Jones v. Chesebrough

Geangkee, J. — In Plow Co. v. Lamp, 80 Iowa, 722; Independent District of Boyer v. King, 80 Iowa, 498; and in Nurse v. Satterlee, 81 Iowa, 491, this court sustained preference where, under an assignment for the benefit of creditors, the assignee or agent wrongfully deposited funds in an insolvent bank, that were received 306 with knowledge of their trust character where the money deposited had been placed with the several funds of the bank, and used in the payment of debts or the business of the bank, in a way that the identical money could not be traced or other property found into which it had been placed. This holding is based on conclusions of fact that the money was placed in the bank, so that the transaction did not create the relationship of debtor and creditor between the owner of the money and the bank, nor that of depositor in a bank; but, because the deposit wujg unauthorized and wrongful, the money, as soon as placed in the bank, became a trust fund, and could not, properly, in case of a,n assignment for the benefit of creditors by the bank, pass to the assignee as a part of the assets of the estate. The case of Independent Dist. of Boyer v. King, supra, recognizes the fact that the authorities are in conflict as to the extent to which the rule should be applied. The facts in this case are such that appellant contends — First, that it is distinguishable from the cases cited; and, second, that, if not distinguishable, such holdings are not in harmony with the current of authority. Appellee contends with much earnestness that there are no> distinguishing facts in this case, and that it should be affirmed on the authority of the cited cases. The contention in argument makes it important to define wherein the rule of this court, as formerly announced, is misapprehended by some. While we have not adhered to the rule that, to justify a preference the money must be identified or traced to a particular fund, of which it is all or part, or, in other words, “traced and followed into other property into which it has been converted, that remains the subject of the trust,” we have held that, before such a preference can be sustained, it must appear that the estate has been so benefited by the misappropriation of the trust fund that its 307 removal or its equivalent from the estate will be without prejudice to creditors; in other words, that the conditions must be such that the creditors have the same protection as if the trust money had been retained in the .bank in a way that it could be identified and taken, which latter would be the right of a cestui que trust under all authorities. To illustrate: If A., as trustee, wrongfully places trust funds in a bank, regularly doing business, and that money, — say, one thousand dollars,— is paid out in the usual course of business to discharge a debt of the bank, when, had it not been so paid out, other money of the bank would have been so used, and that is the last business transaction of the bank before assignment, we think it clear that the -assets of the bank are one thousand dollars more than if the trust money had not been placed there, and that, when one thousand dollars of other money is used to replace it with the owner, the creditors are in no sense prejudiced. :We -do not hold that such money, when used to pay the debts of a bank, necessarily increases the assets of the bank, in the sense that creditors are not prejudiced. That may be the case, and it may not be. Whether it is or not is a question of fact. / The rule here stated is practically stated in Independent Dist. of Boyer v. King supra. To create such a trust, it is there said: “It does not appear that any of the identical money deposited went into the possession of defendant. On the contrary, the admitted facts justify the conclusion that he received but little, if any, of it; and, if a trust for the amount in question is established it must be on the ground that the deposit must be held to- have increased the estate of the insolvents, and that the balance due is represented by an increase now in the hands -of the -assignee.” Added to this seemingly conclusive language is the following, in the same opinion: “In this case it appears that the money in question was received 308 by the Cad wells, and that their estate was increased by that amount. As they received it knowing its trust character, it will be presumed, in the absence of a showing to the contrary, that it was preserved by them in some form, and that it passed into the hands of the assignee. It is not material for the purpose of this case whether the balance was preserved in the form of money or in other property. It is only necessary that it appear, by presumption of law or otherwise, that it has been preserved in the hands of the defendant. The money having been traced to the estate of the Gadwells impressed with the character of a trust fund, the burden was upon the defendant toi show that it contributed nothing to the estate which he acquired by virtue of the assignment, and that he has failed to do so.” The opin*ion in the case quoted from was filed on the same day as that of Plow Co. v. Lamp, supra, and contains a reference to it. Both were considered at the same time, are published in the same volume of our reports, and the scope of the holdings ought not to be misunderstood, and, we think, are not, except where there are misconceptions or mistakes as to facts or a failure to note the extent of our discussions of the subject. We are referred to the case of Slater v. Oriental Mills, 18 R. I. 352 (27 Atl. Rep. 443). In that case, referring to the Plow Co. Case, it is said: “The court lost sight of the distinction which we desire to make clear, between funds remaining in the estate, which go to swell the assets, and funds which, having been dissipated or used in the payment of debts, do not remain in the estate, and so do not swell the estate.” It will be seen that the dividing line with that court is whether the estate, in the hands of the assignee, has been increased by the wrongful deposit. If so, the equity, to justify a preference, exists. If not so, it does not. That is precisely our rule. But we have not said that, to carry out the rule, the identical money 309 must be discovered and taken, or the specific property into which it has been conveided. But we have said, in effect, that it matters not where the identical money is, if the estate, in the hands of the assignee is so enlarged, because of the wrongful deposit, that, if the amount of it is taken out, the remaining assets, for distribution, will be no less than if the wrongful deposit had not been made; The difference is not one as to equitable principles that fix the rights of parties, but in the method by which the equitable result is to be attained. We confess surprise, in view of our unmistakable holdings, at some language employed in the Rhode Island Case, wherein, by omissions and inferences that are without support, the rule of this court is misrepresented, and for a purpose, apparently, to pave the way for an attempt at witty criticism. ' We now look to the facts of this case to see if they bring it within the rule to warrant a preference. A. A. Ball & Co. made its assignment for the benefit of creditors September 19, 1896. The deposits made by the plaintiff with A. A. Ball & Co. extend from December 12,1895, to August 22,1896. The assets of the bank at the time of the assignments were one hundred and eighty-six thousand dollars, and its liabilities two hundred and twenty-one thousand dollars. It appears that, during the year previous to the assignment, the amount paid out to depositors largely exceeded the deposits received, and, of the money so paid out, thirty thousand dollars was borrowed by the bank by a pledge of notes as security, and that the bank, at the time of the assignment, had on hand but four hundred and forty-nine dollars and sixty-two-cents in cash. It also' appears that the money deposited by the plaintiff was mingled with other money, and used by the bank, in the usual and ordinary course of banking, in the payment of its debts. It further appears that, after the plaintiff commenced to 310 make deposits, to the date of the assignment, the bank made no new loans, nor acquired any property, and also that no property of any kind or securities on hand had been purchased with the money deposited by plaintiff. These facts do not bring the case within the rule we have stated. All that can be said is that a failing bank received the money, and paid it out in the usual course of business to its creditors, under circumstances that show that the assets of the bank were no more at the date of the assignment than they would have been had the deposit not been made. The bank had not only used the money coming in as deposits, but had'borrowed money to pay on its debts, showing a purpose to apply all money in that way, be the same more or less. While the payment of debts in that manner by a trust fund lessens the indebtedness of an insolvent estate, and may thereby increase the percentage of dividend to be declared from other funds, it does not follow that the assignee has any increase of assets because of it. It may follow that he has less debts to pay, and the estate is in that way benefited. But such a benefit to the creditors is but partial, and, if such a payment is to serve as a reason for withdrawing an equal amount from the assignee, the result is an absolute loss to the creditors. We do not think a preference should be sustained under such conditions. We are content with the rule of the Independent Dist. of Boyer Case, — that, when trust money has been received, it is not material whether it is preserved in the form of money or other property; but it must appear, by presumption of law or otherwise, that it has been preserved in the hands of the assignee, as an increase of assets in his hands, from which it may be taken without impairment of the rights of creditors. The judgment must be, and is, reversed.