People ex rel. Nelson v. Stony Island State Sav. Bank

• Decision Date: 24 October 1934
• Docket Number: No. 22360.,22360.
• Parties: PEOPLE ex rel. NELSON, Auditor of Public Accounts, v. STONY ISLAND STATE SAV. BANK.
• Court: Illinois Supreme Court

358 Ill. 118

192 N.E. 682

PEOPLE ex rel. NELSON, Auditor of Public Accounts,

v.STONY ISLAND STATE SAV. BANK.

No. 22360.

Supreme Court of Illinois.

Oct. 24, 1934.

Action by the People, on the relation of Oscar Nelson, Auditor of Public Accounts, against the Stony Island State Savings Bank, Irwin T. Gilruth, Receiver, in which an intervening petition was filed by Edwin C. Kuhn. A decision favorable to intervener was reversed by the Appellate Court (272 Ill.App. 365), and intervener appeals.

Judgment of Appellate Court affirmed.

Appeal from Second Branch, Appellate Court, First District, on appeal from Superior Court, Cook County; William J. Lindsay, Judge.

Harry A. Sewell and Bramhall & Novotny, all of Chicago (Abdon Pallasch and Charles V. Falkenberg, both of Chicago, of counsel), for appellant.

Kirkland, Fleming, Green & Martin, of Chicago (Adrian L. Hoover, Dudley F. Jessopp, and Eugene Swigart, all of Chicago, of counsel), for appellee.

DE YOUNG, Justice.

The auditor of public accounts of the state, on June 10, 1931, appointed Irwin T. Gilruth receiver of the Stony Island State Savings Bank. Shortly thereafter, the people of the state, on the relation of the auditor, filed a bill in the superior court of Cook county for the dissolution of the bank and the liquidation of its business. On May 17, 1932, Edwin C. Kuhn filed an intervening petition by which he sought to have allowed as a preferred claim the sum of $400 to his credit in a savings account when the bank ceased to do business. The receiver, by his answer, denied the petitioner's right to a preference over the other depositors of the bank. The facts were stipulated and the cause was heard upon the petition, the answer, and the stipulation. The court found that the petitioner was entitled to priority in payment and ordered that the receiver pay him the sum demanded as a preferred claim forthwith. The receiver prosecuted an appeal to the Appellate Court for the First District and that court reversed the order of the superior court and remanded the cause with directions to allow the petitioner's claim, without preference or priority, upon the presentation of a proper petition for that purpose. A certificate of importance was granted and an appeal to this court was allowed upon the petitioner's application, and the record is submitted for a further review.

The Stony Island State Savings Bank was organized under the banking laws of this state and conducted a general banking business in the city of Chicago. Edwin C. Kuhn, the appellant, is a veteran of the World War. By authority of the World War Adjusted Compensation Act (U. S. Code, Annotated, c. 11, title 38, § 591 et seq., p. 270), an adjusted service certificate was issued to him and upon this certificate the federal government made him a loan of $778.50. Kuhn received a check payable to his order and drawn upon the treasurer of the United States for the amount of the loan. He presented the check to the Stony Island State Savings Bank on March 24, 1931; the bank paid him $278.50 in money, and he opened a savings account in his name for the other $500. In opening the account, Kuhn prepared a deposit slip and signed a ledger card. The latter disclosed the number of the account and the address of the depositor. A savings account passbook, setting forth the rules governing deposits in the savings department and the allowance of interest on such deposits at the rate of 3 per cent. per annum, was issued and delivered to Kuhn. Later, on April 27, 1931, he withdrew $100. He made no other deposit or withdrawal and when the receiver took possession, there remained $400 to his credit. At that time the bank's cash resources, including the credits with correspondents, amounted to $28,189.51. Claims subsequently filed with the receiver upon which preference in payment was sought amounted to $173,169.98.

To establish his claim to priority in payment over the general creditors of the bank, the appellant invokes two federal statutory provisions. Of these, the first is section 191, chapter 6, title 31, United States Code, Annotated, page 75, which provides that ‘whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed.’ This section gives the United States a preference or priority in payment over other creditors of an insolvent debtor, and in case of his death the rule applies in the administration of his estate.

