Pethybridge v. First State Bk. of Livingston

*177 MR. JUSTICE MATTHEWS delivered the opinion of the court. The plaintiff, as guardian of one Ted Champion, an incompetent person, commenced this action against the defendant bank and one Bodine, its receiver, to compel the allowance of the amount he had on deposit at the time the bank closed its doors, as a preferred claim. Issue was joined, and the evidence submitted to a referee, who made findings thereon and submitted them to the court. The court adopted certain of the findings, and rejected others, and, from the findings finally made, concluded as a matter of law that the claim of plaintiff should be allowed, but merely as that of a general creditor. Judgment was entered accordingly, and from this judgment plaintiff has appealed. There is no conflict in the evidence and no dispute as to the facts. On June 23, 1917, plaintiff opened a “savings account” with the defendant bank, with the privilege of checking against it. No certificate of deposit was issued to him, and the account differed from the usual checking account only in that the bank agreed to pay interest on balances, and carried the account under the title “William Pethybridge, *178 Guardian of Ted Champion.” The money deposited was commingled with other funds of the bank. Thereafter the account was from time to time increased or diminished by deposits and withdrawals, until, in the latter part of the year 1921, the bank became insolvent and closed its doors, at which time plaintiff’s balance amounted to $626.66. In January, 1922, the bank reorganized by securing a creditors’ agreement, which was signed by this plaintiff, and under the terms of which the plaintiff agreed to accept a certificate of deposit for the amount of his balance, payable in one year, with the privilege, at the option of the board of directors of the bank, of renewing the same for a second year. Such a certificate was thereafter issued by the bank, but was never delivered, as plaintiff never surrendered his original deposit book or evidence of indebtedness. Plaintiff signed the “creditors’ agreement” without first obtaining authority of the court having control over the guardianship matter. The reorganization of the bank was unsuccessful, and, on June 23, 1923, it again closed its doors, and defendant Bodine was duly appointed receiver. The only cash coming into the hands of the receiver was the sum of $1,752.51. Plaintiff makes thirty assignments of error, based upon the rejection and adoption of the several findings of the referee, upon the conclusions of law drawn therefrom and upon the entry of judgment in favor of defendant and against plaintiff, which it is not necessary to set forth in this opinion, as they raise but the question of the nature of the deposit and the right of the plaintiff to preference. His contentions are: (1) That, as plaintiff was a guardian dealing with his ward’s money, which fact was known to the bank, tbe deposit was special and not general. (2) That, as the deposit was by agreement to draw interest, it constituted a special deposit. *179 (3)- That the deposit on time, in 1923, under the creditors’ agreement, was a loan to the bank, without security, of trust funds, and without authority of court, of which facts the bank was chargeable with notice, and therefore that the guardian acted illegally with the connivance of the bank, and under such circumstances the bank is an involuntary trustee of the trust funds. 1. The trust relation, which will impress upon a deposit the character of a special deposit, is not the relation existing between the depositor of a trust fund and his cestui que trust, but that existing between the bank and the depositor. There are but two kinds of deposits — those where the bank becomes a trustee for the depositor, by special agreement or through circumstances sufficient to create a trust, and general deposits, where the bank merely becomes a debtor of the depositor, and, in the absence of such contract or circumstances, a deposit will be deemed a general deposit. (Carlson v. Kies, 75 Wash. 171, 47 L. R. A. (n. s.) 317, 134 Pac. 808; Kies v. Wilkinson, 101 Wash. 340, 172 Pac. 351; Bank of Blackwell v. Dean, 9 Okl. 626, 60 Pac. 226; Schofield Mfg. Co. v. Cochran, 119 Ga. 901, 47 S. E. 208.) The position of guardian is one of trust and not of agency. (12 R. C. L. 1123.) “The relation of a guardian and ward is confidential, and. is subject to the provisions of this code relative to trusts” (sec. 5882, Rev. Codes 1921), and the funds coming into the hands of the guardian are therefore, as between the guardian and the ward, trust funds which the guardian is by law required to “keep safely” (sec. 5881). There is no provision in our Code for the deposit of funds coming into the hands of the guardian, but the guardian is chargeable with the care and maintenance of his ward, and the payment of just debts contracted, out of the ward’s personal estate and the income from real property, if sufficient (secs. 10414 and 10417, Rev. Codes 1921), and for this purpose it is necessary to retain under the control of the guardian *180 a sufficient sum to discharge these obligations as they arise, and common custom and usage, and the exercise of that degree of care required in the handling of trust funds, would dictate that money kept on hand for this purpose should be deposited in a reliable bank, and, where a trustee has exercised due care in the selection of the depository, it cannot be said that he has either violated the law or his trust. Thus, in the Matter of the Estate of William Law, a Minor, 114 Pa. 499, 14 L. R. A. 103, 22 Atl. 831, it is said: “Banks of deposit are a recognized necessity in the commercial world. A trustee who would continuously keep, for any considerable length of time, a large sum of money about his person or in his house, rather than deposit it for safe-keeping in a solvent and reputable bank or trust company, where all the precautions may be exercised for its safety, might justly be regarded as derelict