Court Opinion

ID: 8654461
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:14:29.215459+00
Date Added: 2024-06-11T16:56:38.531765
License: Public Domain

Per BaRtch, C. J.,
dissenting.
*480I am unable to agree witb my brethren in the disposition they have made of this case. The action is a suit in equity brought by the plaintiff, as receivar of C. Banting & Co., a corporation, organized under the laws of Utah, but which carried on a banking business in the State of Idaho,' to recover a fund of $50,000, the proceeds of a life insurance policy, issued upon the life of Charles Bunting, now deceased, the fund having come into the possession of the defendant because of an assignment of the policy to him.
It is alleged in the complaint that the corporation was organized about December 9, 1892, for the purpose of doing a general banking business at Blackfoot, Idaho; that it carried on such business, at that place, until February 15, 1897, when having become insolvent, it closed its doors, and in a suit of a creditor against the bank in his own behalf and in behalf of all other creditors, brought in a district court of the State of Idaho, this plaintiff was appointed general receiver of the corporation, and thereafter in another creditor’s suit brought against the bank in a district court of Utah, this plaintiff was appointed receiver for all the assets and matters pertaining to the corporation, existing and to be found in Utah; that the plaintiff qualified and is acting as receiver of the bank and its assets; that Charles Bunting, during the entire existence of the bank, was its acting general manager, directed its affairs, and held the office of vice-president; that about November 29, 1894-, said Bunting procured his life to be insured, and had issued to him a life insurance policy, in the sum of $50,000, payable, in the event of his death, to his estate; that in payment of the first premium, the insured executed his note, due in July, 1895, and caused it to be discounted by his own bank; that at the time of the transaction he had no money of his *481own on deposit in the bank and no credit upon which he was entitled to draw, or which he was authorized to use in payment of his own obligations; that all the premiums on the policy, aggregating $5,110, were taken by the insured from the funds of the bank, and used in the purchase of the insurance; that the money thus used was the.property of the bank; that the bank was, in truth, insolvent, during a large portion of the three years prior to the appointment of the receiver; that in 1896, and before the payment of the last premium, the insured assigned the policy to the defendant, who paid no consideration whatever therefor; that after the assignment the insured retained possession of the policy, and continued to treat it as his own, and paid the last premium from the funds of the bank; that the insured died on May 16, 1897; that, after the death of said Bunting, the defendant procured possession of the policy from among the papers of the deceased, and thereafter received from the insurance company $50,000, the amount of the policy, and now holds the same in his possession; that in equity and good conscience the insurance money, so collected, belongs to and is the property of the corporation, and should be paid to this plaintiff as receiver; that the amount of the available assets to be distributed among the creditors was reduced by the amounts paid for premiums on the policy; and that, upon demand made, payment of the fund to the receiver was refused by the defendant.
The answer admits the corporate existence of C. Bunting & Co., bankers, the amount of the life insurance by Charles Bunting, the assignment of the policy to defendant, and the receipt of the sum of $50,000 as the proceeds of the insurance, which sum the defendant now holds in his possession. The other material allegations of the complaint appear to be denied.
*482From tho testimony introduced at the trial, tbe court, among other things, found that the banking corporation was duly organized under the laws of Utah, December 9, 1892, and thereafter did a general banking business at Blackfoot, Idaho, until February 15, 1897, when it ceased to do business, and has transacted no business since as a banking institution; that, on the day last named the plaintiff, in a suit brought in Idaho by a creditor, in his own behalf and in behalf of all other creditors, was appointed general receiver of the institution, and of all its property and effects; that thereafter, on February 21, 1898, in a similar suit brought in Utah, the plaintiff was appointed receiver of all the assets, causes of action, and other things pertaining to the corporation, existing or to be found in Utah; that he at once qualified, ’became, and still is such receiver; that during all the time the banking business was conducted, Charles Bunting had the exclusive management, control, and direction thereof, without the intervention of the board of directors or other officers, and was vice-president of the corporation; that from the time of its organization, and during all the time it transacted banking business, the corporation was actually insolvent, and was known to • be so by said Bunting, but its insolvency was not known to the general public until the institution closed its doors; that about November 29, 1894, a policy of insurance was issued to Charles Bunting upon his life, payable to his estate after his death, and thereafter delivered to him; that said Bunting paid for the policy and each and every premium thereon, amounting to $5,110, with the money of the corporation taken by him wrongfully, unlawfully, and fraudulently, the last premium amounting to $1,805, being so paid by him about November 23, 1896; that in August, 1896, said Bunting executed an assignment of the policy to the *483defendant, and notified the insurance, company thereof, but the assignment and policy were retained in the possession of the insured until his death, which occurred May 16, 1897, when they were found among his papers and effects, and delivered to the defendant, who never paid any consideration, or parted with anything of value for the assignment of the policy, and never paid any part of the premiums; that the defendant has received the sum of $50,000 on the policy and has the same now in his possession at Salt Lake City, Utah; that after November 1, 1894, Charles Bunting had no money on deposit with the corporation or in the bank, and had no credit there upon which he was entitled to draw, or which he was authorized to use in payment of his own obligations, but during all the time his account was largely overdrawn, and, at the time of his death, for money taken without authority and abstracted from the assets of the corporation, he was indebted to it in a sum largely in excess of $150,000, no part of which has ever been paid; and that when the corporation ceased doing a banking business it was indebted to various persons in the sum of $251,635.-42, and the value of the assets did not exceed the sum of $100,000. Such, in substance, are the material findings of fact.
