Case Name: C. E. THUM, RECEIVER OF C. BUNTING & CO., BANKERS, A CORPORATION, Respondent, v. DANIEL WOLSTENHOLME, Appellant
Court: Utah Supreme Court
Jurisdiction: Utah
Decision Date: 1900-04-30
Citations: 21 Utah 446
Docket Number: 
Parties: C. E. THUM, RECEIVER OF C. BUNTING & CO., BANKERS, A CORPORATION, Respondent, v. DANIEL WOLSTENHOLME, Appellant.
Judges: 
Reporter: Utah Reports
Volume: 21
Pages: 446–510

Head Matter:
C. E. THUM, RECEIVER OF C. BUNTING & CO., BANKERS, A CORPORATION, Respondent, v. DANIEL WOLSTENHOLME, Appellant.
Inbueanoe — Delivery oe Policy — Execution oe Premium Note —Payment. Lies Insurance Policy — Containing Condition Precedent — Annuity. Negotiable N ote — When Payment oe Premium on Line Insurance — Estoppel. Legal Title to Insurance Policy Vested by Payment oe First Annual Premium. Equitable Lien — On Proceeds oe Lies Policy — For Trust Funds Invested in Premiums. Fund Created by Misappropriation oe Trust Funds — How Far Impressed with Trust by Court oe Equity.
Insumnce — Delivery of Poliey — Execution of Premium Note — Payment.
Where it appears that upon the issuance and delivery of a life insurance policy a note is executed and delivered by the assured to the general agent of the insurance company for practically all the first premium; that the note bears the same date as the policy; and the policy was among the effects of the assured at the time of his death, the presumption is that the policy was delivered at the time it bears date; that the difference between the face of the note and the amount of the premium was paid in cash or arranged by the assured, and the giving and delivery of the note and the receiving of-the policy must'be held to operate as a payment of the first annual premium.
Life Insurance Policy— Containing Conditions Precedent — Annuity.
A life insurance policy which stipulates for the payment of an annual premium by the assured, with a condition to be void in case of non-payment, is not an insurance from year to year, but the premium constitutes an annuity, the whole of which is the consideration for the entire assurance for life, the condition is a condition subsequent, making the policy void by non-performance, and the acceptance of a note for the annual premium is a waiver of the payment of the premium, and brings into operation the conditions in the policy referring to the Dote.
Negotiable Note— When Payment of Premium on Life Iusuranee— Estoppel.
The giving and acceptance of a negotiable promissory note for the first annual premium on an insurance policy, at the time of delivery of the policy and its subsequent sale and indorsement before maturity, operates as a payment of the premium, for the first year even if the note was never paid and, as between the maker and the insurance company, as a collection of the note, and the company is thereafter estopped from claiming a forfeiture of the policy because of the non-payment of the note.
Legal Title to Insurance Policy Vested by Payment of First Premium-Trust.
Where the first annual premium on a policy of insurance is paid by giving and accepting a note and delivering the policy, the legal title to the policy and its proceeds vests in the assured, and the subsequent payment of premiums maturing thereafter out of funds belonging to a bank in which the assured.is a large stockholder and of which he is manager can not create a trust in favor of such bank.
Equitable Lien — On Proceeds of Life Policy — For Trust Funds In-rested in Premiums.
After an assured has obtained title to a policy of insurance, if he uses funds of a bank of which he is manager, in paying subsequent premiums, and such funds can be traced “into the policy,” a court of equity will give a lien for such sums and interest on the proceeds of the policy.
Fund Created by Misappropriation of Trust Funds — How Fas' Impressed with Trust by Court of Equity.
Where a fund sought to be impressed with a -trust is grossly disproportionate to the amount of the trust funds alleged to have been used in the creation of such fund, courts of equity will not decree the entire fund as a trust fund, but will allow a lien for the trust funds used.
Bemtting Trust — Equitable Lien.
While Bunting was owner and manager of the Bunting Bank, a corporation, which was insolvent, although it paid its debts, he insured his life with the New York Life Ins. Co., for $50,000, payable to his heirs, and gave his negotiable note due in six months to Fritter, the general agent of the Company, for $1,500, and .other considerations for the payment of the first premium. The policy was delivered to Bunting in exchange for the note. Fritter thereafter, and before maturity, transferred the note to the Pocatello bank for value, which bank forwarded the same to the Bunting Bank for collection and the amount was credited to the Pocatello Bank, which bank was then owing the Bunting Bank. Two other notes were given the insurance company for other premiums-on the policy which were afterwards paid by Bunting’s bank. Bunting died’after'the'third note was paid, and the $50,000 was paid on the policy to defendant.
In a proceeding by the receiver of the Bunting Bank to impress all the insurance fund of $50,000 with a trust for the $5,110 paid by the bank, Held, that the note given in payment of the first premium having been sold and transferred by the insurance company before due, vested the title to the policy in Bunting on its delivery; that the sale of the note by the insurance company, operated as between the company and Bunting, as a collection of the note.
