Uyeda v. Diefendorf

• Decision Date: 26 June 1934
• Docket Number: 6107
• Parties: SANO UYEDA, Respondent, v. BEN DIEFENDORF, Commissioner of Finance, Appellant
• Court: Idaho Supreme Court

34 P.2d 65

54 Idaho 614

SANO UYEDA, Respondent, v. BEN DIEFENDORF, Commissioner of Finance, Appellant

No. 6107

Supreme Court of Idaho

June 26, 1934

BANKS AND BANKING - INSOLVENCY - CLASSIFICATION OF CLAIMS-TRUST FUNDS-SHOWING REQUIRED TO IMPRESS TRUST-EVIDENCE.

1. Bank, which knowingly and unlawfully intermingles with its own funds money received for specific purpose, holds such money in trust (I. C. A., sec. 25-915).

2. Funds of estate which trust company as administrator deposited in checking account in its commercial department without giving collateral security to its trust department constituted "trust funds" within statute fixing order of priority on bank's failure (I. C. A., secs 25-915, 25-1503).

3. One claiming trust fund in insolvent bank, to obtain priority must show that fund or property into which it may be traced passed into receiver's hands (I. C. A., sec. 25-915).

4. Evidence held sufficient, in absence of contrary showing, to establish that trust funds as to which claimant asserted preferred claim passed into hands of receiver when bank failed (I. C. A., sec. 25-915).

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. Jay L. Downing, Judge.

Appeal from a judgment reversing an order of the commissioner of finance classifying a claim against an insolvent bank. Affirmed.

Judgment affirmed. Costs awarded to respondent.

B. W. Davis, for Appellant.

Not every trust fund is entitled to a preference and trust funds must be traced or identified, and augmentation of assets in the hands of the commissioner of finance must be shown to entitle claimant of trust fund to preference over common depositors. (Cox v. St. Anthony Bank & Trust Co., 41 Idaho 776, 242 P. 785; United States Nat. Bank v. D. W. Standrod & Co., 42 Idaho 711, 248 P. 16; National Bank of Republic v. Porter, 44 Idaho 514, 258 P. 544.)

F. M. Bistline for Respondent.

Where funds involved are inherently of a trust nature, as in the case of an administrator, it is a fundamental rule of equity that when such trust funds have been commingled with the general assets of the trustee, and it is impossible to determine which are the trust funds, and which are the assets of the trustee, unless the trustee can point out and segregate such funds, the entire assets of the trustee will be impressed with the trust until the cestui que trust has been made whole. (State v. Bruce, 17 Idaho 1, 102 P. 831, 134 Am. St. 245, L. R. A. 1916C, 1; Macy v. Roedenbeck, 227 F. 346, 142 C. C. A. 42, L. R. A. 1916C, 12, and annotation thereto; 65 C. J., sec. 899; Central Nat. Bank of Baltimore v. The Connecticut Mut. Life Ins. Co., 104 U.S. 54, 26 L.Ed. 693.)

MORGAN, J. Budge, C. J., Givens, Holden and Wernette, JJ., concur.

OPINION

MORGAN, J.

Citizens Bank & Trust Company, hereinafter called the bank, was, September 4, 1930, appointed administrator of the estate of Waichiro Uyeda, deceased, and thereupon qualified and assumed its duties as such. During administration funds of the estate were placed and kept in the bank in a checking account in its name as administrator and remained therein until September 23, 1931, when it failed and its affairs were taken over by appellant. A claim was filed with appellant on behalf of respondent for $ 272.68, so held, seeking to have it placed in class 2, and paid pursuant to I. C. A., sec. 25-915, subd. 2. Appellant allowed the claim in said sum, but gave it a class 3 priority pursuant to sec. 25-915, subd. 3, and respondent appealed to the district court from the order making such classification. Trial in that court resulted in judgment reversing the order, and directing that the claim be classified pursuant to sec. 25-915, subd. 2. This appeal is from the judgment.

Sec. 25-915 provides:

"The order of payment of the debts of a bank liquidated by the commissioner shall be as follows:

"1. The expense of liquidation, including compensation of agents, employees and attorneys.

"2. All funds held by the bank in trust.

"3. Debts due depositors, . . . ."

Appellant states the main questions before the court to be:

"First, was the deposit in the Citizens Bank and Trust Company deposited to its own account as administrator, a trust fund; and second, if a trust fund, has the fund been traced in accordance with the rule adopted by the Idaho Supreme Court?"

In Pacific States etc. Co. v. Commercial State Bank, 46 Idaho 481, 486, 269 P. 86, 87, 59 A. L. R. 443, it is said:

"The essential characteristics of a trust are the separation of the legal from the beneficial interest and the existence of a fiduciary relationship. "

In Schneeberger v. Frazer, 36 Idaho 737, 747, 213 P. 568, 571, this court said:

"The relation existing between an executor or an administrator and the heirs of a deceased person, . . . . constitutes a trust of the most sacred character, . . . ." (See, also, In re Fleshman's Estate, 51 Idaho 312, 319, 5 P.2d 727, 729; 24 C. J. 48.)

The money received by the bank as administrator of the estate of Uyeda was held by it in trust. I. C. A., sec. 25-1503, is as follows:

"Funds received or held in the trust department of a bank or trust company awaiting investment or distribution may be deposited in the commercial part of the bank or trust company to the credit of the trust department, provided that the bank first delivers to the trust department, as collateral security, United States Bonds, or other readily marketable securities owned by the bank or trust company, which collateral security shall at all times be at least equal in market value to the amount of the funds so deposited."

The condition prescribed by that section for the deposit by a bank, of funds in its commercial department, received in trust by it, is the giving of collateral security. In this case no security was given and the attempted deposit was unauthorized and unlawful.

If a bank receives money for a specific purpose other than general deposit and knowingly intermingles it with its own funds as if on general deposit in violation of law and of the duty it owes to the one from whom it was received, the relation of banker and depositor is not thereby created and the money so received is held by it in trust. (Russell v. Bank of Nampa, 31 Idaho 59, 169 P. 180; County of Blaine v Fuld, 31 Idaho 358, 171 P. 1138; Ivie v. W. G. Jenkins & Co., 53 Idaho 643, ...