Andrew v. State Bank of New Hampton

• Decision Date: 10 January 1928
• Docket Number: No. 38337.,38337.
• Citation: 205 Iowa 1064,217 N.W. 250
• Parties: ANDREW, SUPERINTENDENT OF BANKING, v. STATE BANK OF NEW HAMPTON ET AL.
• Court: Iowa Supreme Court

205 Iowa 1064

217 N.W. 250

ANDREW, SUPERINTENDENT OF BANKING,

v.STATE BANK OF NEW HAMPTON ET AL.

No. 38337.^a1

Supreme Court of Iowa.

Jan. 10, 1928.

Appeal from District Court, Chickasaw County; H. E. Taylor, Judge.

Action by said 14 claimants to establish preference against funds in hands of receiver. The court granted the relief, and plaintiffs appeal. Modified and affirmed.

See, also, 216 N. W. 1.John Fletcher, Atty. Gen., John H. Howard, of New Hampton, and Blythe, Markley, Rule & Clough, of Mason City, for appellant receiver.

M. F. Condon and R. Feyerbend, both of New Hampton, and Hurd, Lenehan, Smith & O'Connor, of Dubuque, for City of New Hampton and Park Com'rs of New Hampton.

F. J. Conley, of New Hampton, for appellees said School Districts Nos. 3 to 9, inclusive, and H. J. Rosauer and Louis H. Johnson.

E. P. Donohue, of New Hampton, for appellee Krieger.

M. F. Condon, of New Hampton, for appellee Bacon.

R. Feyerbend, of New Hampton, for appellee Klatt.

Geiser & Donohue, of New Hampton, for appellee Feuling.

KINDIG, J.

During oral argument, concession was made that the case may be determined upon the theory that facts exist authorizing preferences, providing that claimants' property could be traced into the hands of the receiver. Appellant, as receiver of the State Bank of New Hampton, asked for a reversal upon the doctrine that the trust funds were not properly identified in his hands.

Preliminary to a discussion of the exact point in issue, the following statement of facts is necessary: On December 27, 1924, the State Bank of New Hampton, an Iowa corporation, was closed by the banking department. Thereafter, in due course, the receiver above named was appointed. At the time of the cessation of business, there remained on hand $4,080.96 in cash. In July, 1924, the cash reserve was depleted and the stockholders paid a special assessment July 18th, of that year, amounting to $40,100. A careful study of the record reveals that said “assessment,” together with all deposits and other funds of said institution, placed therein after said date of July 18th, were dissipated largely in the payment of its debts. Only small loans were made thereafter, for there were no available moneys to be used in such manner. Appellees' demands were granted by the court and “preferences allowed” for deposits made in the following sums: City of New Hampton, $11,112.86; park commission, $1,085.15; school district No. 1, Richland township, $225.38; school district No. 3, Dayton township, $434.30; school district No. 3, Dresden township, $197.57; school district No. 5, Dayton township, $107.56; school district No. 1, Dayton township, $209.72; school district No. 7, Dayton township, $632.30; school district No. 7, Richland township, $254.95; Theodore Krieger, $202.04; Betty Bacon and Minnie Klatt, $240; E. J. Feuling, $269.50; H. J. Rosauer, $130.50; Louis H. Johnson, $175.70. This action of the district court was based upon the idea thus by it expressed:

“Beginning with July 18, 1924, there went into the bank between that time and when it closed, the proceeds of the special assessment, $49,700, and the trust funds which I am establishing as preferred claims in the sum of $17,950.95. I am finding that none of these trust funds had been depleted. * * * For that purpose we must show a record of the bank from July 18th down to date. The evidence shows that the only bad loan made during that period was one for $36.50. All the other bad loans were made prior to that time. * * * If you pay your trust funds, you will have left for your depositors about $50,000, which is almost identical with the total amount of the assessment paid in.”

To repeat the thought in another way, the trial judge considered that the “trust funds”named, whether in cash or some other form, were presumed to be preserved for the beneficiaries, and that the various items collected by the receiver from all sources must be available for this purpose, even though each particular claimant did not trace his individual property into the assets of the bank except by an alleged presumption. Ground for the judicial conclusion was that the record shows only one “bad loan” of $36.50 to have been made. All the “loans” that came into the hands of the receiver for the time beginning October 6th, to and including November 2d, amounted to $2,326.53, ranging individually from $10 to $100, covering renewals and discounts of every kind.

