title to the money deposited transfers the equitable title to the deposit.15

§306. Savings banks borrowing money.

The power of a savings bank to borrow money may be determined by the terms of its charter and its mode of dealing. Where the relation between the bank and its depositors becomes one of debtor and creditor, a savings bank has the implied right to borrow money for the bank by negotiating or pledging any of its securities.

This proposition can only be sustained upon the theory that the bank becomes a debtor and is not that of trustee holding the deposits in trust for the depositors.16

In New Jersey where a savings bank was incorporated by a special charter, held that it had the implied power inherent in corporations created for business purposes, of borrowing money and of making negotiable paper or a pledge of its securities as a means of borrowing.17

$307. Investments.

Savings banks are required, usually by the statute of the State where incorporated, to invest or lend their deposits in a prescribed manner upon the security of land, bonds or stocks, the statute usually designating the kind of bonds or stocks which the bank may loan upon or invest in. In some of the States savings banks are vested by law with the power to discount and purchase paper. This is an attribute and a power belonging to commercial banks, but where the law of the State imposes no objection and the charter of the bank grants the authority, it may make discounts and purchase negotiable. paper. 18

A savings bank is prohibited from entering into a contract with a broker for the purchase and sale of stock for speculative purpose. Such contracts are ultra vires.19

15 Pierce v. Boston Five Cent Sav. Bank, 129 Mass. 425.

16 Ward v. Johnson, 5 Ill. App. 30.

17 Fifth Ward Sav. Bank v. First Nat. Bank, N. J. Law, 513.

18 Pape v. Capitol Bank, 20 Kan. 440, 27 Am. Rep. 183; Duncan r. Maryland Sav. Inst., 10 Gill & J.

(Md.) 299; United German Bank v. Katz, 57 Md. 128; Tishimingo Sav. Inst. . Buchanan, 60 Miss. 496; Aull Sav. Bank . Lexington, 74 Mo. 104; Rome Sav. Bank . Kramer, 32 Hun (N. Y.), 270. Contra, Pratt v. Eaton, 79 N. Y. 449.

19 Jemison et al., v. C. S. Bank, 122 N. Y. 135.

Where the bank's charter prohibits loaning upon notes, bills of exchange, or other personal property, the loan is not void, only voidable.20

§ 308. Insolvency of savings banks - Appointment of a re

ceiver.

Where a savings bank is declared to be insolvent a receiver may be appointed, unless the law of the State otherwise provides. The application may be made by the Attorney-General of the State where the law requires him to act.

In California it is the duty of the Attorney-General on a report made to him by all of the bank commissioners acting as a unit, declaring the insolvency of a bank, to immediately apply to the court for a receiver.

The application where the law does not require the AttorneyGeneral to act may be made by a stockholder.20a

When equity courts are required to protect the interest of depositors, the assets of the bank should be reduced to cash as rapidly as possible without sacrifice and distributed among the depositors without delay.21

A receiver may not be appointed where the trustees by agreement with the depositors accept a stipulation of settlement and they proceed to act upon such stipulation and distribute the assets of the bank.22

309. Rights of depositors.

When a savings bank becomes insolvent in some of the States, it is held that the depositors are general creditors like others.23

In New Jersey and some other States the depositors are not paid until after all the debts for management are discharged.2+ $310. Depositor denied set-off.

The statute may provide otherwise, but the general rule is, that a general depositor in a savings bank, when insolvent and

20 Sistare r. Best, 88 N. Y. 527. 20a Gorman 1. Guardian Sav. Bank, Mo. App. 180.

21 Matter of Dime Sav. Inst. 29

N. J. Eq. 109.

22 Lewis v. Lynn Inst. for Savings, 148 Mass. 235.

23 Reed . Home Sav. Bank, 130 Mass. 443, 39 Am. Rep. 468; Cogswell. Rockingham Ten Cent Sav. Bank, 59 N. H. 43, 92 N. Y. 7.

