Deposit for Specific Purpose

Where a deposit is made with the understanding that the bank is to apply it to a specific purpose, as to pay it to a designated person, or to pay a certain note, or to remit, the transaction is sometimes called a specific deposit,29 but more often misleadingly, a special deposit.30

It is, of course, the duty of the bank to obey the instructions of the depositor, which indicate the purpose to which the deposit is to be applied.31 If a deposit of money be upon such terms that the bank is not permitted to mingle it with its own funds, it is clear that it is not an asset of the bank, but that a trust relation is established, and that, if the bank mingles the money with its own funds, the depositor or the benefi

788; Gray v. Merriam, 148 Ill. 179, 35 N. E. S10, 32 L. R. A. 769, 39 Am. St. Rep. 172; Third Nat. Bank of Baltimore v. Boyd, 44 Md. 47, 22 Am. Rep. 35; Ouderkirk v. Central Nat. Bank of Troy, 119 N. Y. 263, 23 N. E. 875. See, also, Jenkins v. National Village Bank of Bowdoinham, 58 Me. 275; Dearborn v. Union Nat. Bank of Brunswick, 61 Me. 369. See "Banks and Banking," Dec. Dig. (Key No.) § 179; Cent. Dig. § 683.

29 The power to receive specific deposits is incidental to the ordinary banking business. Kansas Nat. Bank v. Quinton, 57 Kan. 750, 48 Pac. 20; American Nat. Bank of Arkansas City v. Presnall, 58 Kan. 69, 48 Pac. 556. See "Banks and Banking," Dec. Dig. (Key No.) § 120; Cent. Dig. §§ 293-302.

30 See Brahm v. Adkins, 77 Ill. 263; National Bank of Fishkill v. Speight, 47 N. Y. 668; Parker v. Hartley, 91 Pa. 465; Fort v. First Nat. Bank of Bateburg, 82 S. C. 427, 64 S. E. 405. See "Banks and Banking," Dec. Dig. (Key No.) § 153; Cent. Dig. §§ 483-501, 1007-1012.

31 See Drovers' Nat. Bank v. O'Hare, 119 Ill. 646, 10 N. E. 360: American Exch. Nat. Bank v. Loretta Gold & Silver Mining Co., 165 Ill. 103, 46 N. E. 202, 56 Am. St. Rep. 233; Parker v. Hartley, 91 Pa. 465; Bank of British North America v. Cooper, 137 U. S. 473, 11 Sup. Ct. 160, 34 L. Ed. 759.

The bank does not have a lien or right of set-off as with a general deposit. Wagner v. Citizens' Bank & T. Co., 122 Tenn. 164, 122 S. W. 245, 135 Am. St. Rep. 869. Banking," Dec. Dig. (Key No.) § 153;

Post, p. 61. See "Banks and

Cent. Dig. §§ 483-501, 1007

ciary under the agreement may follow the trust fund and reclaim it, provided it can be identified. On the other hand, if the deposit be upon such terms that it may be mingled with the bank's funds, the identity of the deposit is lost, and, notwithstanding that it is to be applied according to an agreement, and is not to be drawn upon by the depositor, like a general deposit, it seems that a strict trust is not established, since there is no definite res, but that the rights of the depositor and the beneficiary are merely contractual. 32 Where, for example, money is deposited for the purpose of paying the indebtedness of a third person, if no contrary instructions are given, it is customary to mingle the money with the funds of the bank, and upon principle it seems that the bank is to be regarded as the debtor of the depositor.33 In this view, neither the depositor nor the beneficiary under the agreement are entitled to any preference over other creditors if the bank fails to apply the funds according to the agreement.34

32 See Butcher v. Butler, 134 Mo. App. 61, 114 S. W. 564. See the illuminating notes, explaining the nature of the relation created by a deposit for a specific purpose, in 12 Harv. Law Rev. 221, and 16 Harv. Law Rev. 228, which have been followed in the text. Money deposited with a banker to secure him from liability on a bond, and mingled with the other funds of the bank with the knowledge of the depositor, passes to the banker's assignee, under a general assignment. Mutual Accident Ass'n of the Northwest v. Jacobs, 141 Ill. 261, 31 N. E. 415, 16 L. R. A. 516, 33 Am. St. Rep. 302. See "Banks and Banking," Dec. Dig. (Key No.) § 153; Cent. Dig. §§ 483-501, 1007-1012.

