may have different rights as against the bank. Thus the claimant may be a mere general depositor, or he may be a special depositor. He may have been defrauded of his property by the bank, which has thus become a trustee for him as to what it has obtained. The bank may be bailee of his property by reason of a collection having been intrusted to it. The case may be one where trust funds are in the bank or public funds. The creditor may have an assignment from the bank of a particular fund or a portion thereof. Special preferences and priorities may be given by statute. Each one of these cases causes interesting questions of law to arise, which are somewhat difficult of settlement, owing to the difficulty of tracing the claimant's property into and separating it from the funds of the bank. It will be found that different courts have made wholly diverse rulings upon these subjects. One species of priority has already been noticed, that of set-off, whereby the claimant in effect obtains a priority by gaining the right to have his claim settled in full. In the succeeding sections we will examine these various subjects.

§ 340. General creditors.- Unless a system of preference is established by statute among general creditors, all those persons between whom and the bank the relation of debtor and creditor exists are general creditors. In a peculiar case it was held that creditors of the bank who, after the bank went into voluntary liquidation, had taken paper belonging to the bank in payment of their claims were not entitled to share in the assets, because the bank had indorsed the paper; the reason of the decision was that the bank has no such power. But conceding that the relation of debtor and cred

3 See § 330, ante.

1 Richmond v. Irons, 121 U. S. 27. But if the bank took the benefit of the transaction it ratified the transaction as a whole; the plea of ultra vires was bad. Therefore this opinion is wrong. It misses wholly this view of the matter. But Stanley

Matthews was so great a lawyer that it is wonderful to find him writing an incorrect opinion. Perhaps this view of the case may be taken. There was an implied prohibition by statute and therefore the contract of indorsement was actually illegal. See § 33, ante.

itor exists, there is no preference among such creditors upon the assets. This principle has been applied in many ways. Where the directors of a bank paid into it a large sum of money to enable it to continue business, and an account was opened with the fund in the name of trustees, they were held to be mere general creditors. Where a deposit is rightfully made by a trustee, the trustee is merely a general creditor,3 or where funds are rightfully deposited by an agent, the agent is nothing more than a general creditor. Public funds properly deposited in the bank give no preference; the public is merely a general creditor through the officer depositing the money. Certificates of deposit create no licn upon any portion of the assets, even though the banker promised to keep the funds deposited separate from the other funds of the bank. The same rule applies to certified and accepted checks. So collections deposited for credit when collected and credited create only the general relation of debtor and creditor; and in those jurisdictions which hold that a deposit for collection is a purchase by the bank, as soon as the deposit is credited the bank becomes a debtor to the depositor.10 General depositors in an insolvent bank, known to

2 Booth v. Wills, 42 Fed. R. 11. 3 Fletcher v. Sharpe, 108 Ind. 276; McAfee v. Bland, 11 S. W. R. 439; Hawkins v. Cleveland R. R. Co., 89 Fed. R. 266 (C. C. A.).

4 Henry v. Martin, 88 Wis. 367. 5 In re West. Ins. Co., 38 Ill. 289; Otis v. Gross, 96 Ill. 612 (as to court funds). But see District Tp. v. Farmers' Bank, 88 Iowa, 194, and State v. Thum, 55 Pac. R. 858 (Idaho). In this case it will be noticed that the syllabus to the case made by the court itself misses the whole point of the decision. Judges would do well to leave this matter to a competent reporter.

6 Bayor v. Schaffner, 51 Ill. App. 180. This case is affirmed in the next case following.

7 Bayor v. American Trust & Sav. Bank, 157 Ill. 62. The court here says that the plaintiff's evidence was perjured and then proceeds to decide the case on the theory that it was true. Such a performance cannot be said to be proper for any court.

$ People v. St. Nicholas Bank, 77 Hun, 159. Or checks agreed to be accepted. Citizens' Bank v. Bank of Greenville, 71 Miss. 271.

9 Commercial Bank v. Armstrong, 148 U. S. 50. And see § 188, ante, for a full consideration of this question, and also § 133, ante.

10 Lanterman v. Travous, 73 Ill. App. 670, 174 Ill. 459; Doppelt v. National Bank of Republic, 74 Ill. App. 429, 175 Ill. 432. This latter de

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its officers to be insolvent, are not necessarily general creditors."1 11 But in some jurisdictions they are held to be when the deposit becomes mingled with the bank's general funds," but this doctrine is a mistake. But general depositors in a bank not known to its officers to be insolvent are of course mere general creditors.14 So banks with mutual credits or creditors upon open account are mere general depositors.15 Where the correspondent bank credits proceeds of collections to the bank which transmitted the paper for collection to it, the relation of debtor and creditor between the two banks results. 16 The same result follows where the bank transmitting paper for collection sends it to the bank on which the paper is drawn, and the latter bank credits the transmitting bank and charges the paper against the drawers. Even where the depositor in the bank obtains a draft from the bank by his check, and the draft is not paid, he is merely a general creditor.18 Thus, it will be seen that whatever the transaction may be, if the money or thing of value received by the bank goes rightfully into the general fund and assets of the bank, the relation resulting is one of debtor

cision puts the case on the ground that the correspondent bank was a holder for value. The decision of the court upon the point in the text is therefore a bald dictum. But the other Illinois cases decide such a rule. Craigie v. Hadley, 99 N. Y. 131. But if the bank, on failure of the collection, can charge back to the depositor the check or draft not collected, what situation is the depositor in? These cases do not seem to comprehend that phase of the question.

