Estate of Seiter v. Mowe

Mr. Justice Worthington delivered the opinion of the court. Henry Seiter, being insolvent, on December 10, 1894, made an assignment to M. W. Weir, turning over .to him notes and accounts, cash and other property aggregating §45,619.85. ' In 1888 Seiter was appointed conservator of Lucetta Hichols, an insane person, and as such conservator received $2,206. This sum he mingled and used with the money of the bank of Henry Seiter & Co., referred to as the Bank of Lebanon, a private bank, owned solely, at the time of the assignment, by said Seiter. From time to time he reported the amount in his hands as conservator. In February, 1895, the balance due from him as conservator was $1,977.66. Isaac Barton was then appointed conservator, but received no funds from his predecessor, Seiter. On March 5th, Barton filed a claim against the estate of Seiter in pursuance of the notice of the assignee to file claims, stating that the Nichols fund was a trust fund, and praying that it might be made a preferred claim and paid in full. On April 5th the assignee reported to the County Court the claims that had been filed. No objection was made to the Nichols claim. On the 10th of June, 1895, L. D. Turner was appointed a conservator to succeed Isaac Barton. On the 4th of September the assignee filed his report of moneys collected and of disbursements made, including among the disbursements the payment of the Nichols claim in full, amounting to $2,224.18, and asked for an approval of his report and for an order of the court to pay dividends.' The court entered an order that all objections to the report of the assignee be filed September 14, 1897. To this report, appellees being general creditors, on the 11th of September filed objections to the allowance of the Nichols claim as a preferred claim, and to giving credit to the assignee for its payment, and claiming that the distribution of the assigned property should have been made pro rata to the creditors. The objections, together with objections filed by other creditors, were set down for hearing on September 23d. On that day the objections of appellees wrnre overruled. Counsel for appellees claim in their state•ment and brief that this was done in their absence. The record of the County Court, referring to its action on the 23d, is as follows: “ And now on the 23d day of September, 1897, the objections to the Biggin trust fund claim and the Nichols trust fund claim, as set out in the first and second exceptions, coming on "for hearing, and understanding that the objectors by their counsel, consented thereto, the court overrules the objections as to those two claims, and orders that the report of the assignee as to the said Riggin trust fund item and the said Nichols trust fund item, be and the same is hereby-ordered and adjudged to be sustained and approved.” It is apparent from this entry that the court on the 23d day of September, at which time it overruled the objections of appellees, did not do so upon its conclusion as a matter of law, but acted upon its understanding as to a matter of fact. On the 29th of October appellee moved the court to set aside its order of September 23d approving the assignee’s report. On the 22d day of November the court allowed the motion of appellees and set aside its order of September 23d. A hearing was afterward had upon the objections of appellees, and after taking the matter under advisement,the court, on the 17th of February, 1898, sustained the objections of appellees and refused to approve the report of the assignee as to the payment of the Nichols claim, and refused to allow the assignee credit for such payment, and directed that he should recover the money back from Turner. It is from this ruling and judgment of the court that appellant brings the case to this court. It is not claimed by appellant that the Nichols fund can be in any way identified in or among the assets in the hands of the assignee. It is clear from the evidence that it can not be identified. So far as can be seen from the evidence it has been for years mingled and indiscriminately used with the moneys of the Seiter bank. Unless there is something to take this case out of the operation of the well established rule in this State, that claims for trust funds when the funds are mixed and incapable of identification, have no priority when the insolvent’s estate is in the hands of an assignee, the ruling of the County Court sustaining the objections of appellees as general creditors was correct. For reference to authorities upon this point see Iíneisley et al. v. M. W. Weir, assignee,etc., decided at this term of court. It is true that when a trust fund is in the hands of the trustee and its identification destroyed by him, that he can not defend against a claim by the cestui que trust upon the mingled mass of property when the trustee and the cestui que trust are the only parties interested. But when the trustee is insolvent and his property has passed into the hands of his assignee, other parties are interested. In such case when there can be no identification of the trust fund, by repeated decisions of the Supreme Court of this State, all creditors of the insolvent must share alike. Counsel for appellant insist that in no case in which a trustee has mingled the funds of his eestui que trust with his own, and has made an assignment, has the Supreme Court •decided that a failure to identify the fund prevents a priority against the mingled property in the hands of the trustee’s assignee. ■ In Trustees v. Kirwin, supra, the court say, “ Kirwin was a voluntary trustee of these funds” and as against the administrator refused to turn over any property except what was identified. In Boyer v. American Trust & Savings Bank, 157 Ill. 68, it is said: “ It has frequently been announced as the law of this State that even in a ease when a definite and actual trust fund, which possesses all the attributes of a separate and distinct identity, has been so mixed and mingled with other funds as to render identification impossible, the cestui que trust, in the event of the insolvency of the trustee, is remitted to the position and the rights of a general creditor.” In Wetherell v. O’Brien, 140 Ill. 146, it is said: “ When a trustee has converted a trust fund into money and mingled