City of Lincoln v. Morrison
| Citation | 90 N.W. 905,64 Neb. 822 |
| Decision Date | 21 May 1902 |
| Docket Number | 11,576 |
| Parties | CITY OF LINCOLN v. WILLIAM G. MORRISON ET AL |
| Court | Supreme Court of Nebraska |
ERROR fro the district court for Lancaster county. Tried below before HOLMES, J. Reversed.
REVERSED AND REMANDED.
Lambertson & Hall, for plaintiff in error.
Tibbets Bros. Morey & Anderson and Lionel C. Burr, contra.
POUND C. BARNES and OLDHAM, CC. concur.
This is a petition in error prosecuted by the city of Lincoln, an intervener in a suit brought to wind up the Lincoln Savings Bank & Safe Deposit Company, other phases whereof have been before this court several times. The plaintiff in error by its petition in intervention sought a preference over general creditors for some $ 5,000--a balance of moneys of said city loaned to the bank upon certificate of deposit by the city treasurer, in contravention of law and with knowledge on the part of the bank officers as to whose money it was. It appeared from a stipulation of the parties and from the evidence adduced that on April 9, 1895, the city treasurer placed $ 6,095.35 of the city's funds in the bank, taking a certificate of deposit therefor. Afterwards $ 1,095.35 was paid on the certificate, and a new certificate was issued for $ 5,000. After said deposit was made, the bank had on deposit, in all, about $ 240,000, of which $ 41,699.96 was on hand in cash. On December 16, 1895, the bank suspended. At that time the deposits had fallen to about $ 150,000, or, to be precise, $ 92,453.43 had been paid out to depositors between the time when the city's money had been placed in the bank and the date of suspension. No money was loaned and no investments were made during this period except that on April 16, 1895, the bank bought state warrants of the market value of $ 36,750, using in payment therefor $ 1,750 of the cash on hand, and $ 35,000 borrowed of a bank in New York. The remainder of the cash on hand on April 9, 1895, and such moneys as accrued from collection or sale of paper already in the bank, it used in paying depositors and in running expenses. At the time the bank suspended there was but $ 200 cash on hand. This sum had been pledged to secure sureties upon a supersedeas bond in a case wherein judgment had been rendered against the bank, and was afterwards applied upon such judgment. A receiver was appointed on January 22, 1896. When he took possession he received $ 1,562.61 in cash, and "cash items" to the amount of $ 239.07. He also received $ 3,334.37 from sale of the warrants above referred to; such sum being the $ 1,750 originally invested therein, and the profit after repaying the money borrowed to make the purchase. But it appears from the evidence that the cash and cash items which came into the hands of the receiver accrued from loans made by the bank, or from paper which it held, before the city's money was deposited therein. The district court, upon this testimony, found generally for the receiver and dismissed the city's petition.
Under the rulings of this court in Morrison v. Lincoln Savings Bank & Safe Deposit Co. 57 Neb. 225, 77 N.W. 655, and State v. Bank of Commerce, 54 Neb. 725, 75 N.W. 28, several of the questions raised may be disposed of readily. But the former case does not of necessity involve the questions presented by the case at bar, nor were the facts such as to require an affirmance of State v. Bank of Commerce, supra, while the latter case is vigorously assailed by counsel and we are asked to overrule it, and to reaffirm the rule recognized in prior decisions. Ordinarily we should not feel justified in reviewing a question determined by two recent decisions of this court. Were it a mere matter of these two decisions, so long as we feel satisfied that they are sound, we should do no more than cite them and proceed to apply them to this controversy. But in several prior cases, State v. State Bank of Wahoo, 42 Neb. 896, 61 N.W. 252, State v. Midland State Bank, 52 Neb. 1, 71 N.W. 1011, and especially Capital Nat. Bank v. Coldwater Nat. Bank, 49 Neb. 786, 69 N.W. 115, this court had expressly or by strong implication recognized and adopted a different rule. The cases last cited are sought to be distinguished in State v. Bank of Commerce, supra. Counsel have pointed out, however, that the attempt to distinguish the latter case from Capital Nat. Bank v. Coldwater Nat. Bank, supra, is founded on an entire misapprehension of the facts there presented; and, in any event, the reasoning in these two cases and the authorities severally relied on therein can not be reconciled. For this reason we think it expedient to state plainly that this court no longer adheres to the extreme view as to the right of cestui que trust to be preferred on insolvency of the trustee, expressed in the cases of State v. State Bank of Wahoo, State v. Midland State Bank, and Capital Nat. Bank v. Coldwater Nat. Bank, but adheres to the position taken in State v. Bank of Commerce and Morrison v. Lincoln Savings Bank & Safe Deposit Co. supra; to set forth our reasons for rejecting the one view and adopting the other; and to state as clearly and definitely as we may the rules by which causes such as the one at bar are to be decided.