By giving the $1,500 note to Fritter, and paying the balance of the first premium and receiving the policy, Bunting acquired the legal title to the policy and its proceeds, and no subsequent payments of premium maturing thereafter, out of the funds of the bank, would create a trust in favor of the bank. The trust, if any, must arise or result from the transaction whereby the trustee acquired the legal title or right to the property in which the trust is claimed, and it must arise at the time the legal title is obtained by the trustee, and not afterwards.
While the fund was not impressed with a trust such as would absorb the fund, yet it was subject to an equitable lien in the nature of a resulting trust to the amount of the bank’s funds used in paying the second and third premiums, with interest.
(Decided April 30, 1900.)
Petition for re-hearing denied May 23, 1900.
Appeal from the Third District Court, Salt Lake County, Hon. Ogden Hiles, Judge.
This was an equitable action brought to recover a. fund amounting to $50,000 alleged to be held by the defendant, and to have been acquired by him as trustee of C. Bunting, etc., bankers, a corporation organized under the laws of Utah. It was claimed in the complaint that this fund was derived from the proceeds of a life insurance policy issued on the life of Charles Bunting, deceased, for the sum of $50,000, payable on the death of Bunting to his estate. From a judgment for plaintiff, defendant appealed.
Reversed.
Messrs. Dickson, Ellis, and Ellis, for appellant.
By the unconditional delivery of the policy, as pleaded and proved in the given circumstances, as a completed and executed contract, under the express or implied agreement that a credit had been given for the premium, the company became liable for any loss. Farnnen v. Phoenix Ins. Go., 83 Cal., 246, and many cases cited.
The note having been given for the premium in a negotiable form, and afterward negotiated and passed out of the hands of the payee, and treated as payment by the insurance company, it was payment. Ila/rt v. Boiler, 15 S. and R., 162; Riverside Iron Works v. Hall, 64 Mich., 168; S. C., 31 N. W., 152; See also, 2d Beach on Ins., Secs. 769, 770, 773, and Sec. 971, and cases there cited.
Under any circumstances the payment of this note, long after the insurance had been purchased, had become operated, had been paid for by the note, and the policy delivered, and the note indorsed and sold, can not be held to be in any just or proper sense a withdrawal of money of the bank for making a purchase of the life insurance in question. It was but a method of obtaining means to pay the note or debt of Bunting, and no trust can therefore arise, and so it has been held. Bosworth, et at., v. Hopkins, et al., 85 Wis., 63.
On the question of the payment of premium by note, and the effect of the delivery of the policy, and waiver of prepayment, see 1st Joyce on Ins. Secs. 76, 80-85, and Yol. 2 Joyce, Sec. 1202; as to Bunting’s right of assignment, see 1st Joyce Ins., Secs. 152, 154.
No oral agreements, and no payments before or after the title is taken, will create a resulting trust, or trust by implication of law, unless the transaction is such, at the moment the title passes, that a trust will result from the transaction. Perry on Trusts, Secs. 133, 842, and 126-131; French v. Shopler, 83 Ind., 266; 43 Am. R., 67; Bosworth, et al., v. Ilopkvns, et al., supra; Buck v. Sweeney, 35 Maine, 41, 50, 51; Pinnock v. Glough, 16 Yt., 500; Woodside v. Herner, 109 Cal., 485, 486; 1st May on Insurance, 108, 117; In re Wood, 5 Fed. Rep., 443; Fulton v. Jonson, 99 Cal., 587, 591; Botsford v. Burr, 2 Johns. Ch., 405; Coles v. Allen, 64 Ala., 95; Bogers v. Murry, 3 Paige, 390, 398; Pomeroy’s Eq. Jur., Sec. 1037; 2 Washburn on Real Property, 173.
The presumption is, that when Fritter indorsed the note without recourse to the Pocatello bank, he did it for a valuable consideration, the amount of which is not material, but presumptively was the face value of the note. The law merchant raises this presumption. See Note 1 to Sec. 13, Randolph Commercial Paper; 1st Daniel Negotiable Instruments, Sec. 160, etseq., Chapter YII; 42 Mich., 19.
Again, this life insurance policy, so far as appears, was not an assurance for a single year, with a privilege of renewal from year to year, or to become a contract only upon actual payments of money, as contended by counsel, but it was an entire contract of insurance for life, possibly, and probably subject to a discontinuance, and forfeiture for non-payment of any of the stipulated premiums. Mut. I. Ins. Go. v. Pruett, 74 Ala., 487; Ff. 71 Ins. Go. v. •Statham, et ail., 93 TJ. S., 30; Ins. Co. v. French, 30 Ohio St., 240; Thompson v. Ins. Go., 104 TJ. S., 257.
The authorities are to the effect that the principles decided in the cases which we have cited, apply equally to personal property and to real estate. Perry on Trusts, Secs. 129, 130.
If the transaction was void because -ultra vires, or because Bunting was disqualified, as matter of law, from entering into it for want of authority from stockholders, when there were no stockholders except himself, then it is void as to all persons whomsoever, because a transaction that is absolutely void and of no effect, as held by the court below, can not be valid as to some people, and void as to others.