24 Stockton 1. Mechanics', etc., Sav. Bank, 32 N. J. Eq. 165.

in liquidation, is not entitled to set off his debt due the bank against the deposit due him, but must pay his debt to the bank and take his pro rata of the proceeds.25

The law is otherwise where the deposit is a special deposit. A special deposit made to be withdrawn upon call may be set off against the depositor's debt to the bank.20

A special deposit such as above referred to by the court is in fact a commercial deposit, and when accepted by a savings bank and allowed to be withdrawn upon call, the depositor does not receive interest or any portion of the dividends which may be declared by the bank, but in lieu thereof receives the privilege of drawing against his account with notice. Upon what principle of law or equity the right of set-off is allowed, the court fails to state. The court says that it "is a claim for money not deposited according to the charter of the bank nor in the ordinary course of business." The court proceeding, then says: "The charter of the bank gave it no power to receive and pay out money on call," and, therefore, because the bank officials had violated the charter of which probably the depositor had knowledge, it is held to be an equitable reason why such a special depositor should be entitled to the right of set-off.

It is again stated that a special deposit of money made by a person in a bank is one which the banker must keep separate and apart, and not mingle it with with the other deposits of the bank. Money which is deposited in a bank subject to call is not a special deposit, and a depositor in a savings bank receiving the privilege of checking against the same at any time without notice, in case of failure has no greater rights than any other depositor in the bank. If the bank has in fact received a special deposit and holds it in possession as such, it must return it to the depositor; a debt owing to the bank by such a depositor is entitled to a set-off.

The correct rule governing the right of depositors in purely mutual savings banks to set off their liabilities to the bank against the debt or deposit due them by the bank, is presented in the case of Stockton v. Mechanics', etc., Bank, 32 N. J. Eq. 163.

25 Sawyer v. Hoag, 17 Wall. (U. S.) 610.

26 Hall r. Paris, 59 N. H. 71.

"A savings bank under a special charter was authorized to receive and invest deposits for the benefit of the depositors, the income or profit to be divided among them, after reasonable deductions for necessary expenses, the principal to be repaid to the depositors at such times and with such interest and under such regulations as the board of managers should from time to time prescribe. Under their regulations they not only received deposits, participating in the profits, and not payable except on thirty days' notice, but also another kind of deposits (called by them "special deposits "), which were not to participate in the profits and were to be repaid (not redelivered) to the depositors, without any preliminary notice. Both kind of deposits were intermingled in the funds of the bank, undistinguishable. Under insolvent proceedings, a receiver was appointed. Held:

"(1) That such an institution is a mere trustee for the benefit of the depositors.

66

(2) That a depositor who borrowed money from the bank, secured by his note or mortgage, cannot offset his debt against the amount of his deposit at the time when the decree of insolvency was made.

"(3) That the so-called 'special' depositors are not entitled to priority in payment over the other class of depositors.

"(4) That debts and expenses contracted by the bank in carrying on its ordinary business are to be preferred.

"(5) That a claim, under a covenant in the lease, for rent accruing after the surrender of the premises to the lessor by the receiver, cannot be maintained.

"(6) That money paid to the bank in exchange for its check, given for the accommodation of the payee, which was dishonored, presumably went into the funds, and the debt should be preferred.

(7) That checks given to depositors on account of deposits, are not to be preferred."

If the depositor has deposited a special fund in the bank and has a contract with bank to the effect, that he may at any time set off his debt against his deposit, such a contract is lawful and the set-off, therefore, may be equitable, but the deposit must be retained by the bank as a special deposit, and a special

deposit must not be mingled with the general funds of the

bank.

When a bank has been declared insolvent in a suit at the instance of the bank commissioners, brought by the AttorneyGeneral, the directors may levy an assessment against the stock for a sufficient sum to pay the indebtedness.27

27 Union Sav. Bank of San José v. Leiter, 145 Cal. 696.