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194 N. W. 548, it appeared that an at- appeared that the husband of the torney had used funds of estates of plaintiff had stolen funds of his emwhich he was administrator in part ployer, using part of them to procure payment of premiums for insurance two insurance policies on his life, one on his life. The trial court determined payable to his wife, and the other paythat the sums received on policies is- able to the husband, and afterwards sued prior to his appointment as ad- assigned by him to her. The action ministrator should be prorated “in the was originally brought by the plainproportion that the trust funds and tiff against the insurance company to private funds invested therein bore recover the amount of the policies, to each other." The appellate court but after the commencement of the affirmed the decree, saying: “It clear- action an order was entered, directing ly appears that the trust moneys were the amount of the policies to be deused in the payment of insurance posited in court, awaiting the deterpremiums. Had such moneys been mination of the claims thereto; and used in the purchase of real estate or the defendant, H. B. Claflin Company, personal property of any kind, and was substituted for the insurance title thereto taken in the name of company in the action. The defendReeber, or his wife, or any other per- ant claimed that it was entitled to the son except a bona fide purchaser for whole insurance fund, and its claim value, any such property, irrespective was based substantially on the allegaof whether it had increased or de- tion that the insured had, for many creased in value, would have been the years before his death, been one of the property of these estates.
employees of the firm of H. B. Claflin tingency of gain would inure to their & Company, and of the defendant combenefit just as the contingency of loss pany; and that from time to time, since would have to be borne by them un- early in 1890, the insured had stolen less able to collect any deficiency from and embezzled from the firm and the the trustee. In law they would be the defendant company large sums of monequitable owners of any property in ey, and that all the premiums on the which their moneys had been invested. two policies of insurance had been We are unable by any process of paid from the moneys so stolen and reasoning to apply any different rule embezzled. The referee decided that to trust moneys used in the payment the whole fund, $10,000, belonged to of life insurance premiums. The in- the defendant, subject to a lien therevestment thus made might or might on in favor of the plaintiff for the not have proved productive. Had the sum of $76, with interest from Noinsured or the beneficiary permitted vember 24, 1891, and that the plaintiff the policies to lapse by nonpayment had no other claim to any part of the of the premiums, the estates would fund. The court on appeal, in revershave lost the moneys so invested, un- ing the judgment and ordering a new less otherwise able to secure payment. trial before a new referee, referred to By the use of their money the policies the case of Holmes v. Gilman, infra, were kept alive and in full force at as authority for the proposition that the time of Reeber's death. Having where all the premiums have been furnished the consideration therefor, paid from trust moneys, the cestui que the proceeds thereof are impressed trust is entitled to the whole insurwith the trust which follows the mis- ance fund, but the court distinguished application of the trust funds.
that case from the one before it, and We think the trial court was right in said: “When, however, a part of the prorating as he did the proceeds of premiums only has been paid from the policies, in which but partial pay- trust moneys, a different question is ments of premiums were made out of presented. In such case, where the the moneys of the estates."
first premiums paid, when the policies In Dayton v. H. B. Claflin Co. (1897) had their legal inception, were made 19 App. Div. 120, 45 N. Y. Supp. 1005, from the trust moneys, the inception reversing (1896) 41 N. Y. Supp. 839, it of the policies and the legal title of
the wife thereto would be infected ners. The appellate court said: with the improper use of trust moneys, “This is not a case of resulting trust, and the rights of the wife would, from where the trust results, or is implied, the very first, be subject and sub- from the contracts and relations of ordinate to the equities of the cestui the parties. It arises, ex maleficio, que trust therein. The wife would out of the active fraud and dishonest still hold the legal title, however, and conduct of the partner Trowbridge, while her legal title would avail her and may be termed a constructive nothing if all subsequent premiums trust, which equity will fasten upon were paid from trust moneys, the the conscience of the offending party, whole fund then being regarded as and convert him into a trustee of the earned solely by trust moneys, and as legal title, and order him to hold and belonging to the cestui que trust, still, execute it in such manner as to proif some of the subsequent premiums tect the rights of the defrauded party, should be paid by the wife, or the hus- and promote the interest and safety of band for her benefit, from any other society. It differs from other trusts than trust money, such premiums in that it is not within the intention would attach themselves to the wife's or contemplation of the parties at the legal title, and she would at least be time the contract is made upon which entitled to the proportionate share of it is construed by the court, but it is the whole fund earned by such premi- thrust upon a party contrary to his um as she was entitled to the benefit intention and against his will. 1 Perof. This was precisely the condition ry, Trusts, § 166. If a person occupyof facts found by the referee in this ing a fiduciary capacity purchases case, viz.: That there was a mingling property with fiduciary funds in his of funds used in the payment of hands, and takes the title in his own premiums upon one of the policies, name, he will, by construction, be and that the inception of that policy charged as a trustee for the person was tainted with the use of stolen entitled to the beneficial interest in moneys. The referee, upon such a the fund with which such purchase finding of facts, should at least have was made. This rule applies to a partallowed the wife to share in the whole ner who fraudulently purchases for fund in proportion to the amount of himself with the partnership funds, the premiums paid by her."