The evidence is quite voluminous, and appears to be amply sufficient to support the findings. The court, upon the facts found, made a decree directing the defendant to pay over to the plaintiff the $50,000 now in his hands, and which he received on the policy of insurance, with interest thereon from February 25, 1898, that being the date of the commencement of this suit, and to pay the costs of suit. Judgment was entered accordingly.
It is contended by the appellant, in the first instance, that when, on November 29, 1894, the policy in question *484was delivered to Bunting, the insured, he thereby acquired the legal title to it, and to all rights thereunder, and that having thus the title or right of possession and the possession and right of assignment, he had the right to dispose of it or the proceeds thereof, either with or without consideration, regardless of any person except his then-existing creditors, and even as against them, provided he was then solvent and able to pay his existing debts.
This contention, in the absence of any fiduciary relations connected with the procurement of the policy, might be regarded as of considerable force, but the respondent maintains that the policy of insurance and the premiums were paid for entirely out of corporate funds, wrongfully and illegally taken by the insured,— out of assets belonging primarily to the creditors of the banking corporation, which, it is insisted, was at that time insolvent. If this be true, then not only the policy but its proceeds become impressed with a trust by implication of law, and the insured, in his lifetime, held the policy as a trustee for the benefit of the cestuis que trust — the creditors, and could not shake off the fiduciary character by assignment. The assignee, as to the policy and the proceeds thereof, stands exactly in the same relation as to the corporate creditors as did his assignor. If the bank was insolvent, and the insured purchased the insurance, and paid the premiums out of the corporate assets, the creditors, or the receiver, for their benefit, is entitled to the proceeds of the investment, so long as they have not passed into the hands of innocent third parties, who have had no notice of the facts in relation thereto. This is true regardless of the method by which such assets were obtained for the purchase. Where a corporation is insolvent, the assets constitute, in a certain sense, a trust fund for the payment, in the first instance, of the corporate debts, and the person *485in charge of the fund is the trustee, and the creditors are cestuis que trust. If the trustee, in such case, purchases property with the assets, the transaction is looked upon as a purchase paid for by the cestuis que trust. ‘ ‘ A purchase with trust funds is virtually a purchase for the ces-tui. ” 1 Perry on Trusts, Sec. 127.
In 2 Pomeroy’s Eq. Jur., Sec. 1049, it is said: “ Whenever a trustee or other person in a fiduciary capacity, acting apparently, within the scope of his powers,— that is, having authority to do what he does,— purchases property with trust funds, and takes the title thereto in his own name, without any declaration of trust, a trust arises with respect to such property in favor of the cestui que trust or other beneficiary. Equity regards such a purchase as made in trust for the person beneficially, interested, independently of any imputation of fraud, and without requiring any proof of an intention to violate the existing fiduciary obligation, because it assumes that the purchaser intended to act in pursuance of his fiduciary duty, and not in violation of it.” 1 Perry on Trusts, Secs. 128, 430; 2 Perry on Trusts, Sec. 838; Tecumseh Nat. Bank v. Russell, 50 Neb., 277.
Bunting could not invest the corporate assets of an insolvent concern, and then claim the benefits or profits of the investment, as against the creditors. While the assets of a corporation can not be and are not burdened with a specific lien or direct trust, in the absence of a valid judgment or recorded lien created by the parties, still, insolvency appearing, the creditors have a right to payment out of them before they can be appropriated for any other purpose. Such assets constitute a trust fund in the sense that the proceeds must, in the first instance, be applied to the payment of the corporate debts, and if, anterior to such payment, any portion of the fund be *486invested in other property, the cestuis que trust have a right to follow the fund into such investment, so long as the purchase can be identified as made with such proceeds, and with knowledge of the facts. This court in Weyeth H. &. M. Co. v. James-Spencer B. C., 15 Utah, 110, said: “Doubtless, the assets of a corporation constitute, in a certain sense, a trust fund for the payment of its debts, in the sense that they can not be appropriated for any purpose foreign to its legitimate business, or distributed among its officers or stockholders, until all its debts are paid. This implies that creditors have an equitable right which may be enforced, when the assets have been taken into possession by a court of equity in a proper proceeding,.at the instance of a proper party.” 2 Story’s Eq. Jur., Secs. 1258, Í259; 2 Perry on Trusts, Secs. 828, 835, 838; 2 Pomeroy’s Eq. Jur., Sec. 1049; Mercantile Co. v. Mt. Pleasant Co-Op. Inst’n, 12 Utah, 213.
The trust arising under such circumstances, asare claimed to exist in this case, is a constructive trust in vnvitum, it not having been in contemplation of the parties at the time of making the contract. Such a trust is fastened upon the conscience of the offending party by mere operation of law and without his consent. It results from an abuse of fiduciary relations, misrepresentations, concealment, or other fraudulent practices, and a court of equity will convert him who has acquired property by any such method, into a trustee to execute the trust in such manner as to do justice between the parties. The right to pursue and claim property impressed with such a trust fails only when the means of ascertainment fail. This is upon the ground of the fraud connected with the transaction, creating, in fore conscientice, a trust in favor of the parties defrauded.
