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(- Iowa, 194 N. W. 957.) It is contended by appellants up- the amounts wrongfully withdrawn, on the authority of Garst v. Can- and the cestuis que trustent had a field, 44 R. I. 220, 116 Atl. 482, and right to adopt such acts for their Hungerford v. Curtis, 43 R. I. 124, benefit, so as to entitle them to the 12 A.L.R. 1040, 110 Atl. 650, that funds so restored, unless it appeared the court will presume that deposits that the money used in making such made after July 6 were of funds be- restoration belonged to someone othlonging to the commission company, er than the depositor. and that they were made for the We are not disposed to follow the purpose of replacing trust funds. Rhode Island cases to the disregard If we were disposed to follow these of this distinction. If they are so cases, the difficulty would be that followed

followed the logical conclusion the inference to be drawn from all would be that, to the extent of plainthe testimony is that these subse- tiffs' claim, the subsequent deposits quent deposits were the proceeds by the commission company would received from the sale of live stock constitute a trust fund, and could consigned to the commission com- not be applied by the bank to the pany by others, and sold by it in the liquidation of either the commission regular course of the commission company's indebtedness to the bank, business, and that the only interest or the individual indebtedness of the commission company had there. Ward, while we understand the in was such charges as it could present contention of appellants to rightfully make against its custom- be that the bank was not entitled to ers. In other words, it appears the make the latter application, on the money so subsequently deposited theory that it was not an indebtedwas not the money of the commis- ness of the depositor. If the docsion company, but belonged to oth- trine of the Rhode Island cases is ers. It is not so much regard for not followed, or the distinction the interests of these others—the pointed out is preserved, then the owners of the funds so deposited-- subsequent deposits did not take on that stands in the way of impress- the character of a trust fund being a trust on these funds in plain- longing to plaintiffs, and the plaintiffs' favor, but the fact that no pre

tiffs stood in no favored position in sumption will be entertained that respect to the funds so deposited. the deposit of funds not belonging They were general creditors merely, to the commission company was in- with no lien or preferred claim of tended as a replenishment of the de- any character upon it. In this view pleted trust fund belonging to of the situation they are in no posiplaintiffs. This distinction is recog- tion to complain in this action of nized in Baker v. New York Nat. any disposition made of such subExch. Bank, 100 N. Y. 31, 53 Am. sequent deposits. Rep. 150, 2 N. E. 452, where it is The bank applied a portion of the said it did not appear there were

funds so deposited to the payment any unsettled accounts of Wilson & of an obligation that, on the face of Brother (the factor and trustee) it, was the individual undertaking with any other person or persons

of Ward, but which appears, in fact, for whom they were agents. In

to have been given for money that United Nat. Bank v. Weatherby, 70

went to the use of the commission App. Div. 279, 75 N. Y. Supp. 3, it company

The commission comwas held that withdrawals and res- pany and Ward both acquiesced in torations of the trust fund did not this, and plaintiffs, operate to extinguish the identity of as mere

general Bank-applicathe trust fund originally deposited, creditors in respect claim-right of since, the withdrawals being wrong

-stranger to

to all of the deposit ful, the wrongdoer would be pre- not impressed with sumed to have intended the subse- a trust on their behalf, are in no quent deposits as a restoration of position here to question it.

The

reach.

same thing is true, we think, in re- claiming it. We see no reason why spect to the item of $200 applied by plaintiffs may not, in this equitable the bank to the commission compa- action, under their prayer for genny's obligation to pay stockyards eral equitable relief, be awarded charges.

this. Such a result is not in conIt does appear, however, that travention of the Negotiable Instruthere is a balance in the bank to the ment Act (Code Supp. $ 3060a189), credit of the commission company, as construed by this court. That though now in the form of cashierz

section is for the protection of the checks, of $2,338.03. This sum in

bank. Hove v. Stanhope State cludes the $1,570.35 which we hold

Bank, 138 Iowa, 39, 115 N. W. 476: was the balance upon which a trust in favor of plaintiffs should be im

Dolph v. Cross, 153 Iowa, 289, 133

N. W. 669; McClain & Norvey v. pressed. Under their prayer for general relief we think plaintiffs are

Torkelson, 187 Iowa, 202, 5 A.L.R. entitled, in addition

1665, 174 N. W. 42. -right to balto the $1,570.35, to

In all other respects, the petition ance of deposit. the remainder of

for rehearing is overruled. The the balance to the credit of the com

judgment of the court below is remission company, or a total amount versed, and the cause remanded for of $2,338.03, with interest.

judgment and decree in harmony The bank has no claim upon this

with the views expresed in this supbalance, and no other creditor is plemental opinion.

