Woodhouse v. Crandall

• Decision Date: 19 June 1902
• Parties: WOODHOUSE v. CRANDALL.
• Court: Illinois Supreme Court

197 Ill. 104

64 N.E. 292

WOODHOUSE

v.CRANDALL.

Supreme Court of Illinois.

June 19, 1902.

Appeal from appellate court, First district.

Proceeding by Charles F. Woodhouse, as a depositor in an insolvent bank, against Lyman E. Crandall, receiver. Petitioner having died, Eutie E. Woodhouse, as his executrix, and F. P. Furlong filed a supplemental petition, and, from a judgment affirming a decree in favor of defendant (99 Ill. App. 552), Eutie E. Woodhouse appeals. Reversed.

Magruder, C. J., dissenting.

Thornton & Chancellor (James D. Andrews, of counsel), for appellant.

Smith, Helmer, Moulton & Price, for appellee.

CARTWRIGHT, J.

On March 15, 1893, Charles F. Woodhouse leased to F. P. Furlong certain premises in the city of Chicago. The lease recited that Furlong had deposited with Meadowcroft Bros., bankers, as security for the faithful performanceof his covenants contained in the lease, the sum of $1,500, which was to remain with Meadowcroft Bros. until the expiration of the lease, for the purpose of paying to Woodhouse any rent which might be due, and to discharge any and all liabilities or indebtedness, or both, of Furlong which might exist under the agreements of the lease, in the manner therein specified. The deposit was made, as recited in the lease, in this way: Furlong went to the office of Meadowcroft Bros., and delivered to Frank Meadowcroft, one of the partners, in his private office at the bank, the $1,500 in currency, explaining to him upon that condition the money was to be held and used, and that in the event the rent was paid by Furlong the money was to be returned to him. Meadowcroft took the money, and signed and delivered the following receipt therefor: ‘Chicago, Ill., March 15, 1893. Received of F. P. Furlong the sum of $1,500, to be by us held for a period of one year from this date, except upon the happening of the contingency hereinafter mentioned, as security for the faithful per formance by said Furlong of his covenants in a certain lease of this date, wherein the said Furlong is lessee and Charles F. Woodhouse is lessor, and the premises demised are the rear room on La Salle street, No. 4, in the basement of the building known as the ‘La Salle Block,’ corner of La Salle and Madison streets, Chicago, Illinois. Such portion of said sum as will satisfy whatever damage the said Woodhouse may sustain by the default of the said Furlong in the performance of the said covenants of said lease to be paid by us to the said Woodhouse, and after the expiration of six months of the term of said lease, and upon the conditions provided in said lease for so doing, said sum to be held by us to the credit of said Woodhouse, and paid to him (Woodhouse) in six equal installments, of $250 each, one installment on the first day of November, A. D. 1893, and one installment on the first day of each succeeding month thereafter, during the term of said lease. Meadowcroft Bros.'

Meadowcroft retained a duplicate of this receipt, and afterwards, without the knowledge or acquiescence of either Furlong or Woodhouse, turned the money over to one of the tellers, who mingled it with the funds of the bank. In order to reconcile the books of the firm with the transaction, and to conform with their system of bookkeeping, Meadowcroft made out the following certificate of deposit, which was never delivered to any one, but was pinned to the duplicate receipt in the possession of the bank: ‘Certificate of Deposit. Not subject to Check. Established 1860. No. 3,280. Meadowcroft Bros., Bankers. N. W. Cor. Dearborn and Washington Sts. Chicago, Ill., March 18, 1893. F. P. Furlong has deposited in this bank fifteen hundred & no/100 dollars, payable to the order of Meadowcroft Bros., in current funds, on the return of this certificate properly endorsed, with interest at the rate of four per cent. per annum if on deposit six months. Meadowcroft Bros. _____, Cashier. $1,500.’