11 See § 344, post.

12 See § 344, post.

known to its officers to be insolvent.

15 Faulker v. Union Banking Co., 6 Wkly. Notes Cas. 109. Unless the priority is given by statute. In re Patterson, 18 Hun, 221, 78 N. Y. 608; Rosenblatt v. Manufacturers' Dank, 69 N. Y. 358.

16 See 189, ante. Commercial Bank v. Armstrong, 148 U. S. 50; Bowman v. First Nat. Bank, 9 Wash. 614; Sunderlin v. Mecosta Sav. Bank, 74 N. W. R. 478. This last case is an authority for the proposition that when a collection is made the relation of debtor and

13 See the next section and § 344, creditor results as to the depositor post.

14 Deposits in insolvent banks are trust funds only when the bank is

for collection.

17 See § 189, ante.

18 People v. Merchants' Bank, 78 N. Y. 269.

and creditor and the claimant becomes a general creditor.19 This is the true test and the only test to determine the rights of the creditor as to a priority.

§ 341. Trust funds as a priority.— As we have already seen, a deposit by a trustee rightfully made in the bank makes the trustee merely a general creditor of the bank.1 But a man may be a trustee because he is acting in violation of the rights of some one else, and the result as to the bank is quite different from the former case. The bank, of course, may act upon what it knows. If it has no notice of the trust character of the fund it may treat the depositor as the owner. But if it, knowing or having notice of the trust character of the fund, or knowing or having notice of the fact that the fund is the property of some one else than the depositor, acts in violation of the rights of the real owner or beneficiary, it becomes itself a trustee. Again, the real owner of the fund cannot be made a depositor against his will. A rightful trustee with the legal title is authorized to deposit the money to his credit as trustee, but not to his private credit; hence, if the bank knowingly permits one standing in a fiduciary relation to appropriate the trust fund for any other than a lawful purpose," or if it permits the trustee to take the fund for his private benefit, or if it knowingly appropriates the fund in violation of the trust, it becomes itself a trustee for the amount in favor of the beneficiary. If it has the means of knowledge or notice that the depositor is acting in violation of the rights of one who owns the fund and is himself a constructive trustee, by permitting or assenting to the act it becomes itself a trustee

19 If a general deposit is created and the depositor by fraud is, induced to let his deposit remain, he is a general creditor. Venner v. Cox, 35 S. W. R. 769.

1 See note 3 to last section.

2 See § 135 and 136, ante. 3 See § 136, ante.

4 State v. Midland Sav. Bank, 71 N. W. R. 1011: Winslow v. Harriman Iron Co., 42 S. W. R. 698. ♪ It is a wrongful mingling.

6 See § 136, ante.

7 See § 136, ante.

8 See § 136, ante, and Am. Trust

Co. v. Boone, 29 S. E. R. 182.

ex maleficio. The result of the foregoing facts is that if the money came rightfully into the bank as a general deposit, by paying it out in violation of the trust the bank becomes liable to the beneficiary in the same way it stood liable to the trustee.10 But if a constructive trustee who is himself acting in violation of the rights of the real owner deposits the money in the bank, and the bank receives it with knowledge that the real owner of the fund does not assent to or is not cognizant of the deposit, the bank itself becomes a trustee ex maleficio, and the assets of the bank become impressed with a charge to the amount of the trust funds." The reason of the rule is perfectly plain. The money of the real owner went to swell the assets of the bank. The bank knowingly mingled funds of which it was a trustee with funds which it owned, and hence the beneficiary has the right to have the whole fund impressed with a trust in his favor. The reasons for this rule will be found fully stated

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9 See § 136, ante.

10 That is to say, the beneficiary has only the claim of a general creditor. The bank received the fund rightly and the funds did not pass into the assets of the bank as a trust fund. The claim of the beneficiary is only a claim to recover damages for a breach of the trust.

The bank knowingly receives the fund in violation of the trust. It is in the same position as any person would be who so received money. Central Nat. Bank v. Life Ins. Co., 104 U. S. 54; Van Alen v. American Nat. Bank, 52 N. Y. 1; Knatchbull v. Hallett, L. R. 13 Ch. D. 696, state the principle. A very excellent article on the subject will be found in 2 Harv. Law Rev. 28. 12 Myers v. Board of Education, 51 Kan. 87; Wasson v. Hawkins, 59 Fed. Rep. 233; Massey v. Fisher, 62 Fed. R. 958; Kimmel v. Dickson,

5 S. D. 221; Boyer Ind. Dist. v. King, 80 Iowa, 497; People v. City Bank, 96 N. Y. 32; Leonard v. Lattimer, 67 Mo. App. 138; Stoller v. Coates, 88 Mo. 514; Harrison v. Smith, 83 Mo. 210; San Diego Co. v. Cal. Nat. Bank, 52 Fed. R. 59; State v. Thum, 55 Pac. R. 858; In re Johnson, 103 Mich. 109; Moreland v. Brown, 86 Fed. R. 259; Windstanley v. Second Nat. Bank, 13 Ind. App. 544; Anderson v. Pacific Bank, 112 Cal. 598; Wallace v. Stone, 107 Mich. 190; AnheuserBusch Ass'n v. Morris, 36 Neb. 31; and see especially for the principle the splendid judgment of Stanley Matthews in Central Nat. Bank v. Life Ins. Co., 104 U. S. 54, and of Sir George Jessel in Knatchbull v. Hallett, L. R. 13 Ch. D. 696. Wherever the assets of the bank have been augmented by the trust fund, there must be a priority. Beard v. School District, 88 Fed. R. 375;