State v. Bank of Commerce

• Decision Date: 21 April 1898
• Parties: STATE ET AL. v. BANK OF COMMERCE ET AL.
• Court: Nebraska Supreme Court

54 Neb. 725

75 N.W. 28

STATE ET AL.

v.BANK OF COMMERCE ET AL.

Supreme Court of Nebraska.

April 21, 1898.

Syllabus by the Court.

1. The beneficiary of a trust fund, solely because of the character of his claim, is not entitled to the payment of the same in full, to the exclusion of the other creditors, out of the assets of the insolvent trustee's estate.

2. When trust funds are wrongfully converted, the beneficiary is entitled to the funds themselves, or the proceeds of the investment of them, so long as he can definitely trace them, and before they reach the hands of an innocent holder.

3. When a trustee wrongfully commingles trust money with his own, and makes payments from the common fund, it will be presumed that he paid out his own money, and not the trust money.

4. When trust funds are wrongfully converted, and not only do not remain in the hands of, and are not found among the assets of, the wrongdoer, but are actually traced out of his hands, and shown to have been dissipated, then the beneficiary of the trust fund is not entitled to have his claim allowed, as a preferred one, against the estate of the insolvent wrongdoer.

5. If the trust property consisted of money, the claim of the beneficiary of the trust fund may be preferred, to the extent of the cash found among the assets of the insolvent trustee at the time of his failure, unless it affirmatively appears that such cash assets are not part of the trust fund.

6. A county treasurer is a trustee of moneys which come into his hands by virtue of his office; and if he wrongfully deposits them to his own credit in a bank aware of their character, which afterwards becomes insolvent, the county is entitled to have its claim decreed a first lien upon any asset of the insolvent bank which it shows is the product of its moneys.

7. The county treasurer of Hall county wrongfully deposited to his own credit in the Bank of Commerce $15,860.18 of public funds, the bank being aware of their character. The bank failed, having in its vaults only $140 in cash. It had used the treasurer's deposit in paying off its other depositors. It was not shown that any part of this public money was represented by, or embraced in, any asset of the bank which came into the possession of its receiver. Held, (1) that the county was entitled to reclaim the $140, as being part of the trust fund; (2) that it was not entitled to have its claim against the insolvent bank decreed a first lien upon the other assets thereof.

Appeal from district court, Hall county; Thompson, Judge.

Proceedings by the state against the Bank of Commerce for the appointment of a receiver. Petition in equity by the county of Hall to be decreed a preferred creditor of the bank. From a decree granting the relief prayed by Hall county, John Hendrickson and others, creditors of the bank, appeal. Reversed.John L. Webster, W. A. Prince, W. H. Platte, James H. Wooley, and James H. McIntosh, for appellants.

C. J. Smythe, Atty. Gen., Chas. G. Ryan, R. R. Horth, and Fred W. Ashton, for appellees.

RAGAN, C.

To an understanding of this case, the material and undisputed facts are: On the 9th of January, 1896, William Thomssen was the county treasurer of Hall county, Neb. On that date, and the 13th and 15th days of said month, he made general deposits to his own credit in the Bank of Commerce of Grand Island, in said county, aggregating $16,828.32. The moneys so deposited were public moneys rightfully in the hands of Thomssen as county treasurer of said county. The deposit so made was unlawful. The officers of the bank knew that the money so deposited by the treasurer was not his, but the money of the public, and that Thomssen held such money as the county's agent or trustee. On the 20th of January of said year, the Bank of Commerce became insolvent, ceased to do business, and its assets were subsequently placed in the hands of a receiver. When the receiver took possession of the assets of the bank, there were in its vaults, in cash, $140, and no more. Between January 9th and January 20th, Thomssen drew checks against the deposit made by him in said bank amounting to $968.14, so that when the bank ceased to do business it was indebted to Thomssen in the sum of $15,860.18. This money the bank used in paying off its depositors other than the county treasurer. It was not shown that any part of this public money was represented by, or embraced in, any asset of the bank which came into the hands of the receiver. After the receiver was appointed, the creditors of the bank filed with him their claims against the bank; and among the claimants was Hall county, by its treasurer, for the money which the bank at the time of its failure owed him. A dividend of 15 per cent. was afterwards paid by the receiver to each of the creditors, including the county treasurer. Subsequently the county filed a petition in equity, and asked that its claim be decreed a preferred one, and be first paid out of the assets of the insolvent bank. The district court of Hall county entered a decree as prayed by the county, and the other creditors of the bank have appealed.

1. It is insisted by appellants that the county, by accepting the 15 per cent. dividend, has estopped itself from asserting that it is a preferred creditor. If the claim of a private individual had been allowed as that of a common creditor, and he had afterwards accepted a dividend paid thereon by the receiver, he would probably be in no position to afterwards maintain an action to have his claim decreed a preferred one, as he would be bound by the judgment or ajudication (unless appealed from) which recognized his claim as that of a common creditor, and estopped because of his acceptance of the dividend paid on such nonpreferred claim. Association v. Morris, 36 Neb. 31, 53 N. W. 1037;State v. Midland State Bank (Neb.) 73 N. W. 922. But the county is not estopped here from asserting that its claim is a preferred one because of the action of its county board and treasurer in the premises.

2. The treasurer was a trustee of the county for this money, and since the bank borrowed the money of the treasurer, knowing it was county money, it acquired no greater rights to the money than the treasurer himself had. It has sometimes been held that where a trustee of a trust fund, or one who has received that fund from him, knowing it to be such, becomes insolvent, the claim of the beneficiary of the trust fund is to be preferred to that of all other creditors of such trustee. Such was the holding of the supreme court of Wisconsin in McLeod v. Evans, 66 Wis. 401, 28 N. W. 173, 214. It was there ruled that, in order to make the claim of the beneficiary of the trust fund a preferred one, it was not necessary to show that any part of the trust fund was embraced in the assets which came into the hands of the receiver of the insolvent trustee. The ruling in this case was followed by that court in Francis v. Evans, 69 Wis. 115, 33 N. W. 93, and Bowers v. Evans, 71 Wis. 133, 36 N. W. 629. But in Silk Co. v. Flanders, 87 Wis. 237, 58 N. W. 383, the supreme court of Wisconsin repudiated the doctrine announced in McLeod v. Evans, supra, and overruled that case and the cases following it. The supreme court of Iowa seems also to have followed the rule announced by the supreme court of Wisconsin in McLeod v. Evans, supra. See Independent Dist. of Boyer v. King (Iowa) 45 N. W. 908; Plow Co. v. Lamp, Id. 1049. The doctrine of McLeod v. Evans seems also to have been followed by the supreme court of Kansas in Myers v. Board, 51 Kan. 87, 32 Pac. 658. But we think the correct doctrine, and the one supported by the decided weight of authority, is that the beneficiary of a trust fund, solely because of the character of his claim, is not entitled to the payment of the same in full, to the exclusion of other creditors, out of the assets of the insolvent trustee's estate; that, when trust funds are wrongfully converted, the beneficiary is entitled to the funds themselves, or to the proceeds of the investment of them, so long as he can definitely trace them, and before they reach the hands of an innocent holder; that when a trustee wrongfully commingles trust money with his own, and makes payments from the common fund, it will be presumed that he paid out his own money, and not the trust money; that it will be presumed that the cash assets on hand when the trustee failed, and the...