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(Iowa, -, 194 N. W. 957.)

It is contended by appellants upon the authority of Garst v. Canfield, 44 R. I. 220, 116 Atl. 482, and Hungerford v. Curtis, 43 R. I. 124, 12 A.L.R. 1040, 110 Atl. 650, that the court will presume that deposits made after July 6 were of funds belonging to the commission company, and that they were made for the purpose of replacing trust funds. If we were disposed to follow these cases, the difficulty would be that the inference to be drawn from all the testimony is that these subsequent deposits were the proceeds received from the sale of live stock consigned to the commission company by others, and sold by it in the regular course of the commission business, and that the only interest the commission company had therein was such charges as it could rightfully make against its customers. In other words, it appears the money so subsequently deposited was not the money of the commission company, but belonged to others. It is not so much regard for the interests of these others-the owners of the funds so deposited-that stands in the way of impressing a trust on these funds in plaintiffs' favor, but the fact that no presumption will be entertained that the deposit of funds not belonging to the commission company was intended as a replenishment of the depleted trust fund belonging to plaintiffs. This distinction is recognized in Baker v. New York Nat. Exch. Bank, 100 N. Y. 31, 53 Am. Rep. 150, 2 N. E. 452, where it is said it did not appear there were any unsettled accounts of Wilson & Brother (the factor and trustee) with any other person or persons for whom they were agents. United Nat. Bank v. Weatherby, 70 App. Div. 279, 75 N. Y. Supp. 3, it was held that withdrawals and restorations of the trust fund did not operate to extinguish the identity of the trust fund originally deposited, since, the withdrawals being wrongful, the wrongdoer would be presumed to have intended the subsequent deposits as a restoration of

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the amounts wrongfully withdrawn, and the cestuis que trustent had a right to adopt such acts for their benefit, so as to entitle them to the funds so restored, unless it appeared that the money used in making such restoration belonged to someone other than the depositor.

We are not disposed to follow the Rhode Island cases to the disregard of this distinction. If they are so followed the logical conclusion would be that, to the extent of plaintiffs' claim, the subsequent deposits by the commission company would constitute a trust fund, and could not be applied by the bank to the liquidation of either the commission company's indebtedness to the bank, or the individual indebtedness of Ward, while we understand the present contention of appellants to be that the bank was not entitled to make the latter application, on the theory that it was not an indebtedness of the depositor. If the doctrine of the Rhode Island cases is not followed, or the distinction pointed out is preserved, then the subsequent deposits did not take on the character of a trust fund belonging to plaintiffs, and the plaintiffs stood in no favored position in respect to the funds so deposited. They were general creditors merely, with no lien or preferred claim of any character upon it. In this view of the situation they are in no position to complain in this action of any disposition made of such subsequent deposits.

The bank applied a portion of the funds so deposited to the payment of an obligation that, on the face of it, was the individual undertaking of Ward, but which appears, in fact, to have been given for money that went to the use of the commission company. The commission pany and Ward both acquiesced in this, and plaintiffs,

com

tion of fund to

as mere general Bank-applicacreditors in respect claim-right of to all of the deposit reach. -stranger to not impressed with

a trust on their behalf, are in no position here to question it. The

same thing is true, we think, in respect to the item of $200 applied by the bank to the commission company's obligation to pay stockyards charges.

It does appear, however, that there is a balance in the bank to the credit of the commission company, though now in the form of cashiers' checks, of $2,338.03. This sum includes the $1,570.35 which we hold was the balance upon which a trust in favor of plaintiffs should be impressed. Under their prayer for general relief we think plaintiffs are entitled, in addition to the $1,570.35, to the remainder of the balance to the credit of the commission company, or a total amount of $2,338.03, with interest.

-right to balance of deposit.

The bank has no claim upon this balance, and no other creditor is

claiming it. We see no reason why plaintiffs may not, in this equitable action, under their prayer for general equitable relief, be awarded this. Such a result is not in contravention of the Negotiable Instrument Act (Code Supp. § 3060a189), as construed by this court. That section is for the protection of the bank. Hove v. Stanhope State Bank, 138 Iowa, 39, 115 N. W. 476: Dolph v. Cross, 153 Iowa, 289, 133 N. W. 669; McClain & Norvey v. Torkelson, 187 Iowa, 202, 5 A.L.R. 1665, 174 N. W. 42.

In all other respects, the petition The for rehearing is overruled. judgment of the court below is reversed, and the cause remanded for judgment and decree in harmony with the views expresed in this supplemental opinion.

ANNOTATION.