33 Morse, Banks & B. (4th Ed.) § 210.

34 In re Barned's Banking Co., 39 L. J. Ch. 635 (distinguishing Farley v. Turner, 26 L. J. Ch. 710); In re Hosie, 7 N. B. R. 601, Fed. Cas. No. 6,711.

Where a corporation agreed to keep on deposit a sum sufficient to protect certain shares of its stock deposited as collateral to secure loans made to its stockholders, there being no evidence that the deposit was special, or that the bank was not to use it as its other funds, the deposit was not a trust, entitling the depositor to a preference. State Bldg. & Sav. Ass'n v. Mechanics' (Tenn. Ch.) 36 S. W. 967. See "Banks

Savings Bank & Trust Co.

The fact, however, that the relation is more than that of debtor and creditor, in that the bank undertakes the duty of applying the deposit, has led, or misled, the courts generally into holding that a trust relation is established, whereby the bank holds the deposit or fund as trustee, and that upon the bank's insolvency, provided the deposit can be traced into assets which have come into the hands of a receiver or assignee, the depositor or the beneficiary, as the case may be, is entitled to a preference over the general creditors.35

and Banking," Dec. Dig. (Key No.) § 153; Cent. Dig. §§ 483-501, 1007-1012.

35 Woodhouse v. Crandall, 197 Ill. 104, 64 N. E. 292, 58 L. R. A. 385; Shopert v. Indiana Nat. Bank, 41 Ind. App. 474, 83 N. E. 515; Whitcomb v. Carpenter, 134 Iowa, 227, 111 N. W. 825, 10 L. R. A. (N. S.) 928; Peak v. Ellicott, Assignee, 30 Kan. 156, 1 Pac. 499, 46 Am. Rep. 90; People v. City Bank of Rochester, 96 N. Y. 32; Farmers' & Mechanics' Nat. Bank v. King, 57 Pa. 202, 98 Am. Dec. 215; Massey v. Fisher (C. C.) 62 Fed. 958; Moreland v. Brown, 86 Fed. 257, 30 C. C. A. 23. A tenant deposited money to be held by the bank as security to the landlord for performance of his lease, the bank to pay to the landlord such portion thereof as would satisfy any damages he might sustain by the tenant's default, and after a certain time to hold the same to the credit of the landlord and to pay to him in monthly installments. Held, that the deposit created a trust fund, and that the landlord could follow and recover it from the bank's receiver in preference to the general creditors. Woodhouse v. Crandall, 197 Ill. 104, 64 N. E. 292, 58 L. R. A. 385.

In Farley v. Turner, 26 L. J. Ch. 710, a country bank received from a customer money with instructions to pay a certain bill accepted by him and payable at R. & Co.'s in London. The bank caused money to be paid to R. & Co. to meet the bill, who accepted the money for that purpose, but, upon hearing that the country bank had stopped payment, failed to pay the bill. It was held that, the money having been placed with the country bank to be applied to a particular purpose, the money paid to R. & Co. belonged specifically to the customer and not to the general creditors of the country bank.

In Montagu v. Pacific Bank (C. C.) 81 Fed. 602, upon somewhat similar facts, a similar result was reached; Farley v. Turner be

Character of Deposits-How Determined

Whether a deposit is general or special, as well as whether it is specific, is to be determined by the agreement of the parties, express or implied. The nature of the deposit may, of course, show that it is special, as plate, or securities, or money in a box or sealed package.36 It will be inferred that a deposit of money is general, in the absence of evidence that it is intended to be special or specific. In the case of paper,

37

ing approved. See comment on this case in 11 Harv. Law Rev. 202.

In re Barned's Banking Co., 39 L. J. Ch. 635, money was paid into a bank for a special purpose, and the bank stopped payment before so applying it. The court distinguished Farley v. Turner on the ground that there the country bank had applied the money, and the town agent had received it for that purpose, while here there was no application of the money, so that the payer had no lien, but merely a right to prove with the general creditors of the bank. See "Banks and Banking," Dec. Dig. (Key No.) §§ 80, 153; Cent. Dig. $$ 483-501, 1007-1012.