But the holding is not the law, and Bunting did have the power and authority, as manager and stockholder, to enter into the transaction and to make the sale and entries, and so it is held. See G. V. B. Mining Go. v. First JSÍ. Banh, pp. 33 and 34; TJ. S. Court of Appeals, 9th Circuit; 95 Fed. Kep., No. 1, Aug. 8, 1899.
The transaction itself operates as a ratification by all the stockholders, and nobody else has a right to complain. See also, Mg GracJcer v. Robinson, 6 C. C. A., 400; 57 Fed., 375 — 377; Barr v. Railroad Go., 125 N. Y., 263-273; Wood v. Water Worlcs Go., 44 Fed., 146-151. •
This court can render a judgment on the merits in favor of the defendant, but can not render a judgment in favor of the plaintiff, because an indispensable party has not been made a party defendant on the record; namely, the administrator of the deceased, Bunting. Shields v. Barrow, 17 How. (U. S.), 130; Swan Lcmid Go. v. Franlc, 148 U. 8., 611.
Lyttleton Price, Esq., and Messrs. Brown cmd Henderson, for respondent.
The capita] stock and assets of a corporation is a trust fund for the security of the creditors of the corporation. The corporate creditors are to be paid first out of the assets, including the capital stock of a corporation, and they have a first lien upon it, and whenever a corporation becomes insolvent, this trust attaches. 3 Thompson on Corporations, Secs. 2951, 2952, and cases cited in note; 5 Thompson on Corporation, Sec. 6555; Story’s Eq. Jur., Sec. 1252; Wood v. Dwmmer, 3 Mason (U. S.), 308.
This trust which is declared and enforced, amounts, during solvency of the corporation, and in fact during all the time that it continues active business under the direction of its board of trustees or directors, as a mere trust. It is not an active trust, which attaches to the property. The managing board of directors remain and continue to be the administrators of the fund; they may buy and sell, they may mortgage, and do anything within the powers of the corporation, which is done in good faith and for legitimate purposes. So long as they do nothing that is illegal, ultra vires, cr dishonest, the courts will not disturb their action. The trust only attaches to the property, and becomes an actual, active, and existing lien upon the property, when the corporation and its assets have passed into the jurisdiction of a court of equity, and then any improper disposition of the property will be set aside and vacated, and this trust enforced. Weyeth IT. M. Oo. v. James Spencer B. Go., 15 Utah, 110, 130-135; IlolUns v. Iron Go., 130 U. S., 371; Bank of Montreal v. J. E. Potts S. and L. Go., 90 Mich., 345; Wood v. Dimmer, 3 Mason, 308; S. C. Fed. Cases, 17944.
Note: This last case is the one in which Judge Story first announced the doctrine. Fogg v. Blcwr, 133 U. S., 534.
It is a universal and elementary rule of agency that an agent can not act both for himself and his principal in a transaction in which he is interested, that is, he can not deal with the principal through himself. And this principle applies to officers and agents of a corporation. A transaction made by an. agent or officer of a corporation where the corporation is an interested party on one side and the agent on the other, is void. Victor M. Go. v. Nat. Bank, 49 Pac. (Utah), 828; Bank v. Gifford, 47 Iowa, 575; Bear B. V. Orchard Go. v. Ha/wley, 50 Pac. (U. T.), 614; People v. Township Board, 11 Mich., 222; Glafin v. Farmers' Bank, 25 N. Yv 294; N. Y. Iron Mine v. Nat. Bcmk, 39 Mich., 645; Ban Diego v. Scm Diego B. Go., 44 Cal., 113; Andrews v. Pratt, 44 Cal., 317.
Where the agent of a corporation acting solely for the corporation in a transaction in which he is personally interested, the transaction itself is void; it lacks the elements of a contract; the minds of the contracting parties have not met upon any proposition. People v. Township Board, supra¡ Glafin v. Farmers' Bcmk, supra.
A corporation is a distinct entity, a thing apart and separate from any of its members. A corporation with one stockholder — not being a corporation sole — is, while an anomaly, nevertheless a thing which sometimes exists, and the fact that the corporation has but one stockholder is in no sense and under no circumstances different from any other corporation in character or attributes, and the owner of all the stock does not therefore own its property or any of it, and does not himself become the corporation as a natural person. Cook on Corporations (2d ed.), Sec. 709; Burton v. Hoffman, 61 Wis., 20; S. C., 20 N. W., 668; 1 Morawetz on Corporations, Sec. 232; Harrington, Bee. v. Connor, 51 Neb., 241; S. C.; 70 N. W., 911; Hnglcmd v. Dearborn, 141 Mass., 591; Wmona, etc., B. v. St. Pcml B. Co., 23 Minn., 379.
