Rosenberry, Recr. v. Taylor

These causes come into this court on petitions in error to the common pleas court, and each suit grew out of a contract whereby the plaintiff below, defendant in error here, became an agent for the sale of certain hydraulic jacks that were being manufactured in the city of Cleveland by the company for which plaintiff in error was receiver.

It seems by this contract of agency that defendant in error, D.A. Williams, a Columbus man, became the sole representative for the vending of these hydraulic jacks manufactured by the company of which plaintiff in error became receiver, at certain stipulated prices, depending upon the size and strength of the jack, and, in order to insure the faithful performance of his contract, he deposited with the company of which plaintiff in error was receiver something like $450, with the understanding that, if he violated the terms of his contract and sold jacks in any other territory than that which the contract had allotted to him, or breached his contract in any way, the Hydraulic Development Company might cancel and terminate the contract, and that in such event the money that had been deposited by Williams should be forfeited to the company and retained by it as liquidated damages for the breach on the part of Williams; but that, if Williams performed his contract, he was to buy the jacks, and for whatever jacks he purchased there was to be a credit of fifty cents to him, which credit was to be charged against the amount of money that he had deposited with the Hydraulic Development Company; and that they were to furnish him jacks as set up in the contract for a full space of one year. And the contract goes at length into the method of delivering to him the jacks, and of his ordering the same, and provides that, in the event the contract continued, as was intended by the parties, this $450 would ultimately be amortized at 50 cents per jack by the various purchases. In other words, it would become a part of, and be paid as a part of, such purchase price of the jacks that had been obtained from the Hydraulic Development Company.

Now it seems from the record that shortly after this contract was entered into, after the Hydraulic Development Company had furnished but a few jacks to Williams, the company failed and went into the hands of the receiver, and Williams brought his action to recover the deposit that he had made. In the court below he got a judgment for the recovery of that deposit, and the court held it to be a preferred claim, and payable out of the assets before any other claims. The record shows that this concern was hopelessly bankrupt, owed large sums of money, and had but a very small cash asset that was turned over to the receiver in bankruptcy.

The theory of the plaintiff's case below, which was adopted by the court, was that this $450 was in the nature of a trust fund; that the title as a matter of fact had never passed from the plaintiff below; that the money should have been kept by the Hydraulic Development Company as a trust fund; and that therefore Williams, who deposited this sum, was entitled to a preference over the other creditors.

Now it is admitted by counsel for the plaintiff in error that this was a trust fund, that a trust was created; but it is claimed that, inasmuch as this fund was commingled and mixed with the assets of the Hydraulic Development Company, and could not be traced, it had lost its identity as a trust fund, and therefore, while the plaintiff below was entitled to a judgment against the receiver for the amount, he came in only as a general creditor, and was not entitled to a preference; and that is the issue to be decided in this court. The common pleas court held that it was a trust fund, and that the plaintiff below had the right to follow that fund, and had a preference, and that, if there was enough money in the receiver's hands to pay it, it should be paid before any other amount that was owing.

We are familiar with the maxim of equity that equity regards that as done which ought to have been done, and it is argued in this case that the Hydraulic Development Company should have set this fund apart, and that therefore, in equity, it did set it apart. While admitting the soundness of the maxim, the trouble with that reasoning is that in this case there was to be no setting apart of this fund; because, if the Hydraulic Development Company had gone on in business, and Williams had broken his contract, this money would have belonged to the Hydraulic Development Company as liquidated damages. Therefore, it was not intended by either party to keep this sum as a separate and distinct fund, but the depositing of this money with the Hydraulic Development Company simply created a relation of debtor and creditor between these two parties, and the plaintiff was not entitled to a preference out of the money in the hands of the receiver.

We are constrained to come to this conclusion, and in doing so we follow a very able decision of the Ninth District Court of Appeals, opinion by Judge Washburn, in the case of Ohio StateBank Trust Co. v. Biltwell Tire Rubber Co., 23 Ohio App. 409,155 N.E. 163, 22 O.L.R., 322, where Judge Washburn discussed the question at length to the effect that, inasmuch as the fund could not be traced, the party who deposited the fund was relegated to the position of a general creditor.

This ruling is likewise sustained by 26 Ruling Case Law, page 1354, Section 218 of the Article on Trusts, where the whole matter is ably and capably discussed.

Therefore we can come to no other conclusion than that the plaintiff in error as receiver was wrongfully ordered to pay this money as a preference, and the judgment of the court of common pleas must therefore be reversed; and the same ruling will apply in both cases. It is admitted that the fund cannot be traced, nor any part be realized therefrom, and therefore both cases come squarely within the decisions above cited, and the judgments of the common pleas court, so far as they create this preference, must be reversed.

Judgments reversed.

SULLIVAN and LEVINE, JJ., concur.