Opinion
No. 23323
Decided June 8, 1932.
Banks and banking — Bank accepting deposit for specific purpose, agent of depositor — Liability for misapplying deposit — One lending to person who deposited money for specific purpose — Bank not liable to corporation advancing pay roll to another corporation — Bank applied deposit to borrowing corporation's pre-existing debt to it.
1. A bank which accepts a deposit made for a specific purpose acts as agent of the depositor, and is liable to the depositor if it misapplies the deposit.
2. One who lends money to a person, who then deposits such money in a bank for a specific purpose, has no action against the bank for misapplication of such deposit.
3. Corporation A furnished and loaned money to corporation B, for the purpose of meeting the pay roll of corporation B. Substantially the amount of this money so advanced was deposited by corporation B in a bank, and by such bank deposited to the credit of corporation B in an account used mainly for pay roll purposes. Later the bank applied such fund so deposited to meet a pre-existing debt owed by corporation B to the bank. The record tended to show that the bank knew that it was the custom of corporation A to advance sums to corporation B for pay roll purposes. Corporation B went into the hands of a receiver, and all of the employees received payment as preferred claims from such receiver. Corporation A sued the bank for the sum so advanced to corporation B. Held, that upon delivery by corporation A to corporation B of the check representing such fund, title to the fund passed to corporation B, and since corporation B delivered such fund to the bank, no trust by implication arises in favor of corporation A, and that corporation A can not recover from the bank the amount so advanced.
ERROR to the Court of Appeals of Guernsey county.
This case arises as an error proceeding to the judgment of the Court of Appeals of Guernsey county, which reversed a judgment of the trial court of that county.
The Kopp Clay Company instituted an action in the court of common pleas of Guernsey county to recover the sum of $2,800 from the Byesville State Bank. In its petition it alleged that it had advanced the sum in question to the Ohio Building Tile Company, and that the Ohio Building Tile Company had deposited the fund in the Byesville State Bank under such circumstances that the money so advanced "became impressed in the hands of said bank with a trust for the payment of said pay roll," and that the bank wrongfully and illegally and fraudulently applied the said sum of $2,800 so deposited and "so impressed with a trust" to the payment of a certain note or notes and obligation of the Ohio Building Tile Company to the said bank.
The pleadings and the record tend to establish the following facts:
On or about December 21, 1929, the Kopp Clay Company, which is a corporation engaged in marketing clay products at Youngstown, Ohio, sent the Ohio Building Tile Company, a corporation engaged in manufacturing building blocks at Byesville, Ohio, a check for $2,800. The record tends to show that it was the custom of the Kopp Clay Company to make advancements of money for pay roll purposes to the Building Tile Company, and this check was sent for that purpose. The Building Tile Company deposited the check in its general depository, the Central National Bank at Cambridge, and drew a check for the exact amount of the pay roll, namely, $2,791.94, in favor of the Byesville State Bank. The Byesville State Bank cashed the check and deposited the fund in the pay roll account of the Building Tile Company, but immediately thereafter notified the Building Tile Company not to pay out the pay roll checks which had been prepared, upon the ground that the bank had applied the amount of the deposit to the payment of pre-existing indebtedness of the Building Tile Company to the Byesville State Bank. The record tends to show that the Byesville State Bank knew that the check drawn by the Kopp Clay Company was delivered to the Ohio Building Tile Company for pay roll purposes. A receivership was then established to handle the assets of the Building Tile Company, and the money represented by the pay roll was paid to the employees by the receivers as a preferred claim upon the assets of the Building Tile Company. Upon trial the jury returned a verdict in favor of the plaintiff for the sum of $2,791.94, and the trial court rendered judgment upon that verdict. The Court of Appeals reversed this judgment upon the ground that the judgment of the court of common pleas upon the testimony adduced and the law should have been for the defendant, and remanded the case to the court of common pleas for action in accordance with such entry.
Mr. C.W. Reed and Messrs. Scott Scott, for plaintiff in error.
Mr. Gilbert Bettman, attorney general, and Mr. John Sherman Taylor, for defendant in error.
