The following opinion was filed January 13, 1925:
Jones, J.The views of the referee and the trial judge as to the legal questions involved present a striking contrast. The trial court held that Paul was a mere employee and in no sense a trustee; that the letters and books of the company offered were mere hearsay; that the title to the policies became at once vested in the plaintiff under the statutes and could not be divested except by surrender and indorsement.
In treating the letters as pure hearsay the court disregarded an important exception to the rule excluding hearsay evidence which has long been recognized as well settled. In his work on Evidence Mr. Wigmore traces the history of the exception and shows that it had its origin more than a century ago. Secs. 1456, 1476. The exception is that the declarations of-persons, since deceased, are admissible in evidence provided the declarant had 'peculiar means of knowing the matter stated, if he had no interest to misrepresent it, and if it was opposed to his pecuniary or proprietary interest. Such declarations are not received as admissions, nor as entries made in the ordinary course of business,
*247
*248nor on the ground that any privity exists between the de-clarant and the person against whom they are offered. When it appears that the declarant is dead, that the statement was against his pecuniary or proprietary interest, of a fact of which he was personally cognizant and there was no probable motive to falsify the facts, the declaration may be received as substantive evidence and against third parties.
The reason for the exception is thus stated in 1 Green-leaf on Evidence, § 148:
“The ground upon which this evidence is received is the extreme improbability of its falsehood. The regard which men usually pay to their own interest is deemed a sufficient security, both that the declarations were not made under any mistake of fact, or want of information on the part of the declarant, if he had the requisite means of knowledge, and that the matter declared is true.”
The fact that the statements are not admissible during the life of the declarant and that such declarations are sometimes the only mode of proof available are regarded as additional reasons for the reception of such statements in evidence without the sanction of an oath by the declarant. Mr. Wigmore vigorously argues that the exception should be so extended as to include confessions of crime or other statements of facts ggainst penal interest. See § 1476. But, as he concedes, this view has not been generally accepted. 4 Chamberlayne, Evidence, § 2779, and cases cited.
The letters in this case are plainly within the class of declarations contemplated by the exception under discussion and should not have been disregarded. The testimony showed and the referee found that Paul was the confidential clerk and bookkeeper of the defendant and was intrusted with the collection, custody, handling, and depositing in the bank of moneys belonging to the business as well as keeping the accounts. Entries by Paul on the debit side of the account were declarations by him that he had received the *249sums specified and were acknowledgments by him of the receipts, payments, and balances. This exception to the general rule excluding hearsay evidence is so well settled as to call for no elaborate discussion. We only cite some of the many authorities in which the subject is discussed and in which many cases are cited. 3 Wigmore, Evidence, §§ 1455-1476; 4 Chamberlayne, Evidence, §§ 2770-2789; 1 Elliott, Evidence, §§ 434, 436, 439, and 441; 1 Greenleaf, Evidence, §§ 147, 148; 4 Ency. of Evidence, p. 87.
There is careful argument in appellant’s brief of the proposition that the letters were not confidential communications between husband and wife within the meaning of sec. 4072, Stats. 1917. We consider the proposition sound for'several reasons. They were not private communications made and completed during marriage. The letter addressed to the plaintiff contained another communication, which she was directed to 'deliver to a third person, and which repeated the most essential facts to which objection might be made. It is plain that, in order to carry out the instructions in the letters, their substance would have to be communicated to others. That this letter addressed to Walt was not privileged is too plain for argument. Counsel for the respondent do not contend that either letter was privileged under the statute, and we shall not extend the discussion of the subject. We only cite a few of the many authorities referred to in the appellant’s brief. Whitford v. North State L. Ins. Co. 163 N. C. 223, 79 S. E. 501; Barras v. Barras, 192 Mich. 584, 159 N. W. 147; 28 Ruling Case Law, p. 530, § 119; 1 Greenleaf, Evidence, § 254; 40 Cyc. 2358.
