State v. Hollingsworth, 49006

• Decision Date: 05 February 1957
• Docket Number: No. 49006,49006
• Citation: 81 N.W.2d 27,248 Iowa 763
• Parties: STATE of Iowa, Appellee, v. Claude S. HOLLINGSWORTH, Appellant.
• Court: Iowa Supreme Court

Page 27

81 N.W.2d 27

248 Iowa 763

STATE of Iowa, Appellee, v. Claude S. HOLLINGSWORTH, Appellant.

No. 49006.

Supreme Court of Iowa.

Feb. 5, 1957.

Rehearing Denied April 5, 1957.

Thomas O. Tacy, Council Bluffs, for appellant.

Dayton Countryman, Atty. Gen. of Iowa, and Dudley C. Lowry, Asst. Atty. Gen., Matt Walsh, County Atty., Council Bluffs, and Charles M. Roe, Asst. County Atty. of Pottawattamie County, Council Bluffs, for appellee.

SMITH, Justice.

The statute called 'Embezzlement by agents', section 710.5, Iowa Code 1954, I.C.A., under which defendant was indicted and convicted, is long and somewhat involved in its language. So far as applicable here it provides:

'If any officer, agent, clerk, or servant of any corporation or voluntary association, or if any * * * other person who in any manner receives or collects money * * * for the use of and belonging to another, embezzles or fraudulently converts to his own use * * * any money or property of another * * * which has come to his possession or under his care in any manner whatsoever, he is guilty of larceny.'

The instrumentality by or through which the State claims defendant operated was called 'Declaration of Trust of Midland Acceptance Discount Trust Council Bluffs, Iowa' (we shall for brevity call it 'Midland Trust'). It was filed in the County Recorder's office March 26, 1947. It recites that it is made by 'C. S. Hollingsworth, Trustee' and throughout, the document repeatedly refers to him as Trustee. In section 7 it provides 'the Trustee shall be known and designated, so far as practicable, as the Midland Acceptance Discount Trust * * * and under that name * * * shall, to the same extent as a natural person, conduct all business * * *.'

The document consists of twenty numbered sections. The fifth, which is headed 'purposes,' is subdivided into three subsections which in substance provide:

'(a) To engage in * * * the business of acquiring, holding, selling, mortgaging or pledging promissory notes, chattel mortgages, real estate mortgages'; and other enumerated forms of real and personal property not necessary to repeat here.

'(b) To borrow money upon demand notes' and 'other securities held by the trust, and to pledge specific or all assets held by the trust, for the repayment' of money borrowed. There are details as to the demand notes to be issued by the trust, varying in interest rate (from 7% down to 1%) as the demand time lowers from 545 to 30 days, the longer time notes bearing the higher interest rates.

'(c) To do any and all things in this declaration set forth as powers * * * to the same extent * * * as any natural person might or could do.'

Section 2 authorizes and directs the 'Midland Acceptance Discount Trust, C. S. Hollingsworth, Trustee,' to issue 'Class A Trust Certificates' in units of 1.00 par value bearing 7% per annum interest with which to pay legal services and expenses in initiating the trust, the holdings to share in net profits according to their respective holdings. These 'Certificates' and the 'demand notes' (issued under Section 5(b) seem to be the only obligations the 'Midland Trust' was to issue.

Other provisions of the document will be hereinafter referred to as we proceed.

The indictment, returned January 30, 1954, charges defendant, 'Did, as Trustee * * * receive the sum of $53,236.19, as the property and for the use of Midland Acceptance Discount Trust of Council Bluffs, Iowa. That * * * while he was acting as Trustee of Midland * * *' he 'did fraudulently convert to his own use, and take and secrete, with intent to embezzle, or convert to his own use, the sum of $52,561.70 without the consent of the Midland Acceptance Discount Trust, the owner of said money.'

A study of the trust instrument confirms the State's characterization of it as 'unique.' Defendant's wife held all the original Trust Certificates, 'the owners and holders of over one-half' of which were authorized 'to designate succeeding trustees;' and defendant, as trustee, was not only authorized to issue the certificates, but also he and his 'successors' were vested with 'the exclusive management and control' of the property, and authorized to 'make all contracts in relation to the operation and conducting of the business * * *.' It was a completely one-maninstitution. Defendant had absolute control.

Defendant Hollingsworth (65) had been in the small loan and insurance businesses some time prior to the filing of this 'Trust.' He argues that he 'contributed contracts totalling some seven or eight thousand dollars, some office equipment and customer and investor lists of considerable value to the assets of the * * * trust'; also that the Declaration did not provide for any salary for himself and that his wife 'held all the Trust Certificates'; that 'from time to time, the defendant, who contributed his going business to the assets of the Trust, withdrew certain amounts from the assets for living and travel expenses.'

He contends the reports of 'auditors for both sides' showed he 'had settled and relived' the Midland of liability on $18,000 'in notes to investors' for which his own auditors gave him full credit but the State's auditors credited him only for $7,312.94, 'the amount he contributed to the Trust when it was organized'; and 'no credit whatever for his six years service * * *. All items for defendant's personal use withdrawn by him was treated * * * as wrongfully converted.'

In the summer of 1953 the Midland Trust went into receivership at the suit of the payee of a 'demand note' (or notes) who had become a 'customer.' That circumstance may have precipitated this criminal prosecution.

The State's evidence consists principally of the testimony of holders of notes of the Trust, presumably 'demand notes' under section 5(b) of the 'Declaration,' and of certified public accountants who examined such books as were kept by the Trust; the defendant's of the testimony of two accountants and of the defendant himself.

The defendant pleaded not guilty, was convicted and sentenced, and now brings this appeal.

I. In various ways defendant argues that there was here no trust relationship or agency within the purview of the statute; that 'the indictment fails to plead Midland is a partnership, joint stock company, corporation, association or any other organization legally capable of holding or owning property;' and that the trial court erred in admitting the testimony of seven investors or customers as to defendant's representations in inducing them so to invest. It is argued they were mere creditors, not beneficiaries of a trust.

We deem this question of the relationship of Midland Trust to its investors to be the crux of the defense. What is the nature of this document filed by defendant? It may be impossible to classify the Midland Trust under any of the names suggested by defendant. Fortunately such classification is not necessary. But it is necessary to conviction that it be shown the money defendant used was not his own but held in trust for some other person or persons, and that he was not misled by the name given it in the indictment.

Defendant testified: 'Before entering into being Trustee of this Trust, I was in the insurance and finance business for myself.' (Emphasis supplied.) He apparently realized that in filing the 'Declaration' he was creating a relationship in which he was handling the property of someone else. He uses the terms 'trustee' and 'cestui que trust.' We think that was the intent--the purpose--of the instrument he filed; and that it must be so construed here, and that as so construed, he comes within the purview of Code, § 710.5, I.C.A. He created for himself a sort of personality apart from his own natural individuality--a trusteeship that stood between his customers who invested, and himself who gained possession of and used the property as his own. We think defendant cannot successfully argue that the 'Midland Trust' he set up by the Declaration is incapable of 'holding or owning property.' The document itself makes such argument untenable. It is true that in a sense the Trust is defendant himself. But it is nvertheless an individuality distinguishable from himself.

The relationship of the payees of the 'demand notes' to the Trust itself is sufficiently defined in section 6 of the document to dispel any notion that they were mere 'creditors.' It provides: 'That the said Trustee * * * shall hold all property or funds *...