The rule that the identity of a corporation is not lost by the fact that a single individual becomes the owner of all its stock, is a rule of substance, and serves a proper, legitimate purpose. The creditors of a corporation, upon insolvency or dissolution, have the right to, resort to its assets, including its capital stock, for the payment of their debts, and the creditors of the individual who owns the stock of the corporation, upon his insolvency or death are entitled to share in his property for the payment of their debts. This is illustrated where one corporation sometimes becomes the owner of all the stock of another corporation, and they both become insolvent and their affairs are wound up in a court of chancery, and the courts under such circumstances carefully distinguish between the two corporate entities, and .the reason for the rule is fairly stated in the case of Harrvngton, Becevuer, v. Cormor, supra-, Pa/rlcer v. Bethel Hotel Co., 96 Tenn., 232; Wilde v. Jenl&ms, 4 Paige, 481.
The articles of incorporation under the general law of the State, with the provisions defining their effect, constitute the charter of the corporation, and such a corporation can only exercise such powers as are expressly mentioned in its charter, and can not engage in any business not fairly within the purpose of the corporation as therein stated. North Point Gon. Trr. Co. v. Utah and S. I. Q. Go., 52 Pac. (Utah), 168; Thomas v. Railroad Go., 101 U. S., 71; Rhorer v. Middleboro Town and Lcmd Go., 44 S. W. (Ky.), 449; Green Ray and M. R. Go. v. Union Steamboat Go., 107 U. S., 100.
The trust which is here sought to be established and enforced is a “ constructive ’ ’ trust, and not a ‘ ‘ resulting ’ ’ trust. It is a trust ex maleficio, that is, that Bunting was the sole manager of the bank, being its vice-president, and had the entire direction of the business; that as such he wrongfully took from the funds of the bank the money, and paid for this insurance. We make this distinction between a “resulting” trust and a “constructive ” trust in view of the argument made by the defendant, to which we hereafter call attention.
We rely upon the general equitable principle that beneficiaries in a trust fund which has been misappropriated, can follow that fund and can recover it or the proceeds of it so long as the identity of the trust fund can be traced into the property sought to be recovered, and can identify and distinguish the property from all others. 2d Story’s Equity Jur., Secs. 1258, 1259; 2 Perry on Trusts, 835, et seg.
The principles of constructive trust apply to a fund realized from policies of insurance which have been paid for money wrongfully taken from trust funds. Holmes v. Qillman, 138 N. Y., 369; Shader v. Trowbridge, 28 N. J. Eq., 595, and authorities cited.
In the first place, the principle relied upon by the defendant, that the money should actually be paid out at the time of the original transaction, and that the trust must then actually exist or it never can, has no application whatever to a constructive trust such as we set up, but it is stated by authors and cases to be a principle attaching to resulting trusts. Both of these trusts are classes of implied trusts.
But they arise differently, and are governed by very different principles. 1 Perry on Trusts, Sec. 166; 2 Pomeroy Eq. Jur., Secs. 1030, 1031, 1044.
The distinction between the two is sometimes confounded, and in many of the authorities where the principles that are common to both are discussed, they are not distinguished, but the distinction is important, and should be borne in mind. See note 1 to Sec. 1037, p. 610, 2 Pom. Eq. Jur.; 2 Pom. Eq. Jur., Sec. 1030 and Note 1, p. 604.
In the following cases a trust was impressed, even in cases of a resulting trust, where money was taken and applied in pursuance of a contract made before the payments were made and after the person sought to be charged with the trust had made payments of his own. Mosteller v. Mosteller, 20 Pac. (Kan.), 464; Gilchrist v. Brown, 30 Atl. (Pa.), 839; Moore v. Moore, 19 South, 953.
Wyeth H. & M. Co. v. James-Speneer B. Co., 15 Utah, 110; Mercantile Co. v. Mt. Pleasant Co-op. Inst’n, 13 Utah, 313.

Opinion:
Miner, J.
This equitable action was brought to recover a fund amounting to $50,000, alleged to be held by the defendant, and to have been acquired by him as trustee of C. Bunting & Co., bankers, a corporation organized under the laws of Utah.
It is claimed in the complaint that this fund was derived from the proceeds of a life insurance policy issued on the life of Charles Banting, deceased, for the sum of $50,000, on November 29, 1894, payable on tbe death of Bunting, to his estate. The testimony shows that in case of loss, the policy was payable to his heirs, executors, or assigns. Therefore this action was brought to recover this fund upon the ground that the sum of $5,110 of the money of C. Bunting & Co., bankers, of which the plaintiff is the receiver, was used by Bunting from the funds of C. Bunting & Co., bankers, in the payment of three premiums on the life policy prior to his death, and that a trust resulted in favor of the bank and its receiver to the extent of the entire sum of $50,000, derived from the policy. It is also alleged, and not denied, that in 1896 the policy was assigned to the defendant. The testimony shows that it was assigned in August, 1896, and that the insurance company then sent the usual notice for payment of the premium to the defendant. It is also alleged that the assignment was made without any consideration. This allegation is admitted. In May, 1897, after proof of Bunting's death, the insurance company paid to the defendant the full amount of the policy.
C. Bunting & Co., barkers, was organized December 9, 1892, and Bunting, up to the time of his death,, which was on May 16, 1897, was its general manager, and since October 14, 1893, had owned all the stock of the bank.
