State v. Bruce

• Decision Date: 02 July 1909
• Parties: STATE, Appellant, v. WALTER S. BRUCE, Receiver of the Estate of the Capital State Bank of Idaho, Insolvent, Respondent
• Court: Idaho Supreme Court

102 P. 831

17 Idaho 1

STATE, Appellant, v. WALTER S. BRUCE, Receiver of the Estate of the Capital State Bank of Idaho, Insolvent, Respondent

Supreme Court of Idaho

July 2, 1909

TRUST FUNDS-IDENTITY OF TRUST FUNDS-LIEN ON GENERAL ASSETS OF AN ESTATE FOR TRUST FUNDS.

1. Where the state treasurer deposited state funds in a bank without authority of law, and the bank had notice of the character of the funds and of the relation the depositor sustained to the funds, and the trust funds were mixed and commingled with the general assets of the bank and used from day to day in the commingled form promiscuously in the payment of the debts of the bank and in the purchase of paper and securities, and the bank thereafter suspended payment and went into the hands of a receiver, and at the time the receiver took charge there was not enough cash on hand to pay the trust account, the lien of the state will attach to all the assets of the bank as a preferred claim for the payment of the trust funds.

2. Trust funds may be followed into the trustee's estate although no particular property or asset can be identified as having been purchased or acquired by the particular funds where it appears that the trust fund was mixed and commingled with the general funds and property of the trustee's estate and went into the general assets either in the purchase of paper and securities or in the payment of the debts of the trustee, and in such case the lien of the cestui que trust will attach against the entire assets of the trustee's estate for the payment of such claim.

(Syllabus by the court.)

APPEAL from the District Court of the Third Judicial District, for the County of Ada. Hon. Fremont Wood, Judge.

Action by the state of Idaho to establish a trust lien against the state and assets of the Capital State Bank of Idaho insolvent, and to have its right decreed to be that of a preferred creditor. Judgment in favor of plaintiff to the extent of the cash on hand in the bank at the time it suspended business and against the state as to all other assets. Plaintiff appeals. Reversed.

Reversed and remanded, with directions. Costs in favor of appellant.

Edwin Snow, for Appellant.

Having traced the state's money into the coffers of the bank, we are entitled to withdraw an equal amount previous to any payment whatever to the general creditors, and this is true irrespective of the fact we cannot trace the state's trust fund of which the bank was trustee into any specific pieces of property or moneys that came into the hands of the receiver. (State v. Thum, 6 Idaho 323, 55 P. 858; Bank v. Bunting, 7 Idaho 27, 59 P. 929.)

"If a man mixes trust funds with his, the whole will be treated as trust property except so far as he may be able to distinguish what is his. " (Bank v. Conn. Mut. Ins. Co., 104 U.S. 54, 26 L.Ed. 693; Hatchbull v. Hallett, L. R. 13 Ch. Div. 696; Frelinghausen v. Nugent, 36 F. 229; Cox v. Wills, 49 N.J. Eq. 574, 25 A. 938; Standard Oil Co. v. Hawkins, 74 F. 395, at p. 402, 20 C. C. A. 468, 33 L. R. A. 739; Massey v. Fisher, 62 F. 958.)

Although the trust fund could not be clearly traced to any particular asset in the hands of the receiver, it was shown to have gone into and been used for the benefit of the estate, and it thereby became a charge upon the entire assets with which it was mingled. (Meyers v. Board of Education, 51 Kan. 87, 37 Am. St. 263, 32 P. 658; Peck v. Ellicott, 30 Kan. 156, 46 Am. Rep. 90, 1 P. 499; Insurance Co. v. Caldwell, 59 Kan. 156, 52 P. 440; Ind. Dist. v. King, 80 Iowa 497, 45 N.W. 908; Plow Co. v. Lamp, 80 Iowa 722, 20 Am. St. 442, 45 N.W. 1049; Page County v. Rose, 130 Iowa 296, 106 N.W. 744, 5 L. R. A., N. S., 886; Fogg v. Bank, 80 Miss. 754, 32 So. 385; Hutchinson v. Le Roy, 113 F. 209, 51 C. C. A. 159; McLeod v. Evans, 66 Wis. 401, 57 Am. Rep. 287, 28 N.W. 173, 214; Francis v. Evans, 69 Wis. 115, 33 N.W. 93; Carley v. Graves, 85 Mich. 483, 24 Am. St. 99, 48 N.W. 710; Farmers' & M. Nat. Bank v. King, 57 Pa. 202, 98 Am. Dec. 215.) "Where accounts are to be settled between the parties and the decree contains an order of reference by which the accounts are to be stated in accordance with principles fixed by the decree, such order of reference will not have the effect of rendering the decree interlocutory." (13 Am. & Eng. Ency. 29, and cases cited.)

In every one of the cases cited by respondent where the order requiring an accounting was not held final, it was a case in which the complaint itself called for an accounting. Our petition simply asked for a payment in money. We do not ask for an accounting. We claim a lien upon the entire assets. The court denied our claim but stated the principles upon which we should be relieved, and ordered an accounting for the purpose of carrying out his order, at the same time indicating precisely the principles upon which our relief should be based.

Wyman & Wyman, for Receiver; Cavanah & Blake, for U. S. Nat. Bank of Omaha; Morrison & Pence, for Capital State Bank and U. S. Fidelity & Guaranty Co.

