Ferchen v. Arndt

• Decision Date: 05 July 1894
• Citation: 37 P. 161,26 Or. 121
• Parties: FERCHEN v. ARNDT (E.W. BLISS CO., Intervener).
• Court: Oregon Supreme Court

37 P. 161

26 Or. 121

FERCHEN v. ARNDT (E.W. BLISS CO., Intervener).

Supreme Court of Oregon

July 5, 1894

Appeal from circuit court, Clatsop county; T.A. McBride, Judge.

Action by J.F. Ferchen against Samuel Arndt for the appointment of a receiver. E.W. Bliss Co. intervened, praying that their claim be adjudged a preferred lien, and from a judgment allowing the claim, but denying the lien, the intervener appealed. Affirmed.

Snow & McCamant, for appellant.

C.W Fulton, for respondent.

LORD, C.J.

This is a suit to establish a preference and a lien upon the assets of the partnership of Arndt & Ferchen, in the hands of B.W. Robinson as receiver, for certain moneys alleged to have been received in trust by said firm. The facts are substantially these: The plaintiff and defendant were partners engaged in the foundry business under the firm name of Arndt & Ferchen, and, not being able to agree in regard to the management of the business, the plaintiff instituted a suit praying for an accounting, and for a dissolution of the partnership, and that in the interim the property of the partnership be turned over to a receiver, who should manage the same, subject to the orders of the court. The receiver, having been appointed, took charge of the property and business of the firm, and, after managing it several months, he was directed by the court to sell the property of the partnership in his hands, and turn into court the proceeds of such sale, together with such collections as he might make of partnership accounts. Under this order about $2,000 was paid into court for distribution among the creditors of the firm. In the meantime the E.W. Bliss Company was permitted by the court to intervene in the suit whereupon it filed its petition, praying for the allowance of a claim against the partnership for the sum of $2,114 together with interest thereon from July 15, 1892; that it be decreed to have a preferred lien on all assets of the partnership for said sum, and that the receiver be directed to pay the same to the petitioner. The facts upon which the intervener bases its claim are substantially that the firm of Arndt & Ferchen had represented the Bliss Company in the sale of its goods on commission as its agents; that accounts were rendered from time to time to said company, but that without its knowledge it had been the custom of the firm to mingle the sums received from sales made for such company with other moneys of the firm; that the moneys so received were deposited in the bank to the credit of such partnership, and that the firm checked against it to pay the running expenses of the partnership, to purchase new machinery, to purchase merchandise afterwards sold by the partnership, to pay the salaries and wages of employes, *** and that the moneys of your petitioner so received by said Arndt & Ferchen have been so mingled with the funds of said Arndt & Ferchen that it is impossible to follow them into any specific property." The petition was attacked by demurrer, on the ground that it did not state facts sufficient to constitute a cause of suit, which demurrer was overruled, the court holding that the intervener was entitled to have any specific property or fund of the partnership into which it could trace its money impressed with a lien in its favor. The court then referred the case to Mr. C.E. Runyon for the purpose of ascertaining whether the firm had received any money from the sale of the goods or wares of the company as its factor, and if so, what disposition was made of it. Thereafter the receiver filed an answer denying that the firm of Arndt &amp Ferchen, since the year 1884, or at any time, has been employed by the petitioner as its factor, or sold any goods or wares for or on its account, etc. This answer was deemed insufficient to constitute a defense, and, no other answer being interposed, and the intervener having failed to avail itself of the opportunity afforded by the court to show by evidence that its money was in the partnership fund, the court proceeded to pass upon the questions raised by the petition, and held that the amount claimed therein should be allowed, but denied the preference sought by the petitioner. From this decree the company has brought this appeal.

The facts show that, if the claim of the Bliss Company is preferred, it will absorb the entire assets of the firm leaving nothing for its other creditors. The case is rendered important by the nature of the question involved and the number of other cases dependent upon its decision. Upon the admitted facts there is no pretense that the money derived from the sale of the intervener's goods forms any part of the fund now awaiting distribution at the hands of the court. It is conceded that the money so collected has been appropriated to the payment of debts, the purchase of stock, and the payment of the running expenses of the partnership while the firm was conducting its business. But it is claimed that, where an agent or trustee has wrongfully used or appropriated the property or funds of another, it creates an equitable charge upon the whole of his estate, or a preferred lien upon his assets. This is put on the ground that such estate is thereby increased, or that his assets would have been less but for the wrongful use or appropriation of the trust fund, and consequently that it cannot be supposed that such fund is wholly lost, but that it exists in a substituted form as a part of such estate or assets, although it cannot be pointed out, or directly traced. That there may be cases to which such argument is applicable may be conceded,--as where the trust fund has gone into and remains in the assets which are sought to be charged,--but its force is not perceived where such fund is dissipated, or used in the payment of debts or the expenses of business. The equitable right to follow and retake from the possession of a trustee property wrongfully appropriated by him, or from those in privity with him, who are not bona fide purchasers for value, so long as it can be traced, whether it remains in its original or in a substituted form, upon the ground that such property, in whatever form, is subject to the trust in favor of the owner, is well established. "Formerly," Mr. Justice Bradley says, "the equitable right of following misapplied money or other property into the hands of the parties receiving it depended upon the ability of identifying it; the equity attaching only to the very property misapplied. This right was first extended to the proceeds of the property, namely, to that which was procured in place of it by exchange, purchase, or sale. But, if it became confused with other property of the same kind, so as not to be distinguishable, without any fault on the part of the possessor, the equity was lost. Finally, however, it has been held as the better doctrine that confusion does not destroy the equity entirely, but converts it into a charge upon the entire mass, giving to the party injured by the unlawful diversion a priority of right over the other creditors of the possessor. This is as far as the rule has been carried." Frelinghuysen v. Nugent, 36 F. 238. Mr....