ANNOTATION.

Right of bank to apply upon debt deposits made by debtor in his own name

of funds of a third person. I. Scope, 756.

II. a-continued. II. Effect of knowledge of fiduciary char

3. Effect of consent of deposiacter of funds, 756.

tor, 757. III. Effect of lack of knowledge of fiduci

[No later decisions herein.) ary character of funds:

4. Theory of conversion by dea. General rule permitting appli

positor, 757.

[No later decisions herein.] cation:

b. Equitable rule, 757. 1. In general, 757.

c. Special instances of denial of 2. Funds of secret partnership,

right to apply, 758. 757.

IV. What constitutes notice to depositary, [No later decisions herein.)

758.

1. Scope. This annotation is supplemental to one on the same subject in 13 A.L.R. 324, to which reference should be made for the earlier cases. II. Effect of knowledge of fiduciary

character of funds. (Supplementing annotation in 13 A.L.R. 325.)

The universally accepted rule that knowledge upon the part of a bank that deposits made by a debtor in his own name belong to a third person absolutely precludes the bank from applying such funds to the individual indebtedness of the depositor to it is

recognized in the following recent cases:

United States. - Security Bank & T. Co. v. Green (1923) 288 Fed. 317, affirming (1921) 273 Fed. 258; Beaver Boards Cos. v. Imbrie & Co. (1923) 287 Fed. 158, affirmed in Fulton Nat. Bank v. Hosier (1923) 295 Fed. 611.

Alaska. Holman Tjosevig (1922) 6 Alaska, 690.

Arkansas. — Wimbereley v. Bank of Portia (1923) 158 Ark. 413, 250 S. W. 334.

California. American Surety Co. v. Bank of Italy (1923) Cal. App. -,218 Pac. 466.

Colorado. Drovers' Nat. Bank v.

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Okla. -,

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Denver Live Stock Exch. (1923)
Colo. — 220 Pac. 402.

Idaho. Bellevue State Bank v. Hailey Nat. Bank (1923) Idaho, 215 Pac. 126.

Iowa.-CABLE v. IOWA STATE BANK (reported herewith) ante, 748.

Nebraska. See State v. American State Bank (1922) 108 Neb. 129, 187 N. W. 769.

Oklahoma. Southwest Nat. Bank v. Evans (1923) Okla. 221 Pac. 53; Southwest Nat. Bank v. McVey (1923)

221 Pac. 784. Texas. Steere v. Stockyards Nat. Bank (1923) Tex. . -, 256 S. W. 586, rehearing in (1924) - Tex,-, 258 S. W. 1042—quoting annotation in 13 A.L.R. 324 and 334,

Vermont. Hall v. Windsor Sav. Bank (1923) — Vt. 121 Atl. 582.

To illustrate: In Drovers' Nat. Bank v. Denver Live Stock Exch. (Colo.) supra, it was held that a bank which received a deposit, knowing that it represented the money received for live stock sold by the depositor on a commission basis, and applied the deposit to the individual indebtedness of the depositor, could not hold the same as against the depositor's customer to whom the funds, less commissions, belonged. III. Effect of lack of knowledge of fidu

ciary character of funds. a. General rule permitting application.

