Opinion
No. 25508
Decided March 25, 1936.
Banks and banking — Liquidation — Debtor and creditor relation created and claim not preferred, when — Purchase price of realty received by trust company under escrow agreement — Funds deposited in banking department, commingled and used in business.
Where the purchase price of real estate is received by a trust company, an Ohio corporation, under authority of an escrow agreement authorizing the trust company to use such fund, pending disbursement, in the ordinary and usual course of its business, and in accordance therewith such fund is deposited by it in its banking department and commingled with the general funds of such department, the relation between the trust company and the one entitled to such fund is that of debtor and creditor, and the latter is not entitled to a preference over general creditors, on liquidation of the trust company.
ERROR to the Court of Appeals of Cuyahoga county.
The original action was brought in the Court of Common Pleas of Cuyahoga county by John A. Nally against the Superintendent of Banks of Ohio and others seeking to establish a preferred claim against certain money paid into the bank under an escrow agreement.
The material facts are undisputed.
On and prior to February 25, 1933, the Guardian Trust Company was open for business in the ordinary manner. On Monday, February 27, 1933, it opened under restrictions, not in excess of one per cent. to be paid to its creditors. This restriction remained in force until June 15, 1933, when the Superintendent of Banks of the State of Ohio took possession of the trust company for the purpose of liquidation. Neither the one per cent. nor the dividend declared in liquidation has been paid on the claim involved here.
On February 13, 1933, H. Malin and Rosa Kaiser executed and delivered to the trust company an escrow agreement by the terms of which it appears that it was agreed that H. Malin should sell certain real estate to Rosa Kaiser for $3600, $200 of which was to be paid to H. Malin, and the balance of $3400 to be deposited with the trust company.
The payment was made accordingly, and prior to February 23, 1933, Rosa Kaiser executed and delivered into the escrow division a withdrawal slip for $3400 on her account at the Vcela Branch Office of the Guardian Trust Company.
On February 25, 1933, this amount was charged against her account and a credit to that amount was thereupon placed in the banking department of the trust company in an account entitled "The Guardian Trust Company Escrow Account Vcela Office." The latter account is a non-interest bearing commercial account from which funds could be withdrawn only on the order of the trust company. Of this action taken by Rosa Kaiser, John Nally had no knowledge; nor did Rosa Kaiser and H. Malin have knowledge of the account last referred to.
On February 23, 1933, the deed to Rosa Kaiser was placed on record and delivered to her. On February 25, 1933, everything had been done to close the transaction except the disbursement of the fund received in escrow.
The Capital Endowment Company held title to the property and previously had entered into an agreement to sell it to H. Malin. Neither John A. Nally nor the Capital Endowment Company signed the escrow agreement, but on February 21, 1933, John A. Nally as attorney for the Capital Endowment Company delivered to the trust company a deed of the property to Rosa Kaiser, assignee, and a letter of instructions containing the following: "When you have procured to the order of Jno. A. Nally, Attorney for The Capital Endowment Company the sum of Twenty-Five Hundred Dollars ($2500.00) in cash, please proceed as follows: * * *
"Deduct the aforesaid charges from our Twenty Five Hundred Dollars ($2500.00) and remit check to us for the balance. We are to bear no portion of the escrow fee."
Edward Malin and Nellie Greenberg have succeeded to the interests of H. Malin, Edward Malin succeeding to H. Malin's interests by written order of H. Malin, and Nellie Greenberg succeeding to a portion of the interest acquired by Edward Malin from H. Malin by proceedings in aid of execution. The Capital Endowment Company has duly authorized John A. Nally to receive payment of the amount coming to it from the escrow money.
The escrow agreement contained the following provision:
"Funds deposited, not being available for investment, do not bear interest, and as part of the consideration for the service to be rendered in connection with this escrow, The Guardian Trust Company is authorized to receive the escrowed funds, and pending the disbursement of such funds as herein directed, to use the same in the ordinary and usual course of its business."
On trial the Court of Common Pleas found for plaintiff and others claiming an interest in the money.
An appeal was taken to the Court of Appeals and the cause was tried in that court upon an agreed statement of facts with the exhibits attached and the evidence taken supplemental thereto, all of which are incorporated in the bill of exceptions.
The Court of Appeals held that the fund was a special deposit held in trust for a special purpose by the Guardian Trust Company, and ordered the Superintendent of Banks, who was in charge of the trust company in liquidation, to pay to John A. Nally, Nellie Greenberg, Edward Malin and Rosa Kaiser, each, his or her share in the fund, these sums to be paid as preferred claims before the satisfaction of general creditors of the trust company.
A motion to certify the record to this court was allowed.
Mr. John W. Bricker, attorney general, Mr. Charles F. Carr and Mr. F.K. Pickering, for the Superintendent of Banks.
Mr. C.B. Ford, Mr. J.E. Peck, Mr. Raymond D. Metzner and Messrs. Buonpane Buonpane, for defendants in error.
It has been pointed out by this court that a lawful general deposit in a bank gives rise to the relation of debtor and creditor between the bank and the depositor. Busher, Clerk, v. Fulton, Supt. of Bks., 128 Ohio St. 485, 191 N.E. 752.
In the instant case, however, it is asserted that the deposit was special and that the trust company held the amount of the deposit in trust for those entitled thereto at the time the banking institution went on a restricted basis, which ended in its being taken over for liquidation by the Superintendent of Banks.
The written escrow agreement by which the sale of the real estate was effected was not out of the ordinary, and the transaction was completed, save that the purchase money received by the trust company and held on deposit in the account awaited distribution.
Were there no provision in the escrow agreement as to how the trust funds should be handled pending distribution, it would be necessary to direct our inquiry to the bearing of McDonald, Admr., v. Fulton, Supt. of Bks., 125 Ohio St. 507, 182 N.E. 504, which construes Section 710-165, General Code, prior to its amendment effective June 14, 1933.
The escrow agreement, it appears, contained a provision by which the trust company was authorized to receive the escrow funds, and, pending the disbursement thereof, to use them in the ordinary and usual course of its business. Acting accordingly, the trust company deposited the money received under the escrow, in a non-interest bearing commercial account in the banking department in the name of the trust company itself, followed by the designation "Escrow Account," as asserted in the statement of facts, and thus by agreement commingled the funds with the money of general depositors. Such consent to the use of the money in the banking business necessarily implies that absolute title to the money passed to the trust company.
It was held in Squire, Supt. of Banks, v. Oxenreiter, ante, 475, that, on the deposit of money in a bank for a special purpose, the bank is trustee or bailee of the money if it is the understanding of the parties that the money deposited is not to be used by the bank for its own purposes.
By logical processes of thought it follows necessarily as a corollary that an agreement between the parties that the money deposited may be used by the bank in its banking business makes the deposit essentially general, and gives rise to the relation of debtor and creditor. This deduction is in accord with the pronouncement of this court in Busher, Clerk, v. Fulton, Supt. of Banks, supra, as to the characteristic elements of a special deposit.
In recapitulation, it may be asserted that if there is no understanding that the money shall not be used by the bank in its business, the deposit is general; and, if there is an agreement that the money deposited may be so used, the deposit is likewise general.
The claim, therefore, cannot be accorded preference, and the plaintiff in error is entitled to judgment in his favor as a matter of law.
Judgment reversed and final judgment for plaintiff in error.
WEYGANDT, C.J., STEPHENSON, MATTHIAS, DAY and ZIMMERMAN, JJ., concur.