and it extends to personal as well as Where all the premiums have been real estate; in every case the equitable paid by money wrongfully obtained by ownership rests in the person from the insured, it has been held that the whom the consideration moves. person from whom the money was so Trowbridge contributed nothing, in obtained is entitled to the entire pro- money or otherwise, to the purchase ceeds of the insurance; at least, where or support of the policies. The entire such proceeds are not in excess of the sum derived from them is the product funds so obtained. Thus, in Shaler v. of the partnership money. He did no Trowbridge (1877) 28 N. J. Eq. 595, it act upon which he could have based appeared that a partner heavily in- the slightest claim in equity to be debted to his partnership paid out of benefited by the transaction. It would the partnership funds all the premi- be idle to denounce his turpitude, and, ums on policies of insurance on his at the same time, to reward it by allife. The policies were first issued to lowing him to transmit its fruits to him, and were subsequently made pay- his family. His wife can derive, able to his wife, who, after his death, through so corrupt a source, no equicollected the proceeds. The three sur- table rights to these policies; neither viving partners brought a bill in public policy nor the intrinsic justice equity to charge the widow as trustee of the case would be promoted by perof the funds so collected on the mitting her to do so." policies. The bill was sustained, and In Holmes v. Gilman (1893) 138 N. the court decreed all of the proceeds Y. 369, 20 L.R.A. 566, 34 Am. St. Rep. of the policies to the surviving part- 463, 34 N. E. 205, reversing (1892) 64
Hun, 227, 19 N. Y. Supp. 151, which name, under the facts developed in reversed (1891) 27 Abb. N. C. 341, 18 this case, does not prevent the cestui N. Y. Supp. 56, wherein it appeared que trust from following and claiming that funds of a firm had been misap- the trust funds or their proceeds. If propriated by one of the firm's mem- the proceeds of these policies had been bers, who had used a portion thereof greater than the whole amount of the to procure insurance on his life for indebtedness of the husband to the · the benefit of his wife, and who had cestui que trust, arising out of the paid the premiums wholly out of such husband's breach of trust, we do not funds until his death, it was held that decide what might, in equity, be the the surviving member of the firm was different rights of the wife and such entitled to the whole amount of the cestui que trust in the balance, or insurance, it appearing that such whether any different rule could be amount was less than the sum of the logically applied. The husband in this funds misappropriated. The court case converted over $200,000 of what said: “This case is to be looked at stood in the nature of a trust fund, with reference to the fact that every and the plaintiff recovers only a little dollar of the moneys which procured over one fourth thereof in case the and maintained these policies in exist- judgment on the referee's report be ence belonged to the firm represented affirmed." by the plaintiff, and that Gilman had But in a case in Georgia, Bennett v. no more right to invest or use these Rosborough (1923) 155 Ga. 265, 26 funds in the manner he did, than A.L.R. 1397, 116 S. E. 788, it was held would any third person who had pro- that “if a husband procures a policy cured them without any right or title. of life insurance which names his wife It has been said that the husband, as beneficiary, and contains provisions when he procures an insurance for which authorize the insured to change his wife's benefit, acts as her agent, the beneficiary or assign the policy or represents her, and that she has a without limitation except the observvested interest in the policies the ance of specified requirements as to moment they are delivered, by force the form of making such changes and of the statute permitting them to be assignments, and the insured dies made in this form.
