general banking business and it was desired to give them the use of more money for a longer time?
The general arrangement is not unusual in the case of chain stores and the like which do their principal banking in one city but have branch stores which take in large amounts of money in other places. At first it is a little diffcult to identify the relationship which it established, but upon examination it becomes clear enough. The trust company offered the plaintiff a service which relieved it of considerable difficulty and expense. Beside supplying its banking facilities for the transmission of the plaintiff's money to New York, it undertook the physical work of making the plaintiff's deposits both in Philadelphia and the surrounding territory as well as that of making up and delivering the plaintiff's pay rolls in Philadelphia. As the agreement originally stood, unless it could use the funds on deposit, it would receive practically no benefit from all this beyond what might accrue from the plaintiff's $25,000 checking account, on which it will be remembered interest at 2 per cent. was originally to be paid. Of course that account was desirable, but it is significant that, when the original agreement was modified so that the trust company was required to remit to New York twice a week instead of once, thus greatly reducing the average of the deposit account in its hand, it was relieved of paying interest on the checking account.
The creation of the separate checking account does not preclude the view taken by any means. The plaintiff in New York received immediate credit advice of all deposits made to its credit in the deposit account and probably at once credited them to its general funds in New York, and there may have been a number of reasons why it was convenient and desirable for it to keep this account intact for the semiweekly remittances.
The parties have argued the case as though there were two question involved: First, the existence of the trust relationship; and, second, the traceability of the trust fund, if any. I agreed with the plaintiff that the doctrine of Knatchbull v. Hallett, 13 Ch. Div. 696, is the law of both Pennsylvania and the federal courts, but its application depends upon a tortious intermingling of trust funds, because, as the court says, the presumption is that withdrawals so far as possible are honestly made from the trustee's own funds and therefore what is left would be trust money. If, however, the mingling of the funds is innocent, the reason of the rule fails. And, of course, it is innocent when both parties agreed or intended that it should be mingled. If, to go a step further, such was the agreement or intention, not only would there be no rule for tracing the trust, but there would be no trust. Any deposit by which money is to be used for the general business of the depository by its inherent nature creates the relationship of debtor and creditor and immediately negatives the existence of a trust.
All the questions argued in the case therefore depend upon the essential issue whether this deposit account was to be used by the trust company in its general banking business. I think that that was clearly the intention.
It follows that there is no essential difference in the character of the deposit account in the trust company and the deposits in the hands of the correspondent banks at the close of business on October 5th. It was understood that these would all go into the general deposit account. It was understood, therefore, that they would be mingled with, and used in the same manner as, the general funds of the bank. Upon the deposit being made in a correspondent bank, it was immediately credited to the trust company and thereafter was subject to withdrawal only by that company. Of course there must have been a physical segregation of these deposits in the hands of the correspondent banks for some brief period immediately after their receipt.Nor can the precise legal effect of their daily credit advices to the trust company be determined from the bill and answer. But what the parties intended as the ultimate disposition of the fund is the controlling factor. The mere fact that time and baning machinery were required to get these deposits into the general moneys of the trust company during which period they may have been susceptible of identification is unimportant, unless there were something definite to indicate that the parties intended that two different kinds of relationship should successively come into being with regard to these out-of-town deposits, namely, a trust relationship until they reached the deposit account and a debtor and creditor relationship thereafter. That would be a curious thing to do, and there is nothing of the sort in this case.
As to the jurisdictional question raised, I am satisfied that this court had jurisdiction. The secretary of banking is an administrative officer. His office exists by statute. He is appointed by the Governor and not by the court. He is not an equity receiver, and the mere face that the statute provides that he shall have the rights, powers, and duties of an equity receiver does not make him one, nor does the fact that the common pleas courts of the state are given jurisdiction to make certain orders and decrees relating to the conduct of the liquidation and rights in the fund mean that the fund is in the custody of the court. That depends entirely upon the nature of the office of the liquidating officer and the power from which he derives his authority.
The general conclusion is that there is no trust relationship as to either of the funds involved in this suit and the plaintiff is not entitled to a preferred claim against the estate of the Franklin Trust Company, but has merely the status of a depositor.
The bill may be dismissed, with costs.
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