Chas T. v. Pusey

• Decision Date: 15 May 1903
• Citation: Chas T. v. Pusey, 94 N.W. 947, 120 Iowa 389 (Iowa 1903)
• Parties: CHAS. T. OFFICER, Administrator of the Estate of Thomas Officer, Deceased, Appellee, v. OFFICER AND PUSEY, JOHN BERESHEIM AND L. T. MURPHY, Receives, J. J. STEWART, as Executor of the Estate of A. Cochran, Deceased, Intervener, Appellant
• Court: Iowa Supreme Court

94 N.W. 947

120 Iowa 389

CHAS. T. OFFICER, Administrator of the Estate of Thomas Officer, Deceased, Appellee, v. OFFICER AND PUSEY, JOHN BERESHEIM AND L. T. MURPHY, Receives, J. J. STEWART, as Executor of the Estate of A. Cochran, Deceased, Intervener, Appellant

Supreme Court of Iowa, Des Moines

May 15, 1903

Appeal from Pottawattamie District Court.--HON. A. B. THORNELL Judge.

APPLICATION in a receivership proceeding for the allowance and establishment of a claim filed by the intervener, as executor of the estate of A. Cochran, deceased, as a preferential one. The trial court denied the application, and intervener appeals.

Affirmed.

C. G Saunders and J. J. Stewart for appellant.

Harl & McCabe for appellee.

OPINION

DEEMER, J.

The firm of Officer & Pusey was a partnership doing a general banking business in the city of Council Bluffs. On September 17, 1900, it went into the hands of receivers, and, on October 16th of the same year, intervener, as executor of the estate of A. Cochran, deceased, filed his claim against Officer & Pusey with the receivers, for the sum of something more than $ 2,000, which he had deposited in the bank to the credit of "the estate of A. Cochran, deceased. J. J. Stewart, executor." He alleges that he notified the bank that this was a special trust fund which should at all times be kept on hand and subject to the order of court, and that said Officer & Pusey had notice of the character of the funds. He further pleaded that the funds in the hands of the receivers were augmented to the amount of the deposit, and that the same, or an equal amount thereof, was still in their hands, and he asked that his claim be allowed and established as a preferred one. The facts are not in dispute. It was agreed that the claim should be treated as if made in the name of the cestui que trust; that J. J. Stewart was executor of the estate of A. Cochran, and as such deposited the money claimed by him, as stated in his application; and that such deposits were made on and after March 31, 1900, with the knowledge of the bank that they were trust funds held by Stewart. The deposits were made in good faith, and, when made, the bank was reputed to be solvent and sound. When the bank passed into the hands of the receivers there was more than $ 100,000 of assets, which was more than sufficient to pay all preferred claims; and from the time the deposits were made, down to the time of the appointment of the receivers, the bank had more than $ 100,000 in cash. Stewart never had an order of court to make the deposits, but acted upon his own judgment and responsibility, for the purpose of preserving and securing the funds. From time to time he drew checks in his official capacity against the funds, which were duly honored and paid.

The first question of law to be determined on this state of facts is, was the deposit wrongful? If so, and the bank had notice of the character of the funds, there is no doubt that the claim should be given a preference. Ind. Dist. v. King, 80 Iowa 497, 45 N.W. 908; Davenport Plow Co. v. Lamp, 80 Iowa 722, 45 N.W. 1049; Dist. Tp. v. Bank, 88 Iowa 194, 55 N.W. 342; In re Knapp & Co., 101 Iowa 488, 70 N.W. 626; Jones v. Chesebrough, 105 Iowa 303, 75 N.W. 97. An executor must exercise that degree of care and prudence with reference to funds coming into his hands that ordinarily prudent men exercise in regard to their own affairs, and, in the absence of statute preventing, they may deposit the same in banks of good standing and reputed solvency. Barney v. Saunders, 57 U.S. 535, 16 HOW 535 (14 L.Ed. 1047); King v. Talbot, 40 N.Y. 76. Indeed, it seems to be generally held that a trustee who has deposited funds to a trust account in a reputable bank or banking house is not liable for any loss which may occur through failure of the bank. In re Law's Estate, 144 Pa. 499 (22 A. 831, 14 L.R.A. 103); Norwood v. Harness, 98 Ind. 134 (49 Am. Rep. 739); Jacobus v. Jacobus, 37 N.J.Eq. 17; People v. Faulkner, 107 N.Y. 477 (14 N.E. 415). Of course, the deposit must be made to the trust account. If the executor or trustee makes a deposit of trust funds in his individual name, or mingles them with other funds, he is not relieved of responsibility should the funds be lost. Williams v. Williams, 55 Wis. 300 (12 N.W. 465, 13 N.W. 274, 42 Am. Rep. 708); Allen v. Leach (Del. Orph. Ct. Rep.) 7 Del.Ch. 83, 29 A. 1050; Corya v. Corya, 119 Ind. 593 (22 N.E. 3). Such act is in itself a conversion of the funds. Ivey v. Coleman, 42 Ala. 409.

