Commonwealth v. Tradesmen's Trust Co. , 250 Pa. 378 ( 1915 )

Opinion by

Mr. Justice Frazer,

This appeal is from the decree of the lower court confirming the auditors’ report in the matter of the insolvency of the Tradesmen’s Trust Company. Thé facts are set forth in the opinion filed in the preceding cáse. The single question for decision here, is whether a cestui que trust may claim the amount of deposits, with an insolvent trust company, as a preference where the company mingles the funds with its general account, but at all times keeps in such account a balance in excess of the amount of trust money claimed. It appears that John J. O’Rourke became insolvent and for the purpose of protecting his creditors, and avoiding the expenses incident to bankruptcy proceedings, entered into an agreement with his creditors and the Tradesmen’s Trust Company whereby he executed a mortgage and bill of sale of all his property to the trust company, as trustee for the purpose of converting such property into cash and holding and distributing the proceeds for the' benefit of all his creditors. The agreement provided that the trustee should, from time to time, make distribution among the creditors of the proceeds of sale of property and., for this service it was to receive a certain commission on money passing through its hands. On August 13th, 1911, the trust company gave an account as trustee, showing a balance in its hands for distribution among creditors, amounting to $3,889.94 which was found to be incorrect, and, on being restated, the correct amount was fixed at $3,389.94. Before distribution was made, the company closed its doors and a receiver was subsequently appointed to wind up its business. The present appellant was appointed substituted trustee by the creditors with power to prove their claims against the assets of the trust company. Appellant claims the money in the hands of the trust company was a trust fund and that the creditors of O’Rourke were entitled to this as a preferred claim. The auditors found there was at all times, between September 21, 1908, and September 18, 1911, the date on which the trust company closed its doors, a balance on deposit in the account in which this fund was entered of more than four thousand dollars. The auditors also found the fund was a trust fund, but was mingled with the general funds of the trust company and that therefore claimant was not entitled to a preference. Appellant claims that since an amount equal to or greater than the amount of the claim he represents was at all times on deposit up to the time of the appointment of the receiver, he is entitled to such fund in preference to the general creditors. This contention is based on the case of Knatchbull v. Hallett, 49 L. J. Ch. 415, 13 Ch. Div., 696, and subsequent English and American cases following that decision. These cases establish the general rule that where a trustee receives money from a cestui que trust and deposits it with his own account, and in his own name, to which account he subsequently adds and withdraws money, the cestui qne trust may claim to the extent of his trust fund the lowest amount which was on deposit at any time during the continuance of the trust, regardless of the fact that the funds were commingled and increased or diminished, from time to time. This rule is based on the theory that the trustee will not be presumed to have intended to commit a criminal act and so long as there are funds of his own, though mixed with the trust funds, any withdrawal from the account will be considered as a withdrawal of his own money, and not that belonging to the trust, and it is only when the total amount is reduced below the amount of the trust, that this presumption is rebutted, because the circumstances preclude any other possibility. There appears to be no case in Pennsylvania where it has been decided by an appellate court, that the above rule is the law of this State, nor is it necessary to decide here the precise question as to whether the rule should be applied in cases where the trustee is an individual and deposits money in his own bank account. The trustee here is a trust company authorized by statute to receive and handle funds of others and do a general banking business. In the conduct of this business it necessarily handled trust funds belonging to a large number of persons. These funds in the present case were deposited in a general account and in this way it became impossible to say to whom any particular part belonged. The case is distinguishable from that of an individual trustee who mixes the funds of a single cestui que trust with his own account. In such case it can readily be determined whether and to what extent he has appropriated the trust funds to his own use. On the other hand, when a trust company deposits in a common account funds belonging to various persons, it cannot be said that the mere fact of there being on deposit at all times sufficient to meet the claim of any particular customer of the bank, entitled that customer to claim it as against other claimants whose money also went into the same account. Claimant could not trace title to any particular part of the deposits and his claim can therefore rise no higher than the claim of others whose money was deposited in the same general fund.

The appeal is dismissed.