delivered the opinion of the Court.
This action was first presented to this court in cause No. 17,877 which was decided October 8, 1956, Metro*578politan State Bank, Inc. v. Arthur Cox, et al., 134 Colo. 260, 302 P. (2d) 188. In that opinion the trial court was required to reconsider the evidence and to determine whether at the time the bank accepted a deed from one William E. Rust it had knowledge of the existence of a second deed of trust on the real estate conveyed to the bank by said warranty deed. Pursuant to this mandate, and consistent with the direction of this court, the trial court on December 7, 1956, disposed of the case and entered judgment in favor of the bank as against the claims of all plaintiffs in the three cases which were consolidated for trial. Writ of error directed to that judgment is now before this court for consideration upon the full record.
To properly understand the case as now presented, our opinion in the first case should be referred to, where a full statement of the pleadings and the findings of the trial court appear. Suffice it to say here that one Rust was a dealer in automobiles, tractors and trailers; that he had conducted his banking business with the defendant bank for several years and the bank was familiar in a general way with his method of operation; that in some instances Rust acted as an agent of the owner in disposing of such vehicles, in other instances he would buy them outright, and upon occasion he would sell trucks, cars and trailers on commission. At the time of his dealings with Cox (one of the plaintiffs in the trial court) Rust owed the bank (defendant in the trial court) approximately $8,000.00 which indebtedness was long past due and the bank had for some time been attempting to secure collection, without success. A warranty deed was delivered by Rust to the bank for the purpose of liquidating his debt. This deed excepted a first deed of trust of $13,000.00 and the bank admits knowledge of this lien. The deed covenanted that the property was free and clear of any other liens, when in fact there was a second deed of trust of record against the real estate at the time the deed was executed. The bank denied any knowledge *579thereof and upon discovery of the existence of this trust deed it rescinded its agreement releasing Rust from his debt and seized the sum of $6,270.94, being the balance on deposit in his checking account at the time. He had deposited to his general account a check for $6,120.00 the day before the seizure. This check was received by him as payment in full for a tractor which he had sold 'and which was owned by Cox. The. arrangement between Cox and Rust was that the latter would find a purchaser for the tractor and would keep as his commission all sums received in excess of $5,000.00. Rust had delivered to Cox three checks totaling $5,000.00, but due to the seizure of the said deposit by the bank, checks representing $4,500.00 payable to Cox were unpaid. Cox brought his action against the bank claiming that the deposit of Rust was a special deposit for a specific purpose and that the bank knew or had reason to know that said deposit was a special one.
The $6,120.00 check received by Rust from the purchaser of the tractor was drawn on a bank in Vernal, Utah. In order to expedite clearance of the checks issued to Cox, Rust consulted officials of the bank and was advised to secure a telegram from the Utah bank accepting the charge against the account upon which it was drawn. Such a telegram was received by the local bank and thereupon Rust’s account was credited with the amount of the deposit. An official of the bank admits that at the time the deposit was made he conferred with Rust in a private office for a period of time estimated to be between ten minutes and half an hour, and that at this conference the ledger card concerning Rust’s indebtedness was on the table. Rust testified that the full nature of his dealings with Cox was told to the bank official during this conference and that the bank was informed that $5,000.00 of the money represented by the check belonged to Cox. Rust further testified that the bank official promised not to seize the funds for applica*580tion to Rust’s indebtedness and that this promise was made prior to making the deposit.
Officials of the bank denied that they had any knowledge whatever which might charge them with notice that the check involved trust funds. They testified that Cox was not mentioned. It is admitted, however, that a check for $500.00 drawn by Rust in favor of Cox was cashed since Rust had a sufficient balance for the payment of this check prior to the deposit of the draft on the Utah bank.
In the other cases which were consolidated for trial, The Tribune Grain, Inc., and Sullivan, Inc., sought to recover against the bank upon checks held by them upon which payment was refused following the seizure of Rust’s funds by the bank. In these transactions Rust bought grain from the corporations, giving the checks drawn on the bank in payment therefor. Unless the bank is bound by its acceptance of the deed to discharge the debt of Rust, the vendors of the grain have no remedy against it.
