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have a pro rata share of the fund For the reasons given, the judgwas not raised or decided in the low- ment of the District Court is reer court. Neither do we pass upon

versed. it. The claim of appellant was filed Weaver, Stevens, and De Graff, within the time allowed by the court. JJ., concur.


Trust or preference in respect of money placed in bank for purpose of trans

action with third person where bank subsequently becomes insolvent.

I. Introductory, 472.
II. In general, 473.
III. Deposits for particular purposes:

a. Deposit to await fulfilment of

contract generally, 474.
b. Deposit to await closing of sale,

c. Deposit to await outcome of liti-

gation, 478.


d. Deposit for payment of debt to

third person, 478.
e. Deposit for transmission to third

person, 481.
f. Deposit as security, 483.
g. Miscellaneous deposits, 484.

1. Introductory.

erned by the same rules and prinThe question whether a deposit in ciples as apply to special deposits. a bank for the purposes of a trans- At the outset those claiming the existaction between the depositor and a

ence of a trust relationship arising third person creates a trust relation from such a deposit are met with the giving a preference on the insolvency general presumption that a deposit in of the bank depends on the nature a bank is presumed to be general in of the deposit,--whether general or the absence of an agreement to the special, or rather, of a special nature. contrary. As to the existence of such As a rule, when money is deposited an agreement, it is well said in 3 in a bank, title to the money passes

R. C. L. 517: “The law prescribes to the bank. The bank becomes the no particular formula for the contract debtor of the depositor to the extent involved in making a special deposit. of the deposit, and to that extent the Like all contracts, it grows out of the depositor becomes the creditor of the mutual intention and understanding bank. Such a deposit constitutes a of the parties. The purpose and terms part of the assets of the bank, and, of the deposit may be explicitly in case of insolvency, belongs to the stated, or the intention of the parties creditors of the bank in proportion may be inferred from their declarato the amount of their respective tions, considered in connection with claims. Among the exceptions to this their conduct and all of the circumrule are, first, where the money or stances.” It is the purpose of this another thing is deposited with the notation to collect those cases in understanding that that particular which the court has been called on to money or thing is to be returned to determine the nature of a deposit the depositor; and, second, where the claimed to have been made for the money or other thing deposited is to purpose of transaction with be used for a specifically designated third person. Once established as a purpose. It is with the second of special deposit, it is entitled to the these exceptions that this annotation privileges attaching to such deposits, deals, which, however, though not and may be recovered from the rewithin the literal meaning of the ceiver of an insolvent bank in preferterm "special deposit," is frequently ence to the general creditors, provided referred to or known as a “special can be traced in accordance with deposit,” and, in so far as it gives the rules governing the tracing of rise to a trust or preference, is gov- trust funds. No attempt, however,



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has been made to treat the doctrine (1896) 3 Kan. App. 704, 44 Pac. 909; of tracing trust funds. Cases deal- Lamb v. Ladd (1922) 112 Kan. 26, 209 ing with the rights and liabilities Pac. 825. arising from the deposit of collateral Mississippi. Sawyers v. Connor security are excluded, as are those (1917) 114 Miss. 363, L.R.A.1918A, 61, treating the rights of the parties 75 So. 131, Ann. Cas. 1918A, 388. where money received by a bank from Missouri. — Stoller v. Coates (1885) collections made for a customer is 88 Mo. 514; Schulz v. Bank of Hardeposited in the general funds. Also risonville (1923) Mo. App.

246 cases are excluded which deal with S. W. 614. the effect of taking a deposit, knowing Nebraska. State ex rel. Ladenat the time that the bank is insolvent, burger v. State Bank (1894) 42 Neb. and those which relate to the deposit 896, 61 N. W. 252; Capitol Nat. Bank of trust funds by one occupying a v. Coldwater Nat. Bank (1896) 49 Neb. fiduciary relation.

786, 59 Am. St. Rep. 572, 69 N. W. 115,

writ of error dismissed in (1899) II. In general.

