State v. Bruce

Trust Funds — Identity of Trust Funds — Lien on General Assets of an Estate for Trust Funds. 1. Where the state treasurer deposited state fuuds 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. 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 specitíe pieces of property or moneys that came into the hands of the receiver. (State -v. Tlvu/m, 6 Ida. 323, 55 Pae. 858; Bank v. Bunting, 7 Ida. 27, 59 Pac. 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 Fed. 229; Cox v. Wills, 49 N. J. Eq. 574, 25 Atl. 938; Standard Oil Co. v. Hawkins, 74 Fed. 395, at p. 402, 20 C. C. A. 468, 33 L. R. A. 739; Massey v. Fisher, 62 Fed. 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 Pac. 658; Peck v. Ellicott, 30 Kan. 156, 46 Am. Rep. 90, 1 Pae. 499; Insurance Co. v. Caldwell, 59 Kan. 156, 52 Pae. 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. Bose, 180 Iowa, 296, 106 N. W. 744, 5 L. R. A., N. S., 886; Fogg v. Ba/nk, 80 Miss. 754, 32 So. 385; Hutchinson v. Le Boy, 113 Fed. 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 Mieb. 483, 24 Am. St. 99, 48 N. W. 710; Farmers’ & M. Nat. Bank v. King, 57 Pa. 202, 98 Am. Dee. 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. Eney. 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. 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 Sup. Ct. 32, 33 L. ed. 275; McGourkey v. Toledo & O. C. B. Co., 146 U. S. 536, 13 Sup. Ct. 170, 36 L. ed. 1079; Raymond v. Baiting Powder Go., 76 Fed. 465, 22 C. C. A. 276; Latta v. KiTbourn, 150 U. S. 524, 14 Sup. 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, (IT. 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 Fed. 49; Spokane County v. First Nat. Bank, 68 Fed. 979; Litchfield v. Ballou, 114 U. S. 190, 5 Sup. Ct. 820, 29 L. ed. 132; Peters v. Bain, 133 U. S. 670, 10 Sup. Ct. 354, 33 L. ed. 696; Roach v. Caraffa, 85 Cal. 436, 25 Pae. 22; Estate of Eutard, 147 Cal. 253, 81 Pac. 519; Little v. Chadwick, 151 Mass. 109, 23 N. E. 1005, 7 L. E. A. 570.) “Trust funds deposited in a bank do not constitute a general lien on assets superior to that of general creditors.” (Mill 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 E. I. 352, 27 Atl. 443; Loioe v. Jones, 192 Mass. 94, 116 Am. St. 225, 78 N. E. 402, 6 L. E. A., N. S., 487; State v. Foster, 5 Wyo. 199, 63 Am. St. 47, 38 Pac. 926, 29 L. E. 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 Atl. 497; Goldthwaite v. Ellison, 99 Ala. 497, 12 So. 812; Board v. Wilkinson, 119 Mich. 655, 78 N. W. 893, 44 L. E. A. 493; Trust Co. v. St. Louis <Ss S. F. Ry. Co., 99 Fed. 485.), The leading ease is In re Hdllett’s Estate, L. E. 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. Bmlc of Commerce, 54 Neb. 725, 75 N. W. 28; Massey v. Fisher, 62 Fed. 958; In re Mulligan, 116 Fed. 715; Nat. Bank v. Campbell Com. Co., 77 Fed. 705; Gavin v. Gleason, 105 N. T. 256, 11 N. E. 504; Arbuckle Bros. v. Kirkpatrick, 98 Tenn. 221, '50 Am. St. 854, 39 S. W. 3, 36 L. E. A. 285; Cushman v. Goodwin, 95 Me. 354, 50 Atl. 50; Randolph v. Allen, 73 Fed. 24, 19 C. C. A. 353; Parker v. Jones, Admr., 67 Ala. 234; Ellicott v. Kuhl, 60 N. J. Eq. 333, 46 Atl. 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. STATEMENT OP PACTS. 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 ease. Soon after the bank suspended payment and the receiver was appointed the state, acting through the attorney general, filed its petition in the receivership case, praying the district court to make an order directing the receiver to pay to the state the balance due on the account of these various deposits as hereinbefore stated. The case was tried on an agreed statement of facts. That portion of the stipulation of facts necessary or essential for the consideration of this case is as follows: “1. That Charles A. Hastings is and has been, since the first Monday in January, 1907, the duly elected, qualified and acting state treasurer of the state of Idaho. “2. That on the 24th day of June, 1907, the said Hastings opened an account with the Capital State Bank, which was carried on the books of the said bank in the name of C. A. Hastings, State Treasurer, Collection Account; and that from day to day he thereafter made deposits on said account and as such state treasurer checked upon and withdrew money from it. “3. That on the 27th day of June, 1907, there was due on said account $30,334.00; that thereafter the said bank paid large sums of money to said Hastings, as state treasurer, on account of said balance, so that on the 28th day of October, 1907, there was due on said account $8,597.92, and that thereafter the said balance increased until on January 17th, 1908, there was a balance due'of $41,228.77, and on January 20, 1908, of $24,434.44. “4. That the said account occurred by reason of the deposit by the said Hastings with the said bank of large numbers of cheeks and drafts, and that the said checks and drafts were received by the bank and were credited immediately upon their deposit as cash in the pass-book