Following the mandate of this court in cause No. 17,877 the trial court found specifically that the defendant bank had no actual or constructive notice of the existence of a second deed of trust at the time the deed from Rust was delivered to it. There is competent evidence to support this finding of fact and in such circumstances we are not warranted in disturbing it. Apart from the contention that Rust’s obligation to the bank had been can-celled by acceptance of the deed, and because thereof the bank had no right to set off the deposit against the claimed indebtedness of Rust, there is no legal basis for the claims of the Tribune Grain, Inc., and Sullivan, Inc. We are bound by the finding of the trial court and accordingly affirm the judgment as to these two plaintiffs.
A different situation exists with reference to the claim of Cox as between him and Rust. $5,000.00 of the money represented by the check for $6,120.00 was unquestion*581ably received by Rust as trustee for the use and benefit of Cox.
Although the assignment of title to the tractor which was executed and delivered by Cox has the name of Rust as assignee therein, it would seem clear that it was delivered in blank by Cox since Rust acknowledges that he placed his own name on it after receiving it upon giving the last of three checks totaling $5,000.00 to Cox on December 20, 1954. He explained at length the reason he placed his own name as assignee on the title to the tractor and used a printed form, No. 411 Dealer’s Bill of Sale, for the purpose of securing title in the purchaser. In this connection we quote the following testimony:
“Q. Now, whether you bought the tractor or whether you had it on a commission basis the transaction so far as the title is concerned would be handled the same, would it, Mr. Rust? A. If I bought it? Q. Yes, for resale. A. It would be handled the same to go through the dealer, to secure a title for the purchaser. It would have to be handled the same way. It wouldn’t make any difference whether I owned it or not. If I transfer it on the 411, that is the way it has to be. Q. Well, the title could be assigned direct across to B&M, could it not? A. To B&M? Q. Yes, assigned to them and they could get a new title? A. It can be that way if they receive a permit to drive it to their courthouse, if they take the title from me and go to their county clerk’s office without taking the truck home with them. This B&M Service is in Rangely, and it has to go from the dealer to the purchaser and then from the purchaser to the state to secure title. I had gotten instructions concerning that from the dealers association. Q. Regardless of whether it is a sale and a purchase of the truck you would use identically the same titles, is that right? A. That is the only title there was to the truck.”
We are satisfied that the insertion of the name of Rust as the transferee of the title under these circumstances, which are not disputed, did not in any manner change *582the nature of the relationship existing between Cox and Rust. The testimony of Rust in this connection is:
“A. My contract with Mr. Cox was that I was to sell his piece of equipment and all over five thousand dollars was my commission for selling that piece of equipment for him. Now, I received that piece of equipment in October, I believe, and I had several deals on it and several deals that were attempted to be financed through the Metropolitan Bank, * * * ”
The testimony of Cox in this connection is as follows:
“Q. Mr. Cox, I direct your attention to on or about the 20th day of December 1954. On or about that time did you have any business dealings with Mr. William E. Rust? A. Yes, Mr. Rust was selling a truck for me. Q. Did you at any time transfer title to Mr. Rust? A. I did on December 20th when I received the final check from Mr. Rust. Q. And to your knowledge was that title turned over to the purchaser of the truck? A. It was turned over to the purchaser. It wasn’t — Well, I signed the title over and received the check, see? Q. On what date? A. December 20th. Q. 1954? A. 1954. Q. And did you receive checks from Mr. Rust in payment for that tractor? A. Yes, I did. I received three checks.”
The deal for the sale of the tractor was made by Rust on December 15. He expected to receive a certified check in payment of it but on December 20 he received the check which was not certified. On December 18, upon the request of Cox for some money, Rust gave him a check for $1,000.00 and on December 20, additional checks for $500.00 and $3,500.00 were drawn by Rust and delivered to Cox. Cox then signed the title and delivered it to Rust. The bank did not in any manner change its position by the extension of additional credit to Rust, nor did it in any manner whatever suffer detriment in reliance upon the trust funds deposited by Rust in his general account at the bank. Its status as a creditor of Rust remained the same after the deposit of Cox’s money as before.
