Jewell v. Clay , 107 Iowa 52 ( 1898 )

Robinson, J.

On the second day of June, 1891, five thousand six hundred and four dollars and seventy-four cents in money, which belonged to Mrs. Mary I. Ohapman, was deposited to her credit in the Hirst National Bank of Oedar Halls, Iowa, and a certificate of deposit was issued in her name. On the first day of the next month the certificate was returned to the bank and canceled, and in payment thereof the promissory note of the firm of W. M. Hields & Bro. for five thousand five hundred dollars, payable to A. G. Ohapman three years, after its date, with interest at six per cent, per annum, payable semi-annually, was given to Chapman, and he was given a credit on the books of the bank for one hundred and four dollars and seventy-four cents. Oredit for the money represented by the certificate was given to Hields & Bro. by the bank, and it was used by the firm in prosecuting its business. Interest on the note to January 1, 1893, was subsequently paid by the maker. On the sixteenth day of May, 1893, the firm made to the defendant II. H. Olay a general assignment for the benefit of its creditors. The liabilities of the assignor, including contingent liabilities by reason of capital stock and indorsements of paper to the amount of one hundred and forty-one thousand eight hundred and sixty-six dollars and forty-four cents, aggregate three hundred and twenty-one thousand two hundred and seventy-seven dollars and twenty-five cents, while the assets consist only of horses and cattle of the value of twenty-five thousand dollars, and real estate of the value of ten thousand dollars. Mrs. Chapman died intestate in December, 1895, and the plaintiff is the administrator of her estate. He claims that when the certificate of deposit was surrendered, and the loan to Fields & Bro., was made, the decedent was of unsound mind, and wholly incompetent to manage or control hér property; that Fields & Bro. knew that fact; that the disposition made of the certificate and the loan to Chapman were a fraud upon the decedent; and that the money obtained from Chapman was wrongfully mingled with the money of the firm. The plaintiff asks that a trust for the sum thus obtained, with interest thereon, be decreed, and that the assignee be required to pay the amount thereof from the assets of the firm in his hands. The assignee denies liability, and asks, in case the claim of the plaintiff is sustained, that he be denied recovery from the assignee for one-third of the claim, for the reason that, if the loan was unauthorized, it was made through the wrongful acts of A. G. Chapman, who was the husband of the decedent, and entitled to one-third of her estate. Chapman was brought into the case as a defendant, and filed an answer to the cross petition of the assignee, in which he resisted his claim, and virtually joined the plaintiff in his demands. The district court established a trust for two-thirds of the amount in controversy, with interest, as against the assets in the hands of the assignee and the general creditors, and adjudged the interest of Chapman as the husband of the decedent in the claim of the plaintiff to be subject, in the hands of the assignee, to the claims of the general creditors.