It is also alleged that to pay the first premium on July 1, 1895, Bunting executed his note, which he caused to be discounted at his bank; that the second premium, due November 22, 1895, was paid by draft on the bank, and third premium, due November 9, 1896, was paid by charging the same to his own account.
It is further alleged in the complaint, that in his lifetime the said Charles Bunting procured his life to be insured on or about the 29th day of November, 1894, by a life insurance policy, executed by the New York Life Insurance Company, in the sum of $50,000, payable to his estate in the event of death; that a policy was duly issued to him therefor, as aforesaid, by said life insurance company; that at the time of such payments Bunting had no credit or funds in the bank with which to pay the same; that said sums taken from the bank for such purposes amounted to $5,110; that such money was the property of the bank; that such bank was in truth insolvent during a large portion of the said three years prior to the appointment of the receiver on February 21, 1898, if an accounting had been had of its debts and assets.
Prior to October 14, 1898, Mr. Wallace owned an interest in the bank, and then sold his interest therein to Bunting. Up to that time Bunting had had credit at the bank, and his overdrafts, when made, were paid Jjy permission of the board of directors.
Upon the hearing in the court below it was ordered and decreed that the fund so received by the defendant was impressed with a trust, and the defendant was ordered to turn over to the plaintiff the entire fund of $50,000. From this decree the defendant appealed to this court.
The testimony shows that on November 29, 1894, for the purpose of insuring his life in the New York Life Insurance Company for $50,000, Bunting gave his note for $1,500, payable to his own order on July 1, 1895, and that he delivered the same, indorsed, to W. C. Fritter, who was then the general agent for the State of Idaho, for said insurance company. The policy was delivered to Bunting at the same time. The complaint alleges the delivery of the policy to Bunting, and it bears the same date as the note. It was found among Bunting's private papers after his death, and in the absence of proof to the contrary, tbe general presumption is that the policy of insurance was delivered to Bunting at the time it bears date. Devlin on Deeds, Sec. 265; Treadwell v. Reynolds, 47 Cal., 171.
The amount of the annual premium on this policy was $1,805. The note given was for $1,500. Whether the agent discounted $305 from his commission, or whether Bunting paid the difference between the note and the full premium in cash, does not appear from the testimony given in the case, but it does appear that $1,805 was the full yearly premium.on the policy which the company required to be paid. This sum must have been arranged or paid by someone. The policy was in the possession of Bunting. The presumption follows that it was rightfully there, and that he paid the insurance company the premium, amounting to $1,805, or the sum of $305 over and above the note for the first premium. But whether this $305 was actually paid to the agent, or whether the agent discounted that much from his commission, or made Bunting a present of it, would not change the result or effect of giving the note for the first premium. Bunting delivered the note to Fritter, and Fritter thereafter, before maturity, and for value, indorsed and transferred said note to the First National Bank at Pocatello. Thereafter, on July 6, 1895, the said last-mentioned bank forwarded said note for collection to C. Bunting & Company, bankers, and the amount of the note was paid by it, by charging to Bunting's account, and credited to the First National Bank of Pocatello. At this time Bunting's bank had a credit at the Pocatello bank. No money was actually paid by the Bunting bank, except as stated. Thum tes- ' tified that Bunting told him that the note was given over to Fritter, the insurance agent.
The question arises whether the giving and delivery of the note and the receiving of the policy operated as a payment of the first year's premium.
The note in question was a negotiable one, indorsed, delivered, and accepted by the insurance company as payment, of the premium, and thereafter by it sold and transferred, before maturity, for value
In Riverside Iron Works v. Hall, 64 Mich., 165, it is held that a draft or note is regarded as a payment whenever it appears that such was the intention of the parties, which may be shown by the acts and conduct of the parties, as well as by proof of an express contract or agreement; and the surrender of the evidence of the debt or liability strongly indicates such payment.
So in Farnmen v. Phoenix Ins. Co., 83 Cal., 247, it is held that in ease the policy had contained an express provision that the company should not be liable on the policy until the premium was paid (which is not shown) such provision is waived by the unconditional delivery of the policy to the insured as a complete and executed contract, under an express or implied agreement that a credit shall be given for the premium by note or otherwise, and in such a case the company is liable for a loss which may occur during the period of credit.
To the same effect are: 2 Parsons on Contracts, 624, Thacher v. Dinsmore, 5 Mass., 299; Reed v. Insurance Company, 59 Pac., 21 Utah,—2 Greenl. on Ev., Secs. 52, 519; American Cent. Ins. Co. v. McCrea, 6 Lea., 520; American Cent. Ins. Co. v. McCrea, 41 Am. Rep., 647; Tremont v. Travelers Ins. Co., 31 Fed., 322; 2 Beach on Insurance, Secs. 469, 770, 773; 1 Joyce on Insurance, Sec. 76.