in duty. No one would be accredited with the exercise of common prudence who would keep his own money in this way.” In a note to the above case (14 L. E. A. 103) it is stated that “some right to deposit trust funds in bank with the accompanying freedom from liability for its loss is universally recognized.” Among the cases cited in support of the above statement is that of Churchill v. Hobson, 1 P. Wins. 243, holding that, if the deposit is made from necessity or in conformity to the common usage of mankind, the trustee will not be liable for the loss upon the failure of the bank. This rule is recognized in the care of City of Livingston v. Wood, 20 Mont. 91, 49 Pac. 437. From the amount involved here, coupled with the fact that withdrawals were made from time to time, it is apparent that these funds were not such as should have been invested, but were merely necessary funds for the care and maintenance of the ward, and, as to such, the guardian was acting in the performance of his duty in depositing them. (There is no contention that at the time of the deposit the *181 bank was not a solvent and reputable institution, or that knowledge was brought home, in any manner, to the guardian of the impending failure of the bank. 2. In order, however, to escape personal liability, the trustee must not deposit the funds in his own name but in the name of his cestui que trust, or by so distinguishing it on the books of the bank as to indicate that the funds are those of the latter and not his own. (Re Stafford, 11 Barb. (N. Y.) 353; Williams v. Williams, 55 Wis. 300, 42 Am. Rep. 708, 12 N. W. 465, 13 N. W. 274; Naltner v. Dolan, 108 Ind. 500, 58 Am. Rep. 61, 8 N. E. 289; Summers v. Reynolds, 95 N. C. 404.) 3. Where the foregoing conditions are complied with, the mere fact that the funds deposited were trust funds does not constitute a special deposit; the deposit is general, and the relation of debtor and creditor exists between the trustee and the bank (Murphy v. Nett, 51 Mont. 82, L. R. A. 1915E, 797, 149 Pac. 713; Paul v. Draper, 158 Mo. 197, 81 Am. St. Rep. 296, 59 S. W. 77; Ringo v. Fields, 6 Ark. 43; Fletcher v. Sharpe, 108 Ind. 276, 9 N. E. 142; Jones v. Chesebrough, 105 Iowa, 303, 75 N. W. 97; McAfee v. Bland, 11 Ky. Law Rep. 1, 11 S. W. 439; Shaw v. Bauman, 34 Ohio St. 25; Swartout v. Mechanics’ Bank, 5 Denio (N. Y.), 555), and the addition of words showing a fiduciary capacity, while it may render the depository chargeable with notice as to whence the depositor derived the funds, in the absence of some special agreement for the return of the identical money, or other special circumstances, cannot create a special deposit (3 R. C. L. 518; Officer v. Officer, 120 Iowa, 389, 98 Am. St. Rep. 365, 94 N. W. 947; Alston v. State, 92 Ala. 124, 13 L. R. A. 659, 9 South. 732; 2 Michie on Banks & Banking, sec. 153). 4. Nor does the fact that the deposit by agreement draws interest change its nature. (3 B. C. L. 519.) The situation here is similar to that of a deposit of county funds, *182 under our Depository Act' (Laws 1913, Chap. 88), wherein it is provided that the funds shall draw interest but nevertheless be subject to withdrawal at any time. Such deposit is held to be a general and not a special deposit. (State ex rel. School District v. McGraw, 74 Mont. 152, 240 Pac. 812.) 5. The final contention of plaintiff is that, by entering into the “creditors’ agreement” without obtaining an order of court, the guardian violated his trust, and that he did so with the co-operation of the bank, which was chargeable with notice of his.powers in this regard, and therefore an involuntary trust must be declared. It is true that one to whom property is transferred in violation of a trust holds the same as an involuntary trustee under such trust, unless he purchased it in good faith and for a valuable consideration (sec. 7900, Eev. Codes 1921), and this principle is applied specifically where a deposit of trust funds is wrongfully and unlawfully made, with the active participation of the bank, in Yellowstone County v. First Trust & Savings Bank, 46 Mont. 439, 128 Pac. 596, and Kelly v. Farmers’ State Bank, 54 Mont. 515, 172 Pac. 130. But the facts before us do not warrant the application of this rule. Had the agreement been that the guardian would deposit a sum of money in his hands as guardian, on time deposit for one year, in aid of the reorganization of the bank, an entirely different question would be presented, but where no actual funds were, at that time, deposited, and the funds in the bank could not have been withdrawn for redeposit, admitting that plaintiff had no authority to enter into the creditors’ agreement without first obtaining an order of court, and that one dealing with such a trustee must take notice of the court’s authority to control such dealings as are within its jurisdiction, and, if the trustee’s acts are not authorized, he must be prepared to immediately place the estate in statu quo. (In re Connolly’s Estate, 73 Mont. 35, 235 Pac. 408), *183 what, under the facts before ns, constitutes “statu quo” of this estate? Before entering into the creditors’ agreement, the plaintiff was a general creditor of the insolvent bank, entitled to a pro rata share of the assets thereof. It does not appear from the record that those assets differed materially after the second closing of the bank from what they were at the time the bank first closed. Certainly, by his unauthorized act, plaintiff could not acquire, as against other creditors of the bank, any greater advantage than he would have had but for such act. To now advance him to the position of the holder of a preferred claim would be neither equitable nor just. By its decree declaring plaintiff a general creditor of the bank, entitled to a pro rata share of its assets, the court placed the estate vn statu quo, and, as between the plaintiff and defendants, nothing further could be done. The judgment is affirmed. Affirmed. Mr. Chief Justice Callaway and Associate Justices Holloway, Galen and Stark concur.