This action is brought by the superintendent of banks to set aside certain transfers of assets of the Fanners’ Savings Bank, a banking corporation, of Sherman, S. D., made by the officers of said bank to defendants.
At the time of the commencement of this action, the said bank was insolvent and in the 'hands of the superintendent of banks for liquidation. The defendants Dorothy C. Nelson and G. A. Esten*3sen are and were during all times -herein mentioned guardians of the estate of the other defendants, Devona, Clementine, and Dorothy Bergin, minors. -Estensen was also- an officer and in active ■charge of the bank. By mutual consent, Estensen was active in the management of the estate of the minors, while Dorothy Nelson, the mother, took active charge of the care and custody of the persons of .the minors. The estate consisted of about $7,700 in money, which Estensen in 1921 deposited in the bank on a time certificate of deposit maturing in six months. When this certificate matured, the interest was deposited to the account of Mrs. Nelson and a new certificate issued for the principal. (Successive certificates were issued and handled in the same manner for several years.. Early in 1924, because of unfavorable banking conditions, Mrs. Nelson objected to continuing the deposit and suggested that the money be invested in a farm mortgage or other safe security, but nothing was done by Estensen to carry out this suggestion, and the deposit was carried on in the same manner. In the fore part of September, 1925, Mrs. Nelson definitely told Estensen that when the existing certificate matured she would not consent to a renewal thereof, and that she 'would insist that on that date the certificate should be paid and the proceeds invested in a suitable mortgage. Nevertheless -Estensen ignored Mrs. Nelson’s demands and issued another certificate maturing March 26, 1926. The bank at that time was in failing circumstances, and without reviewing the evidence it is sufficient to say that it shows the conduct of Estensen was wrongful and in breach of his trust, and that the bank through him had full knowledge of the wrongful character of the transaction to such extent that by the very fact of receiving such -deposit under the circumstances it became a trustee thereof ex maleficio-. On the day the bank closed its doors and went into- the hands of the superintendent for liquidation, but before closing its doors and while open and -doing business, the certificate, although not due by its terms, was surrendered to the bank, and in exchange therefor the securities sought to be recovered in this action were transferred to defendants. The trial court found for defendants, and plaintiff appeals from the judgment rendered and an order denying a new trial.
There are but two questions that need be noticed: First. Can the transfer of the securities be sustained by virtue of the trust *4arising from, the fraudulent character of the deposit? Second. If it cannot, can it be sustained on the ground that the transaction whereby the certificate of deposit was exchanged for the securities ■was valid and not in fraud of general creditors?
The original deposit was of money made several years prior to the -transaction involved. It was continued by the issuance of new certificates from time to time. By the transaction complained of, the specific fund was not restored to the cestui que trust, nor is there any claim that the deposited funds went into- the securities transferred. In other words, there is no claim, that the specific trust property nor property into which it could be traced-was restored to the rightful owners by the trustee. While some state courts have held that it is not necessary to trace the specific trust property, and that it is sufficient to trace it into the assets of the bank, thereby augmenting its assets (Peak v. Ellicott, 30 Kan. 156, 1 P. 499, 46 Am. Rep. 90; Yellowstone County v. Bank, 46 Mont. 439, 128 P. 596; State v. Bruce, 17 Idaho, 1, 102 P. 831, L. R. A. 1916C, 1, 134 Am. St. Rep. 243; MicLeod v. Evans, 66 Wis. 410, 28 N. W. 173.), that is not the law of this state, as announced in Birch v. International State Bank, 50 S. D. 60, 208 N. W. 167. To entitle one to a preference -because of a trust relation the trust property must be traced either in its original form or into- specific assets to foe recovered. To aid in tracing commingled funds, such as money, a fiction may be indulged whereby it will foe presumed the money remaining in the hands of the bank contains the trust fund, -but that is as far as this court has gone. Under the authority of 'Birch v. International State Bank, supra, the transfer here involved cannot be sustained on the -ground of a trust relation. See, also, Clinton M. & M. Co. v. Trust Co., 35 S. D. 253, 131 N. W. 998; Empire State Surety Co. v. Carroll County, 194 F. 593, 114 C. C. A. 435; Board of Comm. v. Strawn, 137 F. 49, 84 C. C. A. 553, 13 L. R. A. (N. S.) 1100; Macy v. Roedenbeck (C. C. A.), 227 F. 346, L. R. A. 1916C, 12.
The second question pertains to the bona tides of the transaction involved in the transfer of the securities sought to be recovered. It is well settled in this state -that an insolvent corporation may not prefer its creditors, but that upon insolvency the assets of such corporation become a trust fund for the payment of its creditors on an equal pro rata basis. Bank v. Williams, 48 *5S. D. 529, 205 N. W. 221; City of Sturgis v. Meade County Bank, 38 S. D. 317, 161 N. W. 327; Furber v. Williams Flour Co., 21 S. D. 228, in N. W. 548, 8 L. R. A. (N. S.) 1259, 15 Ann. Cas. 1216; section 9059, R. C. 1919. Respondents contend that, although this be true as an abstract principle, in its application there must necessarily be a term- of insolvency during which the rule cannot be applied; that transactions with -corporations, insolvent in that their liabilities exceed their assets, cannot be set aside .as fraudulent or as an unlawful preference, while the officers are honestly conducting the business in due course and regular manner with intent to continue as a going concern and with no expectation of closing because of such insolvency, and that a transaction is valid and -cannot be set aside as fraudulent unless the corporation had actually suspended business, or the contracting parties acted in -contemplation of insolvency with the object of effecting a preference.
We do not think it necessary in this case to- draw any close lines of demarcation between when a transaction with an insolvent corporation may and when it may not be fraudulent. The only fair inference from the facts shown by the record in this case is that an unlawful preference resulted from the- transaction and the conditions were such that the contracting1 parties must have known that such would, in all probability, be the result. They departed from the usual manner of paying certificates of deposit in money, and nothing indicates that the certificate could have been paid in' money in the usual manner. On the contrary, respondents in their brief say that, after a consultation between Mrs. Nelson and her attorney on November 1st, Estensen was notified that Mrs. Nelson challenged the validity and propriety of what he had -done, and would demand the money at the opening of the bank the next morning. After calling another officer of the- bank, E. V. Estensen, into the conference, a “compromise” was suggested1 “whereby the guardianship would purchase from the bank securities to the amount of the money, this to save impairment of the bank’s reserve.” Apparently money in payment was demanded and the tranasction that followed was the result of a compromise, November 1st was Sunday. Mrs. Nelson and her attorney drove to Sherman on that day and had a conversation with G. A. Estensen in which the demand was made. The same evening (Sunday) the *6Estensens came to Sioux Falls, and the compromise above referred to was made. The next morning (Monday) Mrs. Nelson’s attorney went over to Sherman with the papers and closed the transaction. The haste in making the withdrawal, apparent concern of Mrs. Nelson over the deposit, and all the circumstances surrounding the transaction, indicate .that it was made in fear of the closing of the bank, if not in actual contemplation of insolvency. All this negatives the suggestion made by respondent’s counsel in his oral argument that the purchase of the securities was a good-faith transaction for the purpose of making an ordinary investment of the money of the estate in attractive securities that happened to belong to- the bank.
For the foregoing reasons, the judgment and order appealed from are reversed, and the cause remanded for further proceedings in harmony therewith.
CAMPBELL, P. J., and SHERWOOD, J., concur. BROWN, J., not participating.