effect of tem

(- Wis. —, 802 N. W. 352.) L.R.A. (N.S.) 1110, 110 Am. St. Rep. duebills to the agent of the insur844, 103 N. W. 1123, 104 N. W. 917; ance company, which were later Bosworth v. Hopkins, 85 Wis. 50, 55 paid, this negatives the claim that N. W. 424. The Bromley Case is the premiums were paid by the monmost nearly in point, as in that case eys embezzled; that whenever such the defendant sought to enforce a notes or duebills were given the pretrust against an insurance policy miums were thereby paid, and it when it was claimed that it had been should be presumed they were paid procured by the husband of the de- by Paul's money, and not money ceased by the use of money wrong- taken from the appellant. It is true fully diverted from one of the de- that, as between the assured and the fendants. It appeared that the

company, the acceptance of these plaintiff had intrusted her husband forms of credit operated to extend with considerable sums of money the time of the payment and kept from her separate estate, and had the policies alive. But it was not also furnished him other moneys, until the payments were actually amounting to $100, for the express made that the real consideration for purpose of paying the premiums on carrying the insurance was received the policies involved. The circuit by the company. It court found that it was not proven was not until then Insurancethat any of the premiums were paid that the investment porarily carryout of the money of the defendant. by Paul was made, due-bills.

ing policy on This finding was sustained in this and it is the investcourt. The general rule contended ment by the wrongdoer in other for by counsel for the respondent in property which gives the cestui que this case was declared, although it trust the right to follow the funds was said: “The court will go as far to their destination. Counsel for as it can in thus tracing and follow- the respondent greatly rely on Thum ing trust money." It was also said, v. Wolstenholme, 21 Utah, 467, 61 speaking of the claim of the defend- Pac. 540. In that case the assured ants: "They also contend that they gave his note to the agent of the inare entitled to the policy of $2,000, surance company for the first preand the proceeds thereof, on the mium on a policy. The agent transground that the $99.64-being the ferred the note for value before only premium ever paid thereon- maturity. It was held that the was so paid with money belonging transfer of the note before due to the defendants. If it were clearly vested the title to the policy in the established by the evidence that assured on its delivery, and that the such were the facts, then we should sale of the note by the insurance have no difficulty in holding with company operated, as between it and the defendants. Holmes v. Gilman, the assured, as a collection. It is 138 N. Y. 369, 20 L.R.A. 566, 34 Am. unnecessary to cite authorities to St. Rep. 463, 34 N. E. 205." Brom- this familiar rule that the mere takley v. Cleveland, C. C. & St. L. R. Co. ing of a note by a 103 Wis. 562, at page 567, 79 N. W. creditor is not a

Payment743.

payment, unless it The wide difference from the case is so expressly agreed. If, as the now before us is quite apparent. referee found, these premiums were Here it was found by the referee paid by Paul from funds misapprothat all the moneys which main- priated by him, it does not seem to tained the policies during the period us very material that the payments were paid from funds belonging to in some instances were postponed in the appellant which had been wrong- the manner which has been indifully appropriated by the deceased. cated. We must look at the sub

It is another contention of the re- stance rather than the form. We spondent's counsel that, since the cannot adopt the theory that a deceased sometimes gave notes and trusted employee may embezzle the

note as.

funds of his employer for years, use

referee on these issues of fact were the spoils to maintain policies of in- based on a clear and

Evidencesurance for the benefit of his family satisfactory prepon- character

derance of the evi

circumstantial. or estate, and prevent a court of equity from affording relief by the dence. In his decision and findmere device of postponing payment ings he traced the history of each of some of the premiums.

policy and the payments of the The general rule applicable to cas- premiums, and carefully considered es of this character is thus stated in the sources of income of the deRuling Case Law: "Proceedings to ceased. He adopted, in our opinion, establish and enforce trusts are, correct rules of law in the reception generally speaking, governed by the of evidence. We need not discuss usual rules as to presumptions and the well-settled rule that those findburden of proof, and the admissibili- ings are not to be disturbed unless ty, weight, and sufficiency of evi- the preponderance of the evidence dence applicable in other civil ac- not only appears to tions. The burden of proof as to be against the find- of referee's