As a rule, when money is deposited in a bank, the title to the money passes from the depositor to the bank, and the latter becomes the depositor's debtor for the amount of the deposit. Under such a relationship, the deposit constitutes a part of the bank's assets, and in case of the insolvency of the bank, the depositor has no right to a preference, but shares pro rata with the bank's general creditors. Exceptions to this rule are: First, where money or other thing is deposited with the understanding that the particular money or thing is to be returned to the depositor; second, where the money or thing deposited is to be used or applied for a specifically designated purpose; and, third, where the deposit is wrongful or unlawful. To make a deposit a special one, the bank must be made an agent or trustee rather than a debtor, and its agency or trusteeship cannot be created out of the mere external relationship of debtor and creditor unless the deposit is wrongful or the law forbids the bank becoming a debtor. People v. Farmers State & Savings Bank, 338 Ill. 134, 170 N. E. 236;People v. People's State Bank of Maywood, 354 Ill. 519, 188 N. E. 853.

The effect of the deposit in a bank of installments of war risk insurance and disability compensation was considered in Spicer v. Smith, 288 U. S. 430, 53 S. Ct. 415, 416, 77 L. Ed. 875, 84 A. L. R. 1525. The petitioner was a United States soldier in the World War and while in the service suffered permanent mental incompetency. He became entitled to war risk insurance and disability compensation. The county court of Breathitt county, Ky., appointed a guardian for him. The United States paid to the guardian the installments due his ward and the guardian deposited them in the Hargis Bank & Trust Company. The bank became insolvent, and conformably to the laws of the state, its assets were taken over by a special deputy banking commissioner and liquidating agent. At that time the guardian had on deposit $6,070.80 derived from the payments made by the United States. The assets of the bank were not sufficient to pay the claims of the depositors. The guardian claimed priority under the section which the appellant in the case at bar invokes and demanded payment in full. The deputy banking commissioner denied a preference in payment, insisting that the petitioner was only entitled to share ratably with other depositors. The petitioner instituted suit in the circuit court of Breathitt county and that court allowed the asserted priority. The judgment was reversed by the Court of Appeals of Kentucky on the ground that the deposits by the guardian did not make the bank a debtor of the United States. Smith v. Spicer's Guardian and Committee, 244 Ky. 68, 50 S.W.(2d) 64.

The judgment of the Court of Appeals was affirmed by the Supreme Court of the United States. The petitioner relied on the federal statutory provision that whenever any person indebted to the United States is insolvent, the debts due to it shall first be satisfied. The contentions of the petitioner were that the installments of war risk insurance and disability compensation paid to the guardian remained the money of the United States so long as they were subject to his control; that the guardian was a mere instrumentality of the government to disburse such money for the benefit of the veteran; and that the deposits made by the guardian constituting such public money, the bank which received the deposits was indebted to the United States for them. The contentions made in that case, it should be observed, are now urged in substance by the appellant in the case at bar to establish the desired preference or priority in payment.

After stating the pertinent substance of the provisions of the World War Veterans' act, the Supreme Court of the United States, in Spicer v. Smith, supra, said: ‘The guardian, appointed by the county court, was by the laws of the state given the custody and control of the personal estate of his ward and was authorized to collect and receive the money in question. Ky. Stats. § 2030. And unquestionably payment to the guardian vested title in the ward and operated to discharge the obligation of the United States in respect of such installments. Taylor v. Bemiss, 110 U. S. 42, 45, 3 S. Ct. 441, 28 L. Ed. 64;Lamar v. Micou, 112 U. S. 452, 472, 5 S. Ct. 221, 28 L. Ed. 751;Maclay v. Equitable Life Assurance Society, 152 U. S. 499, 503, 14 S. Ct. 678, 38 L. Ed. 528. * * *

‘The provisions for exemption, nonassignability, and suspension of payments plainly imply the passage of title from the United States to the veteran. The denunciation of embezzlement by guardians is not inconsistent with that intention. These regulations, like many to be found in pension laws, disclose a purpose to safeguard to beneficiaries the appropriations and payments made for their benefit (United States v. Hall, 98 U. S. 343, 353, 25 L. Ed. 180;Westfall v. United States, 274 U. S. 256, 47 S. Ct. 629, 71 L. Ed. 1036) and evince special...