Pottorff v. Key

• Decision Date: 05 December 1933
• Docket Number: No. 6850.,6850.
• Parties: POTTORFF v. KEY.
• Court: U.S. Court of Appeals — Fifth Circuit

67 F.2d 833 (1933)

POTTORFF v. KEY.

No. 6850.

Circuit Court of Appeals, Fifth Circuit.

December 5, 1933.

Thornton Hardie, of El Paso, Tex., for appellant.

Ed M. Whitaker, of El Paso, Tex., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

SIBLEY, Circuit Judge.

The appellee, Key, gave to First National Bank of El Paso, Tex., his check on another bank for $500, and took a receipt reading: "Received of the above mentioned A. H. Key the sum of $500.00 together with a copy of the foregoing contract to be held by the First National Bank of El Paso, Texas, under the terms and conditions of the foregoing contract." That contract was one for the purchase by Key from a third person of certain realty, in which it was stipulated that, pending examination of the title, Key should place $500 with the bank "in escrow," to be forfeited to the vendor as damages if the title proved good and Key failed to purchase; or to be applied as purchase money if Key kept his contract; or to be returned to Key if the title proved bad. The next day the bank collected the check, accepting instead of cash the cashier's check of the drawee bank. Three days later this cashier's check was taken to the clearing house and used to offset checks drawn against the First National Bank by its customers, the clearing house transaction resulting in a large balance against the First National Bank, which was charged against its reserve at the local branch of the Federal Reserve Bank, and later made good by a deposit of funds drawn from other sources. The First National Bank several weeks later failed and was put into a receiver's hands. Key became entitled to have the $500 back, and sued to establish a preferential claim against the fund in the receiver's hands. The District Court held the $500 to be a trust, and that the bank had treated the cashier's check representing it as cash and had commingled it with its other cash items, making its total cash assets a common fund impressed with the trust, and, it being proved that the bank's cash assets had never since been less than $500, the receiver was ordered to pay that sum as a preferred claim. The receiver appeals.

We agree that the $500 was not a general deposit or a loan to the bank, but was a special deposit, in law a bailment and in equity a trust. It was shown that the banks in El Paso habitually used money thus deposited "in escrow," putting in its place as a memorandum a cashier's check or a certificate of deposit; but there is no evidence that Key knew of, or assented to, any such thing. The bank's agreement with him was express that it would hold — not borrow or use — the money, and would in the contingency which happened return it to him. The ownership of the cashier's check which represented the $500 was in Key or his vendor and not in the bank.

We do not agree that this trust res became so commingled with the funds of the bank as to be unidentifiable and thus raise a lien by confusion. If the cashier's check for the $500 was put with the other cash items of the bank, it continued to be easily recognizable, and could have been reclaimed. When taken to the clearing house and used to offset checks drawn on the bank it was still the identifiable property of Key or his vendor wrongfully thus used. Had the bank gotten anything in exchange for it, that thing would have been claimable as the proceeds of the trust res. Jefferson Standard Life Ins. Co. v. Wisdom (C. C. A.) 58 F.(2d) 565. But, when irrevocably used to discharge the bank's obligations to its general depositors, the trust res was dissipated and lost. City Bank of Hopkinsville v. Blackmore (C. C. A.) 75 F. 771; Beard v. Independent Dist. (C. C. A.) 88 F. 375; First Natl. Bank v. Williams (D. C.) 15 F.(2d) 585; Larabee Flour Mills v. First Natl. Bank (C. C. A.) 13 F.(2d) 330; Nyssa-Arcadia Dist. v. First Natl. Bank (D. C.) 3 F.(2d) 648; Farmers' Natl. Bank v. Pribble (C. C. A.) 15 F.(2d) 175. Only the personal liability of the trustee remained, and, unless by the aid of a statute, there is for that no preferential lien on the defaulting trustee's insolvent general estate. Spokane County v. First National Bank (C. C. A.) 68 F. 979; Board of Commissioners v. Strawn (C. C. A.) 157 F. 49, 15 L. R. A. (N. S.) 1100. It may be true that, if the trust money had not been used to make the clearance, cash of the bank would have been, so that the use of the trust money in this way preserved to that extent the cash which remained and later went into the receiver's hands; but this benefit has always been considered too uncertain and elusive to constitute a tracing of the trust. City Bank v. Blackmore (C. C. A.) 75 F. 771; In re Brown (C. C. A.) 193 F. 24; Empire State Surety Co. v. Carroll County (C. C. A.) 194 F. 593; First National Bank v....