Appeal-effect the existence of a trust rests on the ings, but decidedly findings on

evidence. party who alleges it, and whatever and clearly so. Ott may be the rule as to the exact ex- v. Boring, 139 Wis. 403, 121 N. W. tent to which trust property must 126; Wojahn v. National Union be followed and identified, in any Bank, 144 Wis. 646, 129 N. W. 1068; particular jurisdiction, it may be Goodwin v. Von Cotzhausen, 171 stated generally that the burden of Wis. 351, 177 N. W. 618; Von Trott identifying the trust property in a v. Von Trott, 118 Wis. 29, 94 N. W. satisfactory manner to the required 798. On the other hand, we cannot extent rests on the party seeking to give to the findings of the trial court establish the trust.” 26 R. C. L. the weight which usually attaches 1368.

to such findings. We have already Although in this case the proof of pointed out the secriminal conduct on the part of Paul rious errors as to trial court

-findings of was involved, it is very clear, on questions of law effect of errors well-settled rules, that it was not which we find in the

necessary to prove record, and it is by no means clear Evidence sufficiency of

either the embezzle- that the findings of fact would have proof-estab

ment or the tracing been the same if these errors had lishing trust.

of the funds beyond not been committed. It was very rea reasonable doubt. Nor was it cently said in an opinion by Mr. necessary, in proving that the mon- Chief Justice Vinje: "If the trial eys embezzled were used to pay for court did not apply the right legal

the premiums, to test to the evidence, then its findshow that the iden- ings of fact have no potency to contical specie or bills trol the judgment of this court, as

abstracted were so to what they should be." Boardemployed. Whatever may have been man's Will, 178 Wis. 517, 190 N. W. the former rule, it is not now the 355; Kelley v. Crawford, 112 Wis.

law that one can- 368, 88 N. W. 296; Luckow v. Boetting money

not follow money in ger, 140 Wis. 62, 121 N. W. 649. absence of

equity because it It is further claimed by counsel earmarks.

has no earmarks. for the respondent that, in any 26 R. C. L. 1353. It is also clear event, the appellant is entitled only that it was competent for the ap- to a lien upon the proceeds to the pellant to prove by circumstantial extent that stolen or embezzled evidence that the funds were em- moneys were actually used in the bezzled, and that these funds were payment of the premiums on each used in paying the premiums. We policy. It was on this theory that are satisfied that the findings of the the trial judge held that the appel

of law.

- to establish trust-showing use of identical money.

Trusts-follow

(- Wis.

802 N. W. 352.) lant was entitled to only $33.28, and est in her husband's life, so that the interest. Although there are many policies were not wholly the result decisions dealing with the right of of the use of the misappropriated the cestui que trust to follow the funds, and that the lien on the polproceeds of funds misappropriated icies must be limited to the amount by trustees, there are comparatively of the premiums paid with the funds few which relate directly to the re- wrongfully converted. It was held covery, when insurance policies have that the wife had suffered no loss so been maintained by such funds. long as the premiums were not paid Counsel for the respondents rely by her, and that her property had especially on Thum v. Wolsten- not been used for any purpose, and holme, supra. In this case there that she must claim the policies subhad been misappropriation for the ject to the means used by her huspayment of premiums in the sum of band to procure them and adopt his $5,110. It was claimed by the plain- methods, and that the cestui que tiff that the entire amount of $50,000 trust was entitled to follow the derived from the policies should be funds and take the money or the applied to reimburse the trust fund. policies, at his option. It was not The court held that the first premi- decided what would be the rights of um was paid out of the assured's the parties if the funds from the own funds, and in such a manner policies had exceeded the whole that title to the policy vested in him, amount

of the misappropriated and that, if there was any trust, it funds. The report of the referee was a resulting trust. It was held was affirmed, allowing a lien on the that, while the fund was not im- policies for the full value of $45,000. pressed with a trust such as would In the present case, as already absorb the fund, yet it was subject stated, counsel for the respondent to an equitable lien in the nature of claim the limit of the lien would be a resulting trust to the amount of the amount paid on the premiums. the bank's funds used in paying the Counsel for the appellant claimed in second and third premiums, with in- their answer, and now claim, a lien terest. Although there was allowed equal to the amount of the funds a recovery of no more than the pre- embezzled, and no more. Three of miums paid, there was a vigorous the policies were issued with Paul's dissenting opinion by Chief Justice mother as beneficiary, and before Bartch, holding that there was a his marriage. The referee did not