I. The evidence establishes the following facts: The decedent married the defendant Chapman about the year 1858. He habitually transacted her business, and she never objected to his doing so. When the loan in question was made, her mind was so- far affected that she was not competent to transact business. lie held the certificate of deposit in question, and negotiated the loan to- Fields & Bro-. To accomplish the transfer of the money, he wrote on the certificate the indorsement, “Pay to the order of A. G. Chapman,” and caused his wife t'o sign it, and then placed his own signature below that of his wife. When that had been done the certificate was surrendered to the bank, and the loan and transfer of account were made as stated. Chapman represented to W. M. Fields, the senior member o-f the firm, and the one who conducted the negotiations for it, at the time the loan was made, that he had authority to make it, and that his wife had indorsed the certificate. Fields did not know the mental condition of the wife, and the transaction on his part was in the utmost good faith. After Fields & Bro. made its assignment, Chapman filed with the assignee a claim for the amount duo on the note, verified by himself, in which he claimed to- be the owner of the note. In view of these facts, it cannot be claimed,that there are any equities in favor of Chapman. W. M. Fields was not only a member of the firm, but he was also president of the First National Bank at Cedar Falls, and must be held to have known whatever the books of the bank and the certificate of deposit disclosed respecting the ownership of the money in question; but. the evidence fails to show that he or the bank or his firm knew of, or were chargeable with knowing, the mental condition of Mrs. Chapman. The indorsement was signed by her, and appeared to be in the usual course of business, and there was nothing in the transaction within the knowledge of Field & Bro. to- challenge investigation. Although it is the rule that insane persons are not capable of contracting, an exception to that rule exists where the contract was “made in the ordinary course of business, is fair and reasonable, and the mental condition was not known to the other party, and the parties cannot be put in statu quo.” Alexander v. Haskins, 68 Iowa, 73, and cases therein cited. See, also, Mechem Agency, section 48. We call attention to this rule, not because we base our conclusion upon it, but as helping to illustrate the equities of this case. The plaintiff relies upon the cases of Independent Dist. v. King, 80 Iowa, 497; Plow Co. v. Lamp, 80 Iowa, 722, and similar authorities, in support of- his claim that a trust should be established. In the case first cited a school treasurer deposited money, which he had received by virtue of his office, in a bank, which received the money with knowledge of its trust character. The treasurer was not authorized to deposit school money, and, as the bank knew that the money belonged to the school district, the deposit did not create the relation of debtor and creditor, and the money was necessarily received by the bank as a trust fund; and, although it was mingled with the funds of the bank, and its identity was lost, we held that it was not essential to the enforcing of a trust that' the money be traced into some specific property; that, as the bank knew the trust character of the deposit, it would be presumed, in the absence of a showing to the contrary, that it was preserved by the bank in some form, and that it passed into the hands of its assignee; and that the burden was on the assignee, against whom it was sought to establish a trust, to show that the trust fund contributed nothing to the estate which he acquired by virtue of the assignment. The rule of the case is not in conflict with what was decided in Plow Co. v. Lamp, and was approved in the recent case of Jones v. Chesebrough, 105 Iowa, 303, where we held, in effect, that it was not sufficient, in order that a trust be established, to trace trusts funds into the estate of an insolvent trustee; that it must further appear, by presumption of law or otherwise, that the fund has been preserved to the trustee, as by an increase of assets in his hands, from which it may be taken without impairing the rights of general creditors. It appears in this case that Fields & Bro. did not know that Chapman was not authorized to receive the money on the certificate of deposit, and loan it, as he did. Therefore the firm did not know that the money it received was a trust fund, and there can be no presumption that tbe fund was for that reason preserved in tbe estate of tbe firm. Tbe evidence shows that when the loan was made the firm was solvent, although its actual liabilities were about one hundred and thirty thousand or one hundred and forty thousand dollars, and its contingent liablities were from fifty thousand to seventy thousand dollars. The firm imported from forty to one hundred horses each year, and the horses were worth from one'thousand to two thousand dollars apiece, — some selling for three thousand five hundred dollars. The money borrowed from Chapman went into the general funds of the firm, and was used in carrying on its business, as were from forty thousand to fifty thousand dollars of other money afterwards borrowed. In the year 1893 there was a financial crisis. Demand for the horses in which the firm was dealing ceased, and the value of its property depreciated from one hundred per cent, to twelve per cent. In view of this evidence it cannot be presumed that the property in which the loan obtained of Chapman was invested was and continued to be of the full value of the loan, that it passed to the hands of the assignee and that the depreciation and loss were wholly in other property. The facts of this case bring it within the rule of Jones v. Chesebrough, and it follows that the district court erred in decreeing a trust as against the property in the hands of the assignee.

II. The conclusion reached in regard to the trust which the plaintiff seeks to have established makes it unnecessary to consider at length the questions involved in the appeal of Chapman. The decree, so far as it was adverse to him, was correct, although it was the result of erroneous reasoning. It follows from what we have said that so much of the decree of the district court as is involved in the appeal of the assignee/ Clay, is reversed, and so much as is involved in the appeal of Chapman is aeeirmed.