In the case of the Michigan Mutual Life Ins., Co. v. Bowes, 42 Mich., 19, -the court, speaking through Judge Cooley, on p. 22, in discussing a similar question, where notes were given for a premium, said, "The company may-have sold them (the notes), and this as between the company and Mrs. Bowes (the assured) would have been equivalent to collection. ' '
A life policy which stipulates for the payment of an annual premium by the assured, with a condition to be void in case of non-payment, is not an insurance from year to year, but the premium constitutes an annuity, the whole of which is the consideration for the entire assurance for life. The condition is a condition subsequent, making the policy void by non-performance of the condition. N. Y. Life Ins. Company v. Statham, 93 U. S., 24; Mobile Life Ins. Co. v. Pruett, 74 Ala., 487.
So if the note is given for the annual premium, the acceptance of the note is a waiver of the payment of the premium, and brings into operation such conditions in the policy referring to the note.
In this case the policy was not placed in evidence, no condition of invalidity is shown, and no violation of its provisions can be presumed.
The testimony clearly shows, and I find, that at the time of obtaining the policy Bunting gave his negotiable promissory note and indorsed it over to Fritter, together with the $305, previously referred to, as arranged, in payment of the first year's premium on the policy. The policy for $50,000 was then delivered to Bunting. Fritter thereafter sold and indorsed the note to the First National Bank of Pocatello, without recourse. This constituted an absolute, completed transaction between the parties, and operates as a full payment of the premium for the first year, even if the note was never paid. The sale of the note to the bank by Fritter, operates, as between Bunting and the insurance company, as a collection of the note. The insurance company would thereafter be estopped from claiming a forfeiture of the policy because of the non-payment of the note. So the insurance' company would be estopped after it had collected subsequent premiums on the policy. The fact that Bunting afterward directed the cashier of the Bunting bank to pay the note at maturity, does not change the character of the transaction, nor create nor stamp the fund or the policy with a trust. It necessarily follows that the note and the $305, previously paid, make up the first year's premium on the policy, amounting to $1,805. This did not constitute a trust fund, and never was a part of the assets of the bank. The funds of the bank were not used in making the first payment, or any part of it, at the time Bunting obtained the actual ownership of the policy. So far Bunting must be held to have paid the full premium and to be the owner of the policy unaffected by any trust liability.
It also appears from the record that Bunting owned all the stock of the bank, was its president and manager, and without hindrance or question from the directors, managed and controlled its business. Since its organization in 1892, up to the time the receiver was appointed in 1897, it had done business as a bank, and was considered solvent during the years 1894, 1895, and 1896, so far as 'being able to pay and in paying its obligations as they matured. The acts of Bunting were open and not secretive. The fraud, if any, consisted in overdrawing his account at the bank which he owned, and in procuring and depositing as assets of the bank to his own credit $107,000 or more of securities which were by him as manager hypothecated in part to secure other obligations growing out of the bank's indebtedness. Bunting was evidently endeavoring to keep up the credit of the bank and to pay its obligations during a period when strong men were driven into despair by a whirlwind of financial adversity, few of whom were able to withstand the gale. The securities he deposited shrunk in value, and many losses followed, but no intentional criminal dishonesty appears on the part of Mr. Bunting in his management of the bank, or in his endeavor to save it from financial ruin.
The record shows that on the 16th day of July, 1895, the $1,500 note was forwarded by the Pocatello bank to the Bunting bank, and it was paid by crediting the same to the former bank and charging the same to Bunting's account. It also appears that at the time of the payment of said note that Bunting had a balance to his credit of about $20,000 on the books of the bank. At the time the note was given in 1894, it does not appear that Bunting was indebted to the bank.
The second premium of $1,805 was paid by the bank November 24, 1895, on Bunting's check. At this time Bunting's account was overdrawn about $10,000. The third premium was paid on Bunting's check November 27, 1896. At this time Bunting's account shows a balance to his credit .of over $9,000 on the books of the bank.
So far as I am able to judge from the testimony, with reference to Bunting's account at the bank, it appears that while he had a credit on the books of the bank, yet as a matter of fact he had deposited to his credit stock and shares of Bunting & Co., merchants, amounting to $107,000, besides other securities, that wore in.part fictitious, as some of it was held as securities for other debts, and was not paid for in full, so that considering these credits as made, his account was overdrawn after the 31st day of December, 1894.
For these reasons respondent seeks to charge the fund derived from the insurance policy with a constructive trust because the sum of $5,110 of the funds of the bank were paid in premiums on the policy, and asks that not only the amount paid, but the whole $50,000 be turned over to the bank as impressed with a trust.
Sec. 124 of Perry on Trusts, defining resulting trusts, the author says, "There is another class of trusts which result in law from the acts of parties, whether they are intended to create a trust or not, and they are aptly designated as resulting trusts."
In Sec. 125, the author says, "In this chapter resulting trusts will be examined under five heads: (1) when the purchaser of an estate pays the purchase money and takes the title in the name of a third person; (2) where a person standing in a fiduciary relation uses fiduciary funds to purchase property, and takes the title in his own name."
