People ex rel. Nelson v. People's State Bank of Maywood

• Decision Date: 22 December 1933
• Docket Number: No. 21512.,21512.
• Citation: 188 N.E. 853,354 Ill. 519
• Parties: PEOPLE ex rel. NELSON v. PEOPLE'S STATE BANK OF MAYWOOD et al.
• Court: Illinois Supreme Court

354 Ill. 519

188 N.E. 853

PEOPLE ex rel. NELSON

v.PEOPLE'S STATE BANK OF MAYWOOD et al.

No. 21512.

Supreme Court of Illinois.

Dec. 22, 1933.

Bill by the People, on the relation of Oscar Nelson, Auditor, against the People's State Bank of Maywood and others, for the dissolution of respondent bank and the liquidation of its business, in which the Village of Maywood filed a petition to have certain claims allowed as preferred claims, opposed by Anthony J. Busscher, receiver of the bank. A decree was rendered allowing preference in certain amount and disallowing preference in certain amount, and on appeal to the Appellate Court the decree was reversed in part and affirmed in part and remanded with directions (266 Ill. App. 330), and, on the petition of the receiver, the Appellate Court granted a certificate of importance and allowed an appeal.

Judgment of Appellate Court and decree of Circuit Court reversed and cause remanded to Circuit Court with directions.

SHAW, HERRICK, and FARTHING, JJ., dissenting.Appeal from Third Branch Appellate Court, First District, on Appeal from Circuit Court, Cook County; William V. Brothers, Judge.

Roy Massena, of Chicago (Donald N. Schaffer, of Chicago, of counsel), for appellant.

Jacob E. Dittus, of Chicago (Edmund D. Adcock, of Chicago, of counsel), for appellee.

DE YOUNG, Justice.

The auditor of public accounts, after an examination of the affairs of the People's State Bank of Maywood, on February 8, 1930, took possession of the bank's assets and business, and appointed Anthony J. Busscher receiver. Shortly thereafter, the people of the state, on the relation of the auditor, filed a bill in the circuit court of Cook county against the bank, its officers, directors, stockholders, and certain other persons for the dissolution of the bank and the liquidation of its business. The village of Maywood made claim, as a depositor, to the general village account, $52,026.93; the Folan, collector, account, $11,402.82; and the water department account, $256.82, aggregating $63,686.57. On November 19, 1930, the village, pursuant to leave granted, filed a petition by which it sought to have allowed as a preferred claim, the excess of the first account above $30,000, for which sum the village held surety bonds, and the whole of the second and third accounts. The receiver answered the petition denying the right of the village to a preference over the other depositors. The facts were stipulated and the court heard the cause upon the petition, the answer, and the stipulation. The court, by its decree, found that no preference could be claimed for the excess of $22,026.93 in the general account above the $30,000 protected by the surety bonds, but that the moneys credited to the Folan, collector, and the water department accounts constituted trust funds for which the village was entitled to a preference. Accordingly, the court adjudged the allowance, in favor of the village, of $52,026.93, the sum credited to the general account, as an ordinary claim, and of $11,659.64, the sum of the credits in the two remaining accounts, as a preferred claim having priority over the claims of general creditors. The village, complaining of the denial of a preference respecting the excess in the general account, prosecuted an appeal to the Appellate Court for the first district. The receiver assigned cross-errors upon the allowance, as a preferred claim, of the sum of the credits in the second and third accounts. The Appellate Court reversed the decree to the extent that the village was denied a preference for the excess of $22,026.93; affirmed it in all other respects, and remanded the cause to the circuit court with directions to allow the village a preference for the excess in the first, as well as for the whole of the second and third accounts. Upon the petition of the receiver, the Appellate Court granted a certificate of importance and allowed an appeal to this court.