*487‘ ‘ A constructive trust is one that arises when a person, clothed with some fiduciary character, by fraud or otherwise gains some advantage to himself. Courts construe this to be an advantage for the cestui que trust, or a constructive trust. ’ ’ 1 Perry on Trusts, Sec. 27.
The same author, in Section 166, Id., says: “ If a person obtains the legal title to property by such arts or acts or circumstances of circumvention, imposition, or fraud, or if he obtains it by virtue of a confidential relation a,nd influence under such circumstances that he ought not, according to the rules of equity and good conscience as administered in chancery, to hold and enjoy the beneficial interest of the property, courts of equity, in order to administer complete justice between the parties, will raise a trust by construction out of such circumstances or relations; and this trust they will fasten upon the conscience of the offending party, and will convert him into a trustee of the legal title, and order him to hold it or execute the trust in such manner as to protect the rights of the defrauded party and promote the safety and interests of society. Such trusts are called constructive trusts.”
So, in 2 Pomeroy’s Eq. Jur., Sec. 1061, it is said: “A constructive trust arises whenever another’s property has been wrongfully appropriated and converted into a different form. If one person having money, or any kind of property belonging to another, in his hands, wrongfully uses it for the purchase of lands, taking the title in his own name; or if a trustee or other fiduciary person wrongfully converts the trust fund into another species of property, taking to himself the title; or if an_ agent or bailee wrongfully disposes of his principal’s securities, and with the proceeds purchases “other securities in his own name; in these and all similar- cases equity impresses a constructive trust upon the new form or spe-*488cíes of property, not only while it is m the hands of the original wrongdoer, but as long as it can be followed and identified in whosoever hands it may come, except into those of a bona fide purchaser for value and without notice; and the court will enforce the constructive trust for the benefit of the beneficial owner or original cestui que trust who has thus been defrauded.” 1 Perry on Trusts, Secs. 167-169; 2 Story’s Eq. Jur., Secs. 1265, 1254, 1261; 2 Pomeroy’s Eq. Jur., Secs. 1044, 1053, 1058; Long v. King, 117 Ala., 423; Thompson’s Appeal, 22 Pa. St , 16; Wells v. Robinson, 13 Cal., 134; Gale v. Harby, 20 Fla., 171; Bent v. Priest, 86 Mo., 475; Preston v. McMillan,, 58 Ala., 84; Weaver v. Fisher, 110 Ill., 146; Hendrix v. Nun, 46 Texas, 141; Kayser v. Maughan, 8 Colo., 232; Mollinhead v. Simms, 51 Cal., 158.
The principles above referred to apply with equal force 'where, as claimed in this case, the capital stock of the corporation is owned by one person. In such case the corporation still remains a distinct entity, and does not necessarily lose its individuality or identity as a business concern, nor the character or attributes of a corporation. Nor does the sole owner of the stock acquire the right to act for it, or transact its business independently of its agents and officers, or become the owner of its corporate property individually as a natural person. During the existence of the corporation he is a mere stockholder, and the corporate affairs must be managed by the board of directors, the same as where there is a plurality of stockholders. If, therefore, such stockholder invests the corporate assets for his individual benefit and advantage, or disposes of them without the sanction of the proper officers, his action in so doing is illegal and wrongful, and the creditors of the corporation, in case of its insolvency, *489may follow the assets so invested or disposed of in the same manner as in the case of any other incorporation. The conveyance of all the capital stock to a purchaser gives him no right to carry on the business or dispose of or invest the assets as an individual. It simply gives him an equitable interest in the corporate property to carry on the business in the corporate name under the act of incorporation, and the legal title to the property or assets still remains in the corporation. Hence if such a purchaser, when the corporation is insolvent, uses the corporate assets or trust fund to purchase property for himself as an individual, such purchase is an abuse of a trust which can confer no rights upon him, or on those claiming under him, as against the cestui que trust.
In 2 Cook on Stock and Stockholders, Sec. 709, the author says: “Although one person owns a majority of the stock, or all of it, or all but two shares, he does not in consequence thereof acquire the right to act for the corporation, or as the corporation, independently of the directors. One person may own all the stock, and yet the existence, relations, and business methods of the corporation continue.”
So, in Button v. Hoffman, 61 Wis., 20, after the stating of principles applicable to corporations, it was said: £ ‘ These general principles sufficiently establish the doctrine that the owner of all the capital stock of a corporation does not therefore own its property, or any of it, and does not himself become the corporation, as a natural person, to own its property and do its business in his own name. While the corporation exists, he is a mere stockholder of it, and nothing else. The consequences of a violation of these principles would be that the stockholders would be the private and joint owners of the corporate property, and they could assume the powers of the *490corporation, and supersede its functions in its use and disposition for their own benefit without personal liability, and thus destroy the corporation, terminate its business, and defraud its creditors. The stockholders would be the owners of the property, and, at the same time, it would belong to the corporation. One stockholder owning the whole capital stock could, of course, do what several stockholders could lawfully do.” 2 Story’s Eq. Jur., Sec. 1258; Harrington v. Connor, 51 Neb., 214; England v. Dearborn, 141 Mass., 590; Winona & St. P. R. Co. v. St. Paul & S. C. R. R. Co., 23 Minn., 359; Parker v. Bethel Hotel Co., 96 Tenn.. 252: Wilde v. Jenkins, 4 Paige, 481.