It will be remembered that the policy in question was payable to the heirs, executors, adminstrators, and assigns of Charles Bunting. By giving the $1,500 note to Fritter, who sold the same, and by paying the balance of the first premium and receiving the policy, Bunting acquired the legal title to the policy and its proceeds, and no subsequent payments of premium, maturing thereafter, by him out of the funds of O. Bunting & Co., bankers, could create a trust in favor of said bank or its receiver. The trust, if any, must arise or result from the transaction whereby the trustee acquired the legal title or right to the property in which the trust is claimed, and it must arise at the time the legal title is obtained by the trustee, and not afterward. This doctrine is sustained by the great weight of authority, and the 'principle applies to transactions of this character as well as to cases growing out of real estate transactions.
In Perry on Trust's, Sec. 133, it is said: "The trust must result, if at all, at the instant the deed is taken, and tbe legal title vests in the grantee. No oral agreements, and no payments, before or after the title is taken, will create a resulting trust, unless the transaction is such at the moment the title passes that a trust will result from the transaction itself. ' '
In re. Wood, 5 Fed. Bep., 443, it is said: "To raise such a trust where the purchase money is paid by one and the title taken by another, the entire purchase money must have been paid by such party; or if a part only be paid, such part must be paid for some aliquot part of the property, as a fourth, a third, or a moiety, and there must be no uncertainty as to the proportion of the property to which the trust extends. Olcott v. Bynum, 17 Wall., 44. And, again, such a trust-must arise at the time of the purchase; it can not arise by after advances."
In Bosworth v. Hopkins, 85 Wis., 50, 62, it is said: ' ' Whether any trust is to be implied in favor of the firm from the alleged secret or fraudulent use of its funds in making the purchase depends entirely upon the facts as they existed November 29, 1875, when the purchase was made, and the subsequent withdrawal of funds of the firm and use of the same in payment of part of the purchase money and interest remaining unpaid, and the payment of taxes' -!!' improvements on the land, can not be regarded as material to the rightfulness of the purchase. And subsequent wrongful payments on the purchase price from the partnership funds pursuant to a land contract, and subsequent and prior to the deed, will not be ground for an implied trust, though the firm might, if necessary, have a lien against the land for sums so paid. Conner v. Lewis, 16 Me., 274; Fulton v. Jenson, 99 Cal., 587; French v. Sheplor, 83 Ind., 266; Buck v. Sweeny, 35 Me., 41; Pinnock v. Clough, 16 Vt., 500; Case v. Codding, 38 Cal., 181; Monroe, et al., v. Cummings, 95 Mo., 33; Bottsford v. Burr, 2 Johns. Ch., 405; Pomeroy's Eq. Jur., Sec. 1037; White v. Carpenter, 2 Paige Ch., 237; Barnard v. Jewett, 97 Mass., 87; Tilford v. Towes, 53 Ala., 120; Coles v. Allen, 64 Ala., 98; Somers v. Overhulser, 7 Pac. (Cal.), 645.
Under the facts shown the money derived from the policy is not made subject to or impressed with a trust in favor of the bank.
But it appears that the sum of $5,110, of the moneys of the bank was, after Bunting had obtained ownership and title to the insurance policy, used by him in making payments of premiums upon the policy as they matured. This sum is traced into the policy, and as we understand, counsel for the appellant upon the argument consented that this sum, with interest, could be allowed the bank, and made a lien upon the fund.
In Sec. 842, 2 Perry on Trusts, it is said : ' ' Where the . trust fund constitutes a part only of the purchase money of an estate, the court usually gives a lien on the land only for the amount of the trust fund invested and interest ; but where the entire land is the fruit of the trust fund, the cestui que trust has an election to take the land, or the trust fund and interest."
In 1 Perry on Trusts, Sec. 128, it is said: "If, however, a trustee purchase an estate with trust funds, and adds funds of his own to the purchase money, a trust will result to the cestui que trust; and the burden will be on the trustee to show the amount of his own funds in the purchase, otherwise the cestui que trust will take the whole. If the purchase is partly with trust funds and partly not, the cestui has a lien on the whole property for the amount of the fund misapplied."
In Munro v. Collins, 95 Mo., 33, it is held that where a trustee purchases an estate partly with his own funds and partly with the trust money, the cestui que trust, on establishing the fact, will have a lien on the whole estate for the whole amount of the trust fund thus misapplied.
See also Bosworth v. Hopkins, 85 Wis., 50; Bottsford v. Burr, 2 John. Ch., 404; Case v. Codding, 35 Cal., 191.
The respondents insist that the $50,000 derived from this insurance policy, which was payable to Bunting's heirs, representatives, and assigns, should be impressed with a trust because $5,110 of the funds of the bank were used to pay the premiums. He demands that a court of equity shall allow the bank a return of the money invested and $44,890 as a just equivalent for the use of $5,110, for the time named. If the trust created were a constructive trust, and the payments were made of trust money at the time Bunting acquired the policy, this contention would seem more in accordance with the holding of many courts. But in this case, where the fund sought tó be impressed with a trust is so grossly disproportionate 'to the amount of the trust funds alleged to have been used, the application of the rule is inequitable, and courts of equity are not required to do injustice; nor should such a doctrine be invoked under a state of facts like those under consideration in this case.