172 U. S. 434, 43 L. ed. 505, 19 Sup. Ct. It may be stated as a general rule

Rep. 873. that where a deposit is made in a

New York. People v. City Bank bank with the distinct understand

(1884) 96 N. Y. 32; Bergestresser v. ing that it is to be held by the bank

Lodewick (1899) 37 App. Div. 629, for the purpose of furthering a trans

59 N. Y. Supp. 630. action between the depositor and a

North Dakota. Widman v. Kellogg third person, or where it is made

(1911) 22 N. D. 396, 39 L.R.A.(N.S.) under such circumstances as give

563, 133 N. W. 1020. rise to a necessary implication that

South Dakota. Kimmel v. Dickson it is made for such a purpose, the

(1894) 5 S. D. 221, 25 L.R.A. 309, 58 deposit becomes impressed with a

N. W. 561; Stoll v. Meade County trust which entitles the depositor to

Bank (1917) 39 S. D. 136, 163 N. W. a preference over the general cred

565. itors of the bank where it becomes

Washington. Carlson insolvent while holding the deposit.

(1913) 75 Wash. 171, 47 L.R.A.(N.S.) United States. St. Louis v. John

317, 134 Pac. 808; Central Bank & son (1879) 5 Dill. 241, Fed. Cas. No.

T. Co. v. Ritchie (1922) 120 Wash. 12,235; Montagu v. Pacific Bank

160, 206 Pac. 926. (1897) 81 Fed. 602; Moreland v.

As was said in Montagu v. Pacific Brown (1898) 30 C. C. A. 23, 56 U. S.

Bank (1897) 81 Fed. 602, with refApp. 722, 86 Fed. 257; Merchants'

erence to a deposit made for the speNat. Bank v. School Dist. (1899) 36

cific purpose of having it transmitted C. C. A. 432, 94 Fed. 705.

to a third person:

"It is plain that Arkansas.-Covey v. Cannon (1912)

the deposit in this case should be 104 Ark. 550, 149 S. W. 514.

treated as a special deposit, made for Illinois. Woodhouse v. Crandall

a particular purpose, and not as (1902) 197 Ill. 104, 58 L.R.A. 385,

general deposit. It was therefore in 64 N. E. 292, reversing (1902) 99 Ill.

the nature of a bailment, the comApp. 552; Star Cutter Co. v. Smith plainants never having parted with (1890) 37 Ill. App. 212.

their title to the money. ConsequentIndiana. Shopert v. Indiana Nat.

ly a trust was impressed upon this Bank (1907) 41 Ind. App. 474, 83 $5,000 in favor of complainants, and N. E. 515.

it does not belong to the general Iowa. See the reported case creditors of the bank." (HUDSPETH V. UNION TRUST & SAV. “A deposit in a bank is either genBANK, ante, 466).

eral or special. Where a general deKansas. Peak v. Ellicott (1883) posit is made, it is either credited to 30 Kan. 156, 46 Am. Rep. 90, 1 Pac. the account of a depositor, subject to 499; Ellicott v. Barnes (1884) 31 Kan. his check, or evidenced by a demand 170, 1 Pac. 767; Ryan v. Phillips or time certificate. The title to the

V. Kies


deposit in such cases passes to the III. Deposits for particular purpose8. bank, and it becomes the debtor of the

a. Deposit to await fulfilment of contract depositor. On the other hand, when

generally. a bank accepts a special deposit, it be

Where the owner of a house damcomes a trustee of the depositor, and

aged by fire took the check received holds the money subject to the from the insurance company to a trust. The receipt itself affords

bank, and stated that she wanted it strong, if not conclusive, evidence of

collected and kept by the bank for a special deposit. It shows that the

the particular purpose of paying the money was placed in the bank for

contractor who was repairing her a special purpose. Fortified by the

house, but refused to allow it to be evidence of the depositor and the ad

credited to her checking account, mitted circumstances here present, it

whereupon she was given a receipt is obvious that both parties to the

bearing the words "Sp. Dept.," it was transaction intended to make a spe

held that, on the insolvency of the cial, and not a general, deposit. It

bank, her claim should be treated as follows, therefore, that the bank holds

a trust fund, entitling her to a prefthe money, not as a general debtor,

erence over the general creditors of but in a fiduciary capacity." Carlson

the bank. Sawyers v. Conner (1917) v. Kies (Wash.) supra.

