Court Opinion

ID: 8034954
Source: CourtListenerOpinion
Date Created: 2022-09-09 03:19:43.586426+00
Date Added: 2024-06-11T16:37:05.909728
License: Public Domain

Good and Eberly, JJ.,
dissenting.
For the reasons hereinafter stated, we respectfully dissent from the opinion adopted by a majority of the court.
As announced in the majority opinion, a court of equity will impress a lien for trust funds on all the assets of an insolvent trustee, if it be shown that the trust fund came into the possession of the trustee before he was declared insolvent, and without regard to whether the trust fund remains in or is a part of the assets of the insolvent estate. The rule announced is at variance with that long established by the decisions of this court. The former rule should not now be abrogated or modified unless it is unsound and does not respond to the dictates of conscience and reason. Let us review some of our former decisions and see how they have been applied to a situation similar to that in the instant case.
In State v. Bank of Commerce, 54 Neb. 725, it was held: “When trust funds are wrongfully converted and not only do not remain in the hands of, and are not found among the assets of, the wrongdoer, but are actually traced out of his hands and shown to have been dissipated, then the beneficiary of the trust fund is not entitled to have his claim allowed as a preferred one against the estate of the insolvent wrongdoer.
*542“If the trust property consisted of money, the claim of the beneficiary of the trust fund may be preferred to the extent of the cash found among the assets of the insolvent trustee at the time of his failure, unless it affirmatively appears that such cash assets are not part of the trust fund.” (Italics ours.)
In that case a. county treasurer had deposited trust funds in a bank which afterwards failed. The court held that the county was entitled to have its claim decreed a first lien upon any asset of the insolvent bank which it showed was the product of the beneficiary’s moneys. The trust fund was in excess of $15,000. When the bank failed there was but $140 in cash on hand. The trust fund had been used in paying off other depositors of the bank. It was not shown that any part of the trust fund.was represented by or invested in any particular asset of the bank other than the cash, which came into the possession of its receiver. ' The county was held entitled to a lien only to the extent of $140, as being a part of the trust fund, but was not entitled to have a lien against the mass of the bank’s assets in the hands of the receiver.
In Morrison v. Lincoln Savings Bank & Safe Deposit Co., 57 Neb. 225, it was held: “The owner of trust property is not, merely by reason of the character of his claim, entitled to a preference over the general creditors of an insolvent trustee.
“A person asserting a claim for preference against an insolvent estate has the burden of showing that such estate has been increased, to some extent, by the- misappropriation of trust funds or property belonging to the claimant.”
In that case the bank, prior to insolvency, received and misappropriated trust funds. It was sought to establish a lien against the general assets of the bank and in favor of the cestui que trust. In the opinion (p. 227) it was said: “The doctrine held in some jurisdictions, that the beneficiary of a trust fund is entitled in a case of this kind to a preference over the general creditors of an in*543solvent without showing that such fund, or part of it, was included in the assets which came into the hands of the receiver, was expressly repudiated by this court in the case of the State v. Bank of Commerce, supra.” Again, in the opinion, in speaking of the right to an equitable lien, it was said that it rests “upon the equitable title of the beneficiary, who, seeking to recover specific property or to fix a charge upon a mass, must trace his estate, and show that the specific thing claimed is in equity his property, or that his estate has gone into and remains in the mass he seeks to charge.” (Italics ours.)
Again, in City of Lincoln v. Morrison, 64 Neb. 822, in an opinion by Pound, C. (now recognized as one of the foremost jurists of the country) the authorities were reviewed, and it was therein held: “Misappropriation of a trust fund does not entitle cestui que trust, merely as such, and for that reason alone, to a preference over general creditors of an insolvent trustee.”
The rule thus announced by this court has been in force for more than 30 years. Is it inherently unsound? Does it fail to respond to the dictates of conscience and reason? We do not think so. The rule, as announced in the majority opinion, seems to have been first announced in the case of McLeod v. Evans, 66 Wis. 401, decided in 1886. Later, the supreme court of Wisconsin specifically overruled this case in Nonotuck Silk Co. v. Flanders, 87 Wis. 237. In the latter case the authorities were reviewed quite extensively. In the opinion (p. 241) it was pointed out: “The guiding principle is that a trustee cannot assert a title of his own to trust property. If he destroys a trust fund by dissipating it altogether, there remains nothing to be the subject of the trust. But so long as the trust property can be traced and followed into other property into which it has been converted, that remains subject to the trust.”
In the case of Little v. Chadwick, 151 Mass. 109, it was said (p. 110): “When trust money becomes so mixed up with the trustee’s individual funds that it is impossible *544to trace and identify it as entering into some specific property, the trust ceases. The court will go as far as it can in thus tracing and following trust money; but when, as a matter of fact, it cannot be traced, the equitable right of the cestui que trust to follow it fails.”