. constructive trust, and that when undertake to ascertain the defalcaone standing in the fiduciary rela- tions prior to January 1, 1914, altion makes a profit under such cir- though there was testimony as to cumstances as existed in that case, such misappropriations. He found that the profit belongs to the cestui that two thirds of the premiums on que trust. In the opinion the case the New England policy No. 245,641 of Holmes v. Gilman, 138 N. Y. 369, for $1,000 had been paid by money 20 L.R.A. 566, 34 Am. St. Rep. 463, embezzled,

embezzled, and held that there 34 N. E. 205, is quoted with ap- should be impressed on the policy proval. In the Holmes Case policies and its proceeds a trust for two aggregating $45,000 had been pro- thirds of the $1,000, and that the cured and maintained by misappro- remainder was owned by the plainpriated funds. The faithless part tiff. As already appears, there is ner had, by means of false entries in but little authority to guide us in the books, converted over $220,000. determining the extent to which a It was argued by counsel for the de- trust should be impressed on the fendant that the funds had not been proceeds of misappropriated funds traced, and that the funds used in in a situation like that now before the payment of the premiums were us. We are of the opinion that the mingled with the property right of mode of apportionment adopted by the wife, called her insurable inter- the referee was equitable, and as

Insurance

em

favorable to the plaintiff as can be litigation, there were such complicafairly claimed. We cannot sanction tions as excused much of it, and the the proposition that a fiduciary may delay was by no means wholly due embezzle large sums of money, use to the appellant. This contention of some of it in maintaining life insur- the respondent's counsel is not susance, and that the injured party has tained.

no remedy except to It is further claimed and argued portion of policy recover the amount that any demand of the appellant ployer entitled. paid for the premi- was against the deceased; that the

ums, which may be plaintiff owned the policies as her only a small fraction of the amount separate estate, and that she had embezzled. It would open too wide the right to defend her title; and a door for the perpetration of the that neither she nor the fund in grossest fraud.

court should be subjected to the paySome claim is made by the coun- ment of costs. The appellant was sel for the respondent that the ap- successful in the hearing before the pellant is precluded from recovery referee, and, in our

Costs

right of because of gross laches in the prose- opinion, was proper- one impressing cution of his claim. The referee re- ly allowed the costs.

trust on funds. fused to find that there had been It is our conclusion that the trial such delay. The trial court did court should have confirmed the remake such a finding, but did not port of the referee. make it the basis of the judgment. Judgment reversed and the cause On the contrary, the appellant was remanded, with directions to conallowed a recovery of the amount al- firm the referee's report and render ready stated. We have examined

judgment accordingly. the record, and, although there was Eschweiler, J., dissents. much delay in the conduct of the Petition for rehearing denied.

ANNOTATION.

Right with respect to proceeds of life insurance of one whose funds have

been wrongfully used to pay premiums. It is the purpose of this annotation where a person has embezzled funds to consider the right of a person with and used them for the payment of respect to the proceeds of an insur- premiums for insurance on his life, a ance policy on the life of one who has trust is created in favor of the person wrongfully appropriated and used, in from whom they were embezzled, and whole or in part, the funds of the that the latter is entitled to such proformer in the payment of premiums portion of the total insurance as the for such insurance.