Although counsel for the plaintiff do not argue that the letters were confidential and therefore privileged communications, they do strenuously insist, and it was held by the trial court, that they were no part of the res gestee and were irrelevant and incompetent as against the beneficiary. Counsel rely on sec. 2347 of the Statutes, according to which poli-*250cíes payable to a married woman are her sole and separate property, free, from the control, disposition, or claims of her husband and from the claims of his representatives. It is argued that under this statute the title of the plaintiff vested when the policies were issued in her name and that it could not be divested except by surrender of the policies and in-dorsement by the insurance companies of a change of beneficiary. Following this line of argument, numerous cases are cited holding that declarations by the insured, inconsistent with those made in the application for insurance and not part of the res gestes, are inadmissible. To this proposition the following .cases are cited: Rawson v. Milwaukee Mut. L. Ins. Co. 115 Wis. 641, 92 N. W. 378; Johnson v. Fraternal Reserve Asso. 136 Wis. 528, 117 N. W. 1019; Andrews v. U. S. C. Co. 154 Wis. 82, 142 N. W. 487; Maine v. Maryland C. Co. 172 Wis. 350, 178 N. W. 749. These cases hold in substance that a beneficiary has SO’ far a vested interest in a policy of insurance that declarations of the assured are not admissible to prove false statements in the application unless they are made at or about the time of the application and are so closely connected with it as to be part of the res gestee. But if there is independent proof of the falsity of the application, declarations of the assured may be received, but only to show his knowledge that the statements in the application were false. But in our opinion these cases do not meet the situation here presented. It may be conceded that ordinarily a wife acquires a vested interest in a policy of insurance issued in her name which cannot be divested by' mere declarations of her husband. It is doubtless true as claimed by the plaintiff’s counsel that the letters in question did not effect a transfer of- the plaintiff’s title or control the disposition of the funds. They were offered for no such purpose, but as tending to show that whatever interest she acquired was burdened with a trust, *251because, as claimed, the premiums were paid by moneys stolen from the appellant. This subject will be further discussed in this opinion.
In his decision the trial judge said: “Truelsch had the confidence of his employer, but he was a mere employee and not a trustee within the strict definition of equity.” It may be inferred from this statement that the court was of the opinion that it was a condition of recovery on the part of the appellant that he must prove the existence of a conventional or technical trust. If that view was entertained, it is of course impossible to say to what extent it influenced the determination by the court of the other questions. The duties of Paul Truelsch have been already stated, and it is plain from all the evidence that the appellant reposed in him the utmost confidence. We do not regard it as very important in this case whether his relation to his employer be described as employee, agent, or trustee. If during the performance of such duties as were intrusted to him he stole or embezzled the funds of his employer and an equitable remedy were necessary to right the wrong and reach the funds or property into which they might pass, there existed a ■ constructive trust, which a court of equity might enforce against the wrongdoer if he were living. The rule applies in cases where property is stolen or embezzled, although it is most often invoked to prevent the success of fraud in the myriad forms which it assumes. When necessary, the courts thrust the trust on the wrongdoer without regard to whether there was an intention by the parties to create a trust and in the absence of a technical or conventional trust relation.
It seems to have been the opinion in the trial court that the general rule had no application here because the title to the policies vested in the plaintiff and became her sole and separate property free from any trust or incumbrance by *252virtue of sec. 2347 of the Statutes. It would be a signal failure of justice if one who has become a constructive trustee by reason of wrongfully receiving or securing the property of 'another could escape the consequences of his acts by changing the form of the property thus acquired. Hence, as between him and the cestui que trust, the latter may pursue the funds into the new investment and charge that investment with the trust. He may also assert and enforce the same, right against third parties, to whom the property has been transferred with knowledge of the trust or who have paid no consideration for it, provided the identity of the trust fund can be established. In this case, if the premiums were paid from funds stolen or embezzled from the appellant, each policy became impressed with a trust in the appellant’s favor the instant each premium was paid. The referee found, as we believe on satisfactory evidence, that none of the premiums were paid by the plaintiff. She was not an innocent purchaser. The statutes guarding the rights of married women in insurance policies and homesteads are beneficent statutes, which are liberally construed in their behalf. But they are not designed to encourage fraud or to make such property a safe depository for stolen funds. The following are some of the authorities sustaining the right of the cestui que trust to follow funds when misappropriated: 3 Pomeroy, Eq. Jur. § 1051; 26 Ruling Case Law, pp. 1350, 1351; Holmes v. Gilman, 138 N. Y. 369, 34 N. E. 205; Shaler v. Trowbridge, 28 N. J. Eq. 595; Bromley v. C., C., C. & St. L. R. Co. 103 Wis. 562, 79 N. W. 741; Nebraska Nat. Bank v. Johnson, 51 Neb. 546, 71 N. W. 294.