The foregoing principles apply as well where the trust funds have been invested in an insurance policy as where the purchase consists of other property. This is so even where the policy is made payable to the estate, or the heirs of the insured. It is true where the insurance is procured with fund belonging to the insured, and in the absence of any violation of a trust, the beneficiary has a vested interest in the policy after it is delivered, but where the policy and premiums are paid for by the insured with funds impressed with a trust, and in violation of his obligations to the cestuis gue trust, the beneficiary, under the policy, can only claim the insurance subject to the means with which it was procured, and existing equities, and must adopt the methods employed in procuring it. If, therefore, insurance be procured with assets of an insolvent corporation, which ought to be used in payment of the corporate debts, the creditors have the right to follow the assets into the new investment, and appropriate the proceeds in the hands of those having full knowledge of the equities.
These principles were similarly applied by a unanimous *491court in Holmes v. Gillman, 138 N. Y., 369, a case from which Mr. Justice Miner quotes, and which he claims recognized the rule contended for and applied by him. The case will be more fully considered hereinafter.
So, the Court of Errors and Appeals of New Jersey, in Shaler v. Trowbridge, 28 N. J. Eq., 595, a case where the husband misappropriated funds of a partnership, and out of such funds paid the premiums on polices of insurance upon his life which were made payable to his wife, held by unanimous decision that thereby a constructive trust was created in favor of the partnership, and that the husband held the polices as a trustee, and after his death the wife held the proceeds- as trustee for the firm, and she was not permitted to derive any benefit out of the insurance. Mr. Justice Syckel, delivering the opinion, after stating that it was £ 1 not a case of resulting trust, ’ ’ but one of “constructive trust,” said: “If a person occupying a fiduciary capacity purchases property with fiduciary funds in his hands, and takes the title in his own name, he will, by construction, be charged as a trustee for the person entitled to the beneficial interest in the fund with which such purchase was made. * * * Nor does it make any difference that the investment turns out to be a profitable one, for whatever the profit may be, it must belong to the cestui qxie trust. It is a constructive fraud upon the latter to use his property unlawfully and to retain the profit of the misapplication, it being a fundamental principle in regard to a trustee that he shall derive no gain to himself from the employment of a trust fund.” Again, he said: “It is urged that a life policy should be exempt from the equitable rule which applies to other transactions, because it differs in its character from ordinary investments, and is a beneficent provision for the family, which should be favored. Public policy clearly *492forbids the adoption of this suggestion; it would invite the commission of wrong by assuring the wrong-doer that there is one mode in which he could secure profit by his turpitude, in securing a provision for his family. The policy is the thing which the partnership money purchased, and it stands in the place of what was corruptly abstracted. Whether the policy would be productive, when terminated by death, of more or less than the premiums paid upon it, would depend upon the length of the life insured. The fact that it has a continuent value does not distinguish it, in principle, from an investment in the purchase of stock, or of an annuity, and ca • give no support to the claim of the widow that nothing should be exacted of her beyond the amount of premiums paid upon it out of the firm funds. If this suit had been prosecuted in the lifetime of the husband, and the policy had been disposed of to the company for its surrender value, it would hardly have been insisted that he could claim, in a court of conscience, a right to any excess of the proceeds after refunding to his firm the amount of the premiums.” 1 Story’s Eq. Jur., Sec. 322; 2 Story’s Eq. Jur., Sec. 1261; 2 Pomeroy’s Eq. Jur., Sec. 1048.
Yiewing the case at bar as presented in the record, in the light of the principles hereinbefore stated, is the contention of the respondent that, at the time of the purchase of the insurance, the banking corporation was insolvent, and that the policy was procured, and the premiums thereon paid for by the insured, with corporate assets, wrongfully and unlawfully taken by him, correct.
Upon careful examination of the evidence, presented in this voluminous record, and upon due consideration of the able arguments of counsel on both sides, the conclusion that respondent’s position is well taken, seems irresistible.
On the question of the insolvency of the corporation, *493the court found that from the time of its organization, and during all the time that it transacted banking business, it was actually insolvent, and its insolvency was known to Charles Bunting, the insured. It is shown by the proof that Charles Bunting .and two others, under the firm name of C. Bunting & Co., commenced doing business about 1879, as co-partners, and conducted a general banking and merchandise business until about December 9, 1892, when the banking corporation was formed, and the banking business and assets turned over to it. Whether the court was warranted in finding that then, at the time of its organization, the corporation was insolvent, is not material, because there is ample evidence to show that from the beginning of 1894, which was prior to the procuring of the insurance policy, the banking institution was, in fact, insolvent, and remained so until it closed its doors in February, 1897. This is apparent from the testimony of the witness Thum, who was Bunting’s confidential man, was at times the bookkeeper and occasionally the cashier, and was familiar with the books and affairs of the institution, and knew what its assets and liabilities were, and finally when it failed was appointed receiver. Early in 1894 he learned that the £ ‘ bank was unable to pay its debts ’ ’ and was insolvent. That the institution was insolvent even prior to 1894, as found by the court, and since, also appears from the admissions of Bunting himself, which, as testified to by the witness Yogeler, are as follows: Mr. Bunting said that the failure was nothing more than he expected; he had expected for the last seven years, since 1890; he said that, in 1890, he wanted to go into voluntary liquidation, and his partners, Messrs. Lyman and Wallace, prevailed on him not to. In 1893, they wanted, they requested him to talk over the matter, and asked if he had not better go into voluntary liquida*494tion, and he said, No, not at that time; values had depreciated so that it would be impossible for them to do anything to realize on any of their assets; he said it finally went on until it came on itself; that was the result.