It is in brief the claim of the plaintiff in error that since the Byesville State Bank knew that the $2,800 was deposited to meet the pay roll of the Ohio Building Tile Company, a trust arose by implication, and that hence the Kopp Clay Company can recover the amount of the entire sum deposited by the Ohio Building Tile Company in the Byesville State Bank. The sum deposited in the Byesville State Bank, namely, $2,791.94, was substantially identical with the loan made by the Kopp Clay Company to the Ohio Building Tile Company. Furthermore, the record presents ample evidence tending to show that the bank knew of the custom of the Kopp Clay Company to deposit sums sufficient to meet the pay roll of the Ohio Building Tile Company, and knew that the Kopp Clay Company was advancing this particular sum for that particular purpose, and that as between the Ohio Building Tile Company and the Byesville State Bank, the crediting of the pay roll check to the pre-existing indebtedness of the Building Tile Company to the bank was tortious.
It is true that a trust is often implied in a case where money or other property is delivered by a specified person to a second person, to be by such second person paid or delivered over for the benefit of a third person. In such case a trust arises from the transaction in favor of the beneficiary, without any express agreement to that effect. 26 Ruling Case Law, 1200, note 20, and cases cited.
However, when the Kopp Clay Company drew the check for $2,800, payable to the Ohio Building Tile Company, and the check was deposited by the Ohio Building Tile Company in the Central National Bank of Cambridge, title to the fund represented by the check passed to the Ohio Building Tile Company. The relationship between the Building Tile Company and the Kopp Clay Company then became, so far as this check was concerned, that of debtor and creditor.
The reply filed by the Kopp Clay Company in three places concedes that the transaction between the Kopp Clay Company and the Ohio Building Tile Company constituted a loan. When the Kopp Clay Company concedes this fact, it concedes that the deposit made in the Byesville State Bank was a deposit of funds belonging not to the Kopp Clay Company, but to the Ohio Building Tile Company.
The case, hence, is entirely differentiated from cases where money or other property is delivered to a person in trust, to be by him paid or delivered over for the benefit of a third person. This record does show that a check for $2,791.94 was delivered to the Byesville State Bank for pay roll purposes, and was by it in the first instance applied to pay roll purposes, by being deposited in the pay roll account of the Ohio Building Tile Company. However, the fatal gap in the case of the plaintiff in error is that the fund neither belonged to the Kopp Clay Company nor was delivered to the Byesville State Bank by the Kopp Clay Company. The fund belonged to the Ohio Building Tile Company, and was by it delivered to the Byesville State Bank.
The plaintiff in error bottoms its argument upon the theory of implied trust, namely, that the sending of the check by the Kopp Clay Company to the Ohio Building Tile Company, with the knowledge of the bank that this fund was to be used by the Ohio Building Tile Company for pay roll purposes, stamped it as a trust fund.
A bank which uses a deposit made for a specific purpose acts as the agent of the depositor and is liable to the depositor if it misapplies the deposit. American Surety Co. of New York v. Bank of Dawson, 43 Ga. App. 593, 159 S.E. 736; Union Trust Savings Bank v. Southern Traction Co., (C.C.A.), 283 F., 50; Dolph v. Cross, 153 Iowa 289, 133 N.W. 669; 7 Corpus Juris, 631; 5 Cyc., 515.
However, in none of these cases, nor in any case cited, is the proposition advanced that a party who loans to the depositor money which is deposited for a special purpose can recover such fund when the bank wrongfully diverts it to another purpose.
With reference to the doctrine of resulting trusts, upon which the plaintiff in error apparently relies, the rule is that, while a resulting trust does arise in favor of one who advances or furnishes money to another to purchase property, the title to which the latter takes in his own name, where the one who advances or furnishes the money does so for the purpose of having the property or an interest therein acquired in his name or for his benefit, such a trust will not result in his favor if he advances the money as a loan or a gift or an advancement to the purchaser. 39 Cyc., 135. This is the theory which governed in the case of Newman v. Newman, 103 Ohio St. 230, 133 N.E. 70, 18 A.L.R., 1089. While this was a case involving the question as to whether payment of the consideration upon a verbal agreement for the conveyance of real estate could take the case out of the operation of the statute of frauds, Judge Johnson pointed out in the opinion as a significant and controlling fact that the property was not purchased with the money of Herman Newman, the father, but with a loan from the father to Edward Newman, the son.
Hence as between the Kopp Clay Company and the Byesville State Bank, there is no theory upon which this action can be maintained, and the judgment must be affirmed.
Judgment affirmed.
JONES, MATTHIAS, KINKADE and STEPHENSON, JJ., concur.