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October 11, 1932

GORDON, Secretary of Banking, et al.

The opinion of the court was delivered by: KIRKPATRICK

This cause was heard upon bill and answer. Consequently, the answer is to be taken as true in all particulars whether responsive to the bill or not ( Leeds v. Marine Insurance Co., 2 Wheat. [15 U.S.] 380, 4 L. Ed. 266; Terral v. Burke Construction Co., 257 U.S. 529, 42 S. Ct. 188, 66 L. Ed. 352, 21 A.L.R. 186), and only such averments of the bill as are not controverted are to be taken as admitted.

Franklin Trust Company is a banking institution in the city of Philadelphia which at the close of the business day of October 5, 1931, was taken over for liquidation by the secretary of banking of Pennsylvania, and which, it may be assumed, is largely insolvent. This plaintiff is endeavoring to impress certain of the funds of the bank, now in the hands of the special deputy in charge, with a trust in its favor. The plaintiff's case depends upon the legal effect of an oral agreement between it and the trust company, made on October 25, 1925, and subsequently, on August, 1930, slightly modified. From the averments of the bill and answer, the arrangement was as follows:

 The plaintiff, whose general offices were in New York, had three principal places of business or plants in the city of Philadelphia, and in addition made sales through a number of distributors located at various points outside Philadelphia in Pennsylvania and New Jersey.

 The trust company agreed to accept from the Philadelphia plants cash, drafts, and checks; the same to be deposited in what was designated as "a deposit account" in the name of the plaintiff, and the cash together with the proceeds of the drafts and checks to be forwarded on Mondays and Wednesdays of each week to the plaintiff in New York. The bill avers that the trust company was to take the drafts and checks "for collection." The answer which purports to "qualify the allegations" of the bill says, "said deposits to be credited to the complainant * * * and on Monday of each week the balance in the deposit account * * * to be forwarded to * * * the General Baking Company in New York."

 In addition to the foregoing, the parties designated certain out-of-town banks with which the trust company was to make arrangements by which the plaintiff's out-of-town distributors would deposit their moneys in such banks, subject to withdrawal only by check of the trust company; all money so deposited to be credited to the complainant's deposit account in the trust company upon the receipt by it of credit advices by the receiving banks, the proceeds to be forwarded to the plaintiff in New York on Mondays and Wednesdays along with the proceeds of the Philadelphia plants. The bill avers that the deposits in the out-of-town banks were to be "ear-marked as the funds" of the plaintiff. The "qualification" of the answer omits this averment.

 The trust company undertook to make up and deliver weekley pay rolls in envelopes to the Philadelphia plants, collecting the deposits at the same time, when possible.

 The disbursement account was not subject to check, except that the original agreement contemplated that the parties might from time to time specially agree to permit the balances in the disbursement account to remain in the trust company for longer than semiweekly periods, in which case at the expiration of such agreed time the funds would be called by check of the plaintiff, instead of being sent to it in the usual way. Special agreements of this kind were made and carried out on three different occasions, at which times balances of $450,000, $440,000, and $100,000, respectively, were allowed to remain with the trust company for periods of a month or two.

 When the trust company closed its doors, it had on deposit approximately $36,000 in the disbursement account. The plaintiff admits that it has no preferred claim as to this amount, and it is not involved in this case. There was $49,950.17 on deposit to the plaintiff's credit in the deposit account. In addition, the various out-of-town correspondent banks had accepted deposits of cash, drafts, and checks from the plaintiff's out-of-town distributors amounting in all to $32,403.26. The receipt of this amount had been noted on the books of those correspondent banks on Monday, October 5th, the last day on which the trust company was open for business, and credit advices as to it arrived at the trust company on the following day.

 The plaintiff originally attempted to enjoin the special deputy in charge of the bank from collecting these funds, but, upon a stipulation made at the hearing of that proceeding, it was ordered that the defendants would collect and place this sum in escrow pending a decision by this court as to whom it should be paid.

 It seems to be agreed that there was no segregation of the funds in the plaintiff's deposit account, but that whatever was received either direct from the plaintiff's plants in Philadelphia or from the out-of-town banks was mingled with the general funds of the trust company.Just what the whole arrangement between the trust company and the correspondent banks was does not fully appear. It is plain, however, that the original agreement between the plaintiff and the trust company contemplated that all the deposits in the correspondent banks were ultimately to be paid into the plaintiff's deposit account in the trust company and dealt with in exactly the same way as the money directly deposited by the plaintiff's Philadelphia plants.

 After a careful consideration of all the matters before me, I am satisfied that the parties in this case did not create or contemplate a trust relation as to the deposit account, and that this applies equally to the money directly deposited by the plaintiff's Philadelphia plants and that received through the out-of-town correspondent banks.

 The crux of the matter is whether it was intended that the trust company should have the use of the funds of this account during the brief periods for which they remained in its hands. It is extremely significant, though of course not conclusive, that the agreement between the parties does not contain any term expressly creating a trust relationship or any expression which even remotely suggests it. Even if the averment of the bill that the deposits were received "for collection" in the ordinary commercial sense could be taken as admitted (which is doubtful in view of the qualified answer), it would make little difference, since it is conceded that cash, drafts, and checks were all to go into the deposit account indiscriminately under the same terms, and of course it would be patently absurd to speak of accepting a cash deposit for collection. Nor was there any requirement that the plaintiff's deposit account was to be ...

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