The People's State Bank of Maywood was organized on April 24, 1925, under the banking laws of this state. It had a capital of $100,000 and it conducted a general banking business in the village of Maywood, in Cook county, from the time of its organization until the auditor of public accounts took charge and appointed a receiver on February 8, 1930. To qualify as a depositary of the money received by the village treasurer from time to time, the bank, in accordance with the provisions of a local ordinance, on May 16, 1927, executed a bond of indemnity to the village, in the penal sum of $25,000, with the AEtna Casualty & Surety Company, as surety. The bond, originally executed to remain in force for the term of one year, was renewed in 1928 and again in 1929. On July 1, 1929, the bank and the same surety company gave the village an additional bond for $5,000. Both bonds were in effect when the receiver was appointed. The village treasurer made deposits to the credit of the general village account; and, with the exception of September 17, 1929, a credit balance was maintained in that account each business day after May 16, 1927, which exceeded the penalty of the original depositary bond and, after July 1, 1929, exceeded the sum of the penalties of both bonds. Statements were issued by the bank showing the balance to the credit of the village at the end of each month and these reports were available to the village trustees. No demand was ever made upon the bank by the president, the trustees, or any other officer of the village for additional indemnity until February 1, 1930, when the treasurer wrote a letter to the bank requesting an increase in the penalty of the depositary bond to $60,000. The bank did not comply with the request.

Grace E. Schroeder was the treasurer and James F. Folan, the comptroller and ex officio collector of the village. The former was appointed in January, 1917, and the latter in May, 1929, and both held office at the time the bank was closed. The treasurer made deposits in the general village account and funds were subject to withdrawal therefrom at any time and from time to time upon proper checks, vouchers, or warrants. Bills for special assessments levied and for water supplied within the village were made payable at any local bank. The Folan, collector, account represented payments at the People's State Bank in discharge of special assessments or installments of such assessments by owners or persons interested in real estate. To the water department account, water rates or charges, when paid at the bank by consumers of water, were credited. Neither the Folan, collector, nor the water department account was subject to check, but from time to time funds were transferred from these accounts to the general village account.

The liabilities of the bank, when it ceased to do business, amounted to $527,187.51, and of this total it owned $410,232.48 to depositors. The credit balance in the general village account, including $30,000 secured by the two indemnity bonds, was: On January 15, 1930, $44,939.99; on January 18, 1930, $44,597.81; on February 1, 1930, $49,215.75, and on February 8, 1930, $52,026.93. The sum of the money in the bank was: On January 15, 1930, $10,424.35; on January 18, 1930, $14,844.92; on February 1, 1930, $11,990.97; and on February 8, 1930, $13,596.07. The credit with the bank's sole correspondent was: On January 15, 1930, $41,813.98; on January 18, 1930, $3,256.71; on February 1, 1930, $15,631.34; and on February 8, 1930, $18,813.18.

Exclusive of deposits by the village, sums of money exceeding in the aggregate $6,639.94 were deposited in the bank between January 15, and February 8, 1930. Preferences in payment are sought for these deposits, among others, in addition to the preference claimed by the village for the excess of $22,026.93 above $30,000 in the general village account, and the balances of $11,402.82 and $256.82 in the Folan, collector, and the water department accounts respectively. The money deposited in the three accounts of the village, as well as in those upon which the other claimants seek to obtain preferences, was, when deposited, mingled with the money in the bank's custody.

The deposits in the general village account to the extent of $30,000, protected by the surety bonds, are not in issue. Whether the excess of $22,026.93 in that account and the credit balances in the Folan, collector, and the water department accounts, amounting to $11,659.64, constitute trust funds or special deposits for which the village is entitled to a preference over general creditors, is the question presented for decision. The contention of the appellant is that, regardless of any maximum limitation prescribed by ordinance, the excess of $22,026.93 was legally deposited in the bank by the village treasurer; that the Folan, collector, and the water department accounts were general deposits; and that neither the whole nor any part of these accounts may take precedence in the order of payment over the claims of general depositors. The theory upon which the appellee claims a preference is that, owing to the prohibition of an ordinance against deposits by the village treasurer in excess of the indemnity which the depositary bonds afforded, and the bank's knowledge of that provision, the excess deposits were illegally made, and with respect to them, the bank, in consequence, became a trustee ex maleficio, and that the Folan, collector, and the water department accounts were special, and not general deposits, and therefore took priority in payment over the latter.

The Folan, collector, and the water department accounts will receive, for convenience, initial consideration. 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...