The Farmers Savings Bank of Hamburg was *Page 1084 a corporation organized under the laws of the state of Iowa for the transaction of a banking business. It closed its doors on December 20, 1924. The superintendent of banking 1. MUNICIPAL of this state took possession, and on January 8, CORPORA- 1925, was appointed receiver. C.B. Clayton was TIONS: vice president of said bank, and had also, for a fiscal number of years prior thereto, been treasurer of management: the city of Hamburg, and kept his funds as such wrongful treasurer on deposit in said bank. The city of deposits. Hamburg, through its council, did not designate this bank as a depository for the city funds until October 21, 1924, if it did then. The bank never at any time made the statutory bond requisite to becoming a depository. The last deposit of city funds was made on October 25, 1924. The amount then deposited was $7,038.44. Many deposits had been made by this treasurer prior to this time, and they were all in an open account, and much money had been checked out at various times. The balance shown to be due the city at the time the bank closed was $16,441.78. Cash on hand, at the date of closing, and in other depositories, was $11,919.35. It is claimed that, at the time this last deposit was made, the city council had approved this bank as a depository, but the treasurer did not know that the council had so done until after this deposit was made.
It is admitted that the city of Hamburg is a city of the second class. The law in force at the time these deposits were made was Section 660-a, Code Supplement, 1913. Under this section the city council is required to do two things: It is required to designate the bank and the amount to be deposited. The statute further requires that, before such deposit is made, the depository is required to file bond in double the amount deposited, with sureties to be approved by the treasurer and the city council, which bond is to be filed with the city clerk. An investigation of the records of the city council shows only the following entry:
"That the Farmers Savings Bank of Hamburg, Iowa, be designated as a depository of the city of Hamburg, in accordance with Section 5651, Supplement 1919, and House File 154 of the Acts of the Fortieth General Assembly."
These citations are erroneous, and evidently refer to the aforesaid Section 660-a, Code Supplement, 1913. This section *Page 1085 of the statute is prohibitive in its force and effect. In other words, a city treasurer has no right to deposit money in a bank unless the provisions of the aforesaid section have been complied with. It is apparent from the above record of the city council that the section has not been complied with in two respects. While it does designate this bank as a depository, it does not specify the amount to be deposited, nor was there any bond given, as required by this section. It must follow, therefore, that the deposits made by the city treasurer were wrongful. We have so held as to failure to give bond in the case of City of NewHampton v. Leach, 201 Iowa 316. The deposits being thus wrongful in the first instance, title never passed to the bank, and it held said fund as a trust fund. We said further in the NewHampton case:
"If a trust fund is established, a presumption arises that it was retained in the possession of the trustee and came into the hands of the receiver, and the burden is upon the receiver to overcome this presumption."
This conclusion was based on our previous holdings, which are cited in the New Hampton case.
If this were all that is involved in this case, we might well end the opinion here by an affirmance, on the strength of our former holdings in Independent Dist. v. King, 80 Iowa 497;Davenport Plow Co. v. Lamp, 80 Iowa 722; In re Assignment ofKnapp Co., 101 Iowa 488; Smith v. Des Moines Nat. Bank,107 Iowa 620; Page County v. Rose, 130 Iowa 296; Brown v. Sheldon St.Bank, 139 Iowa 83; Leach v. Exchange St. Bank, 200 Iowa 185.
But the record in this case shows that the deposits made by the city treasurer largely consisted of taxes collected by the county treasurer in behalf of the city, and the method 2. BANKS AND of payment by the county treasurer to the city BANKING: treasurer was as follows: The county treasurer trust carried his deposit with this same bank. When he funds: had collected taxes for the city and wished to charging turn them over, he drew his check, as county and treasurer, payable to the city treasurer, and crediting delivered this check to the city treasurer. The accounts: city treasurer then presented the same to the augmentation bank, and the bank charged the check to the of assets. county treasurer, and credited the city treasurer's account with *Page 1086 an equal amount. It is seriously urged that this process of transferring funds did not increase the assets of the bank, and to this question we will give our attention.
We assume that no one would dispute the proposition that, if the city treasurer presented the county treasurer's check to the bank, properly indorsed, and the bank paid him the face of the check in cash over the counter, and then he passed the cash back to the bank, and asked to have it credited to his account as city treasurer, this in fact increased the assets of the bank. In its legal effect, is this not exactly what was done in the case at bar?
In Messenger v. Carroll Tr. Sav. Bank, 193 Iowa 608, the bank held a sight draft on one Swaney, who was a depositor of the bank, drawn in favor of the Moline Plow Company. It presented the sight draft to Swaney, who paid the same by giving the bank his check for the amount thereof, drawn on the same bank that presented the sight draft, in which bank he was a depositor. The bank charged the check to Swaney's account, and forwarded to the Moline Plow Company its draft drawn on Chicago, which was dishonored because the Carroll Bank closed before the draft was presented in Chicago. In that case we said:
"That this method of collection was the full equivalent of the payment of money by the Swaney Company, and served to the augmentation of the assets of the bank in precisely the same manner as the delivery of currency would have done, is held in the following authorities: [citing numerous cases]. We deem it clear that the net result of the transaction of payment by the Swaney Company and the receipt thereof by the collecting bank was the same as though the Swaney Company had drawn the currency into its own hands by means of check, and had thereupon delivered the same to the collecting bank in payment of the sight draft."
