Story Case

Dora Rathman deposited $250 in the Lincoln State Bank, receiving a demand certificate of deposit bearing five per cent interest. After her death, this was found among her papers, and her administrator, Charles Rathman, brought suit upon it against the' Lincoln State Bank. The bank was willing to pay it, but protested against paying the costs of the suit. The contention was maintained that Rathman was not entitled to sue, because there had been no demand for payment of the certificate, and that, therefore, the bank was entitled to a judgment and to be saved of the costs of suit. Is this correct, or should the court enter a judgment against the bank for the amount of the certificate and the costs of suit?

Ruling Court Case. Elliott Vs. Capitol City Bank, Volume 128 Iowa Reports, Page 276; Volume 111 American State Reports, Page 198; Volume 1 Lawyers' Reports Annotated, Page 1130

Mary Penrose deposited $1,500 in the Capitol City Bank. The bank issued to her a certificate of deposit in the following words: "Mary J. Penrose has deposited in this bank, fifteen hundred dollars, payable to the order of herself on the return of this certificate properly indorsed, with four per cent interest per annum. - A. W. Taylor, President." Mary Penrose indorsed this instrument to Elliott, who now brings this action.

The bank contends that it is not liable upon the instrument, because the transaction was a mere loan to the bank, and that the Statute of Limitations has run against the claim.

Mr. Chief Justice Sherwin said: "An ordinary deposit of money in a bank for which a certificate is issued, is not a loan to the bank, and the Statute of Limitations will not run against a certificate of deposit until the holder has made a demand of payment. Nor is the holder compelled to make a demand of payment within the period of the Statute of Limitations." Judgment was given for Elliott.

Ruling Law. Story Case Answer

When a certificate of deposit is issued, payable at a day certain in the future, it is due upon that day. If no such day is designated, then it is payable upon demand. No action can be brought against the bank until demand has been made. Since the Statute of Limitations is directed against the delay in bringing a suit which might have been brought earlier, it follows that the Statute of Limitations will not begin to run until demand has been made. Furthermore, there is no duty upon the holder to demand within any definite time. The certificate continues good for an indefinite period. Although there is some question as to its exact effect on this point, the Negotiable Instruments Law has probably made it unnecessary to make a demand, in order to charge a bank upon a certificate of deposit. Accordingly, the Statute of Limitations begins to run against the instruments as soon as issued, where the Negotiable Instruments Law has changed the original rule as above stated.

At the Common Law, the Lincoln State Bank was undoubtedly entitled to a judgment against the plaintiff, but probably under the Negotiable Instruments Law, it is liable, and Rathman would recover the amount of the certificate and costs. This result is not in accordance with the purpose of certificates of deposit, and may be eliminated by amendments of the law. The certificate is issued to remain out a long time, and neither should the depositor be required to present it within ten years or forfeit all recovery, nor should the bank be subject to suit until after demand.