Cherry v. Territory

• Decision Date: 05 September 1906
• Parties: CHERRY v. TERRITORY.
• Court: Oklahoma Supreme Court

89 P. 192

17 Okla. 221, 1906 OK 49

CHERRY v. TERRITORY.

Supreme Court of Oklahoma

September 5, 1906

Rehearing Denied Jan. 8, 1907.

Syllabus by the Court.

Where the secretary of the territorial board for leasing the school land of the territory without any authority deposited the money, checks, and drafts received from the rents of such land in a national bank, and the bank subsequently fails before the territory can be paid ahead of the other creditors of the bank it must affirmatively prove by a preponderance of evidence that the particular moneys, checks, and drafts so deposited, or the proceeds thereof, were turned over to the receiver of the bank, or that such deposits went to swell the assets of such bank.

[Ed Note.-For cases in point, see Cent. Dig. vol. 6, Banks and Banking, §§ 187, 189.]

Where a bank receives deposits while in a failing condition, and at the time it closes its doors it has on hand a sufficient amount of cash to repay such deposit, such payment will not be made ahead of the others, when the evidence on the particular trial affirmatively shows, when measured by the legal presumption, that such cash was deposited by other creditors.

[Ed Note.-For cases in point, see Cent. Dig. vol. 6, Banks and Banking, § 157.]

Error from District Court, Logan County; before Justice John L Pancoast.

Action by the territory of Oklahoma against Charles T. Cherry, receiver of the Capitol National Bank of Guthrie. Judgment for the territory, and defendant brings error. Reversed and remanded.

Flynn & Ames, for plaintiff in error.

P. C. Simons, Atty. Gen., for the Territory.

BURWELL J.

On March 12, 1904, Fred L. Wenner, as secretary of the territorial board for leasing school lands of the Territory of Oklahoma, deposited in the Capitol National Bank of Guthrie, O. T., $3,349.66, and on March 31, 1904, he deposited with the same bank the further sum of $3,017.07. All of these moneys were derived from the leasing of the school lands of the territory. On April 4, 1904, the Capitol National Bank failed in business, and a receiver was duly appointed. He took charge of the assets, and is the plaintiff in error in this case.

The trial court found that the bank was not insolvent on March 12, 1904, and therefore denied a preference for the $3,349.66 deposited on that date; but also found that the bank was insolvent on March 31, 1904, and awarded a preference for the $3,017.07. We find that the trial court was justified in its findings of fact regarding these two points, but that it was unwarranted in law in allowing a preference for any sum whatever. Of the $3,017.07 deposited on March 31, 1904, only $43.50 was actual cash, and the balance, $2,971.77, was made up of checks, drafts, etc. There is absolutely no evidence tending to show that these checks and drafts, or the proceeds therefrom, ever went into the hands of the receiver. The trial court appears to have treated all of this deposit as cash, as it styles the checks and drafts as "cash items." The law did not warrant it in so doing. Willoughby v. Weinberger, 79 P. 778, 15 Okl. 226. It is just as necessary to trace the proceeds of a check or draft as it is to trace the proceeds of a promissory note or of any other species of personal property. It is the well-settled law that one must trace his identical property, or the proceeds thereof, or he cannot be given a preference. In a case like the one at bar, a depositor is given a preference only upon the theory that his property having been received by the bank in fraud, and he having been deceived, the law gives back the identical property if it can be found; and if it has been converted into some other property or money, that other property or money must stand in lieu of the property fraudulently received by the bank. The claimant must, however, trace the fund by evidence that is clear and satisfactory where the rights of other creditors are affected. We will here notice a few of the authorities bearing upon this point. In the case of In re Petition of Cavin and Others v. Gleason, Assignee, 11 N.E. 504, 105 N.Y. 256, the Court of Appeals of New York, speaking through Andrews, J., said: "Where a trust fund of $3,000 has been dissipated or lost by the act of the trustee, and the latter subsequently makes a general assignment for the benefit of creditors, the cestui que trust is not entitled to a preferential claim to the assets in the hands of the assignee over general creditors, unless it is shown that trust property specifically belonging to the trust is included in the assets, either in its original or in some traceable form."