*583The judgment of the trial court entered following our first opinion in this controversy contains a statement to the effect that the check given Rust in. payment of the tractor belonging to Cox was not received by the bank as a “special deposit.” This is tantamount to a finding that the bank had no notice of the trust nature of the transaction between Rust and Cox. We are bound by this finding of fact for the reason that there is competent evidence to support it. The trial court further entered a finding that the funds in Rust’s account which the bank seized, “were not trust funds.” We conclude as a matter of law that this finding is without support in the evidence. We resolve all disputed questions of fact in the light most favorable to the position of the defendant bank and determine whether as a matter of law it was entitled to seize that portion of the deposit which Rust intended to go to Cox as payment for the tractor.
Question to be Determined.
Where an agent has money in his possession belonging to his principal, which he deposits in his own general bank account with the intention of paying the sum due his principal by check drawn on that account; and where at the time of the deposit the agent is indebted to the bank on a past due obligation, and the bank accepts the deposit without knowledge that the agent holds the money in trust for the benefit of his principal, and sets off the amount of the debt of the agent against the deposit; where at the time the bank applies the deposit on the debt of the agent it has not changed its position to its detriment in reliance upon said deposit; can the principal recover from the bank that portion of the deposit which the agent held in trust for his use and benefit?
The question is answered in the affirmative. This court has held that money may be traced as a trust fund although it has no earmarks. Gillett v. Moore, 74 Colo. 484, 223 Pac. 21. We need not cite authority for the general proposition, well settled in the law, that whenever property held in trust has been misapplied it *584may, if it can be traced, be followed and subjected to the use of the cestui que trust unless it has been acquired by an innocent purchaser for value without notice of the existence of the trust.
Another principle of law interwoven in this controversy is the rule that the relationship between a bank and a depositor is that of debtor and creditor. The deposit of money in the general account of a depositor transfers ownership of the money to the bank. The obligation of the bank to its depositor is to pay out funds only to him or upon his written order. American National Bank of Denver v. First National Bank of Denver, et al., 130 Colo. 557, 277 P. (2d) 951. One of the qualifications of this obligation of the bank is the general rule that in the absence of unusual circumstances the bank has the right to set off against the account of the depositor the past due obligation of such depositor to the bank.
The precise question which we are called upon to determine under the record before us has been before the courts of last resort on numerous occasions. We have read many reported decisions from several jurisdictions and are of the firm conviction that the so-called “federal” or “equitable” rule is best supported by reason and best serves the demands of justice. Notwithstanding that former decisions of this court may have seemed to commit us, we have given the problems presented a thorough re-investigation and have determined now, and hereafter, to follow the “equitable” rule.
The issues of law are treated so thoroughly in Agard v. People’s Nat. Bank, 169 Minn. 438, 211 N.W. 825, that we need do no more than quote from that opinion. In considering the following quotation one needs only to substitute the name of Rust for that of Lindbergh since Lindbergh occupies the position of Rust in the case'at bar.
“The bank did not change its position nor suffer detrimént on the faith of the deposit in Lindbergh’s name of *585plaintiff’s money. So it has no equity superior to that of plaintiff, there being no anomalous and dominant quality in the banker’s right of offset. The argument contra is put upon the currency of negotiable paper, and the ‘ancient foundation that money has no earmarks and therefore when honestly taken can be kept.’ What is meant is that where money has been honestly received, for a consideration and without notice, in the independent right of the taker himself, as in payment of a debt, it may be kept. But the same author goes on to say that:
“ ‘Modern jurisprudence is assailing this rule. The truth is recognized that money has no more sacredness than other kinds of property, and that the true owner ought under many conditions to recover his own, especially when the receiver would not be in a worse state than he would have been had it not been paid to him.’ Bolles, Modern Law of Banking, 748.
“But while money has no'more sanctity than any other property, and not as much as some, it has, and must continue to have, a currency, a fluidity, that is denied other property. That quality must continue or it will cease to be money. But allowing fully the premise, building even on this ‘ancient foundation’ of no earmarks, how can it follow that a bank, more than any one else, can by its own act, unaided by superior equity, appropriate the money of another which happens quite by chance and temporarily to have been placed in its control? Here it was intended to be merely the conduit of that money on its way to the rightful owner. * * *
“What has happened to plaintiff’s right to his money? Nothing but the unilateral act of the bank in asserting a right of offset. But no equity attends that right — at least none superior to that of plaintiff. The bank has not changed its position on the faith of the deposit. It certainly did not accept Lindbergh as a depositor, nor loan him money, nor buy his notes, expecting payment out of any funds not his own.