The witness Thum also testified that, during the fall of ' 1894 and winter following, he had several conversations with Bunting on the subject of insolvency, and that Bunting said he could make no money at banking, and that ‘ ‘ he must find some other means of making money in order to carry him through.” The books of the concern likewise show insolvency.
From this and other evidence in the record, it is clear, not only that the bank and Bunting, who was its sole owner, were insolvent for a long time anterior to the purchasing of the insurance policy in November, 1894, and all the time since until the final collapse of the institution, but that Bunting all the time was fully cognizant of the fact. At the same time the depositors and confiding public were misled, and were unaware of the hazardous condition of the institution until the crisis finally came, and the doors were closed.
Under the circumstances disclosed by the testimony, the assets, according to the equitable principles already • considered, and which, in my judgment, ought to be ap, plied to such a case, were so impressed with a trust, for the benefit of the creditors, that they could not rightfully be appropriated for any purpose foreign to the legitimate business of the corporation, and the remaining vital question, therefore, is, Were the policy and premiums paid for out of the trust fund ? If they were, the proceeds thereof should be regarded as a part of the fund, notwithstanding the assignment, which was made to one who is not an innocent purchaser for value, having paid nothing for it, and who, it seems, has no personal interest in it.
*495In behalf of the appellant, it is insisted that the insured used no trust money at all in the purchase of the insurance, but used his own money, and that, in payment of the first premium, he gave his own note, and thus used his own credit.
By the judgment which they announce, my brethren both admit that the second and third premiums were paid for out of the corporate assets. Mr. Justice Baskin says: “There is some conflict in'the evidence as to. whether Bunting had any money to his credit in C. Bunting & Co. bank, when said note and the two other premiums were paid, but I think that the evidence shows that he had none.” This, since Bunting’s note and the checks for the premiums were honored by the bank, is ’ a clear admission that they were paid out of its assets. Mr. Justice Miner, however, because the note was for $1500, while the premium was $1,805, and because the policy was in the possession of Bunting, says: “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.” In this connection my brother admits that “whether the agent discounted $305 from his commission, or whether Bunting paid ‘ the sum in cash, ’ does not appear from the testimony,” and relies upon a presumption of payment in cash, but later on he seems to discard the presumption when he says: “The testimony clearly shows and I find, that at the time of obtaining the policy, Bunting gave his negotiable promissory note and indorsed if over to Fritter, together with the $305, previously referred to, in payment of the first year’s premium on the policy.” It must be admitted that the actual payment, by the insured, of a part of the first premium with his own money, would have been an important fact in this *496case, but, with all due respect to the views of- my brother as to what the testimony shows, I have searched the record in vain to find evidence which, in my judgment, warrants either a presumption or a finding that the $305 was ever paid by the insured or anyone else. In fact, to my mind the record and evidence indicate exactly the contrary. The witness Thum testified that shortly after the purchase of the insurance, Bunting said to him £ ‘ that he had taken out an insurance policy, and had given his note for the first premium,” and told him to pay it when it came in. The witness was then conducting the business of the bank under Bunting’s directions, and it will be noticed that Bunting did not say he had given the note for a part of the first premium, but “for the first premium, ’ ’ and I find not even a hint in the evidence that he ever claimed to have paid the $305. Again, the appellant in support of his motion for a new trial, filed an affidavit from Fritter, the agent of the insurance compauy through whom Bunting obtained the insurance and to whom he gave the note, but in that affidavit, from a man who knew absolutely what the fact was, there is not to be found a word about the payment of the $305, nor any reference thereto. Is it reasonable to suppose that, if such payment had been made, the able counsel who conducted the defense would not not only have shown it during the trial, but would also have failed to have the fact of payment stated in the affidavit in support of their motion, when the burden was upon them to show the existence of such facts as would warrant the court in granting a new trial ? The real fact doubtless is that the $305 were never paid, but simply deducted from the commission.
Respecting the payment of the premiums and the ability of Bunting to pay, the finding of the court who heard all the testimony and observed the witnesses, in substance, *497is that the insured paid for the ‘1 insurance policy, and each and every premium thereon, with the money of C. Bunting & Co., bankers,” and that the money so paid was taken by him from the assets of the corporation wrongfully, illegally, and fraudulently. The court further found that, after November 1, 1894, the insured had no money on deposit in tne bank, nor any credit there, upon which he was entitled to draw, or which he was authorized to use in payment of his-own obligations; that all the time his account was largely overdrawn; and that at the time of his death he was indebted to the corporation “for moneys illegally and without authority taken and abstracted from the assets,” in a sum in excess of $150,000. After examination of the evidence with care, I am of the opinion that the court was warranted and justified in finding these facts.
