TRUSTS-"SWELLING OF ASSETS" THEORY IN TRACING MISAPPLIED FUNDS

Authors

Abstract

Plaintiff's husband gave certain bonds to a college, to be held in trust until the death of the donor and his wife, and then to be added to the endowment funds of the college. The college was also to pay an annuity to the donor while he lived, and to his wife for life if she survived him. The cestui was given a right to revoke the trust and take back the bonds if the annuity was not paid. The college, without notice to the cestui, sold the bonds and used the funds to install a heating plant in its buildings. It then gave a mortgage on the buildings to secure a loan from third parties. Later the trustee became insolvent and unable to pay the annuity, and plaintiff then learned for the first time of the improper diversion of funds. Plaintiff sued for the value of the bonds and for a lien on all the trust or endowment funds owned by the college. Held, the good faith mortgagees could foreclose on the buildings and plaintiff might have a lien prior to general creditors on all other funds held by the receiver of the college. Word v. Sparks, (Ark. 1935) 82 S. W. (2d) 5.

Recommended Citation

TRUSTS-"SWELLING OF ASSETS" THEORY IN TRACING MISAPPLIED FUNDS, 34 Mich. L. Rev. 451 (1936).
Available at: https://repository.law.umich.edu/mlr/vol34/iss3/29