Busher v. Fulton

• Decision Date: 20 June 1934
• Docket Number: 24708
• Citation: 191 N.E. 752,128 Ohio St. 485
• Parties: Busher, Clerk Of Courts, v. Fulton, Supt. Of Banks.
• Court: Ohio Supreme Court

191 N.E. 752

128 Ohio St. 485

Busher, Clerk Of Courts, v. Fulton, Supt. Of Banks.

No. 24708

Supreme Court of Ohio

June 20, 1934

Banks and Banking - Liquidation - "General deposit" and "special deposit" defined - Special deposit not established by acceptance of public or trust funds - Clerk of court may deposit public or trust funds in bank - Deposit not wrongful or illegal, and not preferred upon insolvency.

1. A "general deposit" is the placing of money in a bank by a depositor, to be repaid to him upon demand or to be drawn upon by him from time to time in the usual course of the banking business. Title to the money passes from the depositor to the bank, and such money, mingled with other money, forms a general fund from which depositors of the bank are paid. The relationship of debtor and creditor is thereby created between the bank and the depositor. Such deposit possesses no trust quality, and upon the insolvency of the bank the depositor has no right of preference.

2. A "special deposit" is a deposit for safekeeping, to be returned intact upon demand. The relationship of bailor and bailee is created between the depositor and the bank. The title remains in the depositor, and the bank acquires no property rights in the deposit. When the deposit consists of money, the bank has no right to use such money in its business or mingle it with its general funds. Upon the insolvency of the bank, a trust is created in favor of such special depositor.

3. To create a special deposit, the depositor and the bank at the time the deposit is made must intend and agree, expressly or by implication, that such deposit shall remain segregated and not be commingled with or made a part of the general funds of the bank, or be subject to its use and control in the usual and customary course of its banking business.

4. The acceptance by a bank of a lawful deposit of public or other trust funds, with express knowledge of their source and the purpose for which they are to be used, is not alone sufficient to establish a special deposit.

5. In the absence of authority forbidding it, and pursuant to prevailing custom in harmony with modern business practice the clerk of a court in his official capacity possesses a right to deposit public or other trust funds in his custody in a reputable bank. Such a deposit is not wrongful or illegal within the proper meaning of those terms. Where there is no mutual intention or agreement, express or implied between the clerk and the bank, that such funds shall be segregated and kept separate and apart, and the bank takes such funds and uses them in its general business, a general deposit results, and upon the insolvency of the bank, the clerk cannot successfully claim a preference for such deposit.

The facts in this case material to a determination of the issues are as follows:

On November 28, 1930, Thomas C. Cook, as Clerk of Courts of Cuyahoga county, Ohio, by one of his deputies, deposited the sum of $69,970 in The Guardian Trust Company of Cleveland without taking security therefor. There is no suggestion that the trust company at that time was not apparently sound. This deposit represented the amount of a verdict and judgment awarded in the Court of Common Pleas of Cuyahoga county, Ohio, to the Glen Valley Club and others, against the Board of Park Commissioners of the Cleveland Metropolitan Park District, as compensation for the appropriation of certain lands. The amount was paid over to the Clerk of Courts pursuant to the judgment and order of the trial court, pending the outcome of error proceedings prosecuted by the Glen Valley Club and other property owners, and so that the Park Board might take possession of the property as provided by Section 3686, General Code.

It is agreed by the parties that at the time the deposit was made The Guardian Trust Company was definitely informed of the manner in which the money had come into the hands of the clerk, and that such money was being deposited until the final determination of the cause in the courts. It was also understood that the money was to be paid by the Clerk of Courts to the property owners in said cause in the event of an affirmation of the proceedings by the reviewing courts, but was to be returned by the clerk to the Park Board in the event of a reversal.

John J. Busher, the plaintiff in error herein, suc- ceeded Thomas C. Cook as Clerk of Courts, whereupon the sum of $69,970, with accumulated interest, was transferred to another account in the name of John J. Busher, Clerk of Courts, at which time The Guardian Trust Company was advised that the deposit was being continued upon the same terms and conditions under which it was originally made.

It is apparent that the Trust Company commingled the money represented by this deposit with other money in its possession and control.