The case of Holmes v. Gilman, 138 N. Y., 369, which is relied upon by the respondent, differs materially from the case at bar. In that case Gilman embezzled $200,000 from the cestui que trust, and afterward insured his life for the benefit of his wife for $50,000, from the funds so embezzled. The court declared a trust upon the fund, but, on page 385, recognized the existence of the equitable rule here contended for without deciding the question, because it was not before the court. The court said :
' ' If the proceeds of these policies had been greater than the whole amount of the indebtedness of the husband to the cestui'que trust, arising out of the husband's breach of trust, we do not decide what might in equity be the different rights of the wife and the cestui que trust in the bah anee ; or whether any different rule could be logically applied. The husband in this case converted $200,000 of what stood in the nature of a trust fund, and the plain-tiff recovers only a little over one fourth thereof in case the judgment of the referee's report be affirmed. We simply decide the case before us."
Here the insurance was made payable to Bunting's heirs, administrators, and assigns — in effect to his creditors, and |5,110 is the only sum charged in the complaint as having been in any manner misappropriated from the funds of the bank by Bunting. This is the only allegation in the complaint, or claim on that subject, while $50,000 is sought to be applied to reimburse the trust fund thus alleged to have been depleted.
In the Gilman case, at the time the policy was obtained, all of the first premium was paid out of the trust moneys. In this case the first premium was paid by the note of Bunting, for which full credit was given by the company, which vested in him the legal title to the policy at the time of its delivery, relieved from any trust obligation. In the Gilman case the policy was payable to his wife. Upon his death the policy'and proceeds thereof became her separate individual property. In this case the policy was payable to Bunting's heirs, and thereby became a part of his estate, so that his creditors holding his promise to pay, and to whom he was indebted, could recover therefrom the amount due them. In the one case there was an intent shown to defraud creditors, in the other an intent and disposition is shown to pay creditors.
In the case at bar, neither the insurance policy nor the proceeds thereof, were ever impressed with a constructive trust. When Bunting paid, or arranged for the payment of, $305, and gave his note for $1,500 to Fritter,' the agent of the insurance company, in payment of the first year's premium, and it was accepted as such, and the policy delivered} the title to the policy and the proceeds thereof became vested in Bunting. For all that appears if Bunting had died during that year, the company would have been liable on that premium for its full amount, even if the note had never been paid.
As it now stands, the policy having been made payable to Bunting's heirs, the fund necessarily belongs to the estate, and becomes liable for the payment of Bunting's debts, and all his creditors will share ratably in the fund according to the amount of their respective claims. But if the fund is impressed with a trust, then only the creditors of the Bunting bank, to- the exclusion of other creditors, would obtain the sum of $44,890 over and above the amount invested by Bunting from trust funds, as a. regard for his misappropriation of the funds of the bank.
To permit such a disposition of the fund in this case, would, to my mind, not only be an injustice to the heirs and creditors of Bunting, but would be an example against which the conscience of a court of equity would revolt. By giving its sanction to such a disposition of the fund a court of justice would indeed become an engine of oppression and injustice; while by returning the funds misappropriated, with interest, the injured parties are restored to their original' standing, and the financial loss complained of is recompensed.
By insuring his life for the benefit of his estate, Bunting's creditors were, as it seems, placed in a better position than they otherwise would have been, and this was, possibly, his intention in obtaining the insurance. If he afterward entertained the intention of assigning the policy to the appellant, .he did not effectuate that purpose by delivering the assignment of the policy. It still belongs to the estate of Bunting. The respondent is restored to what belongs to it, and the heirs and creditors receive upward of $44,000 that they would not have received but for the alleged fraudulent acts of Bunting.
I am of the opinion that the plaintiff has an equitable lien in the nature of a resulting trust upon the fund in question for the amount of money of the bank used in paying the second and third premiums amounting to $3,610, with interest; but I can not allow the $1,500 advanced by the bank in payment of the note given by Bunting. That payment was of no legal benefit to him, and no equitable lien or trust can arise from its payment. As to Bunting and the insurance company, the premium for the first year was paid.
The record shows that the appellant obtained the policy, with the assignment thereof, attached thereto, after Bunting's death; that he paid no consideration therefor, and claims no interest therein, except as trustee, for the heirs of Bunting's estate.
Under such circumstances the money collected upon the policy belongs to the heirs of Charles Bunting, deceased, and should be paid to the administrator of Charles Bunting, deceased, after the payment by him of the sum of $3,610 to the respondent, with interest as stated herein.
It is therefore ordered that out of the $50,000 fund in the hands of the appellant that he pay to the respondent the sum of $1,805, with interest thereon from November 27, 1895, and the sum of $1,805 with interest thereon from November 27, 1896, and that the interest be computed at the rate of eight per cent per annum.
It is further ordered that the findings and conclusions of tbe court below be set aside and vacated, and that the judgment and decree be reversed, and that findings a-nd decree be entered in accordance with this opinion.
The costs of this case to be equally divided.