In Union St. Bank v. Peoples St. Bank, 192 Wis. 28 (211 N.W. 931, at 933), the Wisconsin Supreme Court, having this question before it, made the following pronouncement:
"This court has already adopted the doctrine that the deposit to the credit of the customer at the counter of the bank of one of its own checks is the exact equivalent, in legal view, to the bank passing to its customer the cash and the *Page 1087 passing of the cash back for deposit and credit. It was so held in Ellis v. State, 138 Wis. 513, 531, 119 N.W. 1110, and so held as to the bank's own certificate of deposit in State v. Shove,96 Wis. 1, 9, 70 N.W. 312. * * * The same rule is recognized elsewhere. Hawaiian Pineapple Co. v. Browne, 69 Mont. 140, 220 P. 1114; Goodyear T. R. Co. v. Hanover State Bank, 109 Kans. 772, 204 P. 992; Kesl v. Hanover State Bank, 109 Kan. 776, 204 P. 994; Northwestern L. Co. v. Scandinavian Am. Bank, 130 Wn. 33, 225 P. 825; State Nat. Bank v. First Nat. Bank,124 Ark. 531, 187 S.W. 673."
In Northwest Lbr. Co. v. Scandinavian Am. Bank, 130 Wn. 33 (225 P. 825), the Washington court had before it a case in which the plaintiff had outstanding obligations. The lumber company forwarded to the bank its check for $5,200, on June 24, 1921, to meet these obligations, which were due July 1st. The check was not paid or canceled, nor was the amount thereof charged to the lumber company's account. The lumber company at all times had an amount in its deposit account in excess of the amount of this check. On June 30, 1921, the bank was taken over by the state supervisor of banking, who proceeded to liquidate the same. The lumber company filed claim for preference. In that case it is said:
"As a final reason against a recovery it is urged that there was by the transaction no augmentation of the assets of the bank. The fact here assumed is undoubtedly true, as applied to the general assets of the bank: that is to say, it is true in the sense that the bank held no greater assets at the completion of the transaction than it held at its beginning. But it is not our understanding that this is the principle upon which the doctrine of augmentation rests. The equitable right to follow misapplied property into the hands of the parties receiving it depends upon the ability of identifying it in specie, or the ability of identifying the property with which it has been confused, or into which it has been converted. If this cannot be done, there can be no recovery, even though it be shown that the general assets of the estate have been increased to the amount and value of the property. The rule as applied to money which has been intermingled with other money thus means that it must be shown that the mass of money from which it must be taken has been increased by the amount of money which has *Page 1088 been misapplied, — not that it must be shown that the general assets of the possessor of the money have been increased. In the instant case, there is a showing that the money which came into the hands of the supervisor on the insolvency of the bank was greater by the amount of the check than it would have been, had the bank performed its duty and made the actual segregation, and in consequence, an augmentation of that mass."
As supporting this doctrine, that court cites People v. CityBank of Rochester, 96 N.Y. 32; Dows v. Kidder, 84 N.Y. 121; Statev. Grills, 35 R.I. 70 (85 A. 281); Stoller v. Coates, 88 Mo. 514; Goodyear T. R. Co. v. Hanover St. Bank, 109 Kan. 772 (204 P. 992).
Without delving further into the many cases of this court and other courts on this question of preference, we will say that there seems to be an underlying principle which is present in all cases of this character: that is, that a 3. TRUSTS: preference can only exist where the title to the preserva- property has not passed. In other words, he who tion: seeks to claim preference must be able to point presumption. out certain specific property, and say, "That is my property, because I have a title thereto;" or, in case the property has been commingled so that he is unable to point out his identical property, if he yet can say and show that in the mass of property "my property exists," although incapable of specific identification, he is entitled to reclaim it. It is not in fact a question of preference or superior right over other claimants, but it is a simple proposition of recovery of property to which he holds title.
The evidence in the instant case shows that, at the various times these deposits were made by the city treasurer, as above explained, there was at all times in the vaults of the bank money far in excess of the amount of deposits thus made. When the city treasurer presented the county treasurer's check on these funds, it is therefore apparent that, had he requested cash on the county treasurer's check, there was actual money in the bank far in excess of that necessary to meet the check. The law does not require the doing of idle things. Under our holdings, the deposit made by the city treasurer was unlawful and wrongful; and, in line with our holding in the Messenger case and the cases above cited, we hold that, in legal effect, *Page 1089 under the circumstances in this case, the net result was identically the same as though he had drawn the money on the check in actual cash, and then returned it to the bank for credit to his account as city treasurer. When the bank received the check and charged it to the county treasurer's account, it, in effect, withdrew that amount from his account and paid it to the city treasurer. The city treasurer then redeposited the same to his own credit, and we have held that this deposit by him was unlawful. However, the funds were commingled with the funds of the bank, and, of course, lost their identity. The deposit being wrongful, the title thereto never passed to the bank, and it therefore follows that the claimant was entitled to recover his property from the common mass. The record shows that, before this bank closed, the mass of its cash assets had been reduced to $11,919.35. This being less than the balance the city treasurer had on deposit, it follows that the excess over and above the cash on hand at the time the bank closed had been dissipated.
Further than this, the evidence in the case shows that there are two other claims on which preference is made; and while we hold that the city has traced its funds into a common mass sufficiently to answer the call of the law under such circumstances, and that it is entitled to recover its funds, it must be limited to the funds on hand at the time the bank closed. There is a further limitation also on the right to recover from this common fund, by reason of the fact of the existence of the two other claims for preference, which, if allowed, must share in this common fund. The district court established this claim as a preferred claim, and ordered it paid in full, provided there were sufficient funds in the hands of the receiver; and if not, then the preferred creditors should share pro rata in such fund. This order is too broad, because the fund from which the preferred creditors are to be paid is limited to $11,919.35. The order should be modified accordingly. — Modified and affirmed.
EVANS, C.J., and FAVILLE, De GRAFF, KINDIG, and WAGNER, JJ., concur.
STEVENS, J., not participating.
MORLING, J., dissents. *Page 1090