Court Opinion

ID: 8766408
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:27:24.764034+00
Date Added: 2024-06-11T17:01:54.836218
License: Public Domain

QUARLES, District Judge
(after stating the facts as above). It is sometimes profitable to lay aside elaborate briefs, burdened with a multitude of citations, and refer to an elementary principle, which is, after all, the pivot upon which the case must turn. Much has been said in the argument about trusts and trustees, trust moneys, etc. As applied to this case the word “trust” is little more than a figure of speech. It is called by the law writers a constructive trust. Mr. Pomeroy, in his work on Equitable Jurisprudence (section 1044), uses the term “trust in invitum,” and the learned author well describes how and why the court of equity has resorted to this fiction to facilitate its peculiar jurisdiction and to work out justice in peculiar cases. It is elementary that, in every instance where the court creates this quasi trust relation, it must find either actual fraud or some unconscientious conduct. In such case the court will fasten upon the property in the hands of the offending party and will convert him into a trustee of the legal title. It may be nothing more than a breach of good faith, as a mingling by an agent of the funds of his principal with his own moneys, or the receipt of a deposit by the officers of a bank when they know the bank to be hopelessly insolvent. There are innumerable variations of tortious conduct which will warrant this interposition of a court of equity; but in every such case there must be at the bottom some unfair dealing or wrongdoing. In the instant case the evidence shows without contradiction that Smith, as treasurer of the Grocers’ Association, was at liberty to deposit its funds with the Smith, Thorndyke & Brown Company, that such company were to use such funds, and that disbursements therefrom were to be made by checks upon such company; in other words, nothing has been done either by Smith, or the Smith, Thorndyke & Brown Company, which was not contemplated by the parties, and therefore there would appear to be no just occasion for the application of the trust doctrine.
*270It is true, as urged, that the trustee has stepped into the shoes of the bankrupt. It is equally true that Mrs. Smith, as the assignee of the Grocers’ Association, has by virtue of the assignment acquired no higher or superior right than that possessed by her assignor. This being so, the case stands precisely as though the account had stood upon the books of the Smith, Thorndyke & Brown Company in the name of the Grocers’ Association, and the contest were waged between such original parties. The question then would be: What was the legal relationship which these parties sustained to each other? The Grocers’ Association had practically consented to employ Smith, Thorndyke & Brown Company as a bank. In Bank v. Millard, 10 Wall. 152, 19 L. Ed. 897, it was settled, so far as the federal courts are concerned, that a general deposit in a bank creates only the relation of debtor and creditor between the depositor and the bank. In Commercial Bank v. Armstrong, 148 U. S. 59, 13 Sup. Ct. 533, 37 L. Ed. 363, it was held that all deposits made with bankers may be divided into two classes, namely, those in which the bank becomes bailee of the depositor, the title to the thing deposited remaining with the latter, and that other kind of deposit of money peculiar to banking business, in which the .depositor for his own convenience parts with the title to his money and loans it to the bank. Bank v. Latimer (C. C.) 67 Fed. 27, 29; Peters v. Bain, 133 U. S. 670, 693, 10 Sup. Ct. 354, 33 L. Ed. 696; Bank v. Blackmore, 75 Fed. 771, 774, 21 C. C. A. 514; Metropolitan Bank v. Campbell (C. C.) 77 Fed. 705, 708. There is in the present case no semblance of bailment, because the deposit was general, not special, All that was required of Smith, Thorndyke & Brown Company was to-return on demand an equivalent sum. Can there be any doubt, therefore, that as between these original parties there subsisted the relation of debtor and recreditor? And, if so^ Mrs. Smith by virtue of her assignment became a creditor, and must share pari passu with other creditors under the terms of the bankruptcy act.
There is another principle which would be equally fatal to the contention of the claimant. It appears that in February, 1907, the Smith, Thorndyke & Brown Company, being temporarily embarrassed, but supposed on all hands to be solvent, called in an attorney to look over its books, who found this account with Smith as treasurer appearing only upon the cash book, and showing a debit balance against the Smith, Thorndyke & Brown Company of about $4,000, which had not been paid because the company had not funds available to pay the same. The attorney advised that this account should be transferred to the general ledger of the company, and that Smith should at once open an account with the bank as treasurer of the Grocers’ Association, and thereafter deposit all' funds of the association with the bank,, which course was pursued. Between that time and June 10, 1907, the date of the filing of the petition in bankruptcy, this balance of $4,000 was reduced to $2,156. Not a dollar of the association money came to the Smith, Thorndyke & Brown Company after February, 1907. The general bank balance of Smith, Thorndyke & Brown Company -was appropriated by the bank under a banker’s lien, which proceeding was sanctioned by the court, and no part of such money came to the hands of the trustee. Thus it appears that no part of the sum claimed ever *271found its way into tlie assets of the estate. It had been spent and dissipated four months before the bankruptcy proceedings. Under such circumstances no equitable doctrine could be invoked to appropriate general assets of the estate belonging to general creditors to make good this antecedent deficit; no portion of the fund having been traced into the estate. Frelinghuysen v. Nugent (C. C.) 36 Fed. 229; Deere Plow Co. v. McDavid, 137 Fed. 811, 70 C. C. A. 422; Marquette Commissioners v. Wilkinson, 119 Mich. 655, 78 N. W. 893, 44 L. R. A. 493, 498; Spokane v. Bank, 68 Fed. 979), 16 C. C. A. 81; In re Mulligan (D. C.) 116 Fed. 715, 718; Board of Commissioners v. Patterson, 149 Fed. 229, 236; Nonotuck Silk Co. v. Flanders, 87 Wis. 337, 58 N. W. 383; Burnham v. Barth, 89 Wis. 362, 62 N. W. 96.
The fact that money lies in the hands of the persons proceeded against is an indispensable condition. In National Bank v. Insurance Co., 104 U. S. 68, 26 L. Ed. 693, the court employ the familiar illustration :
“For equity will follow the money, even if put into a bag or an undistmguishable mass, by taking out tbe same quantity.”
In such case it is certainly essential to show that the money sought to be recovered went into the hag. Under the evidence in this case it is not a question of tracing a trust fund which has been commingled with other assets of the estate, because the proofs show conclusively that the fund in question here has never come into possession of the trustee.
For these reasons; the order of the referee must be reversed. The record will be returned, with instructions to allow the claim of Mrs. Smith as an unsecured claim, without preference, and for further proceedings in accordance with this opinion.