Andrew v. Farmers State Bank of Lamont

• Decision Date: 14 November 1933
• Docket Number: 42171
• Citation: 251 N.W. 23,217 Iowa 69
• Parties: L. A. ANDREW, Superintendent of Banking, Appellant, v. FARMERS STATE BANK OF LAMONT, Defendant. IN RE CLAIM OF HAZEL M. ZWANZIGER, Administrator, Appellee
• Court: Iowa Supreme Court

251 N.W. 23

217 Iowa 69

L. A. ANDREW, Superintendent of Banking, Appellant, v. FARMERS STATE BANK OF LAMONT, Defendant.

IN RE CLAIM OF HAZEL M. ZWANZIGER, Administrator, Appellee

No. 42171

Supreme Court of Iowa, Des Moines

November 14, 1933

Appeal from Buchanan District Court.--GEO. W. WOOD. Judge.

This is an action in equity to secure a preference against the assets of the Farmers State Bank because of the alleged wrongful payment of estate funds into the bank by the administrator of the estate of Fred Retz, deceased. A preference was granted by the lower court. The receiver appeals.

Affirmed in part; reversed in part.

Molloy & Smith, for appellant.

Roy A Cook, for appellee.

KINTZINGER J. ALBERT, C. J., and STEVENS, ANDERSON, MITCHELL, and KINDIG, JJ., concur.

OPINION

KINTZINGER, J.

The record in this case shows that Fred Retz died in April, 1929 and that Mary Retz, Fred Talcott, and V. M. Reed were appointed executors of his estate. Fred Talcott was a director and V. M. Reed was the president of the Farmers State Bank.

Prior to his death Fred Retz was indebted on his own personal obligations in the sum of about $ 8,000. He was also indebted to the Farmers State Bank upon other notes signed by himself and Mary Retz, his wife, as joint makers to the extent of $ 2,689.83. The estate of Fred Retz was insolvent. In his lifetime he had transacted considerable business with the Farmers State Bank.

Shortly after the death of Fred Retz, Mary Retz, as executrix of his estate, received a draft of $ 2,689.83 belonging to his estate. This draft was turned over to the bank in payment of joint notes of Fred Retz and Mary Retz aggregating that amount. The draft was cashed, and the money paid into the assets of the bank April 24, 1929. This money was so paid without any order or authority of court.

Some time thereafter Mary Retz died, and the claimant herein was appointed administratrix with the will annexed of the estate of Fred Retz. More than a year thereafter the court ordered the administratrix to demand a return of the money paid to the bank on the joint notes of Mr. and Mrs. Retz and on receipt thereof to return the notes to the bank. A notice of the court's order, and a demand for the return of the money, with a tender of the notes, was made and served on the bank in May, 1931. The bank refused to repay the money. In December, 1931, the bank became insolvent, and L. A. Andrew state superintendent of banking, was appointed receiver.

The record shows that the cash which came into the hands of the receiver when appointed was $ 3,951.85. The bank also had on deposit in other banks to its credit the sum of $ 3,376.04.

The administratrix filed a claim for preference with the receiver. Her claim was rejected by him in his classification report filed. The claimant filed objections to the classification made by the receiver on the grounds that the draft paid into the bank in April, 1929, belonged to the estate of Fred Retz, deceased; that the estate was insolvent, and the payment of this draft to the bank on a joint indebtedness of Fred Retz and Mary Retz was wrongful, unauthorized and disapproved by the court; it was unlawful and wrongful to pay said notes in full. The lower court allowed her claim as a preference against the assets of the bank in the sum of $ 2,689.83.

The record shows that the estate of Fred Retz was insolvent. This being so, it is contended by claimant that the executors had no authority to pay any of the claims against the estate in full; that, under the laws applicable to the distribution of the assets in an insolvent estate, it became necessary for all creditors to receive a prorata share; that the unauthorized payment of any claims in full would be improper and wrongful; and that such payment to the bank would create a trust fund in the hands of the bank. It cannot be seriously claimed that the bank had no knowledge of the insolvency of the Fred Retz estate, because the president of the bank and one of its directors were coexecutors with Mary Retz. As such they must have known of the insolvent condition of his estate.

I. The record in this case shows that the executrix, with the knowledge and consent of the bank, paid funds of the estate to the bank in payment of a joint obligation of the decedent and his wife; that such payment was made without any order of court directing or approving the same. It further appears from the evidence that the decedent's estate was insolvent, and that more than all of the assets of his estate would be necessary to pay the indebtedness of said estate. It is the settled law of this state that in the distribution of an insolvent's estate the assets must be prorated among all of its creditors. This was not done. The evidence shows that the executrix had no business experience whatsoever, and that she paid the draft in question to the bank at the request of its cashier. The court itself would be unauthorized to permit the payment in full of part of the claims against an insolvent's estate. It therefore needs no argument to show that the payment of the draft in question to the bank, as shown by the evidence, without any order or authority of court, was wholly improper and wrongful.