“The currency of money and commercial paper and *586the absence from the former of all earmarks have never, alone, procured their escape from equity’s pursuit of trust property in the hands of those who, with, notice or as volunteers or 'without consideration, have taken the property from the trustee. In such a case equity follows not only the original property but the proceeds if there has been a conversion into money. Pomeroy’s Eq. Jur. (3d Ed.), §1048. The doctrine predicated upon the currency of money, the lack of earmarks, still applies where the trustee himself effects the conversion and uses the money of his principal or cestui in payment of his own debt. Smith v. Crawford County State Bank, 99 Iowa, 282, 61 N.W. 378, 68 N.W. 690. But that is not this case. Here the trustee did not make the application to the debt of the bank. His intention was to pay plaintiff. It was the bank alone which made the seizure, taking advantage of the fortuitous circumstances that made it a depositary of the fund. There was not even the implication that might have arisen if Lindbergh’s account had been overdrawn when the deposit was made. In such a case, the depositor himself authorized the offset and uses another’s funds to pay his own debt.”
We approve the following quotation from the early case of Burtnett v. F. N. Bank of Corunna, 38 Mich. 630, under facts pertinent to those present in the instant case:
“But we are not aware of any principle which will enable a depositary who has received from a trustee or agent a fund belonging in fact to the principal or beneficiary, to appropriate it by his sole act to his own debt held against the trustee or agent and thereupon to insist that his want of knowledge of the true ownership is sufficient to guard such inequitable appropriation and bar the real owner from pursuing the fund.”
Supporting the forceful language hereinabove quoted numerous authorities could be cited. A few of them are the following: George D. Harter Bank of Canton, Ohio, v. Inglis, 6 F. (2d) 841; Curtis v. Hart, 26 S.W. *587(2d) 420; Western Shoe Co. v. Amarillo Nat. Bank, 127 Tex. 369, 94 S.W. (2d) 125; Swift v. Williams, et al., 68 Md. 236, 11 Atl. 835; Cady v. South Omaha Nat. Bank, 46 Neb. 756, 65 N.W. 906; Merchants & Farmers’ Bank & Trust Co. v. Hammond Motors, et al., 164 La. 57, 113 So. 763; Brady v. American Nat. Bank of Oklahoma City, 120 Okla. 159, 250 Pac. 1006; Shotwell v. Sioux Falls Savings Bank, 34 S. D. 109, 147 N.W. 288. The opinion of the Supreme Court of Minnesota in Berg v. Union State Bank, 179 Minn. 191, 229 N.W. 102, contains a reference to other cases supporting the “equitable” rule which we adopt.
To the extent that the opinion of this court in the early case of Boettcher v. Colorado Nat. Bank, 15 Colo. 16, 24 Pac. 582, is out of harmony with the views herein set forth, it is expressly overruled. The case of Sherberg v. First Nat. Bank of Englewood, 122 Colo. 407, 222 P. (2d) 782, was one in which recovery was had upon proof that the deposit there in question was a “special deposit,” and by acceptance thereof the bank “impliedly binds itself not to set off against such deposit a debt due it from the depositor.” The present case is clearly distinguishable on the facts. However, in the Sherberg case, in discussing the law some language appears which is not essential to a determination of that case which might tend to support adherence to a rule opposed to that which we follow in this opinion. To such extent as necessary to harmonize with our views expressed herein, the Sherberg opinion is modified.
In the instant case the bank filed a counterclaim against Rust in which it alleged that after its seizure of the funds it obtained judgment against Rust in a separate action for the amount of the debt owed by him after the setoff. It is alleged that in the event Cox should recover against the bank, equity requires that the bank be awarded judgment against Rust for a like sum. Rust, although served with process in the instant case, has entered no appearance herein and has not taken issue *588with this prayer of the bank for relief against him. Under these circumstances, and in view of our determination that Cox is entitled to judgment against the bank in the sum of $4,500.00, a judgment for this sum should enter in favor of the bank against Rust.
The judgment is reversed and the cause remanded with directions, to enter judgment in favor of Cox against the bank for $4,500.00 plus interest from December 20, 1954, and costs; judgment shall enter in favor of the bank against Rust for a like sum.
Mr. Justice Sutton and Mr. Justice Frantz specially concurring.
Mr. Chief Justice Knauss and Mr. Justice Hall dissent.