67 F. 27 | U.S. Circuit Court for the District of Western Missouri | 1895
(after stating the facts). It is not deemed important, even if the time were at my command, to enter into a review of the multitude of authorities bearing upon the vexed question discussed by counsel, as to the right of, preference in the complainant. By the agreed statement of facts, the Sedalia bank was constituted by the Boone county bank its agent solely for the collection of the notes, and to remit the proceeds when collected to the principal. No authority was given to the agent to place such proceeds in its bank to the credit of the principal, so as to establish between them the relation of depositor and depositary, or that of creditor and debtor. The thing done by the Sedalia bank was a clear breach of trust,—a diversion of a trust fund,—whereby it became a trustee ex maleficio. The question to be decided is, does the fact that the precise fund thus diverted cannot be traced in kind and seized physically, or the fact that the precise fund cannot be traced into some other particular species of property into which it has been absorbed, destroy the right of the cestui que trust to a preference over the general creditors to have its claim first paid out of the general assets of the insolvent estate, when it appears, as in this case, that the trust fund has gone to swell the amount of such assets, and there are ample funds remaining to satisfy this trust- demand? The essential principle involved was grasped by Judge Story in this text: “An agent is bound to keep the property of the principal separate from his own. If he mixes it up with his own, the whole will be taken, both at law and in equity, to be the property of thé principal, until the agent puts
Mr. Justice Bradley, in Frelinghuysen v. Nugent, 36 Fed. 239, with, succinctness, displayed in a single sentence the successive steps in the development of equity in this relation:
“Formerly the equitable right of following misapplied money or other property into the hands of the parties receiving it depended upon the ability of identifying it, the equity attaching only to the very property misapplied. This right was first extended to the proceeds of the property, namely, to s.iiat which was procured in place of it by exchange, purchase, or sale. But if it became confused with other property of the same kind, so as not to be distinguishable without any fault on the part of Ihe possessor, the equity was lost. Finally, however, it has been held as the better doctrine that confusion does not destroy the equity entirely, but converts it into a charge upon the entire mass, giving to the party injured by the unlawful diversion a, priority of right over the other creditors of the. possessor. This is as far as the rule has been carried.”
TMs exposition is approved by the supreme court in Peters v. Bain, 133 U. S. 693, 10 Sup. Ct. 354. The pertinent part of the rest is that “the better doctrine” is that the contusion of the trust fund with the m“ass of the possessor’s other property does not destroy the equity in favor of the person wronged, but extends to the whole mass, so as to give to him “a priority of right over the other creditors of the possessor.” The difficulty in sustaining the complainant’s claim is that the agreed statement of facts does not show that the sum of $1,500, collected by the Sedalia bank for the complainant bank, stood mingled with other moneys of the insolvent bank on hand at the time the bank passed into possession of the receiver. On the contrary, the statement is that between the time of the collection of the money by the bank and the succession of the receiver the bank had collected various other sums of money, and distributed the whole sums collected by it, with the exception of $495.29. So that neither the whole sum collected by it for the complainant was on hand in kind, nor other moneys of the bank to that amount with which it had been mingled. That was precisely the reason given by the courts in the two cases above cited for refusing the relief asked. It did not appear “that the goods claimed were either in whole or in part the proceeds of any money unlawfully abstracted from the bank,” and because the property against which it was sought to enforce the lien was bought from other creditors. While the agreed statement of facts recites that since the receiver took possession he has realized large sums of money from the assets of the bank, no inference is permissible that such assets were the product, in whole or in part, of the money collected for the Boone county bank. It is true that the general assets of the bank were
“It was also held that the rule in Clayton’s Case, 1 Mer. 572, attributing the first drawings out to the first payments in, does not apply; and that the drawer must be taken to have drawn out his own money in preference to the trust money; and in that particular Pennell v. Deffell [4 De Gex, M. & G. 372] was not followed.”
To this extent I hold the equity rule should go, as its direct tendency is to enforce with rigor, where it can be done without prejudice to the' just rights of third innocent parties, a recognition of the fiduciary obligations of agents. As said by Mr. Justice Matthews (page 70):
“This doctrine of equity is modern only in the sense of its being a consistent and logical extension of a principle originating in the very idea of trusts, for they can only be preserved by a strict enforcement of the rule that forbids one holding a trust relation from making private use of trust property.”
No general creditor of the bank has any right to complain that the court seizes upon .this fund found in the bank, within three or four days after the collection of complainant’s notes, as1 presumptively the residue thereof, as no credit given by him to the defaulting bank was. predicable of the existence of such assets, any more than if the bank at the time had stolen the amount of money from the Boone county bank. Decree will go enforcing the equitable lien of complainant to the extent of said $495.29, as a preferred creditor, and allowing the claim for the residue against the general assets of the bank as a general creditor.