The origin of the rules now recognized with respect to following trust money which has been mingled with the personal funds of the trustee or has passed into his general estate, is to be found in the opinion of Jessell, M. R. in Knatchbull v. Hallett, 13 Ch. Div. [Eng.] 696-753. Prior to that decision it was said that money had no earmark, and that when a trust fund, in the form of money, became mingled with the moneys of the trustee personally, it lost its identity and could not be traced. Since that vigorous and convincing judgment, the idea that money, as such, could not be traced, and that trust property lost its identity when turned into money and confused with the trustee's funds, has been abandoned completely. But the limits of the extension of the rights of cestui que trust with respect to the property of insolvent trustees to which the decision in Knatchbull v. Hallett gave rise, were not perceived at first. All which that decision did was to wipe out the old dogma that money had no earmark, and to substitute the sensible rule that whenever trust property enters into a mass, to which the property of cestui que trust and that of the trustee have contributed, so long as the trust property remains in or forms a part of such mass, cestui que trust has a claim or charge thereon to that extent, and general creditors can not take advantage of, or derive a benefit from, the increase in the assets due and traceable to misappropriation of the trust fund. Several courts in this country, however, went much further, and established a rule which, though generally abandoned or modified in the more recent authorities, is still adhered to in some quarters, and at one time had the support of decisions of this court. McLeod v. Evans, 66 Wis. 401, 28 N.W. 173; First Nat. Bank v. Hummel, 14 Colo. 259, 23 P. 986; Peak v. Ellicott, 30 Kan. 156, 1 P. 499; Myers v. Board of Education, 51 Kan. 87, 32 P. 658; Evangelical Synod v. Schoeneich, 143 Mo. 652, 45 S.W. 647; Ticrman's Ex'r v. Security Building & Loan Ass'n, 152 Mo. 135, 53 S.W. 1072; Independent District v. King, 80 Iowa 497, 45 N.W. 908; Davenport Plow Co. v. Lamp, 80 Iowa 722, 45 N.W. 1049. The supreme court of Iowa has receded somewhat in District Township of Eureka v. Farmers' Bank, 88 Iowa 194, 55 N.W. 342. And a divided court in Wisconsin has overturned McLeod v. Evans, supra, which was itself the decision of a divided court. Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N.W. 383. See, also, Bircher v. Walther, 163 Mo. 461, 63 S.W. 691. But this court, in Capital Nat. Bank v. Coldwater Nat. Bank, supra, expressly refused to follow the silk company case, and adhered to McLeod v. Evans. In the view of these authorities, if trust property has been misappropriated and has gone into the estate of the trustee, cestui que trust is to be preferred, and is to receive his money to the exclusion of general creditors. As the court put it in Capital Nat. Bank v. Coldwater Nat. Bank, supra, the question is not one of identifying or claiming a sum actually deposited, but of compelling the insolvent to first restore the trust property, treating that as something which he had no power to commingle with other funds, but must keep whole and make up so long as he has any funds or property out of which to do so. Other cases do not go so far expressly, but reach the same result, either by holding that, if the insolvent trustee uses the whole fund to pay his debts, the effect is to increase his general estate and create a charge thereon in favor of cestui que trust, or by ruling that when the trust fund is once traced into the general property of the trustee it is conclusively presumed to remain there. McLeod v. Evans, supra; Peak v. Ellicott, supra; Myers v. Board of Education, supra; Independent District v. King, supra.
We are not able to agree to the rule just stated in any of the forms which it has assumed. We are satisfied that the court did well when in State v. Bank of Commerce it withdrew its support therefrom, and took a position in accord with the great weight of recent authority. The court was in error in saying (54 Neb. 725, 731, 75 N.W. 28) that the moneys which came into the hands of the receiver of the Capital National Bank on its insolvency were more than sufficient to meet the preferred claims established in Capital Nat. Bank v Coldwater Nat. Bank, supra, and its companion cases. Such sum was greater than the preferred claim established in any one suit, but the aggregate considerably exceeded it, and the record in each case showed that fact. Hence State v....
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