36 Dawson v. Real Estate Bank, 5 Ark. 283; Foster v. President, etc., of Essex Bank, 17 Mass. 479, 9 Am. Dec. 168.

A depositor who receives a certificate of deposit, and who draws part and requests the bank to put the balance away in a separate package, is not entitled, on the bank's insolvency, to a preference, though the bank promised to do so, but did not. Bayor v. American Trust & Savings Bank, 157 Ill. 62, 41 N. E. 623. See "Banks and Banking," Dec. Dig. (Key No.) § 153; Cent. Dig. §§ 483-485.

37 Alston v. State, 92 Ala. 124, 9 South. 732, 13 L. R. A. 659; Schofield Mfg. Co. v. Cochran, 119 Ga. 901, 47 S. E. 208; Ward v. Johnson, 95 Ill. 215; Mutual Acc. Ass'n of the Northwest v. Jacobs, 141 Ill. 261, 31 N. E. 414, 16 L. R. A. 516, 33 Am. St. Rep. 302; State v. Dickerson, 71 Kan. 769, 81 Pac. 497; Butcher v. Butcher, 134 Mo. 61, 114 S. W. 564; Nichols v. State, 46 Neb. 715, 65 N. W. 774; Cragie v. Hadley, 99 N. Y. 131, 1 N. E. 537, 52 Am. Rep. 9; Myers v. Twelfth Ward Bank, 28 Misc. Rep. 188, 58 N. Y. Supp. 1065; Lennan v. Pollock State Bank, 21 S. D. 511, 110 N. W. 834; State Bldg. & Sav. Ass'n v. Mechanics' Savings Bank & Trust Co. (Tenn. Ch.) 36 S. W. 967; Dearborn v. Washington Sav. Bank 13 Wash. 345, 42 Pac. 1107. See "Banks and Banking," Dec. Dig. (Key No.) § 153; Cent. Dig. §§ 483-485.

the nature of the deposit may be indicated by its being credited as paper or as cash.38

RECEIPT AND ENTRY OF GENERAL DEPOSITS

7. BY WHOM RECEIVED-In order that a deposit shall bind the bank, it must be made with an officer authorized to receive it.

8. ENTRY IN PASS BOOK-An entry made by the bank in the pass book of a depositor, crediting him with the amount of a deposit, is in the nature of a receipt, and may be varied by oral evidence.

Mode of Depositing-With Whom

39

40

A deposit must be made with an officer of the bank who is authorized to receive it, in order to render the bank liable thereon. The receiving teller, where there is such an officer, is ordinarily the proper person to whom to deliver money for general deposit. Delivery to the receiving teller, or to the cashier, or to the president,2 is sufficient. If delivery is made to some other officer, in order to charge the bank it must be shown that he had authority, either express or implied, as by the usage of the bank, or from the circumstances surrounding the transaction, to receive it. Of course, if the

41

38 Post, p. 34.

39 Bickley v. Commercial Bank, 39 S. C. 281, 17 S. E. 977, 39 Am. St. Rep. 721; Jumper v. Commercial Bank, 39 S. C. 296, 17 S E. 980. See "Banks and Banking," Dec. Dig. (Key No.) § 121; Cent. Dig. §§ 293-302.

40 Post, p. 327.

41 Post, p. 321.

42 Hazleton v. Union Bank of Columbus, 32 Wis. 34. But see, Bickley v. Commercial Bank, 39 S. C. 281, 17 S. E. 977, 39 Am. St. Rep. 721; post, p. 315. See "Banks and Banking," Dec. Dig. (Key No.) § 121; Cent. Dig. §§ 293-301.

43 Terrell v. Branch Bank at Mobile, 12 Ala. 502; President, etc., of Manhattan Co. v. Lydig, 4 Johns. (N. Y.) 377, 4 Am. Dec. 280; Thatcher v. Bank of State of New York, 5 Sandf. (N. Y.) 121;