Cocke v. Hood Ex Rel. Central Bank & Trust Co.

BeogdeN, J. The paramount question of law produced by the facts is whether the plaintiffs are entitled to a preference. *18 Tbe right to a preference rests upon two theories: 1. That the facts disclose a deposit for a specific purpose or special deposit. 2. That the bank was trustee ex maleficio.' The record discloses that no new money went into the bank by virtue of creating a separate division of the Trust Department, known and designated as the “Mortgage Pool Account.” All the money involved was already in the bank and consisted of balances too small for profitable investment. The consolidation of such funds is not deemed to constitute a special deposit for a special purpose within the boundary of the decisions in Parker v. Trust Co., 202 N. C., 230, 162 S. E., 564, and Flack v. Hood, 204 N. C., 337, 168 S. E., 520. The assistant trust officer of the bank, testifying in behalf of plaintiffs, described the procedure as follows: “The bank set up this 'Mortgage Pool Account,’ it purchased notes that belonged to some other trust account in the bank, the money simply went from one trust account to another trust account, and the security simply passed from one trust account to another trust account. . . . The effect was that the same money stayed in the bank, but one account debited and the other credited.” Such banking procedure is apparently no more than the shifting of credits upon the books of the bank. Nor does the mere fact that a bank holds and dissipates trust funds establish a preference upon its assets in liquidation. Bank v. Corporation Commission, 201 N. C., 381; Hicks v. Corporation Commission, 201 N. C., 819; Briggs & Sons, Inc., v. Allen, ante, 10. The second theory proceeds upon the principle announced in Edwards v. Culberson, 111 N. C., 342, 16 S. E., 233, “that whenever a person has obtained the property of another by fraud, he is a trustee ex male-;'¡icio for the person so defrauded for the purpose of recompense or indemnity. . . . Equity declares the trust in order that it may lay its hand upon the thing and wrest it from the wrongdoer.” See, also, Bank v. Waggoner, 185 N. C., 297, 117 S. E., 6. But as pointed out in Flack v. Hood, supra, “much of the confusion apparently has come from failure to distinguish between the right of preference, or equity of priority, and the right to have certain specific property returned to the creditors, as under claim and delivery, on the principle of fungible goods or because of direct ownership.” In the case at bar plaintiffs were not attempting to recover the particular property or the securities in which the money was invested. The case of Lauerhass v. Hood, 205 N. C., 190, 129 S. E., 413, involved the recovery as a preference of losses sustained as a result of selling securities for less than face value. However, the case was decided upon the principle that the money placed in the bank by Lauerhass was a special deposit. The. original record *19 in tbe ease discloses that on 26 January, 1926, Lauerbass deposited certain securities of a substantial amount in tbe bank and took a receipt from tbe bank specifying that sueb funds and securities were “to be beld, managed and controlled for his benefit as agents for him,” etc. Upon a consideration of tbe entire record, tbe Court is of tbe opinion that tbe trial judge ruled correctly. Affirmed. Schenck, J., took no part in tbe consideration or decision of this case.