Court Opinion

ID: 8184749
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:07:05.482156+00
Date Added: 2024-06-11T16:40:22.464867
License: Public Domain

PiNNEr, J.
Tbe South Side Savings Bank having received tbe draft in question, from tbe petitioner for collection, it acquired no title to it or its proceeds; and if, in violation of its trust, it so dealt with the draft that it came to tbe possession of tbe American Exchange National Bank, and it received tbe proceeds of it, and converted them by applying them in part payment of its account against tbe first-named bank, while this would give tbe petitioner a right of action for tbe conversion, it would not, of itself, afford any ground for tbe relief she seeks, namely, to obtain a better position, as a claimant against tbe assets of tbe insolvent South Side Savings Bank in tbe bands of its receiver, than its general creditors, by tbe allowance of her demand as a trust claim, with a preference of payment over them in tbe administration of tbe assets of tbe bank. And tbe result would be tbe same even if tbe South Side Savings Bank bad received tbe proceeds and used tbe same in payment of its debts so that they did not come to tbe bands of tbe receiver. Tbe mere breach of trust growing out of tbe conversion of tbe proceeds of tbe draft would not entitle her to more than a money judgment against tbe bank at law.
Tbe rule in relation to following trust funds wrongfully converted is that: “ Whenever tbe property of a party has been wrongfully misapplied, or a trust fund has been wrongfully converted into another species of property, if its identity can be traced, it will be held, in its new form, liable to tbe rights of tbe original owner or cesttii que trust. . . . That if any property in its original state and form is covered by a trust in favor of tbe principal, no change of that state-can divest it of such trust or give tbe agent or trustee con*388verting it, or those who represent him in right (not being Iona fide purchasers), any more valid claim in respect to it than they had before such change. . . . The right ceases only when the means of ascertaimnent fail; which, of course, is the case where the subject matter is turned into monej^, mixed and confounded in the general mass of property of the same description.” 2 Story, Eq. Jur. §§ -1258, 1259. “If a trustee or other fiduciary person wrongfully disposes of his principal’s securities, . . . equity impresses a constructive trust upon the new form or species of property ... as long as it can be followed and identified. . . . No change in the form of the trust property, effected by the trustee, will impede the rights of the beneficial owner to reach it and to compel its transfer, provided it can be identified as a distinct fund, and is not so mingled up with other moneys that, it can no longer be specifically separated.” 2 Pom. Eq. Jur. §§ 1051, 1058. Whether the disposition of the fund be rightful or wrongful, the beneficial owner is entitled to the proceeds, whatever be their form, provided only he can identify them. National Bank v. Insurance Co. 104 U. S. 54.
In Nonotuck Silk Co. v. Flanders, 87 Wis. 237, it was held that one for whom a banker had collected a draft before making a voluntary assignment, was not entitled to a preference over other creditors if the proceeds of such collection were disposed of by the banker prior to the assignment so that no part thereof came in any form to the hands of the assignee, and, in substance, that the right of tracing trust funds has its basis in the right of property, and never was based upon the theory of preference by reason of an unlawful conversion, and that the complainant had in that case no legal right to a preference over the assignor’s other creditors, in the distribution of his estate in the hands of the as-signee, and into which no part of the complainant’s money could be traced. To the same effect is In re Plankinton *389Bank, 87 Wis. 385. The doctrine of these cases is decisive against the claim of the petitioner, and this view of the law is sustained by a great weight of authority. In re Hallett & Co., Ex parte Blane, [1894] 2 Q. B. Div. 237; Little v. Chadwick, 151 Mass. 109; In re Cavin v. Gleason, 105 N. Y. 256; Freiberg v. Stoddard, 161 Pa. St. 259; Philadelphia Nat. Bank v. Dowd, 38 Fed. Rep. 172; National Bank v. Insurance Co. 104 U. S. 54; Cecil Nat. Bank v. Thurber, 8 C. C. A. 365.
The petitioner’s case wholly fails, for the reason that it is conceded that the South 'Side Savings Bank did not receive the money collected on the draft, but the American Exchange National Bank did, and applied the same in reduction of the overdrawn account with it of the former bank; and whether rightfully or wrongfully it is not now material to determine. There is no claim that the proceeds of the draft, or any property into which it may have been converted, have ever come to the hands of the receiver, or that any property or estate he has received has been unproved or enriched thereby; and yet the judgment of the superior court makes the petitioner’s claim a trust debt or preferred clahn against all the property and assets the receiver has received, without reference to the question whether it has profited in the least by the proceeds of the draft.
It is, however, insisted that as the account of the South Side Savings Bank with the American Exchange National Bank was overdrawn in the sum of about $12,000, and the latter appropriated the proceeds of the draft in its reduction, and as it had received, and then held, securities of the South Side Savings Bank to the face amount of $50,000 as collateral to secure it against overdrafts by the South SideSavings Bank, therefore, by such application of the proceeds in reduction of the overdraft, the value of the interest of the South Side Savings Bank in the collaterals has correspondingly increased, and that this operated as a benefit *390to its general estate in tbe bands of tbe receiver, for tbe reason that otherwise be would bave bad to take from tbe general fund $1,000 to effect sucb partial redemption; and it was also claimed that tbe proceeds of tbe draft bad thus been traced into these collaterals, to tbe benefit and advantage of tbe general estate. Tbe answer to this contention is obvious. Tbe receiver is under no obligation to redeem tbe collaterals. He has not, so far as appears, obtained or claimed them, and it may not be for tbe interest of tbe estate in bis hands that be should do so. In this posture of affairs, it cannot be presumed that tbe general estate has been benefited by sucb application of tbe proceeds of tbe draft; but, if tbe contention is sound that they bave been traced into tbe collaterals, tbe remedy of tbe petitioner, manifestly, is to proceed against them, and not against the general assets in tbe bands of tbe receiver. For these reasons the order appealed from is erroneous.
By the Court.— Tbe order appealed from is reversed, and tbe cause remanded for further proceedings according to law.