None of the fund was withdrawn, and it was on deposit in The Guardian Trust Company in February, 1933, when that institution closed its doors because of insolvency. The same situation prevailed when a conservator was appointed, and still later when the defendant in error herein began the liquidation of the Company.

It is further agreed that there is now more than sufficient cash on hand in The Guardian Trust Company to pay the amount of the deposit here involved, with all accruals of interest.

Plaintiff in error filed suit in the Court of Common Pleas on or about May 29, 1933, claiming the deposit constituted a special account and trust fund entitled to preference in payment, and asking the court to order and command its immediate payment to him.

Defendant in error answered, admitting the deposit but alleging that it was placed in an ordinary savings account, drawing an agreed rate of interest, and did not constitute a special or specific deposit and that therefore plaintiff in error was not entitled to a preference.

Upon hearing, the Court of Common Pleas found that tho deposit was a special trust account of public funds, and ordered its payment forthwith as a preferred claim. The Court of Appeals reversed this judgment, holding no preference had been established.

The case was admitted to this court on motion to certify.

Mr. Frank T. Cullitan, prosecuting attorney, and Messrs. Locher, Green & Woods, for plaintiff in error.

Mr. John W. Bricker, attorney general, Mr. Charles F. Carr, Mr. Richard R. Hollington and Mr. J. Roth Crabbe, for defendant in error.

ZIMMERMAN J.

Plaintiff in error rests his case upon two principal grounds. First, that since the Trust Company accepted the funds for deposit with express knowledge of their source and with knowledge of the purpose for which they were to be used, a special deposit, constituting a trust, was created, which is entitled to preferential payment. Second, that the deposit of the funds was unauthorized, and consequently the well recognized principle applies that where a custodian of public or other trust funds deposits the same wrongfully or unlawfully in a financial institution which knows the nature thereof, such funds are impressed with a trust and given a preferential rating.

We shall discuss these contentions in the order stated, and our first inquiry will be devoted exclusively to the character of the deposit made.

The presumption is that the deposit of money in a bank is general. Bank of Marysville v. Windisch-Muhlhauser Brewing Co., 50 Ohio St. 151, 33 N.E. , 1054, 40 Am.St. 660; In re Warren's Bank, 209 Wis. 121, 244 N.W. 594; People v. Home State Bank, 338 Ill. 179, 170 N.E. , 205; 3 Ruling Case Law, 517.

The burden of proof is therefore upon the depositor to show a special deposit. Fralick, Commr. of Finance, v. Couer D'Alene Bank & Trust Co., 36 Idaho 108, 210 P. 586; Fred A. Bostwell Post, American Legion, v. Farmers' State Bank (Mo. App.), 61 S.W. (2d), 761.

Three classes of deposits are recognized by law: (1) general deposits; (2) special deposits, and (3) deposits for a specific purpose. The last named class is frequently included under the head of special deposits. These three classes are succinctly defined in the case of Corporation Commission v. Merchants Bank & Trust Co., 193 N.C. 696, 699, 138 S.E. 22, 24, as follows:

"A general deposit is the payment of money into a bank to be repaid upon demand; the deposit creates between the bank and the defendant [depositor] the relation of debtor and creditor; the relation is legal; the money passes from the depositor to the bank and is mingled with other money, the entire amount forming a general fund from which depositors are paid. Deposits of this character are free from any `trust quality,' and the depositor, in the event of the bank's insolvency, has no right of preference, but must share pro rata with general creditors. * * *.

"A special deposit is a deposit for safe-keeping, to be returned intact on demand-a naked bailment, the bank acquiring no property in the thing deposited and deriving no benefit from its use. The title remains in the depositor, who is a bailor and not a creditor of the bank * * *.

"A deposit for a specific purpose is made when money or property is delivered to a bank to be applied to a designated object, or for a purpose which is particularly defined, as, for example, the payment by the bank of a specified debt. It is neither general nor wholly special. It partakes of the nature of a special deposit to the extent, that the title remains in the depositor, and does not pass to the bank. The consequence is that the money, if not applied, or if misapplied, may be recovered as a trust deposit."

To constitute a special deposit the authorities are generally agreed that the depositor and the bank, at the time the deposit is made, must intend that such deposit shall remain segregated and not be...