Court Opinion

ID: 6606024
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:12:16.595387+00
Date Added: 2024-06-11T15:58:11.293338
License: Public Domain

Cole, C. J.
This case is clearly ruled by the decision in McLeod v. Evans, 66 Wis. 401, and Francis v. Evans, 69 Wis. 115, unless those cases are to be overruled. A majority of the court are not disposed to disturb them or modify the doctrine laid down in them. The equities of the plaintiff to a preference over the general creditors are certainly as strong, if not superior to the equities of the plaintiffs in those cases. Here the plaintiff left her United States bonds with Hodges for safe-lceejping, in October, 1882. In August, 1883, Hodges, in the course of his regular business as banker, deposited the bonds with a Galena bank, as collateral security for the payment of his note then made, of $7,000. The proceeds of the Hodges note, the cashier, Griswold, says, were put into his general banking business.' On February 6th or 7th Hodges directed the Galena bank to sell the bónds and apply the proceeds on his note, which had been renewed and was not then due. The Galena bank informed Hodges that they had sold the bonds and applied the proceeds as directed. The Hodges note is indorsed February 11, 1884, with a payment of $3,710.90, the proceeds of the bonds. Hodges’ bank closed on the 8th of February, and he made an assignment of all his property for the benefit of his creditors on the 11th. It appears that some time in January, 1884, the plaintiff directed Hodges to sell her bonds and immediately remit the proceeds to her in California, where she resided. It is not pretended that Hodges assumed to act, in directing the bonds to be sold, under any instructions given him by the plaintiff. He simply misappropriated or wrongfully converted the bonds to his own use, without the least color of right or authority. They were left with him for safe-keeping merely, and he sold or pledged them to raise money to put into his banking business. This is the fair inference from the testimony. It is true, Griswold, on being subsequently called, qualified the statement that the money borrowed of the Galena bank on *136the Hodges note was put by Hodges in “his general banking business,” but we are inclined to take the first statement as correct. It is more probable that the money was thus used.
The question then is, Must the plaintiff, whose property has thus been wrongfully misapplied, stand upon the same footing as the general creditors as to the assets assigned? We think not. We say, as we did in the McLeod Case, that it is an irresistible conclusion from the facts that the proceeds of these bonds found their way into the Hodges estate and went to increase the assets of the bank which were assigned. It seems inequitable that the general creditors should profit by, or have the benefit of, the fraud committed by the assignor in respect to these bonds. For Hodges never owned them; they were never a part of his estate by right, but, by a gross violation of trust, amounting to a crime, he mixed this trust property with his own, and the assignee seeks to hold it for the benefit of all the creditors. The plaintiff has a paramount right to be first paid out of the assets. This is the doctrine of the cases decided by the court, which we see no sufficient reason for changing. It was not my purpose, at this time, to enter upon a discussion of the principles upon which these cases rest. Enough is said in the opinions to indicate our views upon that subject. I shall make but one further remark. Among the authorities cited to sustain the decision in the McLeod Case was People v. City Bank, 96 N. Y. 32, which, as reported, would seem to be in point. In that case the court says that the object of Sartwell, Hough & Ford, in drawing and depositing their checks with the bank, was to provide a fund for the payment of the specific notes mentioned, and the engagement of the bank was thus to apply the fund. “ Thus a trust was created, the violation of which constituted a fraud, by which the bank could not profit, and to the benefit of which the receiver is not entitled. . , . *137Tbe checks were impressed Avith a trust, and no change of them into any other shape could divest it so as to give the bank or its receiver any different or more valid claim in respect to them than the bank had before their conversion.” The decision of the same court in Cavin v. Gleason, 105 N. Y. 256, Avould seem to be in direct conflict with that in the City Bank Case. The court, however, say, in Cavin v. Gleason, that the case of People v. City Bank seems to have been misunderstood; that it Avas not claimed in the latter case that the proceeds of the checks of Sartwell, Hough & Co., the petitioners, had not gone into the general funds of the bank, or that they had not passed in some form to the receiver. In fact, Avhat the case does shoAV upon that point is that these checks were marked paid, and the amounts were deducted from the deposits of the drawers in the bank. But the notes themselves, which the checks were intended to pay, were not owned by the bank, but had been previously sold and the avails used in its business, as Ave infer. These are the facts, as we understand them.' We shall not attempt to reconcile these cases in New York. It is sufficient to saj? that a majority of this court adhere to the decisions which we have made and which clearly dispose of every point relied on in the case at bar for a reversal of the judgment of the court below.
Taylor and Cassoday, JJ. While approving of the “ progressive ” or “ modern rule ” of equity, as affirmed in Re Hallett's Estate, 13 Ch. Div. 696, Ave Avere forced to dissent from the conclusions of the majority of this court in McLeod v. Evans, 66 Wis. 413, for the reasons there given, to the effect that, in our judgment, that decision Avas a departure from a avell-established rule of equity, and not supported by any well-considered adjudication. It is true that some things were said in People v. City Bank, 96 N. Y. 32, and Peak v. Ellicott, 30 Kan. 156, cited in the majority opinion, *138which seemed to support such new departure, but the report of those cases left the facts upon which each turned so obscure that we were constrained to believe that the trust fund was still on hand and either capable of identification or traceable into a still present existing fund, and not, as in these Evans Cases, previously paid out on such trustees’ or agents’ indebtedness; but if otherwise, they ought not to be followed. In the case of Francis v. Evans, 69 Wis. 115, we attempted to expose what we regarded as a fallacy, in assuming that, if an insolvent debtor used funds which he held in trust, or in any fiduciarjr capacity, in payment of his debts, he thereby benefited his estate, when, as a matter of fact, the wrongful conversion, of the money so held in trust created a new indebtedness of precisely the same amount as the one paid; and hence the result must always be that by such misappropriation the insolvent’s volume of indebtedness is not diminished a penny, nor his assets increased a penny. We there stated the equitable rule thus: “ That rule, as we understand, was never based upon any supposed right of preference of one creditor over another, as sometimes provided by statute, but upon the supposed equitable right of the person whose property has been wrongfully converted to trace and retake his own property; and, when its identity has been lost bjT being mixed with other funds, then to retake its equivalent from the property or funds it has so enriched, and to the extent of such enrichment.” Soon after the decision in that case, there appeared two decisions of courts of conceded ability upon the very questions here involved, and holding the true rule to be substantially as stated above. One was by the court of appeals of New York, in Cavin v. Gleason, 105 N. Y. 256; and the other by the supreme court of Pennsylvania in the Appeal of Hopkins, 9 Atl. Rep. (Pa.), 867. In the New York case the authorities are reviewed to some extent by Mr. Justice Andbews, and People v. City Bank is explained *139as not involving the question thus assumed to have been decided; and saying, that: “We know of no authority for such a contention.” The opinion in that case, as well as the conclusions reached by the several judges in He Hallett's Estate, sujpra, are so clearly' in harmony with our views, that we refrain from adding anything; and we have written this merely to relieve ourselves from the responsibility of the decision in this case.
By the Court.— The judgment of the circuit court is affirmed.