Story Case

The Mechanics' Mutual Savings Bank, in an advertisement to solicit more deposits, stated that it had for ten years paid its depositors interest at six per cent per annum. Persuaded by this advertisement, Olga Thorsen took the roll of money, amounting to about $400, that she had been hiding for many years around her house, and opened an account. The European war had a very bad effect upon some of the investments of the bank, and at the end of the year it announced that it could pay only two per cent. Olga felt that she had been deceived and defrauded, and told her troubles around the neighborhood. A lawyer who heard her story induced her to sue the bank for the extra four per cent. The bank defended by the contention that it did not promise absolutely to pay any specified interest, but only that sum which was actually earned. It put in evidence its charter and by-laws, which showed that it had no capital stock, that it had no owners other than the depositors themselves, and that it proposed only to hold and invest for the benefit of its depositors. All these things were printed in the book furnished to Olga Thorsen when she made her deposit. The bank had been promoted and was now managed by a group of bankers, who were paid a good salary for their activities, but who received no other profits. It was true that for ten years previous, the depositors had received six per cent. Has Olga Thorsen any right to recover the four per cent, or has the payment of two per cent fulfilled the obligations of the bank?

Ruling Court Case. Lewis Vs. Lynn Institution For Savings, Volume 148 Massachusetts Reports, Page 235; Volume 1 Lawyers' Reports Annotated, Page 785

The Lynn Institution for Savings was incorporated by statute in Massachusetts. It was given power to receive deposits, to be used and improved to the best advantage, and the income and profit thereof to be divided among those making the deposits. The corporation had no capital stock, properly so called. No profit or benefit accrued to the managers. They even received no compensation for their services. About fifty years before this suit was brought, Mary Lewis placed on deposit with the institution, a certain sum of money. Because of a loss, caused by an investment lawfully and properly made, the directors of the institution voted that each depositor would be obliged to submit to a deduction of five per cent upon his deposits, which was the estimated loss. This amount was deducted from Mary Lewis' account, and she was paid the balance. After her death, her administrator, Arthur Lewis, brought this action to recover the remaining five per cent, which he contended the institution still owed to Mary Lewis' estate. The savings institution contended that it was not liable for this amount. It insisted that it did not promise absolutely to repay in full, but to repay, only in case there was sufficient money left to pay in full, provided it had not been guilty of negligence in investing the money.

Decision: A savings bank promises to its depositors to combine and manage their deposits, according to the best judgment of the trustees, and to share among them proportionally the beneficial results, if any, of such management; but it does not promise to repay the full amount of their deposits at all events. If a loss occurs in the assets of a savings bank which prevents the payment of its deposits in full, and a just and fair deduction is made for the loss, and this deduction is accepted by the depositor, he cannot thereafter demand the remaining amount deducted.

Mr. Chief Justice Allen said: "It thus appears that a savings bank is an unincorporated agency for receiving the moneys of depositors in small or moderate amounts, and investing them merely for the use and benefit of the depositors, who are to receive the advantage thereof in just proportion. The corporation is a mere agency for managing the moneys of the depositors. To others, to third persons, the corporation can incur liabilities in contract or in tort, for which the funds in hand will be responsible. But to the depositors themselves, the undertaking of the corporation is that it will receive and combine the deposits, and manage and use them to the best practicable advantage, according to the judgment of the trustees, and give the depositors in just proportion among themselves the benefit of the result of such management. There is no absolute promise to repay to any depositor the full amount of his deposit at all events. Such a promise to one depositor would imply that in case of loss he should be repaid out of the deposits of others. But the promise or undertaking of the corporation is the same to all. There is no promise to pay one at the, expense of the others. The promise is, in effect, to pay each depositor in full, with his dividends, provided the assets are sufficient, and if they are not sufficient, then to pay to each one his proportionate share." Judgment was given for the savings institution.

Ruling Law. Story Case Answer

There remain, at the present, few savings banks of a strict type. Formerly, they were organized for the purpose of caring for the funds of the less wealthy people. The money was taken in trust by men who invested it for the mutual benefit of the depositors. All profit made by such a bank beyond the expenses of conducting the business, was divided among the depositors, in proportion to the amount of their deposits. The managers of such a bank did not promise absolutely to return the money so taken; but they promised to use due care in its safe keeping, and reasonable diligence in their attempts to make profit. If no profit was made, or if there was a loss, not due to any negligence of the managers, the depositors shared this loss in the same manner that they shared the profits if any were made.

Both in the Ruling Court Case and in the Story Case, it is this mutual type of bank with which we are dealing. The Ruling Court Case shows that even the principal of the depositors may be diminished or lost, without liability, if the officers of the bank have been faithful and careful. Therefore, it is very clear that the depositor has no claim for any interest greater than that actually earned. The advertisement was not deceitful nor misleading, but represented only what the former practice had been. The fact that the officers were paid does not change the situation, but only makes more urgent their duty to use their highest skill and prudence. Olga Thorsen has not been defrauded or wronged, and the defendant, the Mechanics' Mutual Savings Bank, should be given judgment.