of the said Hastings, and became immediately subject to the check of the said Hastings, state treasurer. That in the event any of the said collections were unpaid the account of said state treasurer would be charged with said sum. “5. That the said moneys were public moneys belonging to the state of Idaho, and known by the bank to be such. “6. That all the said cheeks and drafts so deposited by the said Hastings as state treasurer were honored by the drawees and the funds from the same were received by the said bank and mingled with its general funds and went to the increase of the bank’s assets at the time the proceeds were received, in the same manner as did all other deposits and cash receipts received by the bank and not otherwise. “7. That' the said sums so deposited by the said state treasurer were not secured by bond or otherwise, and it was understood between the said Hastings and the said bank that no interest was to be paid on the said deposits, and no interest was so paid. “8. That the said moneys so deposited by the state treasurer were mingled with the other moneys of the bank received by the bank from its depositors and from other sources. “9. That from the general funds of the bank in which said moneys so deposited by the state treasurer were mingled, loans and investments were made by the bank; that the said loans and investments so made from the general funds of the bank were in the aggregate, at least $62,000.00 between the 29th day of October, 1907, and the 20th day of January, 1908. That it cannot be established that any of the identical money deposited by the state treasurer, as aforesaid, went into the making of any loans or investments, except that all loans and investments at all times after June 24th, 1907, were made according to the general custom of said bank from the general funds of the bank with which the said deposits of said state treasurer were mingled. Nor can it be shown whether or not at the time of the making of any of said loans, or investments, any of the identical moneys so deposited by said state treasurer were actually in said bank. “10. That the said bank is insolvent in the sense that it has suspended payment and is unable to meet its current demands, but not otherwise, and that the receiver appointed to take charge came into possession at his appointment on January 21st, 1908, of $28,289.06 in cash belonging to the bank. That he has since collected and now has in his possession from the said loans and investments made by the said bank between the 28th day of October, 1907, and the 20th day of January, 1908, the sum of $-, and that he has collected from the total assets of the bank and now has in his possession, as such receiver, the sum of $168,784.-80, which is in amount more than sufficient to pay the sums demanded as trust funds, and also all expenses of receivership and court costs. “11. That it is impossible to trace any of the said money in specie, deposited by the said state treasurer, as aforesaid, into the mass of cash that came or has come into the hands of the receiver nor into loans or investments made by the bank, as hereinbefore referred to; nor into any notes or securities coming into his hands, except that the said loans and investments herein referred to were all made from the general fund of the bank into which said deposits were so received as money, and mingled, and the cash which came into the hands of the receiver on his taking charge was the residue of said mingled funds.” Various other petitions were filed asking to have trust funds held by the bank declared preferred claims on the assets of the bank, among them being Ada county, Boise City Independent School District and several others, aggregating upwards of $84,000. The trial court held that the only assets of the bank that could be.pursued as trust funds was the amount of cash on hand in the vault at the time the bank closed, to wit, the sum of $28,289.06, and that the state could not pursue any other property or assets of the bank and impress the trust lien on such property. The state insisted that it was entitled to have its preferred claim attach as a lien against all the assets of the bank. The essential part of the order or judgment appealed from and which affects the appellant reads as follows: “It is by the court ordered: That the said receiver of the said Capital State Bank of Idaho, Limited, be and he is hereby directed to pay the said petitioners out of the assets in his hands the sum of twenty-eight thousand two hundred and eighty-nine dollars and six cents ($28,289.06), being the amount of cash in the said bank at the time it suspended, and which sum came into the hands of the receiver of said bank, together with the proceeds of any investment made of trust funds between the 10th day of January, 1908, and the 20th day of January, 1908, both inclusive, and that an accounting be had to determine said sum, if any; that the said petition be granted to that extent and denied to any other or further relief.”