amount of premiums which have been For a discussion of statutory pro- paid from the embezzled funds bears visions that no one but the insured to the total amount of premiums paid. can defeat his direction that the pro- This rule is followed in the reported ceeds of life insurance shall be paid case (TRUELSCH v. NORTHWESTERN to a designated beneficiary, as affect- MUT. L. INS. Co. ante, 914), wherein it ing the equitable rights of creditors is held that where funds of an emor persons whose money has been ployer had been embezzled, and had wrongfully used in paying premiums, been used in the payment of two thirds see the annotation in 26 A.L.R. 1408. of the premiums on a policy on the

As to the right of an insolvent to employee's life, the employer was eninsure his life for the benefit of his titled to have impressed on the policy relatives, see the annotation in 31 and its proceeds a trust for two thirds A.L.R. 51, and 34 A.L.R. 838.

of the amount of the policy. The general rule seems to be that In Vorlander v. Keyes (1924) 1 F.

(20) 67, it appeared that Christian fruits, in every form,-its increase, its Vorlander, who was the president of a income, other property acquired by bank, and was heavily indebted to it, the trustee by the exchange or use of had procured five policies on his life, it in any way,-becomes, at the option one of which was in favor of his wife, of the cestui que trust, his property, and the other four in favor of his four unless it has passed into the hands of children. One half of the initial a bona fide purchaser for value, withpremium in each of these policies he out notice of the misappropriation. paid with his own property, and he In no event is the trustee ex maleficio paid the other half of each premium entitled in equity to any benefit to with the funds of the bank, which he himself from the use of the trust secretly misappropriated to that pur- funds. Public policy forbids that one pose. The second year's premium on who has corruptly thrust himself into each of these policies was the same the position of a trustee shall profit amount as that of the first year, and by his fraud. Nor may another,-in he paid the second year's premium on this case the wife, now the widow, of each in January, 1920, with the funds the trustee ex maleficio, though herof the bank, which he secretly misap- self innocent of the fraud, -who has propriated to that purpose. He died paid no consideration for the property on August 11, 1920. The result was

purchased with the misappropriated that one fourth of the premiums, funds, or for their fruits, hold any of which resulted in the proceeds of these them against the cestui que trust, the policies, was paid by Mr. Vorlander owner thereof.

Without a diswith his own property, and three regard of these fundamental rules of fourths thereof he paid with the funds equity jurisprudence there is no logiof the bank, which he misappropriated cal or rational way of escape from the to those payments. The bank went conclusion of the court below that, into the hands of a receiver, and the when the insured paid with the funds litigation between the receiver and of the bank one half of the initial the beneficiaries of the policies in the premiums of these policies, he became court below resulted in a decision and a trustee ex maleficio for the exclusive decrees of that court to the effect that benefit of the bank of one half of the the receiver was entitled to three title and interest in the insurance fourths and the beneficiaries to one policies. If he had paid three fourths fourth, respectively, of the proceeds of those initial premiums with the of the policies. The court, in affirm- funds of the bank, he would have held in the decree of the lower court, said: three fourths of the title and interest "One who, acting in a fiduciary ca- in the policies in trust for the bank. pacity, secretly and wrongfully, and In this case, before the insured died, therefore fraudulently, uses fiduciary he paid with funds of the bank the funds to purchase real estate or per- premiums on the policies for the sonal property, including policies of second year, so that from the time of life insurance, for his own benefit, and the payment of those premiums, and puts it in his own name, takes the title at the time of the death of the insured, and interest in it as a trustee ex one fourth of the amount invested in maleficio for the owner of the misap- the policies had been paid by the inpropriated funds he thus uses,—the sured with his own property, and cestui que trust. The equitable owner- three fourths thereof with the misapship and title of the misappropriated propriated funds of the bank, and the funds and the fruits thereof remain court divided the fruits of those inin the cestui que trust as long as they vestments, the proceeds of the policies, can be traced, and the trustee holds between the widow and the receiver nothing but the naked title for the of the bank in that proportion. That exclusive benefit of the cestui que division is just, equitable, and right, trust. In equity, not only the prop- and the decree below is affirmed.” erty which the trustee acquires with In Massachusetts Bonding & Ins. the misappropriated funds, but all its Co. v. Josselyn (1923) 224 Mich. 159,