An itemized statement of the funds placed in the bank by the city of New Hampton is: October 6, 1924, $3,200; October 9, $9,564.12 and $133.57; and October 10, $1,000; October 14, $400; October 24, $242.75--a total of $14,540.44. Finally, the actual money in the depository on November 19th was only $1,972.77. From that date to December 27th, there was paid out in expenses $1,770.53. While on July 18th deposits subject to check were $98,982.67, and on December 27th they were $87,950.46, a loss of $11,032.21. And the certificates of deposit on July 17th were $394,494.85, and on December 27th were $330,069.51--a loss of $64,425.34. Furthermore, on July 17th the savings account was $70,895.51, and on December 27, 1924, was $59,399.89, showing a loss of $25,441.62. Added to this shrinkage must be $10,336, interest paid by the bank from July 6th to December 27, 1924. Meanwhile, bills discounted fell off $96,496.71; withdrawals were made by said city from November 19th to the closing of the bank in the total of $3,216.28; while additional deposits by it for said last period amounted to $3,807.62, being a net increase of $590.84. Moreover, there was paid into the “bank,” under the trust claimed, $200 by said Theodore Krieger, December 27th; $481.70 by said H. J. Rosauer, December 28th; and $175.70 by Louis H. Johnson, December 28th.

Our attention has not been called to the exact history of the other deposits and claims here involved, and the record in this respect is obscure. It does appear, however, that the moneys of the school districts were deposited in October, 1924, while the demands of E. J. Feuling and Minnie Klatt originated in October and November, respectively.

For alleged error of the district court in allowing the “preferences” in the amounts stated, the appeal was taken.

[1] I. Fundamentally, the remedy in actions of this kind is based upon an interest in or ownership of the particular property or fund claimed, rather than the relationship of debtor and creditor. 26 R. C. L. 1355, § 216, contains this text:

“* * * The true owner of a trust fund traced to the possession of another has the right to have it restored, not as his debt due and owing, but because it is his property wrongfully withheld from him. * * *”

First State Bank v. Oelke, 149 Iowa, 662, 129 N. W. 70, expresses the same thought in this language:

“The right to a preference is based on a right in the particular property or fund, and the manner of acquiring such property or fund is not material, that being only an incident thereto.” Leach v. Iowa State Savings Bank (Iowa) 215 N. W. 728.

[2] II. Primarily, such equity in or title to “property” exists through or because of a trust, or relationship in the nature of a “trust.” In re Leach v. Battle Creek Savings Bank (Iowa) 211 N. W. 520;Leach v. Sanborn State Bank (Iowa) 212 N. W. 694, 51 A. L. R. 900;Stilson v. First State Bank of Corwith, 152 Iowa, 724, 133 N. W. 354;Smith v. Des Moines National Bank, 107 Iowa, 620, 78 N. W. 238.

Establishment of this status in the case at bar is conceded by all parties, and therefore we will assume, without deciding, its existence.

III. Various definitions of “trust” can be found in the authorities. That contained in Dillenbeck v. Pinnell, 121 Iowa, 201, 96 N. W. 860, is:

“Justice Story defines it as ‘an equitable right, title, or interest in property, real or personal, distinct from the legal ownership thereof.’ 2 Story's Equity Jurisprudence, § 964. It has also been defined as existing ‘where property, is conferred upon and accepted by one person on terms of holding, using, or disposing of it for the benefit of another.’ ”

Later, in Maxwell v. Wood, 133 Iowa, 721, 111 N. W. 203, we said:

“A trust is defined as ‘an obligation upon a person arising out of a confidence reposed in him to apply property faithfully and according to such confidence.’ Perry on Trusts, § 2.”

See, also, Allen v. Rees, 136 Iowa, 423, 110 N. W. 583, 8 L. R. A. (N. S.) 1137;Gilmer v. Gilmer, 199 Iowa, 748, 202 N. W. 527; 26 R. C. L. 1167, 1168; 29 Cyc. 17.

[3] IV. Returning now to the precise point involved, we pause to note that controversies of this nature include at least two steps: First, the establishment of the “trust”; and, second, the tracing into the custody of the receiver the deposit, payment, or “property” previously made or delivered in or to the bank, which said receipts are asserted as the basis for the “trust.” Stilson v. First State Bank of Corwith, supra; Farnsworth v. Muscatine Produce & Pure Ice Co., 177 Iowa, 21, 158 N. W. 741;Hudspeth v. Union Trust & Savings Bank, 196 Iowa, 706, 195 N. W. 378, 31 A. L. R. 466; First State Bank v. Oelke, supra; Leach v. Sanborn State Bank, supra; Cable v. Iowa State Savings Bank, 197 Iowa, 393, 194 N. W. 957, 197 N. W. 434, 31 A. L. R. 748;Murray v. North Liberty Savings Bank, 196 Iowa, 729, 195 N. W. 354;Messenger v. Carroll Trust & Savings Bank, 193 Iowa, 608, 187 N. W. 545.

Formerly, under the early systems of the common-law practice, the identical property was required to be “traced” or no relief was afforded. 39 Cyc. 529, subsec. D. 26 R. C. L. p. 1353, § 17, aptly states:

“It was at one time a doctrine of the English law recognized also by some of the early authorities of this country, that property having no earmarks to distinguish it from other property of the same kind, could not be pursued by the true owner thereof after it had been mingled in one mass.”

[4] V. Said ancient narrowness, however, has now been discarded, and the “trust property” may...