The rule that a bank has a general lien upon all moneys or funds in its possession belonging to the depositor is a part of the law merchant and well-established in commercial transactions. It rests upon the principle that as the depositor is indebted to the bank upon a demand which is due, the funds in its possession may properly and justly be applied in payment of such debt, and it has therefore a right to retain such funds until payment is actually made.
The right to make an application of such funds also arises from the contract implied to exist from the relation of the parties and by operation of law. Mere possession, however, is not of itself sufficient to maintain the lien; but the debt to the bank must have matured, and then each may counter-claim, set-off or recoup the same as any other debtors. The relation is one which is mutual and can only exist where'the demands are of the character indicated, and where each of the parties is a debtor to the other. (Jordan v. Nat. Shoe & Leather Bank, 74 N. Y. 472.) The rule stated does not interfere with the right *150 of third parties, whose moneys have become mingled with those belonging to. the depositor, to assert and maintain a claim to the same while in possession of the bank, and by an, action to recover the amount thus deposited. ( Van Alen v. The American, National Bank, 52 N. Y. 1.) It must be made clear that the moneys, deposited actually belong to the person, from whom the account is due to entitle the bank to, apply them in payment of its demand. Conceding that the moneys are applicable, even although they are deposited by and in the name of another, the same as if in the name of the actual owner, the fact of ownership must be made to appear and it must be shown satisfactorily that such owner is. the, person indebted to the bank and really entitled to the funds, deposited. The claim of the defendant in this case is based upon the theory that the money was received by the Huger Brothers, as shipping merchants or brokers, and was really deposited for their benefit, and became liable for their debt, which had matured, to the bank.
The question then arises whether the moneys deposited were the funds of the firm for the purposes of the set-off claimed by the defendant. The testimony upon the trial established that the deposits made by the plaintiff’s intestate were moneys received in the ordinary course of the business of Huger Brothers as agents and ship-brokers, on account of vessels consigned to them for freights collected, as well as moneys paid to meet certain liabilities of a firm of shippers. These moneys' did not belong to Huger Brothers, nor to the plaintiff’s intestate, but to the captains of vessels and to. other- parties, and only a very inconsiderable percentage would be coming to Huger Brothers for commissions, They were deposited in the name of plaintiff’s intestate, on account of .the financial embarrassments of Huger Brothers, for safe-keeping and in order that they might be paid over to the parties to whom they actually belonged. Upon this evidence the court upon the trial found that Huger Brothers, in the course of their business, received various sums of money on account of captains, of vessels, and on account of various freights of vessels, consigned to them, *151 and deposited such, moneys in their bank account. That they became embarrassed in business, and in consequence thereof and in order to keep the fund' received by them from being attached by creditors, they caused an account to be opened by their book-keeper, the plaintiffs intestate in defendant’s bank, and the moneys and checks received, were deposited in said bank to the credit of the plaintiffs intestate. It thus appears that the moneys in question were not actually the property of Huger Brothers, aud they had no right or title to the same, and the defendant’s demand was not the subject of set-off or recoupment against such moneys. They belonged to and were the property of the consignees and the persons for whom they had been collected and received, and were deposited solely for their benefit.
The dealings of Huger Brothers were of a confidential character, and the moneys were received by them in trust and deposited on account of the cesíuis, que trust. Having knowledge of their own insolvency, Huger Brothers were justified in protecting the funds of the parties, in whose behalf they were acting as agents, from being liable to be applied to the payment of their debts, and by depositing the moneys in the name of the plaintiff’s intestate they did not deprive the creditors for whose benefit the deposit was made of their right to. the same, or appropriate them to the payment of the demand which the bank held against that firm. The rule that when moneys held in trust have been mingled with other moneys of the trustees, so as to be undistinguishable, the cestui que trust cannot claim a specific lien upon the property or funds. Ferris v. Van Vechten (73 N. Y. 113), has no application when the money is held in trust to pay certain creditors, and cannot be invoked to uphold the defendant’s claim to the funds in question in the case at bar, as these moneys have never lost their original character, and have never been mingled with the moneys of Huger Brothers, but on the contrary were especially deposited and set apart in the name of a third person for a specific purpose, and therefore cannot be regarded in any respect as moneys of Huger Brothers by whom they were originally received; nor *152 does it aid the defendant because it does not appear that any of the creditors of Huger Brothers have made any claim for the same.
It is a sufficient answer to this objection to say that the creditors for whom they were set apart were entitled to the moneys, and have the right to enforce their claim to the same by instituting an action for that purpose, or by compelling the plaintiffs to pay over such sums as the intestate received and held in trust for their benefit. The right of such creditors is paramount and supreme over the claim of the defendant, as the moneys were expressly deposited for and were to be paid to them, according to their respective interests. It never belonged to Huger Brothers, was not liable for their debts, and not having been mingled with their funds, cannot be claimed on any such ground. Nor is it an answer to the position that the plaintiff’s intestate, in making the deposit, acted as the agent and trustee of the person for whom the money was received, that the defendant never dealt with the plaintiff’s intestate as trustee, or had any notice or knowledge that he claimed to act in that capacity. The . deposit being in the plaintiff’s intestate’s name alone, and not for Huger Brothers, he was under no obligation and owed no duty which required that he should notify the defendant that he held the funds in trust, or that other parties besides himself had an interest in the deposits. It could not affect the defendant’s rights in any sense, because it had no notice, as it had no claim whatever, and no reason for relying upon a fund deposited in th.e name of another for the payment of its debt against Huger Brothers. In fact, from the deposit itself the defendant had notice that the funds belonged to the depositors and not to. Huger Brothers, and without proof that they actually belonged ■ to Huger Brothers, it had no right to appropriate or to claim these moneys for the payment of its demand.
It is urged that the claims of the creditors were cut off by the discharge of Huger Brothers in bankruptcy. If Huger Brothers set apart these moneys for the benefit of those for whom they were received, they created an express trust in *153 their behalf; and as the money belonged to them, a discharge in bankruptcy, while it might destroy their claim against Huger Brothers, would not deprive them of the right to the fund which had been reserved and deposited in the name of the plaintiff’s intestate on their behalf. In no contingency did the fund belong to Huger Brothers, and the defendant had no right or title to it whatever, nor any claim to set off its demand against it. Upon no other ground can the claim of the defendant be upheld, and after a careful examination, we are brought to the conclusion that the judge erred upon the trial in allowing the same.
Ho exception was taken, to the ruling of the judge upon the motion to dismiss the complaint, and as the defendant does not appeal it is not in a position to raise any question in regard to the decisions made against it. Some other points are urged by the appellant’s counsel, but the conclusion already reached renders their consideration unimportant.
For the error stated, the judgment should be reversed and a new trial granted, with costs to abide the event.
All concur, except Bapallo, J., absent.
Judgment reversed.