The .respondent’s counsel argue that there was no constructive trust impressed on the policies because, as they claim, none of the appellant’s moneys were used in procuring or maintaining the policies, and the trial court so found except as to $33.28 used in paying a premium of the *253Northwestern Mutual Life Insurance Company policy on the day of the death of Paul Truelsch. Dawson, the chartered accountant who first made an examination to ascertain if there were any discrepancies in the books kept by Truelsch, was examined and cross-examined at great length, and from his evidence it appears that he was thoroughly competent for the work. During this investigation he examined the books of the appellant, all in the handwriting of the deceased, the records of the bank showing bank dealings with both the appellant and Truelsch, including checks, bank statements, and a great number of exhibits. It is' neither necessary nor desirable to include in this opinion the details of the method by which the accountant shorved from the voluminous records and documents that the deceased had misappropriated the amounts found by the referee. If the deceased appropriated the appellant’s money intending to defraud him, it was necessary, in order to escape discovery, to adopt some plan of falsifying the books. The plan which had been adopted and was carried on from April, 1914, to the following November was to conceal the shortages on the trial balances by increasing the miscellaneous bills receivable. After that date correct balances would be shown from bills receivable and the shortage concealed by decreasing the amount of the miscellaneous bills payable by the amount of the shortage. At a later period the plan adopted to conceal the shortages was that of manipulating the adding machine in such a manner as to present false footings. The books of the appellant are here as part of the record, and an examination of them shows that in the instances pointed out by the accountant the footings are false. In the numerous instances of this kind this could hardly be the result of mistake, since if the cash were correctly counted the mistake would appear at once in the failure of the books to balance.
The following were the shortages disclosed by the exami*254nation of the chartered accountant and which were explained by him in great detail:
The testimony is that all the methods above described are not uncommonly used by those who attempt to falsify book accounts; that although the methods are somewhat crude they may be carried on without discovery, especially where great confidence is reposed in the bookkeeper. According to the testimony the shortages were created through operations on the cash drawer before the moneys got into the bank. Dawson testified that it would be too much trouble for him to go into the details of the daily transactions between the dates above mentioned to see how the shortages were concealed between the dates in the list above set forth. Nor did he undertake to discover when the moneys were stolen. ITe only established the shortages, leaving the details for future consideration. He stated, however, that it would be possible to ascertain approximately the date when any money was taken out by taking each day’s receipts and disbursements and verifying the cash in hand and the bank balance, but that it would entail much labor. This labor *255was later undertaken by Walton Miller, who from the various books and exhibits in evidence prepared an elaborate statement consisting of many pages in the printed case, giving a record of each policy, the amounts of premiums paid, and when and how these payments were made, the dates and amounts of deposits in Paul’s bank books, and a summary of the deposits, checks, and balances as shown in the books of the appellant kept by Paul. It appears from the testimony that it was the habit of the deceased to increase the amount stated to be in the bank by the amount of the shortage in the cash in the cash drawer, with the result that the total footing would balance. This method was the one used to cover up the shortage of $400 in the bank at the time of the death of Paul, as testified to by Dawson, who further testified that it was a common method of covering up such shortages from day to day until the amount was dropped from the books.