Right of bank to apply upon debt deposits made by debtor in his own name of funds of a third person.

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Denver Live Stock Exch. (1923) Colo., 220 Pac. 402.

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Okla., 221 Pac. 53; Southwest Nat. Bank v. McVey (1923) Okla. Idaho. Bellevue State Bank v. 221 Pac. 784; Steere v. Stockyards Hailey Nat. Bank (1923) - Idaho, Nat. Bank (1923) Tex. -, 256 S. 215 Pac. 126. Tex.

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Vermont. Hall v. Windsor Sav. Bank (1923) Vt., 121 Atl. 582. To illustrate: In Drovers' Nat. Bank v. Denver Live Stock Exch. (Colo.) supra, it was held that a bank which received a deposit, knowing that it represented the money received for live stock sold by the depositor on a commission basis, and applied the deposit to the individual indebtedness of the depositor, could not hold the same as against the depositor's customer to whom the funds, less commissions, belonged.

III. Effect of lack of knowledge of fiduciary character of funds.

a. General rule permitting application. 1. In general.

(Supplementing annotation in 13 A.L.R. 327.)

Supporting the general rule to the effect that where the bank in which funds in which third persons have an interest are deposited in the individual name of the depositor has neither knowledge, nor notice of facts sufficient to put it upon inquiry, as to the true character of the deposit, it may apply the deposit to the individual debt of the depositor, are the following cases: CABLE V. IOWA STATE BANK (reported herewith) ante, 748, superseding opinion reported in (1922) Iowa,, 190 N. W. 262; Gillette v. Liberty Nat. Bank (1923) Okla. 218 Pac. 1057; Southwest Nat. Bank v. Evans (1923)

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W. 586, rehearing in (1924)

258 S. W. 1042-quoting annotation in 13 A.L.R. 327. And see Holman v. Tjosevig (1922) 6 Alaska, 690. 2. Funds of secret partnership. No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 328.

3. Effect of consent of depositor. No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 329.

4. Theory of conversion by depositor. No later decisions herein. For earlier cases, see annotation in 13 A.L.R. 330.

b. Equitable rule. (Supplementing annotation in 13 A.L.R. 330.)

The equitable rule that a bank, even though it has no knowledge, either express or implied, that another than the depositor has an interest in funds deposited in his own name, cannot apply such funds to the individual indebtedness to it of the depositor, where such lack of knowledge has not resulted in any change in the bank's position, and no superior equities have been raised in its favor, was adopted in the recent case of Beaver Boards Cos. v. Imbrie & Co. (1923) 287 Fed. 158, affirmed in Fulton Nat. Bank v. Hosier (1923) 295 Fed. 611, where, in holding that a bank in which a broker had deposited the check of his customer, drawn to buy stock for the latter, could not set off the amount thereof against the individual indebtedness of the depositor to it, even though it had no notice of the drawer's equity, the court said: "The first test of who it is that he owes is the legal liability. But this may be affected by the equities of others in the debt. If he knows of these equities, his legal right to set-off, like other legal rights, becomes subject to known equities. . . . If the equity is unknown, it may still prevail, if asserted before the banker has acted, or

refrained from acting, on the faith of the appearances of the matter. If he has given credit to the deposit, he is protected as a sort of bona fide purchaser, or, perhaps more correctly, it becomes a case in which one of two innocent parties must suffer from the wrongful act of a third, in which case the loss is visited upon him who put it in the power of the wrongdoer to inflict the loss. If he had given no credit to the deposit, he is then in the situation of a mere volunteer, against whom equities may be freely asserted.

.. In the present case the bank, by contract, stipulated for the maintenance, subject to set-off, of a deposit

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balance of a certain amount. balance was maintained outside of the fund in controversy, and it alone. seems reasonably to have been credited by the bank. No new loan, nor any renewal of an old one, occurred between the deposit of the sum in controversy and the failure; no checks were honored which would not have been honored had this deposit not been made. The bank shows nothing to rebut or hinder the equity Hosier, notwithstanding it had no notice of his equity. The bank should, therefore, be decreed to surrender to the receivers the sum in controversy, and they, in turn, should surrender it to Hosier."

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And in First Nat. Bank v. First State Bank (1923) Tex. Civ. App. 252 S. W. 1089, in holding that a bank could not apply upon the individual indebtedness of a depositor the funds of a third person deposited in his own name, at least, where it had not changed its position,-the court said: "The appellant bank suffered no loss by the transaction. Its position was in no way changed or prejudiced. To require payment of the funds to the Campbell State Bank leaves the appellant bank in precisely the same situation where it stood at the time the deposit was made in relation to Gilbreath's indebtedness to it. Under these circumstances the contention is untenable that a bank can offset an indebtedness to it with money belonging to a third party, merely because such party permits the

debtor, acting as his agent, to make a deposit in the debtor's name rather than in the name of such third party, who is the actual owner of the funds."

c. Special instances of denial of right to apply.