1. In general. (Supplementing annotation in 13 A.L.R. 327.)

Supporting the general rule to the effect that where the bank in which funds in which third persons have an interest are deposited in the individual name of the depositor has neither knowledge, nor notice of facts sufficient to put it upon inquiry, as to the true character of the deposit, it may apply the deposit to the individual debt of the depositor, are the following cases: CABLE v. IOWA STATE BANK (reported herewith) ante, 748, superseding opinion reported in (1922) Iowa, 190 N. W. 262; Gillette v. Liberty Nat. Bank (1923) Okla. 218 Pac. 1057; Southwest Nat. Bank v. Evans (1923)

Okla. 221 Pac. 53; Southwest Nat. Bank v. McVey (1923) Okla.

221 Pac. 784; Steere v. Stockyards Nat. Bank (1923) Tex. 256 S. W. 586, rehearing in (1924) Tex.

258 S. W. 1042—quoting annotation in 13 A.L.R. 327. And see Holman v. Tjosevig (1922) 6 Alaska, 690.

2. Funds of secret partnership. No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 328.

3. Effect of consent of depositor. No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 329. 4. Theory of conversion by depositor.

No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 330.

b. Equitable rule. (Supplementing annotation in 13 A.L.R. 330.)

The equitable rule that a bank, even though it has no knowledge, either express or implied, that another than the depositor has an interest in funds deposited in his own name, cannot apply such funds to the individual indebtedness to it of the depositor, where such lack of knowledge has not resulted in any change in the bank's position, and no superior equities have been raised in its favor, was adopted in the recent case of Beaver Boards Cos. v. Imbrie & Co. (1923) 287 Fed. 158, affirmed in Fulton Nat. Bank v. Hosier (1923) 295 Fed. 611, where, in holding that a bank in which a broker had deposited the check of his customer, drawn to buy stock for the latter, could not set off the amount thereof against the individual indebtedness of the depositor to it, even though it had no notice of the drawer's equity, the court said: “The first test of who it is that he owes is the legal liability. But this may be affected by the equities of others in the debt. If he knows of these equities, his legal right to set-off, like other legal rights, becomes subject to known equities.... If the equity is unknown, it may still prevail, if asserted before the banker has acted, or

.

refrained from acting, on the faith of debtor, acting as his agent, to make the appearances of the matter. If he a deposit in the debtor's name rather has given credit to the deposit, he is than in the name of such third party, protected as a sort of bona fide pur- who is the actual owner of the funds." chaser, or, perhaps more correctly, it

c. Special instances of denial of right to becomes a case in which one of two

apply. innocent parties must suffer from the wrongful act of a third, in which case

(Supplementing annotation in 13

A.L.R. 333.) the loss is visited upon him who put it in the power of the wrongdoer to

In Gillette v. Liberty Nat. Bank inflict the loss. If he had given no

(1923) Okla. - 218 Pac. 1057, credit to the deposit, he is then in the

where w. deposited a fund to the situation of mere volunteer, against

credit of P., without authority from whom equities may be freely asserted.

P., which fund belonged to G., which

fact, however, was not known by In the present case the bank, by contract, stipulated for the main

either the bank or W., and the bank tenance, subject to set-off, of a deposit applied the deposit in satisfaction of balance of certain amount. This

past-due indebtedness of P. to it, it

was held that the set-off was wrongbalance was maintained outside of the

ful and that fund in controversy, and it alone

the appropriation seems reasonably to have been cred

amounted to a conversion of the fund. ited by the bank. No new loan, nor

In reaching this conclusion the court any renewal of an old one, occurred

recognized the general rule that a between the deposit of the sum in con

bank may apply a deposit to past-due troversy and the failure; no checks

indebtedness, even though the depos

it is in fact owned by a third person, were honored which would not have been honored had this deposit not

if the bank has no notice of such been made. The bank shows nothing

ownership; but held that, for such to rebut or hinder the equity of

rule to be applicable, the deposit must Hosier, notwithstanding it had no

have been such a one as would create notice of his equity. The bank

the relation of debtor and creditor should, therefore, be decreed to sur

between the depositor and the bank, render to the receivers the sum in

which relationship, it was further decontroversy, and they, in turn, should

clared, was not created in the case

under consideration, because of the surrender it to Hosier." And in First Nat. Bank v. First

fact that the deposit was made by a State Bank (1923) Tex. Civ. App.