Another chart was prepared by Wratten from the exhibits offered in evidence, giving in more condensed form a history of the different policies and the premiums and the times and modes of payment. These statements and charts prepared by Walton Miller and Wratten were sworn to be correct, and the statement prepared by Walton Miller was submitted to respondent’s counsel before the hearing and was not challenged. The investigation by Walton Miller was not con-fined to the period covered by the chartered accountant, but commenced on March 19, 1912. For convenience counsel for appellant have printed in their brief a schedule showing in more compact form some of the particulars as to the amounts of premiums, the times and mode of payment, and the dates of shortages. This statement has been given in the statement of facts. Its correctness does not seem to have been questioned by the respondent’s counsel. The referee had the opportunity of examining in detail the statements and exhibits used in the trial and of hearing the testi*256mony of witnesses in relation to them. It is a reasonable conclusion from all the evidence that the amounts described as shortages were not taken by Paul in large amounts, but that he abstracted small sums before the money went Into the bank, and at such times as he thought most safe falsified the books to cover the amounts. He kept a small bank account in which the balances shown were very small, often only a few cents and never exceeding nineteen dollars. If there was a systematic scheme to defraud his employer, such a course was safer than to keep a large bank account which if discovered might lead to suspicion. The books, exhibits, and statements used at the trial would probably not alone afford sufficient proof that moneys embezzled were used to pay the premiums. They do show that there was a systematic course of misappropriation of money of the employer, which was continued throughout the period included in the report of the referee; and they show such proximity between the times of embezzlement and the payment of the premium as affords circumstantial evidence tending to prove the facts claimed by the appellant. But the referee did not rely alone on the documentary evidence of the kind now under discussion. The letters and the other documentary evidence show beyond any reasonable doubt the defalcations found by the referee. In determining whether those funds were used in procuring or maintaining the policies, it was proper to consider the other sources of Paul’s income, if any he had. These were carefully investigated by the referee and he concluded that there were only two sources of income, to wit, the salary and the embezzled funds. Paul turned over his salary to the plaintiff and out of it she paid the household expenses. The fiat was subject to an incumbrance for $2,100 and he was not able to pay insurance and taxes on the property and borrowed money for these purposes. The conduct of the plaintiff in attempting to conceal the letters and in making, under oath, statements *257grossly false, justified the referee in disbelieving her testimony. We shall not pursue this subject further, because on well settled principles the finding of the referee in respect to it should be upheld.
On the subject of tracing the funds, counsel for the respondent rely on the legal proposition that the burden was on the appellant to prove that the money embezzled went into the policies; that when the funds cannot be traced, the equitable right of the cestui que trust to follow and reclaim a trust fund fails; that the right to follow and reclaim a trust fund is always based upon the right of property and not on the theory of preference by reason of an unlawful conversion. For this construction counsel rely on the following cases: Bromley v. C., C., C. & St. L. R. Co. 103 Wis. 562, 79 N. W. 741; Boyle v. Northwestern Nat. Bank, 125 Wis. 498, 103 N. W. 1123, 104 N. W. 917; Bosworth v. Hopkins, 85 Wis. 50, 55 N. W. 424. The Bromley Case is most nearly in point, as in that case the defendant sought to enforce a trust against an insurance policy when it was claimed that it had been procured by the husband of the deceased by the use of money wrongfully diverted from one of the defendants. It appeared that the plaintiff had intrusted her husband with considerable sums of money from her separate estate and had also furnished him other moneys amounting to $100 for the express purpose of paying the premiums on the policies involved. The circuit court found that it was not proven that any of the premiums were paid out of the money of the defendant. This finding was sustained in this court. The general rule contended for by counsel for the respondent in this case was declared, although it was said, “The court will go as far as it can in thus tracing and following trust money.” It was also said, speaking of the claim of the defendants:
“They also contend that they are entitled to the policy of $2,000 and the proceeds thereof, on the ground that the *258$99.64 — being the only premium ever paid thereon — was so paid with money belonging to the defendants. If it-were clearly established by the evidence that such were the facts, then we should have no difficulty in holding with the defendants. Holmes v. Gilman, 138 N. Y. 3.69, 34 N. E. 205.” Bromley v. C., C., C. & St. L. R. Co. 103 Wis. 562, 567, 79 N. W. 741.
The wide, difference from the case now before us is quite apparent. . Here. it was found by the referee-that all the moneys which maintained the policies during the period were paid from funds belonging to the .appellant which had been wrongfully appropriated by the deceased.
