have a pro rata share of the fund was not raised or decided in the lower court. Neither do we pass upon it. The claim of appellant was filed within the time allowed by the court.

For the reasons given, the judgment of the District Court is reversed.

Weaver, Stevens, and De Graff, JJ., concur.

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, 476.

c. Deposit to await outcome of litigation, 478.

1. Introductory.

The question whether a deposit in a bank for the purposes of a transaction between the depositor and a third person creates a trust relation giving a preference on the insolvency of the bank depends on the nature of the deposit,-whether general or special, or rather, of a special nature. As a rule, when money is deposited in a bank, title to the money passes to the bank. The bank becomes the debtor of the depositor to the extent of the deposit, and to that extent the depositor becomes the creditor of the bank. Such a deposit constitutes a part of the assets of the bank, and, in case of insolvency, belongs to the creditors of the bank in proportion to the amount of their respective claims. Among the exceptions to this rule are, first, where the money or other thing is deposited with the understanding that that particular money or thing is to be returned to the depositor; and, second, where the money or other thing deposited is to be used for a specifically designated purpose. It is with the second of these exceptions that this annotation deals, which, however, though not within the literal meaning of the term "special deposit," is frequently referred to or known as a "special deposit," and, in so far as it gives rise to a trust or preference, is gov

erned by the same rules and principles as apply to special deposits. At the outset those claiming the existence of a trust relationship arising from such a deposit are met with the general presumption that a deposit in a bank is presumed to be general in the absence of an agreement to the contrary. As to the existence of such an agreement, it is well said in 3 R. C. L. 517: "The law prescribes no particular formula for the contract involved in making a special deposit. Like all contracts, it grows out of the mutual intention and understanding of the parties. The purpose and terms

the deposit may be explicitly stated, or the intention of the parties may be inferred from their declarations, considered in connection with their conduct and all of the circumstances." It is the purpose of this annotation to collect those cases in which the court has been called on to determine the nature of a deposit claimed to have been made for the purpose of a transaction with a third person. Once established as a special deposit, it is entitled to the privileges attaching to such deposits, and may be recovered from the receiver of an insolvent bank in preference to the general creditors, provided it can be traced in accordance with the rules governing the tracing of trust funds. No attempt, however,

has been made to treat the doctrine of tracing trust funds. Cases dealing with the rights and liabilities arising from the deposit of collateral security are excluded, as are those treating the rights of the parties where money received by a bank from collections made for a customer is deposited in the general funds. Also cases are excluded which deal with the effect of taking a deposit, knowing at the time that the bank is insolvent, and those which relate to the deposit of trust funds by one occupying a fiduciary relation.

II. In general.

It may be stated as a general rule that where a deposit is made in a bank with the distinct understanding that it is to be held by the bank for the purpose of furthering a transaction between the depositor and a third person, or where it is made under such circumstances as give rise to a necessary implication that it is made for such a purpose, the deposit becomes impressed with a trust which entitles the depositor to a preference over the general creditors of the bank where it becomes insolvent while holding the deposit. United States. St. Louis v. Johnson (1879) 5 Dill. 241, Fed. Cas. No. 12,235; Montagu Pacific Bank (1897) 81 Fed. 602; Moreland V. Brown (1898) 30 C. C. A. 23, 56 U. S. App. 722, 86 Fed. 257; Merchants' Nat. Bank v. School Dist. (1899) 36 C. C. A. 432, 94 Fed. 705.

v.

New York. People v. City Bank (1884) 96 N. Y. 32; Bergestresser v. Lodewick (1899) 37 App. Div. 629, 59 N. Y. Supp. 630.

North Dakota. Widman v. Kellogg (1911) 22 N. D. 396, 39 L.R.A. (N.S.) 563, 133 N. W. 1020.

South Dakota. Kimmel v. Dickson (1894) 5 S. D. 221, 25 L.R.A. 309, 58 N. W. 561; Stoll v. Meade County Bank (1917) 39 S. D. 136, 163 N. W. 565.

Washington.

Carlson v. Kies (1913) 75 Wash. 171, 47 L.R.A.(N.S.) 317, 134 Pac. 808; Central Bank & T. Co. v. Ritchie (1922) 120 Wash. 160, 206 Pac. 926.

As was said in Montagu v. Pacific Bank (1897) 81 Fed. 602, with reference to a deposit made for the specific purpose of having it transmitted to a third person: "It is plain that the deposit in this case should be treated as a special deposit, made for a particular purpose, and not as a general deposit. It was therefore in the nature of a bailment, the complainants never having parted with their title to the money. Consequently a trust was impressed upon this $5,000 in favor of complainants, and it does not belong to the general creditors of the bank."

"A deposit in a bank is either general or special. Where a general deposit is made, it is either credited to the account of a depositor, subject to his check, or evidenced by a demand or time certificate. The title to the

deposit in such cases passes to the bank, and it becomes the debtor of the depositor. On the other hand, when a bank accepts a special deposit, it becomes a trustee of the depositor, and holds the money subject to the trust. The receipt itself affords strong, if not conclusive, evidence of a special deposit. It shows that the money was placed in the bank for a special purpose. Fortified by the evidence of the depositor and the admitted circumstances here present, it is obvious that both parties to the transaction intended to make a special, and not a general, deposit. It follows, therefore, that the bank holds the money, not as a general debtor, but in a fiduciary capacity." Carlson v. Kies (Wash.) supra.

The relation of a bank toward a depositor who places money with it for the special purpose of paying a note held by a third person is that of a trustee, and the amount so deposited is a special deposit within the rule allowing the recovery of a special deposit as a preferred claim after the insolvency of the bank. Central Bank & T. Co. v. Ritchie (Wash.) supra.

