In re Ruskay

• Decision Date: 02 February 1925
• Docket Number: No. 132.,132.
• Citation: 5 F.2d 143
• Parties: In re RUSKAY et al. Petition of CRELLIN.
• Court: U.S. Court of Appeals — Second Circuit

5 F.2d 143 (1925)

In re RUSKAY et al.

Petition of CRELLIN.

No. 132.

Circuit Court of Appeals, Second Circuit.

February 2, 1925.

Patterson, Eagle, Greenough & Day, of New York City (Carroll G. Walter and J. Rhodes O'Reilly, both of New York City, of counsel), for petitioner.

Zalkin & Cohen, of New York City (S. Marshall Kronheimer, of New York City, of counsel), for trustee-respondent.

Before ROGERS, HOUGH, and HAND, Circuit Judges.

ROGERS, Circuit Judge.

This is a petition to revise an order made on June 11, 1924, in a proceeding in bankruptcy.

The petitioner seeks to recover the amount of two checks given by him to the bankrupts — one a check for $620, the other for $1,167.25. They were given for the purchase of 15 shares of American Telephone & Telegraph Company stock, which shares the bankrupts agreed to purchase for the petitioner, but which they never delivered to him if, indeed, they ever at any time purchased them. These checks, it appears, the bankrupts deposited in the Old Colony Trust Company on February 21, 1922, after banking hours, although they were actually not credited on the books of the trust company in the bankrupts' checking account until February 23d, the next banking day.

It is claimed by the petitioner that he has traced these checks into the bankrupts' account and that he is entitled to recover the amount from the receiver of the bankrupts, who was appointed on February 23d; there being a credit on the books of the trust company in favor of the bankrupts in excess of the amount of his claim.

The court below, confirming the report of the special master to whom the claim was referred, has denied the petitioner's right on the ground that the trust fund had been wholly dissipated prior to the appointment of the receiver and so never reached the latter's hands.

There can be no doubt that when the petitioner paid money to the bankrupts for the purchase of the stock they occupied a fiduciary relation to him and held the money so received solely for the purchase of the stock. Equity regards a fund so paid and received as impressed with a trust in favor of the one who paid it over and who is beneficially entitled. The latter may assert his right against those to whom he intrusted it, or any one claiming under them voluntarily or with notice. Keech v. Sanford, 1 White & Tudor, Lead. Cas. (6th Ed.) 53, and notes. And see In re See, 209 F. 172, 126 C. C. A. 120; In re A. Bolognesi & Co., 254 F. 770, 166 C. C. A. 216. But a trust fund can be followed and recovered only when it can be clearly traced and identified in some certain or specific fund or property.

The petitioner failed below because in the opinion of the court he did not succeed in tracing the trust fund into the hands of the receiver of the bankrupts, it not having been made to appear to that court's satisfaction that the money was in the bankrupts' account in the trust company at the time of the receiver's appointment.

It appears that an order was entered in the District Court on May 29, 1922, requiring all creditors of the alleged bankrupts to file proofs of claim on or before July 29, 1922, or be forever barred from asserting any claim against the receiver. It referred all claims so filed to a special master with power to hear and determine them and to report his determination to the court.

Pursuant to this order, the petitioner herein filed his proof of claim on June 6, 1922. In his sworn statement he set forth that on February 17, 1922, he instructed the alleged bankrupts to purchase for his account 15 shares of stock of the American Telephone & Telegraph Company at the price of $119 a share. That he was advised by them on the same day that the stock had been purchased for his account, and that the amount due for the same was $1,787.25. That thereafter and on February 20, 1922, he delivered at the office of the bankrupts in payment of the amount due for the stock, and upon the understanding that he would receive therefor certificates representing the said stock, two checks — one for $1,167.25 and one for $620, the total of the two checks being the amount of the purchase price of the stock. That, upon information and belief, each of said checks was indorsed by the bankrupts for collection in their account in the Old Colony Trust Company of Boston, Mass., on February 21, 1922, and the amount of the checks credited by the trust company aforesaid to the account of the bankrupts; said checks being paid by the respective banks upon which they were drawn.

The claimant further stated that he had never received from the bankrupts certificates for the shares of stock so purchased by them for him. He further stated upon information and belief that at all times, until the appointment of the receiver, the moneys paid to the alleged bankrupts by him remained on deposit to the credit of the said bankrupts in the Trust Company and came into the possession of the receiver herein. He therefore claimed that of the cash balance on deposit to the credit of the bankrupts in the trust company the sum of $1,787.25 is money belonging to him held for him in trust by the bankrupts, and he claimed that specific amount of money out of said balance.

