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194 N. W. 548, it appeared that an attorney had used funds of estates of which he was administrator in part payment of premiums for insurance. on his life. The trial court determined that the sums received on policies issued prior to his appointment as administrator should be prorated "in the proportion that the trust funds and private funds invested therein bore to each other." The appellate court affirmed the decree, saying: "It clearly appears that the trust moneys were used in the payment of insurance premiums. Had such moneys been used in the purchase of real estate or personal property of any kind, and title thereto taken in the name of Reeber, or his wife, or any other person except a bona fide purchaser for value, any such property, irrespective of whether it had increased or decreased in value, would have been the property of these estates. The contingency of gain would inure to their benefit just as the contingency of loss would have to be borne by them unless able to collect any deficiency from the trustee. In law they would be the equitable owners of any property in which their moneys had been invested. We are unable by any process of reasoning to apply any different rule to trust moneys used in the payment of life insurance premiums. The investment thus made might or might not have proved productive. Had the insured or the beneficiary permitted the policies to lapse by nonpayment of the premiums, the estates would have lost the moneys so invested, unless otherwise able to secure payment. By the use of their money the policies were kept alive and in full force at the time of Reeber's death. Having furnished the consideration therefor, the proceeds thereof are impressed with the trust which follows the misapplication of the trust funds. . We think the trial court was right in prorating as he did the proceeds of the policies, in which but partial payments of premiums were made out of the moneys of the estates."

In Dayton v. H. B. Claflin Co. (1897) 19 App. Div. 120, 45 N. Y. Supp. 1005, reversing (1896) 41 N. Y. Supp. 839, it

appeared that the husband of the plaintiff had stolen funds of his employer, using part of them to procure two insurance policies on his life, one payable to his wife, and the other payable to the husband, and afterwards assigned by him to her. The action was originally brought by the plaintiff against the insurance company to recover the amount of the policies, but after the commencement of the action an order was entered, directing the amount of the policies to be deposited in court, awaiting the determination of the claims thereto; and the defendant, H. B. Claflin Company, was substituted for the insurance company in the action. The defendant claimed that it was entitled to the whole insurance fund, and its claim was based substantially on the allegation that the insured had, for many years before his death, been one of the employees of the firm of H. B. Claflin & Company, and of the defendant company; and that from time to time, since early in 1890, the insured had stolen and embezzled from the firm and the defendant company large sums of money, and that all the premiums on the two policies of insurance had been paid from the moneys so stolen and embezzled. The referee decided that the whole fund, $10,000, belonged to the defendant, subject to a lien thereon in favor of the plaintiff for the sum of $76, with interest from November 24, 1891, and that the plaintiff had no other claim to any part of the fund. The court on appeal, in reversing the judgment and ordering a new trial before a new referee, referred to the case of Holmes v. Gilman, infra, as authority for the proposition that where all the premiums have been paid from trust moneys, the cestui que trust is entitled to the whole insurance fund, but the court distinguished that case from the one before it, and said: "When, however, a part of the premiums only has been paid from trust moneys, a different question is presented. In such case, where the first premiums paid, when the policies had their legal inception, were made from the trust moneys, the inception of the policies and the legal title of

the wife thereto would be infected with the improper use of trust moneys, and the rights of the wife would, from the very first, be subject and subordinate to the equities of the cestui que trust therein. The wife would still hold the legal title, however, and while her legal title would avail her nothing if all subsequent premiums were paid from trust moneys, the whole fund then being regarded as earned solely by trust moneys, and as belonging to the cestui que trust, still, if some of the subsequent premiums should be paid by the wife, or the husband for her benefit, from any other than trust money, such premiums would attach themselves to the wife's legal title, and she would at least be entitled to the proportionate share of the whole fund earned by such premium as she was entitled to the benefit of. This was precisely the condition of facts found by the referee in this case, viz.: That there was a mingling of funds used in the payment of premiums upon one of the policies, and that the inception of that policy was tainted with the use of stolen moneys. The referee, upon such a finding of facts, should at least have allowed the wife to share in the whole fund in proportion to the amount of the premiums paid by her."