third person, W., without the knowl252 S. W. 1089, in holding that

edge or consent of P., the debtor of a bank could not apply upon the

the bank. individual indebtedness of a depositor IV. What constitutes notice to deposithe funds of a third person deposited

tary. in his own name,-at least, where it (Supplementing annotation in 13 had not changed its position,-the A.L.R. 334.) court said: "The appellant bank In Steere v. Stockyards Nat. Bank suffered no loss by the transaction. (1923) "Tex. —, 256 S. W. 586, Its position was in no way changed rehearing in (1924) - Tex. - 258 or prejudiced. To require payment of S. W. 1042, quoting and applying the funds to the Campbell State Bank the rule, as stated in 13 A.L.R. 334, leaves the appellant bank in precisely that where the bank, although having the same situation where it stood at no actual notice of the character of the time the deposit was made in re- funds deposited with it, has knowllation to Gilbreath's indebtedness to edge of such circumstances as are reit. Under these circumstances the garded as sufficient to necessitate incontention is untenable that a bank quiry upon its part, the bank, cancan offset an indebtedness to it with not, as against the true owner, set money belonging to a third party, off such funds against the individual merely because such party permits the indebtedness of the depositor to the

was

bank, the court held that knowledge upon the part of the bank that at least one third of the sums deposited by a commission firm belonged to its customers imposed upon the bank the duty of making inquiry before appropriating a deposit in satisfaction of the individual debt of the depositor, and this, although no descriptive words were added to the depositor's name in making the deposit. In this case the court also said that, where a bank knows that part of a deposit is trust funds, it must separate the trust funds from the moneys of the latter before making any application of the deposits in satisfaction of the individual debt to it of the depositor.

So, in the reported case (CABLE V. IOWA, STATE SAV. BANK, ante, 748), it was held that where a bank knows that a commission house deposits the proceeds of sales and transmits the proceeds by check, it is charged with notice that the only interest which the depositor has in deposits from the proceeds of sales is its commission and the expenses necessary to the handling and disposition of consignments, so as to prevent application by the bank of the whole deposit to the individual indebtedness to it of the depositor.

And in Southwest Nat. Bank Evans (1923) Okla. 221 Pac. 53, where a live-stock brokerage company customarily deposited the funds of its customers to its individual account, which fact was known to the bank, it was held that the nature of the brokerage company's business handled through the bank was sufficient to charge the latter with notice

that the company was acting as agent in depositing a check for the price of a carload of cattle, or at least sufficient to create an issue of fact on that issue, so that a finding against the bank precludes it from upholding an appropriation of the amount of the check to the individual indebtedness to it of the brokerage company. This decision was followed in Southwest Nat. Bank v. McVey (1923) Okla. 221 Pac. 784, which was said to involve similar facts.

On the other hand, in Beaver Boards Cos. v. Imbrie & Co. (1923) 287 Fed. 158, affirmed in Fulton Nat. Bank v. Hosier (1923) 295 Fed. 611, it held that knowledge upon the part of the bank that its debtor depositors sometimes acted as brokers was not notice that a particular check, apparently belonging to them, really belonged to the drawer, and that such knowledge did not require that the bank inquire as to the real ownership of the check.

In Hall Windsor Sav. Bank (1923) Vt. -, 121 Atl. 582, it was held that the addition of the word “Executor" to the name of the payee of a check was enough to charge the bank in which it was deposited with notice that the funds belonged to some estate of which the payee depositor was the executor, so render illegal the application by the bank of the deposit to the individual indebtedness of the depositor. In connection with this case it should be remembered that, as is shown in 13 A.L.R. 335 et seq., there are many authorities to the contrary, as well as others in support of the conclusion reached by the court. G. J. C.

V.

V.

as to

.

DISTRICT GRAND LODGE NO. 18, GRAND UNITED ORDER ODD

FELLOWS,

V.
SALLIE COTHRAN, Admrx., etc., of Allen Ray, Deceased.

Georgia Supreme Court October 12, 1923.

(156 Ga. 631, 119 S. E. 594.) Insurance — predecease of beneficiary — who may enforce.

1. Where the wife of a member of a mutual benefit association, who is Headnotes by HILL, J.

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