Cambridge Gas Co. v. Lamb
| Decision Date | 03 March 1936 |
| Docket Number | 8263. |
| Citation | 184 S.E. 566,117 W.Va. 174 |
| Parties | CAMBRIDGE GAS CO. et al. v. LAMB. |
| Court | West Virginia Supreme Court |
Submitted February 5, 1936.
Syllabus by the Court.
In a controversy, between a depositor and the receiver of an insolvent banking institution, whether a particular account of deposits constitutes a trust or a debt, the fact that the contract between the depositor and the bank required the latter to pay interest on the account is controlling in determining that the deposit constituted merely a debt and not a trust, in the absence of evidence clearly showing that the parties intended to establish a trust, notwithstanding the requirement of payment of interest on the fund.
Appeal from Circuit Court, Kanawha County.
Suit by the Cambridge Gas Company and others against F. O. Lamb, receiver of the Charleston Trust Company. From a decree for plaintiffs, defendant appeals.
Reversed and bill dismissed.
W. E R. Byrne and Mohler, Peters & Snyder, all of Charleston, for appellant.
Price Smith & Spilman and Jackson D. Altizer, all of Charleston for appellees.
This suit was instituted in the circuit court of Kanawha county by Cambridge Gas Company and others against F. O. Lamb, receiver of the Charleston Trust Company, a corporation, an insolvent banking institution, for the purpose of having a certain deposit in the savings department of said trust company at the time it discontinued business, May 27, 1933, declared to be a trust fund. From a decree sustaining the prayer of the bill, the receiver has appealed.
On the first of December, 1928, the Cambridge Gas Company sold $25,000.00 par value of its seven per centum cumulative preferred stock, retirable in stipulated annual amounts from 1931 to 1936, inclusive. On the following day, the gas company entered into a written agreement with the Charleston Trust Company reciting the fact aforesaid, and further, that it was the desire of the gas company "to establish a sinking fund for the retirement of said preferred stock according to its terms and tenor, and said Trust Company has agreed to act as trustee of said fund as hereinafter provided." It was stipulated in the agreement that the gas company should make specified monthly deposits "to its credit in a savings account in said Trust Company." The trust company agreed "that it will, on June 1st and December 1st, of each year, pay to Cambridge interest at three per cent (3%) on all sums on deposit in said account for the six months immediately preceding said dates, respectively." The contract further provided that the sums so deposited should be held for the benefit of the holders of said preferred stock, and that upon the retirement thereof, the remainder of such sums on deposit in the trust company should be forthwith paid to the gas company. Sums aggregating $12,623.51 were deposited under this contract. Of that aggregate, there was withdrawn by the gas company $153.15 for its use and $5,000.00 for partial retirement of preferred stock. When the bank suspended business, there was a balance in the account of $7,470.36. On the 23rd of June, 1931, the trust officer of the trust company wrote a letter to the president of the gas company reminding him that there had been a falling off of the deposits which were to be made in "the Sinking Fund your Company established by written Agreement, dated December 2, 1928 with the Charleston Trust Company, as Trustee, for the retirement of the preferred stock of the Cambridge Gas Company." In said letter, the trust officer further stated that "unless the necessary deposits to bring this fund up to date are made by the first of July, this bank, as sponsor for the sale of considerable of the preferred stock, will have to bring the necessary legal proceeding to enforce the rights of the preferred stockholders." The gas company undertook to meet the requirement of monthly installments by arranging with a purchaser of gas, which it (Cambridge) was producing, to make deposits in the aforementioned savings account with the trust company. But that arrangement was subsequently abandoned when the affairs of the gas company became more involved.
On this background of facts, the precise and narrow question for judicial determination is whether the sum of $7,470.36, balance of the aforesaid deposits, is a trust fund which must be paid in preference to the accounts of depositors, or whether it ranks merely as a savings account having no preference over other similar accounts.
Are we dealing with a trust or a debt?
The principle of law here to be considered is thus broadly presented in American Law Institute, Restatement of the Law of Trusts, p. 42, § 12: "If one person pays money to another, it depends upon the manifested intention of the parties whether a trust or a debt is created. If the intention is that the money shall be kept or used as a separate fund for the benefit of the payor or a third person, a trust is created. If the intention is that the person receiving the money shall have the unrestricted use thereof, being liable to pay a similar amount whether with or without interest to the payor or to a third person, a debt is created.
The intention of the parties will be ascertained by a consideration of their words and conduct in the light of all the circumstances. * * *
If there is an understanding between the parties that the person to whom money is paid shall pay 'interest' thereon (at a fixed or at the current rate, and not merely such interest as the money, being invested, may earn) the relationship is practically always a debt and not a trust. Interest is paid for the use of the money, and if the payee pays interest he is, in the absence of a definite understanding to the contrary, entitled to use the money for his own purposes. It is theoretically possible, of course, for a trustee to pay 'interest' from his own funds, but in the absence of clear agreement to that effect such an intention would not be found."
Though the decisions involving similar problems are difficult of reconciliation as to the...
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