Finding, then, that the executor was authorized to make a deposit of the money belonging to the estate, the next question is the nature of the deposit. Deposits are divided into general, special, and specific; and, in the absence of proof to the contrary, every deposit is presumed to be general. In cases of general deposit, the money deposited is mingled with other money of the bank, and the entire amount forms a single fund, from which depositors are paid. The relation of debtor and creditor is created, and, in the event of failure of the bank, all such creditors stand on an equality. Lowry v. Polk County, 51 Iowa 50, 49 N.W. 1049; Long v. Emsley, 57 Iowa 11, 10 N.W. 280; Commonwealth Bank v. Wister, 27 U.S. 318, 2 Pet. 318(7 L.Ed. 437); In re Hunt, 141 Mass. 515 (6 N.E. 554); Briyn v. Bank, 9 Com. 413. A general deposit differs from a loan in that the money is left with the bank for safekeeping, subject to order, and payable, not in the specific money deposited, but in an equal sum. It may or may not bear interest, and, so long as the relation is simply that of debtor and creditor, no loan is created. In re Law's Estate, supra. A special deposit is created where the money is left for safekeeping and return of the identical thing to the depositor And a specific deposit exists when money or property is given to a bank for some specific and particular purpose, as a note for collection, money to pay a particular note, or property for some specific purpose. People v. Bank, 96 N.Y. 32; Brahm v. Adkins, 77 Ill. 263; Peak v. Ellicott, 30 Kan. 156 (1 P. 499, 46 Am. Rep. 90); German Bank v. Foreman, 138 Pa. 474 (21 A. 20, 21 Am. St. Rep. 908). The deposit made in this case was not a special one. The bank did not receive it upon a promise to keep the identical money and to return it to the executor. It was not specific, for the bank had the right to mix the funds with other money received by it, and obligated itself simply to honor and pay the executor's checks. It did not agree to hold the same for the parties entitled thereto, but it was at all times authorized to pay out the same on checks signed by the executor, and was not bound to see that the money received thereon went to those who were entitled to receive it. Many attempts have been made to secure priority in such cases on the theory that the deposit is specific, but they have uniformly failed. See Fletcher v. Sharpe, 108 Ind. 276 (9 N.E. 142); McLain v. Wallace, 103 Ind. 562 (5 N.E. 911); Alston v. State, 92 Ala. 124 (9 So. 732, 13 L.R.A. 659); Henry v. Martin, 88 Wis. 367 (60 N.W. 263).

We have found that the deposit in this case was authorized, and that it was general in character, and the question yet remains may the executor or his cestui que trust recover the deposit as a preferred claim? The mere fact that he is a trust fund creditor does not give him this right. Equality is regarded as equity in such cases. He is simply a creditor of the bank, and has no peculiar claim or right over other creditors. Ringo v. Field, 6 Ark. 43; Fletcher v. Sharpe, supra; Shaw v. Bauman, 34 Ohio St. 25; Paul v. Draper, 158 Mo. 197 (59 S.W. 77, 81 Am. St. Rep. 296); Nat'l Bank v. Millard, 77 U.S. 152, 10 Wall. 152 (19 L.Ed. 897). In Fletcher v. Sharpe, supra, it is said: "There is no question that the fund was properly deposited. * * * When deposits are received, unless they are special, they belong to the bank as a part of its general funds, and the relation of debtor and creditor arises between the bank and the depositor. This is equally so whether the deposit is of trust money or of funds which are impressed with no trust, provided the act of the depositor is no misappropriation of the funds. If, in receiving a trust fund, a bank acted with knowledge that it was taking the fund in violation of the duty of the trustee, the rights of a cestui que trust might be different. * * * In this case, where no impropriety is imputed to the bank in receiving the money, it becomes the debtor of the petitioner, and its debt to them was of the same character as its debt to any other depositor, and must be paid in the same proportion. The rights of other creditors stand on a level with those of the petitioners, and are to be guarded and protected by the court with the same vigilance." This is manifestly sound doctrine, and...