It is another, contention of. the respondent’s-counsel that since the deceased sometimes gave notes and due-bills to the agent of the insurance company-, which were later paid, this .negatives the claim that the premiums were paid by the moneys embezzled; that whenever such notes or due-bills were given the premiums were thereby paid, and it- should be presumed they were paid by Paul’s money and not money taken from the appellant. It is true that as between the assured and the company the acceptance of these forms of credit operated to extend the time of the payment and kept the policies alive. But it was not until the payments were actually made that the real consideration for carrying the insurance was received by the company. It was not until then that the investment by Paul was made, and it is the investment by the wrongdoer in other property which gives the cestui que trust the right to follow the funds -to their destination. Counsel for the respondent greatly rely on Thum v. Wolstenholme, 21 Utah, 446, 467, 61 Pac. 537. In that case the assured gave his note to the agent of the insurance company for the first premium on a policy. The agent transferred the note for value before maturity. If was held that the transfer of the note before due vested the title to the policy in the assured oh its delivery and that the *259sale of the note by the insurance company operated as between it and the assured as a collection. It is unnecessary to cite authorities to this familiar rule that the mere taking of a note by a debtor is not a payment unless it is so expressly agreed. If, as the referee found, these premiums were paid by Paul from funds misappropriated by him, it; does not seem to us very material that the payments in some instances were postponed in the manner which has been indicated. We must look at the substance rather- than the. form. We cannot adopt the theory that a trusted employee' may embezzle the funds of his employer for years, use the spoils to maintain policies of insurance for the benefit of his family or estate, and prevent a court of equity from affording relief by the mere device of postponing payment of some of the premiums.
The general rule applicable to cases of this character is thus stated in Ruling Case Law:
“Proceedings to establish and enforce trusts are, generally speaking, governed by the usual rules as to presumptions and burden of proof, and the admissibility, weight, and sufficiency of evidence applicable in other civil actions. The burden of proof as to the existence of a trust rests on the party who alleges it, and whatever may be the rule as to the exact extent to which trust property must be followed and identified, in any particular jurisdiction, it may be stated generally that the burden of identifying the trust property in a satisfactory manner to the required extent rests on the party seeking to establish the trust.” 26 Ruling Case Law, 1368.
Although in this case the proof of criminal conduct on the part of Paul was involved, it is very clear, on well settled rules, that it was not necessary to prove either the embezzlement or the tracing of the funds beyond a reasonable doubt. Npr was it necessary in proving that the moneys embezzled were used to pay for the premiums to show that the identical specie or bills abstracted were so- employed.*260Whatever may have been the former rule, it is not now the law that one cannot follow money in equity because it has no earmarks. 26 Ruling Case Law, 1353. It is also clear that it was competent for the appellant to prove by circumstantial evidence that the funds were embezzled and that these funds were used in paying the premiums. We are satisfied that the findings of the referee on these issues of fact were based on a clear and satisfactory preponderance of the evidence. In his decision and findings he traced the history of each policy and the payments of the premiums and carefully considered the sources of income of the deceased. He adopted, in our opinion, correct rules of law in the reception of evidence. We need not discuss the well settled rule that those findings are not to be disturbed unless the preponderance of the evidence not only appears to be against the findings but decidedly and clearly so. Ott v. Boring, 139 Wis. 403, 121 N. W. 126; Wojahn v. National Union Bank, 144 Wis. 646, 129 N. W. 1068; Goodwin v. von Cotshausen, 71 Wis. 351, 177 N. W. 618; Von Trott v. Von Trott, 118 Wis. 29, 94 N. W. 798. On the other hand, we cannot give to the findings of the trial court the weight which usually attaches to such findings. We have already pointed out the serious errors as to- questions of law which we find in the record, and it is by no means clear' that the findings of fact would have been the same if these errors had not been committed. It was very recently said in an opinion by Mr. Chief Justice Vinje:
“If the trial court did not apply the right legal test to the evidence, then its findings of fact have no potency to control the judgment of this court as to what they should be.” Will of Boardman, 178 Wis. 517, 190 N. W. 355; Kelley v. Crawford, 112 Wis. 368, 88 N. W. 296; Luckow v. Boettger, 140 Wis. 62, 121 N. W. 649.