At the hearing before the special master the following testimony was introduced:

"Q. I ask you to look at this transcript, Claimant's Exhibit 3; will you tell us what the balance to the credit of S. S. Ruskay & Co. was on the 20th day of February, 1922? A. $9,705.90 at the close of business.

"Q. Can you tell us what the withdrawals were on the 21st? A. On the 21st the withdrawals amounted to $3,901.27.

"Q. That left a balance of how much? A. $5,803.63, the deposits on the 21st were $1,483.86, leaving a credit at the close of the 21st of $7,288.49, and the withdrawals on February 23d were $8,601.50.

"Q. Now, you have got the transaction as between February 20th and 23d? A. Yes, sir.

"Q. And you say on the 23d of February the withdrawals from this account were in the sum of $8,601.50? A. Yes.

"Q. What does this Exhibit No. 3 show in respect to the deposits on the 23d? A. On the 23d three deposits made one for $1,149.29, one for $3,585, one for $30.

"Q. What does it show about the withdrawals on the 23d? A. $8,601.50."

The master found that on February 21, 1922, the bankrupts had on deposit in the trust company $7,288.49; that February 22d was a legal holiday and on that day the petition in involuntary bankruptcy was filed; that on February 23d there was withdrawn $8,601.50; that the withdrawals were in excess of the deposit on February 21, 1922, amounting to $7,288.49; that by reason of the withdrawals the deposit of February 21, 1922, was wholly dissipated. Then he found:

"That some time during the day of February 23, 1922, the time not being shown, and no evidence being adduced on the part of the claimant to indicate just when additional moneys were deposited with the bankrupts, there was deposited a further sum of $4,764.29, leaving a balance at the close of February 23, 1922, in the sum of $3,451.28."

He added:

"I find that the trust fund of said claimant has been wholly dissipated and the mingled fund wholly depleted and cannot be treated as reappearing in sums subsequently deposited to the credit of the same account. The bankrupts being stockbrokers, the funds on deposit were constantly fluctuating, and there is no period at which one can state definitely just what specific funds were on deposit nor whether or not the trust funds of the claimant remained intact at any particular time with the bankrupts; this burden rested upon the claimant, and it was part of his case to establish said fact affirmatively.

"I find that claimant has not borne the burden of proof; that he has not traced the trust funds into any specific fund; and that the proceeds of said claimant's checks did not come into the hands of the trustee, but, on the contrary, were dissipated prior to the time of the filing of the petition in bankruptcy, even though subsequent deposits caused the balance that came into the hands of the trustees or receiver to be in excess of the amount claimed by claimant."

If the above findings of fact stood alone, the conclusion reached was correct as a matter of law. For the rule is now well established, and is not here controverted, that where one has deposited trust funds in his individual bank account and the mingled fund is at any time wholly depleted, the trust fund is thereby dissipated and cannot be treated as reappearing in sums subsequently deposited to the credit of the same account. Schuyler v. Littlefield, 232 U. S. 707, 710, 34 S. Ct. 466, 58 L. Ed. 806; Peters v. Bain, 133 U. S. 671, 693, 10 S. Ct. 354, 33 L. Ed. 696; Knatchbull v. Hallett, L. R. 13 Ch. Div. 696.

But the difficulty in this case is that the master found certain other facts. He stated:

"I find that the 15 shares of American Tel. & Tel. stock never came into the possession of the receiver; that the sum of $1,787.25 was paid by the claimant to the Boston office of the bankrupt as per two checks deposited with the bankrupts on the 20th day of February, 1922, one in the sum of $620 and the other in the sum of $1,167.25."

He misapprehended the legal effect of that finding, in that he states that the excess of the deposits on February 21, 1922, amounted to $7,288.49, ignoring the actual deposit on that day of $1,787.25 because of the fact that it was received after banking hours and was not actually entered in the bankrupt's account until some time on the next banking day. And then he finds that on February 23d, which was the next banking day, there was withdrawn $8,601.50 which exhausted what he treats as the balance in the account on the prior day. But if the $1,787.25 is in law to be regarded as held by the bank on February 21st for the bankrupts and added to their account as of the date when it was actually received, the withdrawals at no time exceeded the deposits. In other words, the master in effect...