In Capitol Nat. Bank v. Coldwater Nat. Bank (1896) 49 Neb. 786, 59 Am. St. Rep. 572, 69 N. W. 115, writ of error dismissed in (1899) 172 U. S. 434, 43 L. ed. 505, 19 Sup. Ct. Rep. 873, it was said that a fund which comes into the possession of a bank, with respect to which the bank has but a single duty to perform, and that is, to deliver it to the person entitled thereto, is a trust fund, and is incapable of being commingled with the general assets of the bank, subsequently transferred to its receiver.

In People v. City Bank (N. Y.) supra, it was said with reference to checks deposited in a bank for the specific purpose of paying certain notes held by a third person: "The checks were impressed with a trust, and no change of them into any other shape could devest it so as to give the bank or its receiver any different or more valid claim to them than the bank had before the conversion."

III. Deposits for particular purposes.

a. Deposit to await fulfilment of contract

generally.

Where the owner of a house damaged by fire took the check received from the insurance company to a bank, and stated that she wanted it collected and kept by the bank for the particular purpose of paying the contractor who was repairing her house, but refused to allow it to be credited to her checking account, whereupon she was given a receipt bearing the words "Sp. Dept.," it was held that, on the insolvency of the bank, her claim should be treated as a trust fund, entitling her to a preference over the general creditors of the bank. Sawyers v. Conner (1917) 114 Miss. 363, L.R.A.1918A, 61, 75 So. 131, Ann. Cas. 1918A, 388, wherein it was said: "The evidence shows that the depositor absolutely refused to permit the proceeds of the check in question to be deposited either to her checking account or her savings account. It was explained to the official of the bank receiving the check that the proceeds were intended to pay and must pay the contractor who was repairing the damage to the house which this very check was designed to cover and satisfy. Miss Sawyer testifies that, if she had known the bank was insolvent, she would not have placed the money in the bank at all. The fair inference from all her testimony is that she would not have deposited the funds at all if she had known that they would not safely reach the contractor. She regarded the funds as equitably the money of the contractor, and the sole purpose of depositing the check was to have the same forwarded for collection and the proceeds safely remitted and safely kept for Mr. McClutchie. The bank had notice that McClutchie had an interest in the funds, and, with full knowledge of the facts, accepted the money as a deposit for a special purpose. Under such circumstances, good faith on the part of the bank required it safely to keep the funds to be applied as directed. Under such circumstances, 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 a 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 fund 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 of no 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

to the deposit. In making it in the manner he did, Becker was acting both for himself and as the agent of Butcher to the extent of the contingent interest the latter had in the money. The bank became the debtor of both parties, was bound to pay the money out at any time on their joint check, and, until the occurrence of the determinative event, was not entitled to honor the individual check of either. This arrangement did not constitute the bank a technical trustee of the deposit. Such transactions are common in banking, and our attention has not been called to any principle which sustains the contention that restrictions of such nature on the drawing out of a deposit are sufficient in themselves to deprive the bank of the use of the money deposited. There is nothing to change. our conclusion that this was a general deposit in the fact that the bank entered the transaction on its books in what is called 'a trust fund account.' That was a mere name used in bookkeeping, and while its use has some evidentiary significance, it is not conclusive of the question of whether the account was general or special, and is overborne by facts and circumstances of overwhelming weight, which show that the deposit was intended to be general."

b. Deposit to await closing of sale. Where a purchaser of land placed a draft pinned to the contract of sale with a bank, to be held in escrow until the deal for the land had been consummated, which the bank agreed to do, marking the deposit slip with the word "Escrow," it was held to constitute a special deposit impressed with a trust; and the unauthorized act of the cashier in having the draft cashed and the proceeds mingled with the general funds of the bank was held not to change its nature. Schulz v. Bank of Harrisonville (1923) Mo. App. 246 S. W. 614.

The delivery of checks, given for the purchase price of land, to a bank, with the understanding that they are to be held for the seller until the transaction is completed, and then de

livered to him, constitutes a deposit for a special purpose, and, as such, impressed with a trust entitling the seller to preference on the bank's insolvency, provided he can trace the funds or their equivalent. Covey v. Cannon (1912) 104 Ark. 550, 149 S. W. 514, wherein it was said: "It was not the purpose nor intention of Mason or Cannon, upon placing the checks and drafts with the contracts of purchase and the deeds to be held in the bank and delivered when the trades were consummated, that the checks should be cashed and the money deposited therein to their credit, and the bank did not understand that such was the purpose, as clearly shown by its marking the account 'Escrow' in each instance. This was all done without the knowledge of either of the parties, and doubtless for its own convenience, to identify the fund. Said deposits, in any event, were not general, but special, deposits for a particular purpose. The funds were so placed to the credit of these individuals as depositors without right and authority, and wrongfully mingled with the funds of the bank. The ordinary relation of debtor and creditor was not thereby established, nor did the funds lose their character as trust funds by being so wrongfully used and commingled with the funds of the bank."

Where a purchaser of real estate delivered to a bank a sum of money to be paid over to the seller when he should present to the bank a warranty deed, properly executed, together with an abstract showing good title, and took a receipt from the bank, reciting the purpose for which the money was left with it, on the subsequent failure of the bank it was held that the fund was impressed with a trust, and could be recovered from the receiver in preference to the general creditors of the bank. And the fact that the bank, without the knowledge or consent of the purchaser, gave credit on its books to him as of a general deposit, and mingled the money with its general funds, was held not to change the character of the transaction. Kimmel