Court Opinion

ID: 9589094
Source: CourtListenerOpinion
Date Created: 2023-08-21 23:41:24.486349+00
Date Added: 2024-06-11T17:53:19.036941
License: Public Domain

*66Deen, Presiding Judge,
dissenting.
These cases cannot avoid having more significant impact upon the banking industry, out-of-state lending institutions making long term loans, real estate closing attorneys, borrowers, and consumers, as a practical matter than any case coming to this court in many years. That impact, however, as decided by the majority opinion will be turbulent, and I must respectfully dissent.
Resting quietly at the center of the maelstrom of issues and arguments propounded by the parties in these two appeals, the crucial issue simply is whether a bank, which has honored demands upon an escrow account in excess of the funds collected on that account, may thereafter without notice to anyone arbitrarily appropriate other trust funds earmarked for specific purposes, subsequently deposited into that account to repay itself for the loan made to the account by permitting the overdrafts. “It is well settled in this state . . . that unless funds deposited with a lending bank are in an account governed by an agreement which designates the funds as trust funds, or unless the lending bank by other means has actual knowledge that the funds deposited in a general account are intended to discharge a specific obligation or otherwise partake of the character of trust funds, then the funds are treated as any other general deposit funds, are commingled with other funds on deposit with the bank, and are subject to set-off against any matured indebtedness for which the bank is creditor to the principal. [Cits.]” Cotton States Mut. Ins. Co. v. C & S Nat. Bank, 168 Ga. App. 83, 87 (308 SE2d 199) (1983).
In the instant case, NBG actually acknowledged its general awareness that the escrow account contained trust funds, but emphasized that it did not (and had no duty to) monitor the specific deposits and thus did not know the specific obligation each deposit was meant to discharge. The bank’s (and the majority opinion’s) emphasis on the absence of any duty to monitor the individual deposits would be pertinent if this case concerned imposition of liability upon the bank for an improper disbursement of trust funds to a third party. See OCGA § 7-1-352, and Bank South v. Grand Lodge, 174 Ga. App. 777 (331 SE2d 629) (1985). However, it is inapposite here. As stated above, it has long been the rule in Georgia that a bank may not appropriate known trust funds to apply to the trustee/depositor’s individual debt owing to the bank. American Trust &c. Co. v. Boone, 102 Ga. 202 (29 SE 182) (1897). A bank’s general right to charge back, pursuant to OCGA § 11-4-212, does not alter this rule regarding known trust funds.
NBG had no right to apply trust funds earmarked for a separate independent loan to a different borrower, subsequently deposited to cure a debt arising from payment having been refused on other previously deposited, unrelated trust funds. There is no dispute that at the *67time of the charge back for the $150,000 on September 8, 1980, the escrow account contained only funds unrelated to the credited but eventually dishonored deposit of August 26, 1980, and that the three checks totalling $114,070, submitted by Zagoria to the bank after the account was closed, were completely unrelated to the creation of the debt. The trial court should have granted partial summary judgment for Weiner for those identified misapplications of trust funds totalling $264,070. Weiner alleged a much larger sum of trust funds to have been similarly misapplied, but determination of NBG’s liability for such additional amounts would remain for jury resolution. It follows that the trial court properly denied summary judgment for NBG.
The majority opinion is not unreasonable, but it ignores the law that a bank’s right to charge back is not unlimited or blind, and the fact that NBG was aware that the account in question contained some trust funds. This writer’s position actually would not place a greater burden upon a bank than previously imposed by the law; that is, where the bank has knowledge that deposits are third-party trust funds, it may not apply those funds to satisfy the account holder’s individual debt to the bank. In the instant case, the pivotal fact is that NBG, despite acknowledging its awareness that the account contained trust funds, indiscriminately appropriated whatever funds existed in the account (or were tendered by Zagoria) to cure the individual debt owed it by Zagoria and Stoner. As a practical matter, my position and the law merely require a bank, possessing general knowledge that an account contains some trust funds, to find out whether the particular funds it seeks to appropriate via a charge back are in fact trust funds that belong to a third-party, else suffer liability for such misappropriation.
The practical, economic consequence of the majority opinion, however, could not be more pervasive in its chilling effect upon the industry’s lending of money. How readily, for example, will an insurance company or a long-term lender now send money to our state and to a borrower’s attorney to place in an escrow account under circumstances similar to these cases, circumstances which are not uncommon: (1) a long-term lender’s draft issued to borrower and closing attorney deposited into the attorney’s escrow account in a Georgia bank, supposedly to be disbursed upon closing; (2) the local bank is generally aware that trust funds are deposited in the escrow account; and (3) some individual debt of the depositor/attorney occasionally develops when a deposited draft is returned payment refused? How eagerly will a consumer attempt to borrow money with which to purchase a home, knowing that, after having signed the obligating documents and having granted a security interest in the property, the borrowed money deposited into the attorney’s escrow account may be randomly seized by the bank in satisfaction of the attorney’s unre*68lated, individual debt? How many attorneys will now feel safe in utilizing escrow accounts without the rigid requirement of disbursing loan proceeds with certified checks and bank money orders, and what other alternatives are available? These multiple and extensive problems are all made possible by the majority opinion, and all could be avoided simply by observing the law as discussed above.
Decided July 15, 1986
Rehearing denied July 31, 1986
Donald J. Goodman, Robert S. Wayne, for appellant.
William R. King, for appellee.