This is without having changed the beilefidoubtless true in the case of the hus- ciary or assigned the policy, the wife band procuring the insurance with will be entitled to the money payable funds which belong to him or to his under the policy after the death of wife, but where the premiums are paid the insured, in a contest with a with moneys which, in truth, do not creditor of the husband, although at belong to him, and which the husband the time the insurance was obtained misapplies in so paying, and by which and the premiums paid the insured he violates his obligation to the true was insolvent, and the premiums were owner of the moneys thus used, the paid with money stolen from the wife in such case must claim the creditor." It seems that in that case policy subject to the means by which the court was influenced in its decision the husband procured it, and she must by a Code provision worded as fol. adopt all his methods. The moneys in lows: "The assured may direct the the hands of the company could not money to be paid to his personal reprebe recovered back by the cestui que sentative, or to his widow, or to his trust if received by the company in children, or to his assignee; and upon good faith, because it would stand in such direction given, and assented to the position of a bona fide purchaser; by the insurer, no other person can yet the policy itself would stand as the defeat the same." The court said: representative of these trust moneys, “Under the law, where the beneficiary and the right of the wife would be, is 'the personal representative' or 'the to that extent, subordinate.
widow' or 'the children' or 'the asThe procurement of policies of insur- signee' of the insured, the money payance by the husband in the wife's able under the insurance policy must
follow the direction pointed out in the claims. If the doctrine announced by policy, which is the contract of insur- the majority is the true law, if a bank ance under which the money is to be cashier were to steal $100,000 from a paid. Where the husband takes out bank, invest it in paid-up insurance, a policy payable to his wife, and does and take out a policy in which his wife not change the beneficiary, creditors were named as beneficiary, the bank of the husband cannot, in this state, could not enforce its claim against the in a contest with the wife, take the policy or the proceeds thereof, and money, even though premiums might collect the same on the death of the have been paid at a time when the hus- insured. This doctrine, it seems to band was insolvent, or with money me, is wholly untenable.
The overwhich had been stolen from the cred- whelming current of decisions in other itors. Whether or not this ruling com- jurisdictions declares it to be contrary ports with the weight of authority in to the true doctrine.” other jurisdictions does not affect this However, in Massachusetts Bonding case. The case is within the class & Ins. Co. v. Josselyn (1923) 224 Mich. specified in the Code section, and the 159, 194 N. W. 548, a contrary view widow is entitled to the money under seems to have been taken. The court the decisions of this court construing said: “The fact that the wife of and applying that provision of law." Reeber, instead of his estate, was It may be observed that there was a named as beneficiary, cannot affect dissenting opinion in the case, in plaintiff's rights. She paid no part of which another judge concurred, where- the premiums. While the statute (2 in it was said: “The meaning of this Comp. Laws 1915, § 9345) provides section does not justify the position that moneys payable under policies in taken by the court in this case. Its which the wife is named as beneficiary meaning is clear. When the insured are not subject to the claims of credtakes out a policy of life insurance and itors, the question here presented is directs the money arising therefrom at not one of preference. Her right his death to be paid to his personal under the statute must yield to the representative, his wife, his children, paramount right of the estates, the or to his assignee, and when such moneys of which furnished the condirection is given and assented to by sideration for the investment." the insurer, no other person can de- In one case the right in a policy of feat the same by giving any other life insurance of one whose unds had direction as to how such money shall been embezzled or stolen and used in be paid. It does not mean that any the payment of premiums seems to person who may have an equitable in- have been limited to a recovery of the terest in the proceeds of such policy amount so used, with interest. Thus, cannot enforce the same against the in Hubbard v. Stapp (1889) 32 Ill. beneficiary named therein. Persons App. 541, it was held that a person who, for any reason, may have such from whom funds had been embezzled equitable title or interest in such and used in the payment of premiums policy, or in its proceeds, upon the on a policy on the life of the embezzler death of the insured, can enforce the in favor of a third person had a lien same. This doctrine has been recog- on the policy for the amount so emnized by a long line of decisions of bezzled and used, with interest. The this court.