it with the other moneys so that it can not-be separated from the latter, the beneficial owner occupies the position of a general creditor of the estate, and can not follow the fund into the hands of an assignee for the benefit of creditors.” To the same effect is Mutual Accident Association v. Jacobs, 141 Ill. 269. Nor can we see any difference in principle, when the rights of creditors are involved, between the liability of a trustee de jure and a trustee de non tort, when the identity of the trust fund has been destroyed. Appellant urges that the court erred in setting aside its order approving the assignee’s report filed September 4, 1897, showing the payment of $2,224.18 to Turner, as conservator, and in sustaining the objections to this report. Objections were filed by appellees September 11, 1897, to the report of the assignee. The objections were filed in apt time, under the order of the court to file objections. From the record presented, it is manifest that the court in overruling the objections did so upon the understanding that the objectors had withdrawn their objections. From the subsequent action of the court it is evident that the court did not consider that the objectors were estopped by anything they had done or said from pressing their objections against the assignee’s report, and did consider that°it still had jurisdiction to pass upon said report. The law terms of the St. Clair County Court are in March, July and November. The record shows that other objections pending September 23d were heard on October 9th. Without passing upon the question as to whether the County Court, in assignment proceedings, should or should not hold a motion to be filed too late if filed at a subsequent term to set aside an order made at a previous term, it is enough to say in this case that it does not appear that the motion to set aside the order of September 23d was made at a subsequent term. The oversight and regulation of proceedings , under an assignment do not end with a term of court, but continue from term to term until the final disposition of the case. So long as the estate of the insolvent remains to be distributed the County Court has power to revoke or alter any order in relation to the administration of the estate. Hanford Oil Co. v. First Nat. Bank, 126 Ill. 584; Mowatt v. Cole, 59 Ill. App. 346. The estate of Seiter, in the eye of the law, \vas undistributed on the 4th of September, 1897, when the assignee made his report and asked for its approval. He understood this, for in his report he asks for an order of distribution. Up to this time there had been no adjudication upon the character of the claims filed. The assignment act requires the assets of the insolvent to be distributed pro rata among his creditors. The County Court must so order, unless it is made to appear to the court that equities exist which require that a different order should be made. The assignee is only authorized to make distribution as ordered by the County Court. Sec. 4, Chap. 72, Starr & Curtis’ Statutes. He has no discretion in the matter, and the County Court has no authority to order a distribution otherwise than pro rata unless upon showing that prior liens exist, or that there are controlling equities in favor of a claimant. It is true that if a trust fund had been kept separate, or could be identified in the hands of the assignee, that the County Court would have authority, and it would be its duty, to direct its payment to the trustee. Nor would this be in contravention of the assignment act, requiring a pro rata distribution of the insolvent’s estate; for the reason that a trust fund so kept separate is not a part of the assets of the insolvent in the hands of the assignee to pay the debts. While so kept separate it is the property of the trustee for the use of the cestui que trust. But it is not for the assignee to determine whose property it is. It is not for him to decide whether or not it has been kept separate or is capable of identification. He is an executive and not a judicial officer. The right of Barton to have the Nichols claim made a preferred claim depended upon his ability to show that it could be identified. His right was not established by merely claiming that it should be preferred. Nor were creditors concluded by not filing objections to his claim of preference. The time for creditors to object to a claim’s being preferred is when the claim comes to be considered by the court and an order of distribution made. The only claims that the statute recognizes as preferred claims, when no objections are filed, are claims for laborers’ wages. The inference is that a failure to -make objections to other claims filed as preferred claims does not prevent contesting such claims for preference when an order of court is sought declaring them to be preferred. If, before any adjudication by the court declaring that a claim is preferred, the assignee assumes to decide that it is preferred, and so deciding, pays it, he does so at his peril. . In the present case then, the assignee having paid the -huchols claim in full to Turner, without authority and without any adjudication by the court as to its right of .preference, and it appearing from the evidence under the law that it is not entitled to a preference, the assignee must be held responsible for the amount so paid out without authority. In contemplation of law it is still an undistributed part of the insolvent’s estate and subject to the order of the County Court. If it had been paid out upon an .erroneous order of .the court, which order the court afterward found out to be erroneous, and therefore set it aside, ja different question would be presented. But that is not this case. The money was paid without any order. The act of -the assignee in making payment was his own act. • The evidence, upon the hearing, showing that the fund was mixed and incapable of identification, the court could do no Jess than set aside its order of September 23d, and ■sustain the objections of appellees to its being made a preferred claim.. To have held differently would have been to ■conflict with an unbroken line of decisions of the Supreme 'Court where trust funds in the hands of an assignee are ■incapable of identification. The finding and judgment of the County Court is therefore affirmed.