By far the greater number of courts passing upon this question adhere to this view. The underlying reason for impressing a lien on specific property for the beneficiary of a trust is because his trust fund is invested in or forms a part of the specific property.
Suppose that an elevator company has several kinds of grain in its elevator belonging to it, among them a quantity of No. 1 wheat, and that it receives for storage from one of its customers a quantity of No. 1 wheat and commingles it in the same bin with its own wheat, and thereafter becomes insolvent. It is conceded that the owner of the stored wheat is entitled to a lien upon the mass of wheat which contains his own. If, prior to becoming insolvent, the elevator company has sold all of the wheat and placed the proceeds to its credit in a bank, it is clear that money, derived from the sale of the customer’s wheat, is in the bank account in a specific fund, and he may have a lien upon that particular fund for reimbursement. But suppose again that the elevator company had sold the wheat, received the proceeds and dissipated them, and had on hand its elevator building and other kinds of grain when it became insolvent. Can it be said that the trust property is invested in the elevator building or in such other grain? Certainly not. The elevator company owned the building prior to the reception of the wheat for storage. The stored wheat is not invested in the elevator building or in other grain. Under the rule announced in the majority opinion, the owner of the stored wheat would be entitled to impress a lien upon all of the assets of the insolvent elevator company, including its elevator building. Liens may be created by agreement of the parties, by statute, or by a court of equity to do justice between the parties. We do not deny *545that in this case the claimant was entitled to a judgment against the bank, but he had no right to a lien upon the ■bank’s building or the bank’s assets, which the bank possessed prior to the time it received its customer’s renewal note. To the writer it appears that the rule announced in the majority opinion is not based upon reason or logic and is contrary to the great mass of judicial pronouncement upon the subject.
We are unable to concur in the majority opinion for another reason. Section 8-1,102, Comp. St. 1929, inter alia, provides: “The claims of depositors, for deposits, not otherwise secured, and claims of holders of exchange, shall have priority over all other claims, except federal, state, county and municipal taxes, and subject to such taxes, shall at the time of the closing of a bank be a first lien on all the assets of the banking corporation from which they are due.” (Italics ours.)
By this statute, the lien of a bank’s depositors became fixed, subject to the exception for taxes, at least at the time a receiver was appointed. The majority opinion destroys the statutory lien of the depositors upon the assets of the bank. It nullifies the statute, which has heretofore been given full force and effect in more than 100 opinions of this court. The statute in question has been recognized as valid for many years. Only the legislature may properly repeal it; yet the majority opinion, if it stands, effectually modifies and repeals the statute in part. It is not a judicial function to repeal, amend or modify an existing valid statute. Certainly, the bank building, furniture, fixtures and all its bills receivable, which were possessed by the bank prior to the reception of claimant’s renewal note, were assets of the bank, and, under the quoted statute, the depositors were entitled to a first lien thereon, subject to taxes. The majority opinion entirely destroys this statutory lien. The statute quoted gives a first lien for federal, state, county and municipal taxes. If the opinion of the majority is sound, then the claimant of a trust fund may have a *546first lien thereon to the exclusion of first liens for taxes. Under the rule announced in the majority opinion, if there was a mortgage on the bank building, a bona fide indebtedness, existing long before the bank became insolvent and before any trust fund came into its hands, such lien would be displaced in favor of the trust fund. If carried to its logical conclusion and the bank had pledged a part of its bills receivable to another bank for funds, the lien of the collateral holder would be displaced and the claim of the cestui que trust be held supreme. Such is not and never has been, until now, the law in this jurisdiction.
In the majority opinion it is, in effect, said that the trust fund is no part of the assets of the bank. This we concede. If the claimant’s renewal note had been in the receiver’s possession at the time this action was brought, it would be no part of the assets of the bank. If the proceeds of that note could be traced into any specific property in the hands of the receiver, that particular property would not be an asset of the bank; but, as above pointed out, the bank’s building, furniture, fixtures and previously-owned bills receivable are assets of the bank, and the trust fund is not invested in them. The claimant was not entitled to a lien upon such assets.
The majority opinion quotes from and apparently relies, as a precedent, on the opinion in Central Nat. Bank v. First Nat. Bank, 115 Neb. 472. The opinion in that case never became the law of that case, much less a precedent for this court to follow. That opinion affirmed the judgment of the district court. Afterwards, a rehearing was granted, and another opinion, reported in 117 Neb. 161, was adopted, which reversed the judgment of the district court. That became the ultimate and final opinion of this court in that cause. It superseded and annulled the decision as a precedent, reported in 115 Neb. 472.
To the writer it appears that the rule announced and as applied in the majority opinion is illogical and inherently unsound. For these reasons, we dissent.