Story Case

On the third day of July, 1915, Stephen Ames took a number of checks which he had received in response to the bills sent out on the first of the month, and deposited them in his account at the Carberry Bank. The checks were not received by the bank for collection, but were at once credited to the account of Ames. He had a balance of $2,143.72. On the seventh day of July, before he had made any withdrawals, he received a notice that the bank was bankrupt and in the hands of a receiver, so that no drafts or checks would be honored, pending a meeting of creditors to decide the course to be pursued. Ames filed a claim for the total $2,958.37 with the court, and further asked that the receiver deliver to him any of the checks deposited on July 3, which remained in the possession of the bank, or that, where they had been sent to correspondent banks for collection, the receiver assign to Ames the credit which the Carberry Bank had on the books of the correspondent bank to cover the particular checks. This, of course, was on the theory that Ames should be returned what he had deposited, if the bank still had it. Should the court give this relief?

Ruling Court Case. Susan Bayor Vs. The American Trust And Savings Bank, Assignee, Volume 157 Illinois Reports, Page 62

Herman Schaffner and Company were engaged in the banking business in the city of Chicago. W. B. Cunningham was a depositor, and kept a general account with the banking firm. He owed Susan Bayor the sum of $34,000 and gave her a check upon the bank for this amount. Instead of cashing this check, she left it with the firm, and received a certificate of deposit therefor. She said at the time that she did not desire to open a checking account, but as she needed money, she would surrender the certificate of deposit, and receive a new certificate for her deposit, less the amount she drew out.

This was done several times. One day, her husband went to the bank, and the appearance of officers aroused his suspicions as to the solvency of the institution. He surrendered the certificate of deposit, drew out $200 and was given a new certificate for $2700, the remaining amount. He told the cashier of his suspicions; the cashier then promised that he would put $2700 away in a separate package for him. This was never done. Some days later, the bank became insolvent. The .American Trust and Savings Bank was made assignee in bankruptcy. Susan now sues for the $2700.

She claims that the promise of the bank official to set apart the money, constituted the bank a trustee of that amount, and that subsequent insolvency of the bank would not bar her right to claim that specific money.

Decision: A general depositor of a bank is only a creditor. In case the bank becomes insolvent subsequent to the making of the deposit, all depositors share as creditors in the assets of the insolvent institution. Assuming that the cashier promised to put aside in a separate package the money, unless the separation was actually made before insolvency, still she must share as a simple creditor. The mere promise of a banker that he will place the money deposited in a separate package, if the promise is not fulfilled, is insufficient to change the ordinary relation of debtor and creditor as to the deposit.

Mr. Justice Baker said: "But even if we assume that the husband of Susan requested Schaffner to put the $2700 in a separate package, and that the latter promised to do so, yet the evidence shows that such promise never was complied with, and that said money never was separated from the general funds of the bank, and that no steps whatever were ever taken to effect such separation." Judgment was given for the American Trust and Savings Bank.

Ruling Law. Story Case Answer

Since there is created by the making of a deposit, the relation of debtor and creditor between the bank and the depositor, if, then, the bank becomes insolvent, the depositor must take his share of the remaining assets as any other simple creditor; the mere fact that he is a depositor gives to him no additional remedy against the bank, or any preference over any other creditor.

There is no evidence, in the Story Case, that the bank was actually insolvent or known to be so on July third. If a few creditors were over-anxious, they may have precipitated the bankruptcy on July seventh, although the bank, if left alone, might have recovered and proved its difficulties to be only temporary. Therefore, it must be considered that the deposit of Ames was made as in a solvent bank. He did not deposit the checks for collection, but was given credit therefor at the time of deposit. It is presumed to be a general deposit, which is a transfer of the title to the bank in exchange for its obligation to pay. The fact that his checks, unlike unmarked money, could be identified and traced, does not give him a right to recover them, specifically. He is merely a creditor, and his claim will be received as such, and he has no interest or right in the checks or the credits obtained by them. The court should reject his petition, and refer his claim to the final accounting of all creditors.