As shown by the transcript, Bunting’s personal account, on November 1, 1894, was overdrawn $4,478.50, and on the 29th of November when the insurance was purchased the account was overdrawn more than $5,000, and continued so until the 31st of December, 1894, on which day Bunting, without action or consent of any board of directors, directed his bookkeeper to open a warrant and stock account, and to charge that account with 215 shares of the capital stock of the First National Bank of Pocatello, at $150 per share, amounting to $22,250, and with 750 shares of the stock of C. Bunting & Co., merchants, at $100 per share, amounting to $75,0'00. At the same time Bunting directed his personal account to be credited with the same items, amounting to $107,250. None of the stock was delivered to the bank. The witness Thum testified that, at that time the real value of the Pocatello bank stock was $125, and of the Merchant Co.’s stock $25 per share. At the very time of taking this credit 500 *498shares of the Mercnant Co. stock nad been pledged to McCormick & Co., of Salt Lake City, as collateral security for notes' amounting to §71,000, and was never received either by the corporation or the receiver, and 55 shares only of the Pocatello bank stock came into the hands of the receiver. The balance of that stock also had been disposed of. .Except for the credit so directed to be given, Bunting’s personal account, on January 1, 1895, a month after the note in question was given, would have shown overdrafts amounting to over $51,000. If to this there were added the Bunting and Wheeler note, amounting to $4,500, on which ho was obligated to the bank, and his Triumph mine account of $14,750.87, and the Banting and Wheeler overdraft of $1,000, which account and overdraft Bunting, on December 31, ordered charged to to the profit and loss account, his debt to the bank on January 1, 1895, would aggregate over $71,000. Notwithstanding this fictitious credit so obtained by manipulation of the books, Bunting, at the time the note in question was paid, had a balance in his favor on his personal account of but about $20,000, and when the second and third premiums were paid, his account was again largely overdrawn. After December 31, 1894, Bunting continued in mining speculations. In addition to the Triumph mine, in which others were interested with him, he also developed the Yiola mine. The expenses for developing were also paid out of the assets of the bank but not charged to Bunting. None of Bunting’s mining transactions and speculations, so far as shown by the record, proved profitable. The evidence shows numerous reckless attempts to keep up credit. I will refer to but one more, which is the transaction with John D. Biter, who, as appears, sent $8,060 in certificatec of deposit from another bank to Bunting or his bank for safe keeping. Bunting *499drew the money on the certificates, the same being credited to his account, and the bank paid fS22.2 interest thereon. How can a court of equity countenance such transactions as are revealed by this record ? How can such a court recognize a credit thus obtained, and defeat therewith the bona fide claims of creditors — depositors, many of whom, lulled into security by appearances, doubtless handed to the insolvent institution their small earnings and accumulations of years, only to have them abstracted and wasted in private and profitless speculations, foreign to the objects of the corporation, without the sanction of a board of directors?
The credit obtained by the insured, who was the sole owner and manager of the bank, by directing his bookkeeper to open the warrant and stock account, and charge such account with the stock referred to, and then directing that ho be credited on his personal account with those same items, when the same stock, or, at least, by .far the greater portion of it, had already been pledged as security for a large debt owed by the insured, and when none of the stock was produced or transferred to the bank, did not add to the financial standing of the insured, nor to his actual credit at the bank. It was a mere fictitious credit and ought not avail the appellant in this case. The transaction was not authorized or ratified by the board of directors, but merely ordered by the insured. It was, therefore, unlawful, and served simply to conceal from the public the true financial condition of him who received the fictitious credit. Likewise, and for similar reasons, respecting the accounts with the several mining companies. It is true, the insured gave his note for the first premium, but that he intended the note should be paid out of the assets of the corporation clearly appears from the circumstances in evidence and his acts and conduct there*500after. Tbe note was made payable at his bank, and shortly afterward he asked his agent, in charge of the bank, if it had come in, and, upon being informed that it had not, instructed him to pay it upon presentation. It appears the note was finally forwarded by another bank, a correspondent of Bunting’s bank, for collection, and received by the latter bank as a check upon Bunting’s account, and the amount thereof credited on the exchange account of the bank that forwarded it. The note thus simply amounted to a check drawn upon the bank, payable at a future day.
As has been shown, without the fictitious credits the account of the insured at his bank was, at the time of payment as well as the time of the making of the note, largely overdrawn. Hence, receiving the note as a check upon Bunting’s account, and crediting it upon the exchange account, depleted the assets of the bank to the extent of such credit. The evidence likewise shows that the assets were depleted in a sum equal to the amount of the other premiums paid on the policy. So that the trust fund was reduced, at least in such sums, to the disadvantage and injury of the creditors, and in -equity and good conscience they ought to be permitted to lay hold of the proceeds, so long as they have not passed into the hands of an innocent third person for value, without knowledge of the facts. The use of the trust funds, in the manner disclosed by the record, was wrongful, unlawful, and fraudulent as to corporate creditors. The proceeds should, therefore, be impressed with a trust no matter how circuitous or ingenious-the method employed in securing the money to pay for the insurance, it clearly appearing that such money constituted a part of the assets of the insolvent institution. ‘ ‘ The specific instances, ’ ’ says Mr. Pomeroy, in his Treatise on Equity Jurisprudence, Sec. *5011045, “in which equity impresses a constructive trust are numberless, as numberless as the modes by which property may be obtained, through bad faith and unconscien-tious acts.”