(Supplementing annotation in 13 A.L.R. 333.)

In Gillette v. Liberty Nat. Bank (1923) Okla., 218 Pac. 1057, where W. deposited a fund to the credit of P., without authority from P., which fund belonged to G., which fact, however, was not known by either the bank or W., and the bank applied the deposit in satisfaction of past-due indebtedness of P. to it, it was held that the set-off was wrongful and that the appropriation amounted to a conversion of the fund. In reaching this conclusion the court recognized the general rule that a bank may apply a deposit to past-due indebtedness, even though the deposit is in fact owned by a third person, if the bank has no notice of such ownership; but held that, for such rule to be applicable, the deposit must have been such a one as would create the relation of debtor and creditor between the depositor and the bank, which relationship, it was further declared, was not created in the case under consideration, because of the fact that the deposit was made by a third person, W., without the knowledge or consent of P., the debtor of the bank.

IV. What constitutes notice to deposi

tary.

(Supplementing annotation in 13 A.L.R. 334.)

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In Steere v. Stockyards Nat. Bank (1923) "Tex. 256 S. W. 586, rehearing in (1924) Tex. S. W. 1042, quoting and applying the rule, as stated in 13 A.L.R. 334, that where the bank, although having no actual notice of the character of funds deposited with it, has knowledge of such circumstances as are regarded as sufficient to necessitate inquiry upon its part, the bank, cannot, as against the true owner, set off such funds against the individual indebtedness of the depositor to the

bank, the court held that knowledge upon the part of the bank that at least one third of the sums deposited by a commission firm belonged to its customers imposed upon the bank the duty of making inquiry before appropriating a deposit in satisfaction of the individual debt of the depositor, and this, although no descriptive words were added to the depositor's name in making the deposit. In this case the court also said that, where a bank knows that part of a deposit is trust funds, it must separate the trust funds from the moneys of the latter before making any application of the deposits in satisfaction of the individual debt to it of the depositor.

So, in the reported case (CABLE V. IOWA, STATE SAV. BANK, ante, 748), it was held that where a bank knows that a commission house deposits the proceeds of sales and transmits the proceeds by check, it is charged with notice that the only interest which the depositor has in deposits from the proceeds of sales is its commission and the expenses necessary to the handling and disposition of consignments, so as to prevent application by the bank of the whole deposit to the individual indebtedness to it of the depositor.

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that the company was acting as agent in depositing a check for the price of a carload of cattle, or at least sufficient to create an issue of fact on that issue, so that a finding against the bank precludes it from upholding an appropriation of the amount of the check to the individual indebtedness to it of the brokerage company. This decision was followed in Southwest Nat. Bank v. McVey (1923) Okla.

221 Pac. 784, which was said to involve similar facts.

On the other hand, in Beaver Boards Cos. v. Imbrie & Co. (1923) 287 Fed. 158, affirmed in Fulton Nat. Bank v. Hosier (1923) 295 Fed. 611, it was held that knowledge upon the part of the bank that its debtor depositors sometimes acted as brokers was not notice that a particular check, apparently belonging to them, really belonged to the drawer, and that such knowledge did not require that the bank inquire as to the real ownership of the check.

In Hall V. (1923) Vt.

Windsor

Sav. Bank 121 Atl. 582, it was held that the addition of the word "Executor" to the name of the payee of a check was enough to charge the bank in which it was deposited with notice that the funds belonged to some estate of which the payee depositor was the executor, so as to render illegal the application by the bank of the deposit to the individual indebtedness of the depositor. In connection with this case it should be remembered that, as is shown in 13 A.L.R. 335 et seq., there are many authorities to the contrary, as well as others in support of the conclusion reached by the court. G. J. C.

DISTRICT GRAND LODGE NO. 18, GRAND UNITED ORDER ODD

FELLOWS,
V.

SALLIE COTHRAN, Admrx., etc., of Allen Ray, Deceased.

Georgia Supreme Court - October 12, 1923.

(156 Ga. 631, 119 S. E. 594.)

Insurance - predecease of beneficiary - who may enforce.

1. Where the wife of a member of a mutual benefit association, who is Headnotes by HILL, J.

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