It is the settled law of this state that a deposit in a bank by a guardian of guardianship funds as a loan without a directing or approving order of the court is wrongful; and the bank at once becomes a trustee of the fund for the benefit of the estate. Andrew v. Farmers Sav. Bank of Goldfield, 207 Iowa 394, 223 N.W. 249; Bates v. Dunham, 58 Iowa 308, 12 N.W. 309; McCutchen v. Roush, 139 Iowa 351, 115 N.W. 903; McIntire v. Bailey, 133 Iowa 418, 110 N.W. 588; Easton v. Somerville, 111 Iowa 164, 82 N.W. 475, 82 Am. St. Rep. 502; Andrew v. Sac County State Bank, 205 Iowa 1248, 218 N.W. 24; Slusher v. Hammond, 94 Iowa 512, 63 N.W. 185.

For the foregoing reasons it is the holding of this court that, when such funds were received by the bank, it became a trustee of such funds for the benefit of the Fred Retz estate.

II. Although the wrongful transfer of the draft in question resulted in creating a trust fund in the hands of the bank, such fact in itself is not sufficient to give the claimant a preference against all the assets of the bank coming into the hands of the receiver. In order to establish a preference against the assets of the bank, it is necessary to trace such funds into specific assets of the bank coming into the hands of the receiver, so that they can be identified; it must also be shown that the assets or funds of the bank delivered to the receiver were augmented by such trust funds. Leach v. Iowa State Savings Bank, 204 Iowa 497, 212 N.W. 748, 215 N.W. 728; Grundy County National Bank v. Oelke, 149 Iowa 662, loc. cit. 667, 129 N.W. 70; Andrew v. Washington Loan & Trust Company, 217 Iowa 464, 250 N.W. 177.

"That plaintiff was a trust creditor does not of itself entitle him to preference over general creditors. To obtain that right he must show, by presumption of law or otherwise, that his fund has been preserved in the hands of the assignee, as an increase of the assets of the estate, from which it may be taken without impairment of the rights of general creditors." Leach v. Iowa State Savings Bank, 204 Iowa 497, loc. cit. 506, 212 N.W. 748, 215 N.W. 728, 729.

In Grundy County National Bank v. Oelke, 149 Iowa 662, loc. cit. 667, 129 N.W. 70, 72, we said:

"It is the settled rule of our cases that a preference will not be allowed unless it be found that the fund has increased the present assets of the bank, and that it may be taken therefrom without impairment of the rights of creditors."

While the cashier of the bank testified that the money received from the proceeds of the draft went into the assets of the bank, there is no evidence whatever tending to show that the assets (aside from cash) taken over by the receiver were augmented by the placing of such funds into the bank's assets. The record is entirely silent as to the amount of the bank's assets at the time it is claimed said trust funds went into them, and there is no evidence showing the lowest amount of the bank's assets between that time and the time when the bank went into the hands of the receiver. Neither does the record show the amount or value of the assets taken over by the receiver. There is therefore no method by which it can be determined whether the alleged trust funds were preserved in the assets taken over by the receiver, or that such assets were in any manner augmented by the receipt of such funds. Andrew v. Washington Loan & Trust Co., 217 Iowa 464, 250 N.W. 177.

The ultimate fact necessary to be established is that the fund has been preserved in the hands of the receiver as an increase of the assets of the estate, from which it may be taken without impairing the rights of general creditors. Hudspeth v. Union Trust & Savings Bank, 197 Iowa 913, 193 N.W. 279; City of New Hampton v. Leach, 201 Iowa 316, 207 N.W. 348; Murray v. North Liberty Savings Bank, 196 Iowa 729, 195 N.W. 354; Whitcomb v. Carpenter, 134 Iowa 227, 111 N.W. 825, 10 L. R. A. (N. S.) 928; Seeley v. Seeley-Howe-Le Van Co., 128 Iowa 294, 103 N.W. 961; Andrew v. Washington Loan & Trust Co., 217 Iowa 464, 250 N.W. 177; Leach v. Iowa State Savings Bank, 204 Iowa 497, 212 N.W. 748, 215 N.W. 728; Andrew v. State Bank of New Hampton, 205 Iowa 1064, 217 N.W. 250; In re Receivership American Savings Bank, 210 Iowa 568, 231 N.W. 311.

In the recent case of Andrew v. Washington Loan & Trust Co., 217 Iowa 464, 250 N.W. 177, we said:

"If trust property cannot be traced into the hands of the receiver in kind, but can only be shown to have been intermingled in a common mass, the law will not permit a portion of the common mass to be...