Where all the premiums have been paid by money wrongfully obtained by the insured, it has been held that the person from whom the money was so obtained is entitled to the entire proceeds of the insurance; at least, where such proceeds are not in excess of the funds so obtained. Thus, in Shaler v. Trowbridge (1877) 28 N. J. Eq. 595, it appeared that a partner heavily indebted to his partnership paid out of the partnership funds all the premiums on policies of insurance on his life. The policies were first issued to him, and were subsequently made payable to his wife, who, after his death, collected the proceeds. The three surviving partners brought a bill in equity to charge the widow as trustee of the funds so collected on the policies. The bill was sustained, and the court decreed all of the proceeds of the policies to the surviving part


The appellate court said: "This is not a case of resulting trust, where the trust results, or is implied, from the contracts and relations of the parties. It arises, ex maleficio, out of the active fraud and dishonest conduct of the partner Trowbridge, and may be termed a constructive trust, which equity will fasten upon the conscience of the offending party, and convert him into a trustee of the legal title, and order him to hold and execute it in such manner as to protect the rights of the defrauded party, and promote the interest and safety of society. It differs from other trusts in that it is not within the intention or contemplation of the parties at the time the contract is made upon which it is construed by the court, but it is thrust upon a party contrary to his intention and against his will. 1 Perry, Trusts, § 166. If a person occupying a fiduciary capacity purchases property with fiduciary funds in his hands, and takes the title in his own name, he will, by construction, be charged as a trustee for the person entitled to the beneficial interest in the fund with which such purchase was made. This rule applies to a partner who fraudulently purchases for himself with the partnership funds, and it extends to personal as well as real estate; in every case the equitable ownership rests in the person from whom the consideration moves. Trowbridge contributed nothing, in money or otherwise, to the purchase or support of the policies. The entire sum derived from them is the product of the partnership money. He did no act upon which he could have based the slightest claim in equity to be benefited by the transaction. It would be idle to denounce his turpitude, and, at the same time, to reward it by allowing him to transmit its fruits to his family. His wife can derive, through so corrupt a source, no equitable rights to these policies; neither public policy nor the intrinsic justice of the case would be promoted by permitting her to do so."

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In Holmes v. Gilman (1893) 138 N. Y. 369, 20 L.R.A. 566, 34 Am. St. Rep. 463, 34 N. E. 205, reversing (1892) 64

Hun, 227, 19 N. Y. Supp. 151, which reversed (1891) 27 Abb. N. C. 341, 18 N. Y. Supp. 56, wherein it appeared that funds of a firm had been misappropriated by one of the firm's members, who had used a portion thereof to procure insurance on his life for the benefit of his wife, and who had paid the premiums wholly out of such funds until his death, it was held that the surviving member of the firm was entitled to the whole amount of the insurance, it appearing that such amount was less than the sum of the funds misappropriated. The court said: "This case is to be looked at with reference to the fact that every dollar of the moneys which procured and maintained these policies in existence belonged to the firm represented by the plaintiff, and that Gilman had no more right to invest or use these funds in the manner he did, than would any third person who had procured them without any right or title. It has been said that the husband, when he procures an insurance for his wife's benefit, acts as her agent, or represents her, and that she has a vested interest in the policies the moment they are delivered, by force of the statute permitting them to be made in this form. . This is

doubtless true in the case of the husband procuring the insurance with funds which belong to him or to his wife, but where the premiums are paid with moneys which, in truth, do not belong to him, and which the husband misapplies in so paying, and by which he violates his obligation to the true owner of the moneys thus used, the wife in such case must claim the policy subject to the means by which the husband procured it, and she must adopt all his methods. The moneys in the hands of the company could not be recovered back by the cestui que trust if received by the company in good faith, because it would stand in the position of a bona fide purchaser; yet the policy itself would stand as the representative of these trust moneys, and the right of the wife would be, to that extent, subordinate. . The procurement of policies of insurance by the husband in the wife's

name, under the facts developed in this case, does not prevent the cestui que trust from following and claiming the trust funds or their proceeds. If the proceeds of these policies had been greater than the whole amount of the indebtedness of the husband to the cestui que trust, arising out of the husband's breach of trust, we do not decide what might, in equity, be the different rights of the wife and such cestui que trust in the balance, or whether any different rule could be logically applied. The husband in this case converted over $200,000 of what stood in the nature of a trust fund, and the plaintiff recovers only a little over one fourth thereof in case the judgment on the referee's report be affirmed."