It is further claimed by counsel for the respondent that in any event the appellant is entitled only to a lien upon the proceeds to- the extent that stolen or embezzled moneys were *261actually used in the payment of the premiums on each policy. It was on this theory that the trial judge held that the appellant was entitled to only $33.28 and interest. Although there are many decisions dealing with the right of the cestui que trust to follow the proceeds of funds misappropriated by trustees, there are comparatively few which relate directly to the recovery, when insurance policies have been maintained by such funds. Counsel for the respondent rely especially on Thum v. Wolstenholme, 21 Utah, 446, 467, 61 Pac. 537. In this case there had been misappropriation for the payment of premiums in the sum of $5,110. It was claimed by the plaintiff that the entire amount of $50,000 derived from the policies should be applied to reimburse the trust fund. The court held that the first premium was paid out of the assured’s own funds and in such a manner that title to the policy vested in him, and that if there was any trust it was a resulting trust. It was held that while the fund was not impressed with a trust such as would absorb the fund, yet it was subject to an equitable lien in the nature of a resulting trust to the amount of the bank’s funds used in paying the second and third premiums, with interest. Although there was allowed a recovery of no more than the premiums paid, there was a vigorous dissenting opinion by Mr. Chief Justice Bartch, holding that there was a constructive trust, and that when one standing in a fiduciary relation makes a profit under such circumstances as existed in that case the profit belongs to the cestui que trust. In the opinion the case of Holmes v. Gilman, 138 N. Y. 369, 34 N. E. 205, is quoted with approval. In the Holmes Case policies aggregating $45,000 had been procured and maintained by misappropriated funds. The faithless partner had by means of false entries in the books converted over $220,000. It was argued by counsel for the defendant that the funds had not been traced and that the funds used in the payment of the premiums were mingled with the property right of the wife, called her insurable *262interest in her husband’s life, so that the policies were not wholly the result of the use of the misappropriated funds, and that the lien on the policies must be limited to the amount of the premiums paid with the funds wrongfully converted. It was held that the wife had suffered no loss so long as the premiums were not paid by her, and that her property had not been used for any purpose; and that she must claim the policies subject to the means used by her husband to procure them and adopt his methods; and that the cestui que trust was entitled to follow the funds and take the money or the policies, at his option. It was not decided what would be the rights of the parties if the funds from the policies had exceeded the whole amount of the misappropriated funds. The report of the referee was affirmed allowing a lien on the policies for the full value of $45,000.
In the present case, as already stated, counsel for the respondent claim the limit of the lien would be the amount paid on the premiums. Counsel for the appellant claimed in their answer and now claim a lien equal to the amount of the funds embezzled and no more. Three of the policies were issued with Paul’s mother as beneficiary and before his marriage. The referee did not undertake to ascertain the defalcations prior to January Í, 1914, although there was testimony as to such misappropriations. He found that two thirds of' the premiums on the New England policy number 245,641 for $1,000 had been paid by money embezzled, and held that there should be impressed on the policy and its proceeds a trust for two thirds of the $1,000, and that the remainder was owned by the plaintiff. As already appears, there is but little authority to guide us in determining the extent to which a trust should be impressed on the proceeds of misappropriated funds in a situation like that now before us. We are of the opinion that the mode of apportionment adopted by the referee was equitable and as favorable to the plaintiff as can be fairly claimed. We cannot sanction the proposition that a fiduciary may *263embezzle large sums of money, use some of it in maintaining life insurance, and that the injured party has no remedy except to recover the amount paid for the premiums, which may be only a small fraction of the amount embezzled. It would open too wide a door for the perpetration of the grossest fraud.
Some claim is made by counsel for the respondent that the appellant is precluded from recovery because of gross laches in the prosecution of his claim. The referee refused to find that there had been such delay. The trial court did make such a finding but did not make it the basis of the judgment. On the contrary, the appellant was allowed a recovery of the amount already stated. We have examined the record, and although there was much delay in the conduct of the litigation, there were such complications as excused much of it, and the delay was by no means wholly due to the appellant. This contention of the respondent’s counsel is not sustained.
It is further claimed and argued that any demand of the appellant was against the deceased; that the plaintiff owned the policies as her separate estate and that she had the right to defend her title; and that neither she nor the fund in court should be subjected to' the payment of costs. The appellant was successful in the hearing before the referee, and in our opinion was properly allowed the costs. It is our conclusion that the trial court should have confirmed the report of the referee.
By the Court. — Judgment reversed, and the cause remanded with directions to confirm the referee’s report and render judgment accordingly.
Eschweiler, J., dissents.A motion for a rehearing was denied, with $25 costs, on March 10, 1925.