114 Miss. 363, L.R.A.1918A, 61, 75 So. The relation of a bank toward a

131, Ann. Cas. 1918A, 388, wherein depositor who places money with it

it was said: “The evidence shows for the special purpose of paying a that the depositor absolutely refused note held by a third person is that of

to permit the proceeds of the check a trustee, and the amount so deposited

in question to be deposited either to is a special deposit within the rule

her checking account or her savings allowing the recovery of a special de.

account. It was explained to the posit as a preferred claim after the

official of the bank receiving the insolvency of the bank. Central

check that the proceeds were intended Bank & T. Co. v. Ritchie (Wash.)

to pay and must pay the contractor supra.

who was repairing the damage to the In Capitol Nat. Bank v. Coldwater

house which this very check was deNat. Bank (1896) 49 Neb. 786, 59

signed to cover and satisfy. Miss Am. St. Rep. 572, 69 N. W. 115, writ

Sawyer testifies that, if she had of error dismissed in (1899) 172

known the bank was insolvent, she U. S. 434, 43 L. ed. 505, 19 Sup. Ct.

would not have placed the money in Rep. 873, it was said that a fund

the bank at all. The fair inference which comes into the possession of

from all her testimony is that she a bank, with respect to which the

would not have deposited the funds at bank has but a single duty to per- all if she had known that they would form, and that is, to deliver it to the

not safely reach the contractor. She person entitled thereto, is a trust

regarded the funds as equitably the fund, and is incapable of being com

money of the contractor, and the sole mingled with the general assets of the

purpose of depositing the check was bank, subsequently transferred to its to have the same forwarded for colreceiver.

lection and the proceeds safely reIn People v. City Bank (N. Y.) mitted and safely kept for Mr. Mcsupra, it was said with reference to Clutchie. The bank had notice that checks deposited in a bank for the McClutchie had an interest in the specific purpose of paying certain funds, and, with full knowledge of the notes held by a third person: “The facts, accepted the money as a dechecks were impressed with a trust, posit for a special purpose.

Under and no change of them into any other such circumstances, good faith on the shape could devest it so as to give the part of the bank required it safely bank or its receiver any different or to keep the funds to be applied as more valid claim to them than the directed. Under such circumstances, bank had before the conversion." the bank, we think, did not take title

to the proceeds of the draft, and it was never intended by the parties that the fund should be commingled with the general assets of the bank. It is contended by counsel for appellee that the proof does not show the bank was to deliver the proceeds to the contractor, but, on the contrary, that Miss Sawyer was to return and execute a check to the contractor after his contract was completed. This, we think, is not a controlling factor in the case, The contractor could not be paid, of course, until his work had been done according to the contract, and it was a mere detail as to whether the bank would directly turn the funds over to McClutchie or whether Miss Sawyer would return and herself draw a check in his favor. The essential feature of this agreement was that the money belonged to the contractor the moment his contract was completed.”

In Lamb v. Ladd (1922) 112 Kan. 26, 209 Pac. 825, it was held that the owner might recover as a trust fund a deposit made in a bank in an escrow account to be paid to a third person on the fulfilment by him of a certain contract for drilling an oil well, or returned to the depositor on the failure of the third person to carry out his part of the contract, where it appeared that he had so failed, and the bank had commingled the deposit with its general funds used in the general course of its banking business, and had subsequently become insolvent.

And see the reported case (HUDSPETH V. UNION TRUST & SAV. BANK, ante, 466), wherein it is held that where the buyer of a café deposited the purchase price with bank on condition that it was to be held until the seller fulfilled his contract with respect to the furnishing of the café, and the bank, in its receipt for the money,

set out the terms on which it was to be held, and embodied them also in a certificate of deposit which was issued therefor, the deposit was impressed with a trust entitling the seller to

a preference over the general creditors of the bank on its failure.