The principle an- court said: “The appellee insists that nounced by this court cannot be the the bill charges and the decree finds true law. If it were, one owning that the premiums were paid by Hub$100,000 worth of property, and owing bard out of the money he embezzled $75,000 of debts, could convert his from the bank, and hence, in equity, property into cash, invest the same in the bank is entitled to the benefit of paid-up insurance, naming his wife as the policies.
The bill does not beneficiary, and the creditors of the charge that all the premiums were husband could not subject the policy paid for out of moneys of the bank, or its proceeds to the payment of their but it says a large portion was so paid, or that Hubbard paid them out of his premiums.” It was said in the syl. own funds, and the decree cannot be labus that “while it may be true that broader than the charge. It is evident where a holder of a policy of insurthat this point was not relied on in the ance payable, not to the estate of the court below. And even if so, we can- insured, but to a named beneficiary, not concede that such fact, if a fact, uses trust funds in his hands in paywould have the effect of giving appel- ment of the premiums on the insurlee the right to the entire policies. ance, and where the amount of the The bank, however, if its money paid policy, upon the death of the insured, the premiums, would be entitled equi- is paid to the beneficiary, the proceeds tably to be reimbursed to such an of the policy thus paid to the benefiamount and interest out of the pro- ciary will be impressed with a trust ceeds of the policy. And if, upon a in the hands of the beneficiary, and retrial, the evidence should show that can be subjected to the demands of such was the fact, it should be al- the cestui que trust to an amount lowed such premiums and interest equal to the premiums paid, and while thereon out of the insurance money, an officer of a corporation, such as a together with the premiums, if any, cashier of a bank, who surreptitiously since paid by it, with interest, as that used the funds of the corporation in would inure to appellee's benefit, since payment of premiums on a life insurHubbard has died within fifteen ance policy, might be treated, relayears."
tively to the money so used, as a Compare TRUELSCH V. NORTHWEST- trustee ex maleficio," the evidence disERN MUT. L. INS. Co. (reported here- closed no such trust. “The money with) ante, 914, wherein the court re- thus paid upon the checks of the fused to sustain a claim that an em- cashier and upon his receipts for ployer whose funds had been em- premiums due on his policy of insurbezzled and used in paying premiums ance, relatively to the bank and its on a policy on the employee's life rights to be reimbursed for the funds could recover only the amount paid so used, was an ordinary debt, and the for the premiums.
money paid by the insurance company In Bank of Stewart County v. Madre upon the policy of insurance to the (1914) 142 Ga. 110, 82 S. E. 519, de- beneficiary named therein was not so cided on the particular facts of the impressed with any trust in favor of case, it appeared from the official syl- the bank that it might, in a suit inlabus that the cashier of a bank, “al- stituted therefor, claim the payment though he had an overdraft on the of the amount of the premiums as a books of the bank, checked out other trust fund traced into the hands of moneys from the bank to pay his in- the beneficiary." Compare Bennett v. surance premiums, and regularly was Rosborough (1923) 155 Ga. 265, 26 accustomed to use the receipts for A.L.R. 1397, 116 S. E. 788, supra. premiums paid as checks, and these It was declared in a case in Georgia receipts were charged against him on that, even if an innocent beneficiary, the books of the bank, and these prac- who was not a party to any larceny or tices were known to other officers and fraud perpetrated by the insured in directors of the bank.
Subse- obtaining money with which to pay quently to the payment of the premi- premiums on the policy of insurance, ums in this manner the bank, through could in equity, under the statutes of proper officials, had a settlement with the state, be compelled to reimburse, the cashier who had paid the premi- out of money payable on such insurums on his insurance policy in the ance, the person so defrauded, yet manner indicated above, taking from since pleadings are to be construed him notes to cover his overdraft and most strictly against the pleader, alindebtedness to the bank, with the ex- legations in a petition seeking such ception of certain items overlooked, reimbursement, that “all or a large the items thus overlooked being other portion" of the money used in paying than his checks and receipts for the premiums, or such money "entirely