216 N.W. 597 | S.D. | 1927
Lead Opinion
This action is brought by the superintendent of banks to set aside certain transfers of assets of the Fanners’ Savings Bank, a banking corporation, of Sherman, S. D., made by the officers of said bank to defendants.
At the time of the commencement of this action, the said bank was insolvent and in the 'hands of the superintendent of banks for liquidation. The defendants Dorothy C. Nelson and G. A. Esten
There are but two questions that need be noticed: First. Can the transfer of the securities be sustained by virtue of the trust
The original deposit was of money made several years prior to the -transaction involved. It was continued by the issuance of new certificates from time to time. By the transaction complained of, the specific fund was not restored to the cestui que trust, nor is there any claim that the deposited funds went into- the securities transferred. In other words, there is no claim, that the specific trust property nor property into which it could be traced-was restored to the rightful owners by the trustee. While some state courts have held that it is not necessary to trace the specific trust property, and that it is sufficient to trace it into the assets of the bank, thereby augmenting its assets (Peak v. Ellicott, 30 Kan. 156, 1 P. 499, 46 Am. Rep. 90; Yellowstone County v. Bank, 46 Mont. 439, 128 P. 596; State v. Bruce, 17 Idaho, 1, 102 P. 831, L. R. A. 1916C, 1, 134 Am. St. Rep. 243; MicLeod v. Evans, 66 Wis. 410, 28 N. W. 173.), that is not the law of this state, as announced in Birch v. International State Bank, 50 S. D. 60, 208 N. W. 167. To entitle one to a preference -because of a trust relation the trust property must be traced either in its original form or into- specific assets to foe recovered. To aid in tracing commingled funds, such as money, a fiction may be indulged whereby it will foe presumed the money remaining in the hands of the bank contains the trust fund, -but that is as far as this court has gone. Under the authority of 'Birch v. International State Bank, supra, the transfer here involved cannot be sustained on the -ground of a trust relation. See, also, Clinton M. & M. Co. v. Trust Co., 35 S. D. 253, 131 N. W. 998; Empire State Surety Co. v. Carroll County, 194 F. 593, 114 C. C. A. 435; Board of Comm. v. Strawn, 137 F. 49, 84 C. C. A. 553, 13 L. R. A. (N. S.) 1100; Macy v. Roedenbeck (C. C. A.), 227 F. 346, L. R. A. 1916C, 12.
The second question pertains to the bona tides of the transaction involved in the transfer of the securities sought to be recovered. It is well settled in this state -that an insolvent corporation may not prefer its creditors, but that upon insolvency the assets of such corporation become a trust fund for the payment of its creditors on an equal pro rata basis. Bank v. Williams, 48
We do not think it necessary in this case to- draw any close lines of demarcation between when a transaction with an insolvent corporation may and when it may not be fraudulent. The only fair inference from the facts shown by the record in this case is that an unlawful preference resulted from the- transaction and the conditions were such that the contracting1 parties must have known that such would, in all probability, be the result. They departed from the usual manner of paying certificates of deposit in money, and nothing indicates that the certificate could have been paid in' money in the usual manner. On the contrary, respondents in their brief say that, after a consultation between Mrs. Nelson and her attorney on November 1st, Estensen was notified that Mrs. Nelson challenged the validity and propriety of what he had -done, and would demand the money at the opening of the bank the next morning. After calling another officer of the- bank, E. V. Estensen, into the conference, a “compromise” was suggested1 “whereby the guardianship would purchase from the bank securities to the amount of the money, this to save impairment of the bank’s reserve.” Apparently money in payment was demanded and the tranasction that followed was the result of a compromise, November 1st was Sunday. Mrs. Nelson and her attorney drove to Sherman on that day and had a conversation with G. A. Estensen in which the demand was made. The same evening (Sunday) the
For the foregoing reasons, the judgment and order appealed from are reversed, and the cause remanded for further proceedings in harmony therewith.
Dissenting Opinion
(dissenting). I am not able to agree with the majority of the court in this case. In holding that the money belonging to the minor children of Mrs. Nelson is a part of the assets of the bank to ’be distributed among the general creditors of the bank, the court has gone further in support of the doctrine that the assets of an insolvent bank constitute a trust fund for the benefit of the creditors than it has ever gone before, and further, I think, than any other court has ever gone. The placing of this money in the bank by Estensen, knowing the condition of the bank, as 'he did, was wrongful from the beginning. As to the owners of the money who had no voice in its disposition it was fraudulent. It was pointed out by this court in City of Sturgis v. Meade County Bank, 38 S. D. 317, 161 N. W. 327, that money wrongfully or unlawfully deposited in a bank did not become a part of the fund for the benefit of the general creditors when the bank became insolvent. This is the general rule applicable to this class of deposits. Yellowstone County v. Bank, 46 Mont. 439, 128 P. 596; State v. Bruce, 17 Idaho, 1, 102 P. 831, L. R. A. 1916C, 1, 134 Am. St. Rep. 245.
In view of the trust fund doctrine now firmly established in this state, when a person deposits his money in a 'bank, he does so with the understanding that, if the bank should become insolvent
In this case the creditors of the bank are creditors because they have voluntarily put something in the bank in some form. What they put in now .constitutes the fund that is to be .distributed among them. But 'Mrs. Nelson’s minor children did not put anything into the bank, and their money that was unlawfully acquired by the bank never .became a part of the fund for the payment of creditors, and such fund was in no wise depleted when the money, or its equivalent, belonging to Mrs. Nelson’s children, was returned to them.
The majority opinion stresses the fact that Mrs. Nelson and her attorney went to -Sherman on Sunday to secure a settlement with Estensen, and that both Mrs. Nelson and Estensen went to Sioux Falls that same evening. I am unable to see how this has any ¡bearing whatever on the case. She did merely what she would-have done long before, if she had been properly advised. There is nothing to show that she learned anything about the condition of the bank, or that she knew the -bank was less safe than it had been at any previous time. It appears from the record that about 60 days before the -bank closed it had been examined by the superintendent of banks. He permitted it to continue business. There is nothing in the record to indicate that the bank was any less insolvent then than when it closed, so that, if the defendant secured a preference by accepting payment after the bank was insolvent, so did every one else who drew money out of the bank during that time. The state through its superintendent of banks, having held-the bank out to the public as a solvent -banking institution, should not now be permitted to recover from defendant for doing business with the bank because it was insolvent. The situation is similar to that described by Judge Elliott in Sioux Falls Trust & Savings Bank v. Homer W. Johnson Co., (D. C.) 20 F. (2d) 693, wherein he said:
“It is repugnant to the instincts of honesty and common decency to say that the state can authorize, a bank to open its d’oors