Edisto Nat. Bank of Orangeburg v. Bryant

• Decision Date: 02 October 1934
• Docket Number: No. 3671.,3671.
• Citation: 72 F.2d 917
• Parties: EDISTO NAT. BANK OF ORANGEBURG, S. C., et al. v. BRYANT.
• Court: U.S. Court of Appeals — Fourth Circuit

72 F.2d 917 (1934)

EDISTO NAT. BANK OF ORANGEBURG, S. C., et al. v. BRYANT.

No. 3671.

Circuit Court of Appeals, Fourth Circuit.

October 2, 1934.

Donald Russell and C. C. Wyche, both of Spartanburg, S. C. (W. C. Wolfe, of Orangeburg, S. C., S. J. Nicholls, of Spartanburg, S. C., and John F. Anderson, of Washington, D. C., on the brief), for appellants.

T. B. Bryant, Jr., of Orangeburg, S. C., and Douglas McKay, of Columbia, S. C. (McKay & Manning, of Columbia, S. C., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a decree declaring assets in the hands of the receiver of the insolvent Edisto National Bank of Orangeburg, S. C., subject to a trust in favor of the executor of one U. G. Bryant, and directing the receiver, out of the assets of the failed bank in his hands, to pay the executor the sum of $19,000. A motion to strike the answer was allowed, and the decree was entered upon the admitted facts as set forth in the bill of complaint. These facts may be briefly stated as follows:

U. G. Bryant died in 1926 leaving a will which designated his widow and son as co-executors thereof, with provision that, in the event of the death of either pending the settlement of the estate, the Edisto National Bank should take the place as coexecutor of the one so dying. The widow died on January 30, 1933, and the bank qualified as coexecutor in the following February. At that time the executors had on deposit with the bank approximately $20,000, of which $1,000 was on checking account and $19,000 was a savings deposit and drew interest. On the qualification of the bank as coexecutor under the will, W. Raymond Bryant, the other coexecutor, demanded that it transfer the deposit accounts to the trust department of the bank; and he was later advised that this had been done. After the closing of the bank, however, it was discovered that no transfer had been made with respect to the $19,000 savings deposit; and the answer attempted to justify the failure to transfer this account to the trust department on the ground that the withdrawal of such an amount from the savings department without a notice of 90 days was forbidden by a resolution of the directors of the bank.

The court below was of opinion that upon the qualification of the bank as executor the duty devolved upon it, under 12 USCA § 248 (k), to segregate and invest the funds held by it in a fiduciary capacity; that, considering that to have been done which should have been done, funds to the amount of the savings deposit should be held segregated for the benefit of the estate; and that since the savings deposits were admittedly at all times in excess of $19,000, this amount should be held to have been traced into the hands of the receiver of the bank. A decree was accordingly entered establishing the trust as against the receiver, and directing him from the assets in his hands to pay to the executor the full amount of the $19,000 savings deposit. From this decree the receiver has appealed.

Assuming, without deciding, that the court below was right in holding that it was the duty of the bank upon its qualification as executor to segregate from its assets funds equivalent to the amount of the savings deposit of the executors and to hold same as a trust fund for investment, and that the 90 days' rule upon which it relies would have no application under the circumstances, we are nevertheless of opinion that plaintiff has failed to make out a case which would justify the court in subjecting assets in the hands of the receiver to a trust in favor of the executor for two reasons: (1) He has failed to show that the bank received in trust an "identifiable res" with respect to which a trust could be declared; and (2) he has failed to trace into the hands of the receiver any fund subject to a trust, or to show that any of the assets in the hands of the receiver have been to any extent augmented as the result of a conversion of any such trust fund by the bank.

The plaintiff showed, of course, that the bank had assumed a fiduciary relationship towards the assets of the estate when it qualified as coexecutor; but the asset represented by the savings deposit was a mere indebtedness on the part of the bank to the executors of the estate. The bank, occupying the position of a debtor on account of the deposit, no more became chargeable as a trustee with respect to specific funds on that account because of qualifying as executor than an individual who had executed a note to a decedent would be chargeable as trustee with respect to his individual property because of qualifying as executor under the will of such decedent. In the case supposed, the executor would hold his own note in his fiduciary capacity as executor with the duties of payment and collection which would flow from such relationship; but, until payment had been made, it could not be said that his individual property with which he might have made payment was held by him in trust as executor. And so here the bank as coexecutor held its own obligation evidenced by the savings account created by its predecessors; but it was not chargeable as trustee with respect to any of its assets which it might have applied to discharging its liability under the account until it actually made such application. See Seutter v. Stevens (D. C.) 4 F. Supp. 877. The distinction between the liability of a bank upon a general deposit of trust funds and its liability as trustee for funds held by it in a fiduciary capacity was drawn by this court in Santee Timber Corporation v. Elliott, 70 F.(2d) 179, 181, where we said:

"A general deposit in a bank creates merely a debt on the part of the bank. The funds thus deposited become the property of the bank; and it is under no obligation to the depositor to preserve them, to invest them, or to keep them separate from its other funds. Funds which are the subject of a trust may be thus deposited in a bank under a general deposit; and the obligation of the bank to repay the deposit may thus become the subject of the trust just as a bond, promissory note, or other obligation. But it is well settled that the bank does not become charged with the duties of a trustee merely because it accepts on deposit funds which are subject to a trust. 3 R. C. L. 518; 7 C. J. 633; notes in 37 A. L. R. 120 and 53 A. L. R. 564. It becomes charged with such duties when it accepts funds, not as a general deposit creating the relationship of debtor and creditor, but under an agreement to handle and account for them in a fiduciary capacity, as in Strauss v. U. S. F. & G. Co. (C. C. A. 4th) 63 F.(2d) 174, or under circumstances giving rise to a constructive trust, as in Tucker v. Newcomb (C. C. A. 4th) 67 F.(2d) 177."

The statute upon which the judge below based his decision, 12 USCA § 248 (k), requires that national banks acting in a fiduciary capacity segregate all assets held in such capacity from the general assets of the bank, and provides that funds deposited or held in trust awaiting investment shall be carried in a separate account and shall not be used by the bank in the conduct of its business, unless it shall first set aside in the trust department United States bonds or other securities approved by the Federal Reserve Board, upon which the owners of the fund shall have a lien in...