But in a case in Georgia, Bennett v. Rosborough (1923) 155 Ga. 265, 26 A.L.R. 1397, 116 S. E. 788, it was held that "if a husband procures a policy of life insurance which names his wife as beneficiary, and contains provisions which authorize the insured to change the beneficiary or assign the policy without limitation except the observance of specified requirements as to the form of making such changes and assignments, and the insured dies without having changed the beneficiary or assigned the policy, the wife will be entitled to the money payable under the policy after the death of the insured, in a contest with a creditor of the husband, although at the time the insurance was obtained and the premiums paid the insured was insolvent, and the premiums were paid with money stolen from the creditor." It seems that in that case the court was influenced in its decision by a Code provision worded as follows: "The assured may direct the money to be paid to his personal representative, or to his widow, or to his children, or to his assignee; and upon such direction given, and assented to by the insurer, no other person can defeat the same." The court said: "Under the law, where the beneficiary is 'the personal representative' or 'the widow' or 'the children' or 'the assignee' of the insured, the money payable under the insurance policy must


follow the direction pointed out in the policy, which is the contract of insurance under which the money is to be paid. Where the husband takes out a policy payable to his wife, and does not change the beneficiary, creditors of the husband cannot, in this state, in a contest with the wife, take the money, even though premiums might have been paid at a time when the husband was insolvent, or with money which had been stolen from the creditors. Whether or not this ruling comports with the weight of authority in other jurisdictions does not affect this case. The case is within the class specified in the Code section, and the widow is entitled to the money under the decisions of this court construing and applying that provision of law." It may be observed that there was a dissenting opinion in the case, in which another judge concurred, wherein it was said: "The meaning of this section does not justify the position. taken by the court in this case. meaning is clear. When the insured takes out a policy of life insurance and directs the money arising therefrom at his death to be paid to his personal representative, his wife, his children, or to his assignee, and when such direction is given and assented to by the insurer, no other person can defeat the same by giving any other direction as to how such money shall be paid. It does not mean that any person who may have an equitable interest in the proceeds of such policy cannot enforce the same against the beneficiary named therein. Persons who, for any reason, may have such equitable title or interest in such policy, or in its proceeds, upon the death of the insured, can enforce the same. This doctrine has been recognized by a long line of decisions of this court. . . The principle announced by this court cannot be the true law. If it were, one owning $100,000 worth of property, and owing $75,000 of debts, could convert his property into cash, invest the same in paid-up insurance, naming his wife as beneficiary, and the creditors of the husband could not subject the policy or its proceeds to the payment of their

claims. If the doctrine announced by the majority is the true law, if a bank cashier were to steal $100,000 from a bank, invest it in paid-up insurance, and take out a policy in which his wife were named as beneficiary, the bank could not enforce its claim against the policy or the proceeds thereof, and collect the same on the death of the insured. This doctrine, it seems to me, is wholly untenable. The overwhelming current of decisions in other jurisdictions declares it to be contrary to the true doctrine."

However, in Massachusetts Bonding & Ins. Co. v. Josselyn (1923) 224 Mich. 159, 194 N. W. 548, a contrary view seems to have been taken. The court said: "The fact that the wife of Reeber, instead of his estate, was named as beneficiary, cannot affect plaintiff's rights. She paid no part of the premiums. While the statute (2 Comp. Laws 1915, § 9345) provides that moneys payable under policies in which the wife is named as beneficiary are not subject to the claims of creditors, the question here presented is not one of preference. Her right under the statute must yield to the paramount right of the estates, the moneys of which furnished the consideration for the investment."