In 2 Story’s Eq. Jur., Sec. 1261, the eminent author says: “Upon similar grounds, where a trustee or other person standing in a fiduciary relation makes a profit out of any transactions within the scope of his agency or authority, that profit will belong to his cestui que trust \ for it is a constructive fraud upon the latter to employ that property contrary to the trust, and to retain the profit of such misapplication; and by operation of equity the profit is immediately converted into a constructive trust in favor of the party entitled to the benefit. For the like reason a trustee becoming a purchaser of the estate of his cestui que trust is deemed incapable of holding it to his own use, and it may be set aside by the cestui que trust. Nor is the doctrine confined to trustees strictly so called. It extends to all other persons standing in a fiduciary relation to the party, whatever that relation may be.
Mr. Justice Miner, however, says: “ In a case like this, where the fund sought to 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, ’ ’ and quotes Holmes v. Gilman, 138 N. Y., 369, herein-before referred to, as recognizing the rule contended for by him, that in such a case the cestui qv,e trust has but a lien on the profits or proceeds to the extent of the trust funds misappropriated.
It is difficult to see ho'w that case recognizes the application of legal principles which my brethren have made *502in this. The caso is very like the one at bar. There Gilman, a partner, misappropriated .funds of a partner-' ship and invested some of them in certain policies of insurance upon his life, in favor of bis wife and children; here Bunting misappropriated funds of a corporation, and invested some of them in a policy of insurance upon his life in • favor of his estate. There the amount of insurance sued for was $56,000; here, $50,000. There the premiums aggregated $4,000; here, $5,110. There one policy of $5,000 was purchased, and the premiums to a certain date paid for with Gilman’s own money; here all were ultimately pa.id for out of the assets of the bank. There Gilman was the manager of the partnership; here Bunting was the manager of the corporation. There about the time of Gilman’s death the partnership was discovered to be insolvent; here shortly before Bunting’s death the corporation was discovered to be insolvent, and the proof shows that it was in fact insolvent for a number of years previously. There, through Gilman’s management, the partnership was short over $200,000; here, through Bunting’s management, the corporation is short over $150,000. There a court of equity decreed to the cestui que trust over $50,000 proceeds of the insurance; here a court of equity decrees to the cestui que trust $3,610, and divides the costs equally between the parties. Except as to the ultimate outcome it will be seen upon examination and comparison that there is great resemblance between the main facts of the two cases. So, it may be observed, upon examination, that the principal legal questions presented in that' case to the court of last resort, were quite similar to those presented herein. Counsel for the beneficiaries under the policies in the New York case contended that the policies were contracts with the wife, and, by the statute, were her property, free from *503any claims against her husband; that assuming it to be true that in equity the cestui que trust may follow the trust funds used in “payment of the premiums on the policies, and impress the proceeds with a trust in his favor, he could not, under any principles of equity, obtain a lien for more than the gross amount of the moneys so applied, with interest; ” that “ Gilman being a partner in the firm, and being rightfully entitled as such to draw and use for his own benefit a part of the partnership funds, there was no appropriation by him of funds which can be followed in equity; ’ ’ that ‘ ‘ the funds appropriated by Gilman were taken in the form of money, and as such used in a transaction in the ordinary course of business upon a consideration valid as between himself and wife;” and that the evidence was insufficient to warrant a finding that he had wrongfully appropriated funds of the partnership. Notwithstanding these contentions, however, the court held that the cestui que trust had the right to follow the trust fund into the new investment, and appropriate the proceeds thereof.
Mr. Justice Peckham, now a justice of the Supreme Court of the United States, delivering the opinion of the court, said: “The claim of the plaintiff to recover the moneys arising from the payments of these policies is based upon the principle which allows a cestui que trust to follow trust funds, and to appropriate to himself the property into which such funds have been changed, together with the increased value of such property, provided the trust fund can be clearly ascertained, traced, and identified, and provided the rights of l)ona fide purchasers for value, without notice, do not intervene. The right has its basis in the right of property, and the court proceeds on the principle that the title has not been affected by the change made of the trust funds, and the cestui que trust has his *504option to claim the property and its increased value, as representing bis original fund. The right to follow and» appropriate ceases only when the means of ascertainment fail.”
Then, m answer to the claim of the defendant that the payment of the premiums were mingled with the property right of the wife, and, therefore, the plaintiff could “have only a lien on the policies or the moneys arising from their payment, to the amount of the premiums paid with the firm funds, and the interest thereon,” which claim was characterized as presenting ‘ ‘ really the chief question in the case,” the eminent jurist said: “ I am not at all prepared to admit that under no circumstances is the cestui que trust entitled to recover back anything more than the amount of his property and interest, where there has been a mingling of funds. In case the trustee took a thousand dollars of trust funds and five hundred of his own, and purchased property which advanced in value to twice its original sum, I have seen no .case where the point has been determined 'that the whole increased value belongs to the trustee, and that only the original sum wrongfully taken and interest can be given to the cestui que trust, although it was by reason of the wrongful use of the trust funds that the trustee was enabled to realize such value. If in such case the cestui que trust were not allowed to at least participate proportionately in this increased value, it would appear to be a violation of the principle that the trustee can not ever be permitted to make a profit out of the use of trust funds. It seems to me to be a case for the application of the doctrine that the parties became co-owners of the property at the option of the cestui que trust, in the proportion which their various contributions bore to the sum total invested. ’ ’
And again, speaking to the point, that, wiien the *505insurance was procured for the wife’s benefit, the husband was acting as her agent, and that she had a vested interest in the policies the moment they were delivered, he said: ‘ ‘ This is doubtless true in the case of the husband procuring the insurance with funds which belong to him or to his wife, but where the premiums are paid with moneys which in truth do not belong to him, and which the husband misapplies in so paying, and by which he violates his obligation to the true owner of the moneys thus used, the wife in such case must claim the policy subject to the means by which the husband procured it, and she must adopt all his methods. The moneys in the hands of the company could not be recovered back by the cestui que trust if received by .the company in good faith, because it would stand in the position of a bona fide purchaser, yet the policy itself would stand as the representative of these trust moneys, and the right of the wife would be to that extent subordinate. ’ ’
Thus it will be seen that the Court of Appeals of New York did not hesitate to apply, to a case similar to the one at bar, the principles herein contended for, nor to lay hold of the proceeds and impress them with a trust in favor of the cestui que trust, notwithstanding the fact that such proceeds were ‘ ‘ grossly disproportionate 5 ’ to the trust funds misappropriated.
