Trust-Fund Doctrine Revisited [Part I]

The foundation case in Amenca was an action to restore dividends paid out to shareholders by an insolvent bank, but from limited beginnings the trust-fund doctrine expanded to become a major legal weapon for corporate creditors under a wide variety of conditions. In this discussion we propose to treat separately three major aspects of the trust-fund problem: (1) the status of corporate insolvency, which was a condition precedent to the operation of the rule; (2) the rights of creditors against creditors; and (3) the rights of creditors against shareholders. Our analysis will be confined chiefly to the statutory and case law of the state of Washington with no attempt at detailed treatment of the rules of other courts beyond an incidental comparison. The Federal Bankruptcy Act is excluded from analytical discussion as deserving separate treatment.

We undertake no more in that regard than to point out to the practitioner the possibility of using substantive state law to advantage in proceedings under the Federal Act. The body of case authority will be appraised in the light of the various state statutes which apply, and an attempt made to indicate the current place of the trust-fund doctrine in this jurisdiction.