improper purpose, can be compelled to refund to the true Owner.84

And if by the drawer's mistake the proceeds of a draft are credited by the discounting bank to an agent, instead of his

ness, must refund it. An attachment may be granted against the bank for a conversion of the money. Kelsey v. Bank of Mansfield, 85 N. Y. App. Div. 334; Gerard v. McCormick, 130 N. Y. 261; Rochester Turnpike Co. v. Paviour, 164 N. Y. 281. The public deposit of an officer cannot be applied by him, or the bank, to discharge his private debt. Shepard v. Meridian Nat. Bank, 149 Ind. 532; Skipwith v. Hurt, 94 Tex. 322; Anderson v. Walker, 93 Tex. 119; Love v. Keowne, 58 Tex. 191; National Bank v. Investment Co., 74 Tex. 421; Carroll Co. Bank v. Rhodes, 69 Ark. 43, 48; State v. Hobson, 5 Ohio N. P. 321. The sureties on an officer's bond who have his shortage are subrogated to the rights of the county or other public body against the bank. Skipwith case, 94 Tex. 322; Boon Co. Bank v. Byrum, 68 Ark. 71; Carroll Co. Bank v. Rhodes, 69 Ark. 43. A deposit by a county treasurer to the credit of his trust of money previously borrowed from the bank on his individual note is a trust fund that is not subject to his individual check, nor to the lien of the bank for the money borrowed. Custer Co. v. Walker, 10 S. Dak. 594. The deposit of a corporation cannot be appropriated by a bank in payment of the private debt of an officer on a check signed by him for the corporation. Kelsey v. Bank of Mansfield, 85 N. Y. App. Div. 334; Gerard v. McCormick, 130 N. Y. 261; Rochester Turnpike Co. v. Paviour, 164 N. Y. 281; James Reynolds Elevator Co. v. Merchants' Nat. Bank, 55 N. Y. App. Div. 1; Baker v. N. Y. Nat. Ex. Bank, 16 Abb. N. C. 458; First Nat. Bank v. National Broadway Bank, 156 N. Y. 459, 467, 468; Cohnfeld v. Tanenbaum, 176 N. Y. 126, revg. 58 App. Div. 310; Ferry v. Home Sav. Bank, 114 Mich. 321; Merchants' Nat. Bank v. Detroit Knitting Works, 68 Mich. 620; Manhattan Web Co. v. Acquidneck Nat. Bank, 133 Fed. 76. See Johnson v. Hersey, 70 Me. 74. A joint deposit for a special purpose cannot be applied by the bank to pay the indebtedness of one of them. Columbia Finance & Trust Co. v. First Nat. Bank, 25 Ky. L. Rep. 561. A received a check payable to his order, endorsed it in blank, and delivered it to B, instructing him to obtain the money, and remit it to C. B endorsed the check in blank, presented it to the drawee bank which, after deducting B's indebtedness, paid him the balance. A recovered the sum thus deducted. Percival v. Strathmore, 112 Iowa 747.

84 First Nat. Bank v. First Nat. Bank, 58 Ohio St. 207; Manhattan Bank v. Walker, 130 U. S. 267. In Butler Co. v. Boatmen's Bank, 143 Mo. 13, 25, the deposit belonged to a county, which was known by the bank, yet it suffered the depositor to check it out and use it for his own purpose. The bank was liable therefor. Said the court: "The bank occupied to the county the relation of trustee and held the money as a trust fund which could only be applied to the payment of the [county obligations]. In such case the law is well settled that a misapplication of the

principal, the bank cannot afterward appropriate the money to extinguish the agent's indebtedness to itself.85

17. Its Use to Pay Other Debts.

While a bank cannot take and retain trust money within the control of a depositor in payment of his private debt to the bank, it cannot forbid him from using it in paying his debts to otners by refusing to honor his checks.86 Says a western tribunal: "A banker is not required to protect the rights of third persons, or to initiate any inquiry between him and the customer."87 This is generally true, yet on all occasions it is a dangerous doctrine to maintain, and courts may well hesitate to apply it to a bank having unquestioned knowledge that a depositor is perverting his trust for his own wrongful individual

funds would constitute a breach of the trust and the trustee would become answerable for all losses occasioned thereby."