Mr. Justice Miner finally assumes the position that, under the disposition made of this case, all of Bunting’s “ creditors will share ratably in the fund,” and that “ 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, * * * as a reward for his misappropriation of the funds of the bank,” and says: ‘ ‘ To permit such a disposition of the fund would, to my mind, not only be an injustice to the heirs and creditors of *506Bunting, but would be an example against which a court of equity would revolt.”
Whether or not Bunting had any private creditors does not appear in this case. There is no claim that such creditors exist set up in the answer, nor does the evidenco show their existence. Bunting was the sole owner of the corporation, and, so far as the record shows, conducted his business through his bank. However it may be, as to the existence of such creditors, in point of fact, it is difficult to see how the corporate creditors, whose funds purchased the insurance, can share ratably with the private creditors of Bunting in the proceeds under this decision. Bunting, though the sole owner of the stock, was still but a shareholder in the institution which, it is admitted, was a valid corporation, and its articles of incorporation provide, agreeably to the statute then in force, that “the private property of the stockholders shall not be liable for the debts or liabilities of the corporation. ’ ’ How then can the creditors of the corporation share in his private estate? Whether he had any private property is not shown by the record, except as to the $35,000 of other insurance, which, it seems, has already gone to the heirs. That there are many corporate creditors is apparent from the fact that, when the institution closed its doors, it was short over $150,000. Is it then revolting to a court of equity to return to those creditors, whose money made it possible to procure the proceeds of insurance, about one third of their trust funds which had been .misappropriated and wasted ? Is it not inequitable and unjust to take property from the creditors whose money purchased it, and give it to others who contributed not one dollar to the purchase? In my judgment this opens the door to fraud, and sets aside the well-established principles that a trustee can not secure a profit or advantage to himself in the *507management of the affairs of bis cestui que trust. It seems that hereafter the way is open for a trustee to obtain insurance for himself or family, or even other property, with trust funds by simply manipulating the purchase with a note instead of cash, and thus profit by his own wrong. That Bunting all the while thoroughly understood the insolvent condition of his bank, and his lack of funds and credit there, upon which to draw to meet his personal 'obligations, is manifest from the evidence, yet he may not have had it in his mind to perpetrate an absolute fraud upon his creditors. He may have intended the insurance for the benefit of his creditors. This seems to be indicated by the evidence of the witness Yogeler, who testified that the insured said that the people might criticise him for taking out so large a life insurance policy, but that ‘ ‘ he believed he owed it to his creditors to do it. ’ ’ Again, it may be that foreseeing the inevitable, and, actuated by the desire to save something for the future maintenance of his family out of the impending wreck, he lost sight of the effect which his action would have upon the rights of his creditors. However this may be, he violated his duty as trustee and his action was fraudulent as to his cestui que trust.
While it is a laudable purpose in any man, during his lifetime to make provision for his family after his death, yet a court of equity ought not to permit him to make such provision in disregard of his duty to, and at the expense of, those to whom he stands in the relation of a trustee.
In this case, however, if the proceeds in controversy were turned over to the creditors, the family of the deceased, considering his financial ability in his lifetime, would remain provided for with much liberality, for, aside from the $50,000 in question herein, the record shows other policies of the insured aggregating $35,000, *508in which it appears -the children and the family of the deceased are the beneficiaries. That the proceeds in dispute should be distributed among the creditors of the insolvent corporation is thus not only in accord with legal principles, but also with justice and fair dealing.
“ A trustee,” says Judge Story, “will not be permitted to obtain any profit or advantage to himself in managing the concerns of the cestui que trust. In short, it may be laid down as a general rule, that a trustee is bound not to do anything which can place him in a position inconsistent with the interests of the trust, or which have a tendency to interfere with his duty in discharging it. And this doctrine applies, not only to trustees strictly so called, but to other persons standing in like situation.”
Since, however, the defendant holds the proceeds merely as a trustee, pending the litigation to determine to whom they belong, and, in the absence of evidence showing that during such time he made use of the money, or received any interest or profit because thereof, I am of the opinion that the decree of the lower court is erroneous in so far as it adjudges the payment of interest on the proceeds by the defendant pending the litigation. In all other respects that decree, in my judgment, ought to be affirmed.
I have thus expressed my views at considerable length, owing to the importance of the principles involved.
For the foregoing reasons I dissent.