Owosso Masonic Temple Ass'n v. State Savings Bank
263 N.W. 771, 273 Mich. 682 (1935)
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Rule of Law:
A bank deposit is presumed to be general unless there is an express agreement between both the depositor and the bank to treat the funds as a special deposit by keeping them segregated for a specific purpose. The payment of interest on the deposit and the commingling of funds with the bank's general assets indicate a general deposit, creating a debtor-creditor relationship.
Facts:
- In 1929, the Masonic Temple Association of Owosso initiated a campaign to raise funds to clear its indebtedness by selling 'ownership bonds' to its members.
- The Association created a trust agreement with three trustees, each a representative from one of the three local banks, to manage the funds raised.
- The trust agreement specified that the funds were for the sole purpose of retiring the ownership bonds and that they would be deposited equally among the three Owosso banks.
- The fundraising plan stipulated that the deposited funds would earn 4% interest, which was intended to help the fund grow and eventually retire the bonds.
- The funds were deposited in accounts named 'Masonic Temple Building Trustee Fund' and 'Masonic Temple Building Fund'.
- The Masonic Temple Association retained the ability to, and in some cases did, withdraw funds from these accounts via vouchers signed by its president and secretary.
Procedural Posture:
- The Masonic Temple Association filed a claim in the trial court asserting that its funds held by the insolvent banks were special deposits entitled to preferential payment over general creditors.
- The trial court entered judgments in favor of the Masonic Temple Association, ruling that the deposits were special.
- The receiver for the banks appealed the trial court's judgments to the Michigan Supreme Court.
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Issue:
Does a deposit made into an interest-bearing account under a private trust agreement, to which the bank is not a party, constitute a special deposit entitled to preference in the event of the bank's failure, even though the funds were commingled with the bank's general assets?
Opinions:
Majority - Potter, C. J.
No. A deposit made for a specific purpose does not constitute a special deposit entitled to preference unless there was a mutual understanding between the depositor and the bank to segregate the funds and not commingle them with the bank's general assets. Here, the deposits were general because the banks were not parties to the trust agreement, the funds were commingled, and the payment of interest implied the bank had title to the money and the right to invest it. A general deposit creates a debtor-creditor relationship, where title to the money passes to the bank. A special deposit, in contrast, creates a bailor-bailee relationship where the bank merely holds the specific property for safekeeping. The presumption is that a deposit is general. For it to be special, both parties must intend for the funds to be set aside exclusively for a specific purpose. The banks never agreed to treat these funds as special deposits. The fact that the plan required the banks to pay interest is dispositive; a bank cannot pay interest on funds it cannot use and invest, and it cannot use funds unless title has passed to it, which is the hallmark of a general deposit.
Analysis:
This case establishes a clear and high standard for classifying a deposit as 'special,' thereby giving it preference over general creditors in a bank failure. The decision emphasizes that the depositor's intent alone is insufficient; the bank must also agree to act as a bailee rather than a debtor. By focusing on objective indicators like interest payments and the commingling of funds, the court created a strong presumption in favor of general deposits. This ruling protects the principle of ratable distribution among a failed bank's creditors by narrowly construing the exceptions that allow certain depositors to jump to the front of the line.