But where a deposit was made by the owner of land to secure a contractor who had agreed to bore a well thereon under the terms of the contract, and there was nothing to show that the particular fünd deposited, though placed to the trust fund account, was to be kept separate or segregated, and in fact it was not so treated, but was placed by the officer of the bank with moneys received from other depositors, it was held that there was no trust created with respect thereto, and, on the insolvency of the bank, there was no preference in favor of the claimants over the general creditors of the bank. Butcher v. Butler (1908) 134 Mo. App. 61, 114 S. W. 564, wherein it was said: "In the absence of proof to the contrary, a deposit is presumed to be general, and it devolves on the party who claims it is not to show that it was received by the bank with the agreement, expressed or clearly implied, that it should be kept separate from the other funds of the bank, and the identical money returned to the depositor. The deposit under consideration, we think, was general, not special. There was no intention or thought entertained by Becker, Butcher, or the bank that the funds deposited were to be kept separate and the bank deprived of their use. It was the idea to put the money beyond the control of the depositor Becker, to protect the contingent interest in it given to Butcher by the contract, but when the time should come for the money to be paid out, the obligation of the bank was to make the payment out of its general funds, and not to return the identical money. The legal title thus was vested in the bank, and it was guilty

wrong in commingling that money with its other money. The facts that the bank was to recognize Butcher as the owner of the beneficial interest in the deposit only on the happening of a certain event, and that until then Becker should have no control over the deposit, did not alter the character of the bank's relation


of no


to the deposit. In making it in the livered to him, constitutes a deposit manner he did, Becker was acting for a special purpose, and, as such, both for himself and as the agent of impressed with a trust entitling the Butcher to the extent of the contin- seller to preference on the bank's ingent interest the latter had in the solvency, provided he can trace the money. The bank became the debtor funds or their equivalent. Covey of both parties, was bound to pay the v. Cannon (1912) 104 Ark. 550, 149 money out at any time on their

S. W. 514, wherein it was said: “It joint check, and, until the occurrence was not the purpose nor intention of of the determinative event, was not Mason or Cannon, upon placing the entitled to honor the individual check checks and drafts with the contracts of either. This arrangement did not of purchase and the deeds to be held constitute the bank technical in the bank and delivered when the trustee of the deposit. Such transac- trades were consummated, that the tions are common in banking, and our checks should be cashed and the attention has not been called to any money deposited therein to their credprinciple which sustains the conten- it, and the bank did not understand tion that restrictions of such nature that such was the purpose, as clearly on the drawing out of a deposit are shown by its marking the account sufficient in themselves to deprive the 'Escrow' in each instance. This was bank of the use of the money de- all done without the knowledge of posited. There is nothing to change either of the parties, and doubtless our conclusion that this was a gen- for its own convenience, to identify eral deposit in the fact that the bank the fund. Said deposits, in any event, entered the transaction on its books were not general, but special, dein what is called 'a trust fund ac- posits for a particular purpose. The count. That was a mere name used funds were so placed to the credit of in bookkeeping, and while its use these individuals as depositors withhas some evidentiary significance, it out right and authority, and wrongis not conclusive of the question of fully mingled with the funds of the whether the account was general or bank. The ordinary relation of debtor special, and is overborne by facts and creditor was not thereby estaband circumstances of overwhelming lished, nor did the funds lose their weight, which show that the deposit character as trust funds by being so was intended to be general.”

wrongfully used and commingled with

the funds of the bank.” b. Deposit to await closing of sale.

Where a purchaser of real estate Where a purchaser of land placed

delivered to a bank a sum of money a draft pinned to the contract of sale to be paid over to the seller when with a bank, to be held in escrow un- he should present to the bank a til the deal for the land had been warranty deed, properly executed, toconsummated, which the bank agreed gether with an abstract showing good to do, marking the deposit slip with title, and took a receipt from the the word "Escrow," it was held to con- bank, reciting the purpose for which stitute a special deposit impressed the money was left with it, on the with a trust; and the unauthorized subsequent failure of the bank it was act of the cashier in having the draft

held that the fund was impressed with cashed and the proceeds mingled with

a trust, and could be recovered from the general funds of the bank was

the receiver in preference to the held not to change its nature. Schulz general creditors of the bank. And v. Bank of Harrisonville (1923) the fact that the bank, without the Mo. App. –, 246 S. W. 614.

knowledge or consent of the purThe delivery of checks, given for chaser, gave credit on its books to the purchase price of land, to a bank, him as of a general deposit, and with the understanding that they are mingled the money with its general to be held for the seller until the funds, was held not to change the transaction is completed, and then de- character of the transaction. Kimmel

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