The bank account of one as guardian was composed in part of money belonging to a corporation, of which the guardian was manager. Nevertheless, he had no right to divert any portion of the fund to the payment of the corporation's indebtedness, as the entire fund presumptively belonged to the beneficiary, of which the bank, by the signature of the checks of the drawer as guardian, had notice. Cohnfeld v. Tanenbaum, 176 N. Y. 126, revg. 58 App. Div. 310. If a bank advise an agent to deposit his principal's money in his own name, which is done, it is guilty of fraudulent conversion and an action may be maintained therefor against the bank. Commercial Bank v. Jones, 18 Tex. 811. A bank that permits an officer who is an agent of a depositor to transfer money from his principal's account to the credit of a concern in which it is known by the bank that he has a personal interest, is charged with knowledge of his perversion of the amount and is liable therefor. National Bank v. Munger, 36 C. C. A., 659; Chrystie v. Foster, 9 C. C. A, 606.

85 First Nat. Bank v. Gatton, 172 Ill. 625.

86 Nehawka Bank v. Ingersoll, 2 Neb. (Unof.) 617.

87 Rock Springs Nat. Bank v. Luman, 6 Wy. 123, 141; Duckett v. National Mech. Bank, 86 Md. 400, 406. A was the owner of the shares of a company, of which he was the managing director. He had a similar enterprise of his own. After a time he improperly transferred by check sums from the company's account to his individual account. The bank was under no duty “to inquire into the state of the accounts between the parties." Bank of New South Wales v. Goulburn Valley Butter Co., 87 Law Times (N. S.) 88.

88 In Rock Springs Nat. Bank v. Luman, 6 Wy. 123, 142, the court,

In a case of unusual interest and importance a trustee had two checks given to him; one was payable to the order of the cashier of a bank "to deposit to the credit of C trustee." The other was payable to the order of the same cashier “for deposit to the credit of C being the balance of purchase money due him as trustee from D." Both were placed to the credit of the personal account of C, who drew out the money for his own use and lost it. The court held that the bank had knowledge of the nature of the first check and did wrong in crediting it to C's personal account. Although he might, had the deposit been properly made, have drawn out the money as trustee and afterward misapplied it without thereby involving the bank, this was no excuse for the wrong actually committed and it was responsible for the amount.89

90

A general depositor, however, may deposit a check payable to him as trustee to his private account.9 This is the rule, but the wisdom of maintaining it may be questioned.

18. When it May be Used to Pay Depositor's Debt.

To this rule, that a bank cannot apply trust money to pay

after declaring that a bank is liable for converting a trust fund to its own use, adds: "Otherwise, when the payment is made to a third person at the direction of the trustee, as in that case the bank becomes the mere channel or medium through which the misapplication is made."

89 Duckett v. National Bank, 86 Md. 400, 406, citing Munnerlyn v. Augusta Sav. Bank, 88 Ga. 333; State Nat. Bank v. Reilly, 124 Ill. 464; Chosen Freeholders v. Newark City Nat. Bank, 48 N. J. Eq. 51; Walker v. Manhattan Bank, 25 Fed. 255. See this case in 130 U. S. 267; Swift v. Williams, 68 Md. 236. In the Duckett case the Maryland Court of Appeals said: "In the absence of notice or knowledge a bank cannot question the right of its customer to withdraw funds, nor refuse to honor his demands by check; and, therefore, even though the deposit be to the customer's credit in trust, the bank is under no obligation to look after the appropriation of the trust funds when withdrawn, or to protect the trust by setting up a jus tertii against a demand. But if the bank has notice or knowledge that a breach of trust is being committed by an improper withdrawal of funds, or if it participates in the profits or fruits of the fraud, then it will be undoubtedly liable."

90 Batchelder v. Central Nat. Bank, 73 N. E. (Mass.) 1024; Ashton v. Atlantic Bank, 85 Mass. 217; Safe Deposit & Trust Co. v. Diamond Nat. Bank, 194 Pa. 334.

the trustee's individual indebtedness to the institution, there is a noteworthy exception. If the bank did not know, so the courts have declared on many occasions, it can be retained.o1 This rests on the ancient and crumbling doctrine that money has no earmarks. Why should not the bank be required to refund to the rightful owner in all cases wherein its situation would not be worse than it was before receiving payment? No rule is better established than this, that trust funds do not lose their character by reason of depositing them to the individual account of the depositor.92 If, therefore, they still possess this character, why should they not be recovered, provided they can still be traced, regardless of their possessor?