In one case the right in a policy of life insurance of one whose funds had been embezzled or stolen and used in the payment of premiums seems to have been limited to a recovery of the amount so used, with interest. Thus, in Hubbard v. Stapp (1889) 32 Ill. App. 541, it was held that a person from whom funds had been embezzled and used in the payment of premiums on a policy on the life of the embezzler in favor of a third person had a lien on the policy for the amount so embezzled and used, with interest. The court said: "The appellee insists that the bill charges and the decree finds that the premiums were paid by Hubbard out of the money he embezzled from the bank, and hence, in equity, the bank is entitled to the benefit of the policies. . . . The bill does not charge that all the premiums were paid for out of moneys of the bank, but it says a large portion was so paid,

or that Hubbard paid them out of his own funds, and the decree cannot be broader than the charge. It is evident that this point was not relied on in the court below. And even if so, we cannot concede that such fact, if a fact, would have the effect of giving appellee the right to the entire policies. The bank, however, if its money paid the premiums, would be entitled equitably to be reimbursed to such an amount and interest out of the proceeds of the policy. And if, upon a retrial, the evidence should show that such was the fact, it should be allowed such premiums and interest thereon out of the insurance money, together with the premiums, if any, since paid by it, with interest, as that would inure to appellee's benefit, since Hubbard has died within fifteen years."

Compare TRUELSCH V. NORTHWESTERN MUT. L. INS. Co. (reported herewith) ante, 914, wherein the court refused to sustain a claim that an employer whose funds had been embezzled and used in paying premiums on a policy on the employee's life. could recover only the amount paid for the premiums.

In Bank of Stewart County v. Madre (1914) 142 Ga. 110, 82 S. E. 519, decided on the particular facts of the case, it appeared from the official syllabus that the cashier of a bank, "although he had an overdraft on the books of the bank, checked out other moneys from the bank to pay his insurance premiums, and regularly was accustomed to use the receipts for premiums paid as checks, and these receipts were charged against him on the books of the bank, and these practices were known to other officers and directors of the bank. . . Subsequently to the payment of the premiums in this manner the bank, through proper officials, had a settlement with the cashier who had paid the premiums on his insurance policy in the manner indicated above, taking from him notes to cover his overdraft and indebtedness to the bank, with the exception of certain items overlooked, the items thus overlooked being other than his checks and receipts for

premiums." It was said in the syllabus that "while it may be true that where a holder of a policy of insurance payable, not to the estate of the insured, but to a named beneficiary, uses trust funds in his hands in payment of the premiums on the insurance, and where the amount of the policy, upon the death of the insured, is paid to the beneficiary, the proceeds of the policy thus paid to the beneficiary will be impressed with a trust in the hands of the beneficiary, and can be subjected to the demands of the cestui que trust to an amount equal to the premiums paid, and while an officer of a corporation, such as a cashier of a bank, who surreptitiously used the funds of the corporation in payment of premiums on a life insurance policy, might be treated, relatively to the money so used, as a trustee ex maleficio," the evidence disclosed no such trust. "The money thus paid upon the checks of the cashier and upon his receipts for premiums due on his policy of insurance, relatively to the bank and its rights to be reimbursed for the funds so used, was an ordinary debt, and the money paid by the insurance company upon the policy of insurance to the beneficiary named therein was not so impressed with any trust in favor of the bank that it might, in a suit instituted therefor, claim the payment of the amount of the premiums as a trust fund traced into the hands of the beneficiary." Compare Bennett v. Rosborough (1923) 155 Ga. 265, 26 A.L.R. 1397, 116 S. E. 788, supra.

It was declared in a case in Georgia that, even if an innocent beneficiary, who was not a party to any larceny or fraud perpetrated by the insured in obtaining money with which to pay premiums on the policy of insurance, could in equity, under the statutes of the state, be compelled to reimburse, out of money payable on such insurance, the person so defrauded, yet since pleadings are to be construed most strictly against the pleader, allegations in a petition seeking such reimbursement, that "all or a large portion" of the money used in paying the premiums, or such money "entirely

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