The Supreme Court of Massachusetts in the case of Little et al. v. Chadwick et al., 23 N.E. 1005, 151 Mass. 109, 7 L. R. A. 570, said: "When trust money becomes so mixed up with the trustee's individual funds that it is impossible to trace and identify it as entering into some specific property the trust ceases. The court will go as far as it can in thus tracing and following trust money; but when, as a matter of fact, it cannot be traced, the equitable right of the cestui que trust to follow it fails. Under such circumstances, if the trustee has become bankrupt, the court cannot say that the trust money is to be found somewhere in the general estate of the trustee that still remains. He may have lost it with property of his own. And in such case the cestui que trust can only come in and share with the general creditors. The Attorney General v. Brigham, 142 Mass. 248, 7 N.E. 851; Howard v. Fay, 138 Mass. 104; White v. Chapin, 134 Mass. 230; Bresnihan v. Sheehan, 125 Mass. 11; Harlow v. Dehon, 111 Mass. 195, 198, 199; Andrews v. Bank, 3 Allen, 313; Le Breton v. Peirce, 2 Allen, 8, 13; Johnson v. Ames, 11 Pick. 173, 181, 182; Trecothick v. Austin, 4 Mason, 16, 29, F. Cas. No. 14,164; Ferris v. Van Vechten, 73 N.Y. 113; Frith v. Cartland, 2 Hem. & M. 417; Holland v. Holland, L. R. 4 Ch. 449; Isaacson v. Harwood, L. R. 3 Ch. 225; Perry, Trusts,§§ 345, 836, 842; Story, Eq. Jur. §§ 1258, 1259; Lewin, Trusts (8th Ed.) 241, 857, 892. There is nothing to the contrary in Bank v. Insurance Company, 104 U.S. 54, 66-71, 26 L.Ed. 693, and in re Hallett's Estate, 13 Ch. Div. 696, 708-721, which are chiefly relied on by the annuitants. In Wisconsin a majority of the court has declared that it is not necessary to trace the trust fund into any specific property in order to enforce the trust, and that if it can be traced into the estate of the defaulting agent or trustee, this is sufficient. McLeod v. Evans, 66 Wis. 401, 409, 28 N.W. 173, 214, 57 Am. Rep. 287. But this seems to us to be stated too broadly."

The language used by the Supreme Court of Kansas in the case of Burrows v. Johntz, 48 P. 27, 57 Kan. 778, applies with great force in the case at bar: "The parties failed not only to show the exact time when the estate went into the hands of the assignee, but they also failed to definitely show or agree that either the identical money which was delivered by Mather to Lebold, Fisher & Co., or any property into which it has been converted, actually went into the hands of the assignee. It is impossible to say, from the record, with certainty, that the assignee ever got these funds in any form. A trust is not imposed on the assignee unless the funds of the plaintiff actually came into his hands in their original form, or commingled with the estate, or had been used by the assignor, to swell and increase the estate which passed by the deed of assignment. Myers v. Board, 51 Kan. 87, 32 P. 658, 37 Am. St. Rep. 263; Hubbard v. Irrigating Company, 53 Kan. 637, 36 P. 1053, 37 P. 625. This case, unlike any other that has been considered by this court, rests on the bare presumption that the money came into the hands of the assignee because it had been received by the assignor a short time before the assignment, and had never been repaid to the plaintiff." Chief Justice Doster of the Supreme Court of Kansas, in the case of Travelers' Ins. Co. v. Caldwell, 52 P. 440, 59 Kan. 156, said: "To render an assignee liable to account to a party who had placed money in the hands of his assignor as a trust fund it must appear either that the fund actually passed into the hands of the assignee, or that property into which it can be traced passed to his hands, or, if so commingled with the general assets of the assignor as to be incapable of identification or tracing, that the estate which did pass to the assignee was augmented or bettered thereby; and the use of the trust money by the assignor in the payment of his debts and to defray the current expenses of his business cannot be held an augmentation or betterment of his estate, when all the assets passing to the assignee existed as the property of the assignor prior to the receipt of the trust money by him."

In Atkinson v. Rochester Printing Co., 21 N.E. 178, 114 N.Y. 168, the rule is thus stated: "The fact that the bank had no right to receive defendant's deposits when known to be insolvent, and committed a fraud by so doing thus becoming a trustee ex maleficio, gave defendant no right to a preference over other creditors, unless it could trace and recover its own property." The same court again, in the case of Holmes v. Gilman et al., 34 N.E. 205, 138 N.Y. 369, 20 L. R. A. 566, 34 Am. St. Rep. 463, states the rule thus: "The claim of the plaintiff to recover the moneys arising from the payments of these policies is based upon the principle which allows a cestui que trust to follow trust funds and to appropriate to himself the property into which such funds have been changed, together with the increased value of such property, provided the trust fund can be clearly ascertained, traced, and identified, and provided the rights of bona fide purchasers for value without...