, exclusive of interest, to $819.05. The claim made in behalf of the plaintiff that his moneys saved the policy from forfeiture, and therefore he is entitled to either the whole of the proceeds, less the amount of the premiums honestly paid by Gilman, or to a percentage of such proceeds bearing the same relation to the whole thereof as the amount of his moneys paid for premiums bears to the whole amount of premiums paid, is without any support, that I have been able to discover, in either law or morals.
The policy for $10,000, issued by the Provident Company, and dated April 2, 1884, that for $15,000, issued by the Northwestern Mutual, and dated October 31, 1884, and that for $20,000, issued by the New York Company, and dated January 7, 1888, were all procured and maintained by the use of plaintiff’s money. He is entitled to their proceeds. It appears that some of the premiums were paid by checks drawn by Gil-man on the firm’s name upon the firm’s deposits and charged by him to himself in his account in the firm’s books. I agree with the learned counsel for the plaintiff that, under the circumstances, the co-partners cannot be held to have consented to such use of the firm’s funds by Gilman, and that he acquired no title thereto. He was a debtor to the firm on his account when each of the checks was drawn, and the co-partners were ignorant of the fact that he was then systematically embezzling the moneys of the firm, and concealing his
p. 360embezzlements and deceiving his co-partners by periodical statements which were false and fraudulent. Under such circumstances no consent on the part of the co-partners to the drawing of said checks by Gil-man and the application of their proceeds to his personal use, can be implied from their silence or failure to object. It was held in Persch
v. Quiggle ( 57
Penn. 248 ), that an agent can derive no advantage from any thing done by the principal in ignorance of what it was the duty of the agent to communicate, and in any agreement made with the principal which releases the agent, the agent must show that the principal knew the actual condition of his property. This rule is applicable and controlling here.
The certificate of membership No. 1676 in the Mercantile Benefit Association was issued on the first of August, 1881. Mrs. Gilman’s right to receive the death loss accrued then, prior to the commencement of Gilman’s plunderings. There is no direct proof, and I am unwilling to find as a fact upon mere inferences, that the assessments upon that certificate, or the assessments upon the later certificate, No. 246, were paid with the moneys of Labaree & Co. Mrs. Gilman is entitled to the proceeds of both certificates.
I will hear counsel on the question of costs.