This exception to the ordinary rule, that applies to every other kind of property,93 is so illogical that the courts are manifesting a healthy impatience to overthrow it. Accordingly, in

91 Holly v. Missionary Society, 180 U. S. 284; Dike v. Drexel, 11 N. Y. App. Div. 77, 82, 83; Myers v. N. Y. County Nat. Bank, 36 N. Y. App. Div. 482; Justh v. National Bank, 56 N. Y. 478; Stephens v. Board of Education, 79 N. Y. 183; Southwick v. First Nat. Bank, 84 N. Y. 434; Hatch v. Fourth Nat. Bank, 147 N. Y. 184; Newhall v. Wyatt, 139 N. Y. 452; Hutchinson v. Manhattan Co., 150 N. Y. 250; Goshen Nat. Bank v. State, 141 N. Y. 379; School District v. Bank, 102 Mass. 174; Wood v. Bank, 129 Mass. 358; First Nat. Bank v. City Nat. Bank, 102 Mo. App. 357; Safe Dep. & Trust Co. v. Diamond Nat. Bank, 194 Pa. 334; Smith v. Des Moines Nat. Bank, 107 Iowa 620, reviewing many cases; First Nat. Bank v. Valley State Bank, 60 Kan. 621; Sanborn v. First Nat. Bank, 90 S. W. 1033, citing many cases; Miller v. Race, 4 Burr. (Eng.) 452. A bank that appropriates money collected by a depositor as agent for another without any knowledge of its ownership, to pay his debt to the bank, cannot be recovered therefrom by the principal. London & River Plate Bank v. Hanover Nat. Bank, 36 N. Y. App. Div. 487. An agent collected rents of property held by two persons in common and deposited the money to their credit by himself as agent and afterward drew the money out on a check drawn and signed in their names by himself. The bank not knowing the ownership of the fund beyond the record of the deposit, was protected in its action. Carr v. Fidelity Bank, 126 N. C. 186.

92 This is essentially the Michigan view. Burtnett v. First Nat. Bank, 38 Mich. 630. The United States cannot hold, against the claim of an innocent beneficiary, a trust fund that has gone into the treasury through the fraud of its agent. United States v. State Bank, 96 U. S. 30.

93 Breckenridge v. McAfee, 54 Ind. 140, 141.

the more recent decisions,94 courts have required banks to account for the money they have thus sought to apply in a wrongful manner.

In one of the recent cases the maker of a note diverted his employer's money to pay it. The money was received by the payee without the slightest suspicion of its source. Nevertheless he was not permitted to retain it against the true owner. "He received it," said the court, "from one who had no authority to dispose of it, and its appropriation to his own use was conversion. The payee's innocence and good faith afford no protection against the rightful owner, who has been tortiously dispossessed."95

In Missouri the courts hold that the addition of the word agent, administrator, trustee and the like, to a person's account is no notice whatever to the bank that the deposit belongs to another.96 The additional words are regarded merely as descriptive of the signer in harmony with the ancient rule that applied

94 Cases in 91.

95 Porter v. Roseman, 74 N. E. (Ind.) 1105. The court added that to charge the payee it was not essential for the true owner to trace his identical money into the payee's possession. It is sufficient to show that it went into his bank account.

96 Sparrow v. State Ex. Bank, 103 Mo. App. 338; Eyerman v. Second Nat. Bank, 84 Mo. 408, affg. 13 Mo. App. 289; Mayer v. Columbia Sav. Bank, 86 Mo. App. 108. To deposit money to one's credit as "trustee" is notice that it is trust money. Bundy v. Town of Monticello, 84 Ind. 119. That an agent asks for a certificate of deposit in his own name of money belonging to his principal is enough to put the bank on inquiry, especially if the president of the bank knew he was irregular and unworthy of confidence. Farmers' Loan & Trust Co. v. Fidelity Trust Co., 86 Fed. 541. A bank that discounts a draft drawn by a customer payable to the order of an agent and permits him to credit the amount to his individual account, and draw against it, in the face of express instructions from the principal to cash only drafts and checks sent by himself, is liable for the wrongful diversion of the principal's money. Heinz v. Fourth Nat. Bank, 48 S. W. (Tenn.) 133. An executor who abuses his trust and diverts the fund in his possession for his own purpose does a great wrong; and a broker or other person who receives the money, knowing its true character, or under suspicious circumstances that ought to have led to inquiry before receiving it, is equally guilty and can be compelled to refund. Marshall v. de Cordova, 26 N. Y. App. Div. 615.