Story Case

In the will of Barrett Lawrence, a provision was made for a gift of $5,000 to a nephew, Henry Lawrence. Since the executor of the will, Andrew Glenn, was unable to find the nephew at the time of the distribution of the estate, he deposited the $5,000 with the Union Trust Bank, to be held while he awaited results from his advertisements and searches through various channels. He stipulated at the time of making the deposit, that the money be held as trust money, and received a certificate to that effect, stating that he was entitled to $5,000 held as trust funds, and not as a general deposit. The money was mingled by the bank with the funds in its trust department, and used for the general payments of that department, or invested in very safe and conservative securities.

A short time thereafter, the missing Henry Lawrence appeared, and Glenn applied to the Union Trust Bank for payment of his deposit. In the meantime, however, the bank had started upon a voluntary dissolution, and was in the course of liquidation. Glenn was told that he would be obliged to wait until the investments of the trust department could be sold, because its cash on hand was not sufficient to pay claims prior to his. He insisted that the bank had no right to invest the money he had deposited, and brought suit to have the money on hand paid over to him in preference to any other creditors of the trust department. Is he entitled to the specific money, if it can be found, or to be first paid out of whatever cash the trust department has on hand, even if it is not the exact money which he deposited?

Ruling Court Case. Mutual Accident Association Vs. Jacobs, Volume 141 Illinois Reports, Page 261; Volume 16 Lawyer's Reports Annotated, Page 516

Emma Tuggle recovered a judgment against the Mutual Accident Association for the sum of $5,000. The association carried the case to the Supreme Court on appeal. Kean and Cumming signed its appeal bond. In order to secure Kean and Cumming upon this bond, the association drew a check in the sum of $6,000 and deposited with the banking firm of Samuel A. Kean and Company. It was agreed that the six thousand was "to be returned to the said Mutual Accident Association" after Cumming and Kean were fully discharged from all liability under the bond.

Immediately upon receiving the check, the Kean and Company banking firm cashed it and used it in its business. Soon thereafter, it became insolvent, and Jacobs was appointed assignee. The Mutual Accident Association, having paid the judgment and costs to Emma Tuggle, demanded of Jacobs, the assignee, the return of this $6,000. The association contended that it was a special deposit; that the Kean and Company had no right to mingle the proceeds of the check with its general funds, and, having done so, it, the association, had a preferred claim upon the assets of the Kean and Company for the $6,000.

Decision: When a person makes a special deposit of money or other property, which same money or property is to be returned, the bank has no right to mingle the deposit with its money or property; if it does, and the bank becomes insolvent, the depositor has a preferred claim upon the assets of the insolvent bank, and is not obliged to share with the general creditors. The court, however, was of the opinion that there was no special deposit made in this case; that only a general deposit was made, creating the relation of debtor and creditor between the depositor and the bank. If such were the case, the bank had the right to cash the check and mingle the funds, and the depositor has no more rights to the proceeds therefrom than other general creditors.

Mr. Justice Craig said: "If the evidence established the fact that the $6,000 had been placed in the hands of Kean and Company as a special deposit, we think the Mutual Accident Association was entitled to be protected; but was this a special deposit? As we understand the question, there is a wide difference between a special and a general deposit as those terms are understood, not only by bankers, but by the public, who are transacting business daily with banks. .Where money of any description is deposited in a bank, and the identical gold or silver or bank bills which were deposited are to be returned to the owner, and not the equivalent, the deposit will be special; while on the other hand, a general deposit is a deposit which is to be returned to the depositor in kind. [Where gold or silver coin, or a package of bills or currency, is received in a bank as a special deposit - the identical money to be returned - the bank has no authority to use the money in its business; its duty is to safely keep and return the identical money. But where there is a general deposit, the understanding being that a like sum of lawful money should be returned, the bank is permitted to use the money in its general business, and the relation of debtor and creditor is created by the transaction. In this case a general deposit was intended." Judgment was given for the assignee, Jacobs.

Ruling Law. Story Case Answer

"When money or negotiable paper is deposited with a bank to be used in a certain designated way, the bank becomes legal owner of the money. But the bank is charged with the duty of using that money in the exact way stipulated by the owner. As a general rule, unless otherwise agreed, the bank may mingle money when made as a specific deposit. But when it is made clear by their agreement that the bank may not mingle the deposit with its funds, then the bank becomes a trustee of the same, to the use of the owner or some party designated by the owner.

The money deposited by Glenn, in the Story Case, was a special deposit, and it should have been kept distinct from the general assets of the bank, as in fact it was. The general depositors and general creditors have no claims against it. But it is not required that it be kept absolutely distinct from all other money,-unless that was specially provided by the parties at the time of the deposit. Ordinarily, if three or four men should at different times request a stakeholder to hold money for them, they would be satisfied if the stakeholder kept a total sum equal to the total of their contributions. Thus, when money is given to a trustee, if he keeps the same amount of money on hand it is not ordinarily required that he keep each piece identified. Therefore, the mere deposit as a special deposit would not require more than that the bank keep the fund separate from general assets, and it would be allowed to keep a common fund for such trust deposits. Every depositor has an interest in the whole fund, equal to his share of the total deposits, and no one else can appropriate that fund for the payment of other debts. It is to that extent set aside, but it would require a still more express agreement to require the bank to hold the exact package of bills which was deposited with it. Such an agreement, if accepted by the bank, would make it liable for its performance, but the mere deposit by Glenn did not have that effect. His deposit is entitled to be paid out of the funds of the trust department, but he must share equally with the others whose funds are represented and included in the total so held in trust.