There was no agreement to pay interest on the fund, and the certificate of deposit was made out and used merely as a memorandum to distinguish and identify the fund and show where it had gone. Shortly afterward Meadowcroft Bros. failed; and in June, 1893, suit was begun for winding up the affairs of the partnership. Appellee was appointed receiver, and Charles F. Woodhouse filed his intervening petition, alleging the creation of the trust in his favor; that there was a default by Furlong in the payment of rent; and that the special deposit was turned over to the receiver, and was held by him in trust for the purpose for which it was received by Meadowcroft Bros. He asked for an order to pay the deposit mentioned in the receipt to him. The receiver answered, and, Charles F. Woodhouse having died, the appellant as his administratrix and said F. P. Furlong filed their supplemental petition to obtain an order for the trust fund. The issue was referred to a master in chancery, who took the evidence, and reported that the $1,500 was depositedas cash, to be held by Meadowcroft Bros., and paid out according to the terms of the receipt, and he recommended that the prayer of the petition be granted. The court sustained exceptions to the master's report, and entered a decree finding that the deposit created only a credit with Meadowcroft Bros., and that the currency had been mingled with the banking funds of the firm, and giving to petitioners only a pro rata dividend with the other creditors of the bank. This decree the branch appellate court for the First district affirmed.

The transaction in this case was not a mere bailment for the safe-keeping of a package of money for Furlong, where the identical thing was to be returned to him as a depositor, and it was not a deposit to the general account of the depositor, Furlong, or Woodhouse. The receipt specifies the terms and conditions of the deposit, and shows that it was not for entry on the general account of either of the parties. In the case of a general deposit with a bank to the credit of the depositor, the relation created is not that of principal and agent or of trustee and cestui que trust, but is merely that of debtor and creditor. Such deposits belong to the bank, and become a part of its general funds, and there is nothing but a liability as debtor to repay according to the customs and usages of the business. This deposit was for a specific purpose, for the benefit and security of a third person (Charles F. Woodhouse), and it created a trust relation in his favor. The banking firm assumed the position of a trustee, and the money deposited constituted a trust fund, which the bank was bound to keep intact for the purpose of the trust. The obligation of the bank was to preserve the sum of $1,500 as a trust fund for the person mentioned in the receipt, and to apply it to the purposes therein specified, and the title to such trust fund did not pass to the bank as a part of the general funds of the firm. The certificate of deposit was made and attached to the receipt merely for the purpose of identifyingand following the fund and showing where it had been put. That was to conform to the plan of keeping books adopted by the bank, and the system of bookkeeping by the trustee could not affect the substantial rights of the beneficiaries.

The defense made to the petition and insisted upon here is solely that the fund was mingled with other moneys of Meadowcroft Bros., so that it could not be identified, and therefore it could not be recovered. It has repeatedly been held that, if the identity of a trust fund is lost so that it cannot be traced, the beneficiary cannot establish a preferential claim or lien against the general assets of an insolvent estate merely because the trust fund has gone to swell such general assets. The mere fact that an insolvent received a trust fund which he has disposed of or dissipated, or mingled with his other funds and property, so that it is impossible to trace the fund and show where it is, will not enable the cestui que trust to establish a lien against the assets of the estate. Bank v. Goetz, 138 Ill. 127, 27 N. E. 907,32 Am. St. Rep. 119;Association v. Jacobs, 141 Ill. 261, 31 N. E. 414,16 L. R. A. 516, 33 Am. St. Rep. 302; Seiter's Estate v. Mowe, 182 Ill. 351, 55 N. E. 526. On the other hand, if the trust fund can be traced and identified, the cestui que trust has a right to it and to the aid of a court of equity to reach it and compel its transfer to him. His right will not be affected by any change in the form of the trust property by the trustee, provided that the fund can be identified, and is not so mixed up with other moneys or property that it can no longer be specifically separated. 2 Pom. Eq. Jur. § 1058. Concerning this rule the same author says (section 1048): ‘This universal rule forms the protection and safeguard of the rights of the beneficiaries in all kinds of trust. It enables them to follow trust property,-lands, chattels, funds, or securities, and even of money,-as long as it can be identified, into the hands of all subsequent holders who are not in the position of bona fide purchasers for value...