The accounting ordered by the lower court has never been had, nor have any of the moving parties made any effort whatever to get it. The receiver has moved to dismiss the appeal on the ground that the order appealed from was not nor was intended to be by the court making it a final order in the matter. An order is not final which, having decided portions of the questions presented, directs a further hearing upon those undisposed of (Mills v. Hoag, 7 Paige, 18; Keystone etc. Co. v. Martin, 132 U.S. 91, 10 S.Ct. 32, 33 L.Ed. 275; McGourkey v. Toledo & O. C. R. Co., 146 U.S. 536, 13 S.Ct. 170, 36 L.Ed. 1079; Raymond v. Baking Powder Co., 76 F. 465, 22 C. C. A. 276; Latta v. Kilbourn, 150 U.S. 524, 14 S.Ct. 201, 37 L.Ed. 1169; McKeown v. Officer, 127 N.Y. 687, 28 N.E. 401; Ex parte Crittenden, 10 Ark. 333; In re Palmyra, 10 Wheat, (U.S.) 502, 6 L.Ed. 376.) A beneficiary whose fund has been improperly diverted may follow and recover it without regard to the form into which it has been converted, provided it shall not have passed into the hands of innocent purchasers, and that he shall at all times be able to identify it as his specific property or the specific proceeds of his property, and where he cannot do this, he is not permitted to have any preference over general creditors, and where a bank has mingled trust funds with its own money, and paid out for its own purposes from such commingled funds, it will be presumed to have paid from its own money and not from the trust funds. (Commissioners v. Strawn, 157 F. 49; Spokane County v. First Nat. Bank, 68 F. 979; Litchfield v. Ballou, 114 U.S. 190, 5 S.Ct. 820, 29 L.Ed. 132; Peters v. Bain, 133 U.S. 670, 10 S.Ct. 354, 33 L.Ed. 696; Roach v. Caraffa, 85 Cal. 436, 25 P. 22; Estate of Dutard, 147 Cal. 253, 81 P. 519; Little v. Chadwick, 151 Mass. 109, 23 N.E. 1005, 7 L. R. A. 570.) "Trust funds deposited in a bank do not constitute a general lien on assets superior to that of general creditors." ( Hill v. Miles, 83 Ark. 486, 104 S.W. 198; Milling Co. v. Skillern, 73 Ark. 324, 84 S.W. 475; Shopert v. National Bank, 41 Ind.App. 474, 83 N.E. 515; Slater v. Oriental Mills, 18 R.I. 352, 27 A. 443; Lowe v. Jones, 192 Mass. 94, 116 Am. St. 225, 78 N.E. 402, 6 L. R. A., N. S., 487; State v. Foster, 5 Wyo. 199, 63 Am. St. 47, 38 P. 926, 29 L. R. A. 226; Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N.W. 383; Burnham v. Barth, 89 Wis. 362, 62 N.W. 96; Englar v. Offutt, 70 Md. 78, 14 Am. St. 332, 16 A. 497; Goldthwaite v. Ellison, 99 Ala. 497, 12 So. 812; Board v. Wilkinson, 119 Mich. 655, 78 N.W. 893, 44 L. R. A. 493; Trust Co. v. St. Louis & S. F. Ry. Co., 99 F. 485.)

The leading case is In re Hallett's Estate, L. R. 13 Ch. D. 696, which has been very generally followed by American courts, and it expressly holds the doctrine for which we contend. (State v. Bank of Commerce, 54 Neb. 725, 75 N.W. 28; Massey v. Fisher, 62 F. 958; In re Mulligan, 116 F. 715; Nat. Bank v. Campbell Com. Co., 77 F. 705; Cavin v. Gleason, 105 N.Y. 256, 11 N.E. 504; Arbuckle Bros. v. Kirkpatrick, 98 Tenn. 221, 50 Am. St. 854, 39 S.W. 3, 36 L. R. A. 285; Cushman v. Goodwin, 95 Me. 354, 50 A. 50; Randolph v. Allen, 73 F. 24, 19 C. C. A. 353; Parker v. Jones, Admr., 67 Ala. 234; Ellicott v. Kuhl, 60 N.J. Eq. 333, 46 A. 945.) Of the cases cited by counsel, which in anywise support his contention, the greater number have been either overruled or severely criticised. New York, Nebraska, Wisconsin and Michigan have all overruled their previous cases and now support the doctrine for which we contend, while Iowa and Kansas have expressly doubted the law of most of the cases cited by appellant.

AILSHIE, J. Sullivan, C. J., and Stewart, J., concur.

OPINION

AILSHIE, J.

STATEMENT OF FACTS.

On January 20, 1908, the Capital State Bank of Idaho suspended payment, closed its doors and on the following day a receiver was appointed by the district court to take charge of its assets and business. For several months preceding the insolvency of the bank, C. A. Hastings, treasurer of the state of Idaho, had been carrying an account at this bank in the name of "C. A. Hastings, State Treasurer, Collection Account." The account was opened on June 24, 1907, and thereafter fluctuated from time to time by reason of withdrawal of deposits and additional deposits of checks and drafts. On January 20, 1908, the day on which the bank suspended business, there remained due as a balance on the account carried by the state treasurer, the sum of $ 24,434.44. This was the money of the state of Idaho, and that fact was at all times known to the bank and its officers and is admitted in this case. Soon after the bank suspended payment and the receiver was appointed the state, acting through the...