§ 294. State regulation of business.

Most of the States have enacted special laws authorizing the formation by incorporation of savings banks. Where such laws are enacted, they generally define the duties and powers of the corporation, prescribing how investments are to be made, and the class of securities which the associations may loan money on or hold.

Where the statute does not especially provide that a savings association shall have capital stock it may be incorporated without capital, and when incorporated in this manner, it is defined to be a mutual savings association.

Where the statute prescribes that no bank shall be incorporated within a State without capital stock, and fixes the amount of capital which it must have to entitle it to do business in certain cities and towns, composed of a certain number of inhabitants, a mutual savings bank or association without capital stock, under the provisions of such a statute cannot exist or be incorporated.

Such a law is one of prohibition, and its constitutionality may be questioned, upon the ground that no State has the right to prohibit (by imposing a capital to be used in business by) a person or any number of persons from forming themselves together for the purpose of conducting a lawful occupation or business, especially where the business to be conducted is mutual and confined to its members and purely for their benefit.

Can a mutual savings bank be denied the right to do business? A lawful calling cannot be prohibited. The general rule as laid down by Mr. Cooley in his work on constitutional limitations is, "That any person is at liberty to pursue any lawful calling and to do so in his own way, not encroaching upon the rights of others." 1

A mutual savings association is not an institution organized for the purpose of profit to stockholders, or for the benefit of a certain number of their members, and is unlike savings banks organized with a capital stock. The purpose of a mutual savings society is to receive the money of its members for safe keeping, and return the same at such a time and in such a manner as all of the members may agree upon. If any profits

1 Cooley's Const. Lim. (7th ed.) page 889.

are made by the investment of such funds they are to be divided among the members ratably.

Many of the States, however, have enacted laws which declare that such an institution cannot do business within the State unless it has a capital stock.

The effect of the law is to prevent any number of persons from placing into the hands of a board of trustees their property or money for safe keeping and investment.

In bank corporations which are organized purely for profit to their stockholders the deposits are not held strictly as trust funds, but when received the bank becomes a debtor for such funds. The capital stock of such a bank is then held as a security for the return of such deposits and for the faithful performance of the duties required by such corporations.

The Legislature is vested with the power to regulate and control and fix the amount of capital required of all corporations of a private nature. Especially those organized for profit, where the profits are obtained by the use of moneys of others, and where it is to be distributed to the stockholders. But a mutual savings society as previously stated is eleemosynary in its purpose and character, and is not possessed of power to do any business except for persons who become members.

But the right of the Legislature to regulate and fix the amount of capital required of banks of all classes is the accepted law.

$ 295. Depositors in mutual savings bank constitute the bank. In a mutual savings bank, that is, one which is entitled to exist, and has no capital stock, the depositors constitute the bank.

The Supreme Court of the State of New Hampshire, in the case of Cogswell v. Bank, 59 N. II. 43, says:

"The assets of savings banks consist of loans of money made by them for the benefit of their depositors, from whom the money was derived, and correspond to the capital stock in banks of discount, and depositors in savings banks stand in the same • relation to the assets of the bank as stockholders to banks of discount. Bunnell v. Collinsville Bank, 38 Conn. 203; Simpson v. Savings Bank, 56 N. II. 466, 467; Osborne v. Byrne, 43 Conn. 155. They are the owners of the funds of the bank,

entitled to share in its profits and liable to bear its losses pro rata, and upon the winding up of the business of the bank each depositor is entitled to his share of the assets or property remaining after the payment of the debts. The depositors are in fact the bank, while the corporation is but an agency for receiving and loaning the money of the depositors. Coite v. Society for Savings, 32 Conn. 173. And the trustees and officers of the bank are the agents of the depositors. The claim of a savings bank depositor to his share of the earnings or deposits cannot be considered as a debt against the bank. Cushing, J. Simpson v. Bank, supra. Neither can such share be set off by a depositor against a debt due from him to the bank. Osborne v. Byrne, supra."

Mr. Justice Strong, associate justice of the Supreme Court of the United States, in defining a savings bank without capital stock and in determining the rights and relationship of the depositor to the bank, says:

"It is not a commercial partnership nor is it an artificial being, the members of which have property interests in it, nor is it strictly eleemosynary. Its purpose is rather to furnish a safe depository for the money of those members of the community disposed to intrust their property to its keeping. It is somewhat of the nature of such corporations as church-wardens for the conservation of the goods of a parish, the college of surgeons, for the promotion of medical science or the society of antiquaries, for the advancement of the study of antiquity. Its purpose is a public advantage, without any interest in its members. * * * It is like many other savings institutions incorporated in England, and in this country during the last sixty years. Intended only for provident investment, in which the management and supervision are entirely out of the hands of the parties whose money is at stake, and which are quasi, benevolent and most useful, because they hold out no encouragement to speculative dealing or commercial trading. Among the earliest savings banks are some in Massachusetts, organized under a general law passed in 1834, which provided that the income or profit of all deposits shall be divided among the depositors with just deduction of reasonable expenses. They exist also in New York, Pennsylvania, Maine, Connecticut and other States. Indeed until recently, the primary idea

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of savings banks has been that it is an institution in the hands of disinterested persons, the profits of which, after deducting the necessary expenses of conducting the business inure wholly to the benefit of the depositors in dividends or in a reserve surplus for their greater security."

§ 296. Depositor has no liability in capitalized savings bank. A depositor in a mutual savings society is declared as holding the same relationship as stockholders in a capitalized bank and may be held liable for their proportion of the losses if any exist at the time of winding up the affairs of the bank. While a depositor in a capitalized savings bank has no liability at any time.

§ 297. Nature of deposit in a capitalized savings bank.

A deposit in a savings bank may be general or special. A general deposit in a savings bank is one which loses its identity and is intermingled with other deposits.

A special deposit is one which is kept separate and apart from other deposits.

A general deposit may be one designated as an ordinary deposit and paid as ordinary deposits to depositors in commercial banks without notice. A general deposit may also be a term deposit, where the depositor deposits his money with the bank agreeing not to withdraw the same without first having given the bank notice, which notice designates the time. when the deposit is to be repaid.

A special deposit when received and allowed to be received by a savings bank, the bank in the care, safe keeping and return thereof, is governed by the same law of responsibility relating to and governing special deposits held by commercial banks.

§ 298. Trust deposit.

A trust deposit although entered on the pass-book as such, is not such unless intended to be.

One making a deposit in a savings bank which is declared in the book to be in trust for another, does not thereby create a trust if the depositor had not at the time the intention of doing so.2

2 Cleveland . Hampden Savings Bank, 182 Mass. 110; Cunningham t. Davenport, 147 N. Y. 43.

$299. Rules regulating and coverning depositors.

A savings bank may make such rules and regulations for receiving and for the withdrawal of deposits as are reasonable; and when understood by the depositor they are in the nature of a contract, and are binding upon both the bank and the depositor.

A rule printed in the pass book issued by the bank when properly made known to a depositor, receiving the same, and in which he has credit of a deposit made in the bank if lawful and reasonable is a part of the contract between him and the institution.3

$300. Gift Savings bank deposit in trust.

"A gift, whether in the form of a trust, or otherwise, always involves the intention of the donor; and when the trial court has found that there was a gift which took the form of a deposit in a savings bank in trust for the donee, and the Appellate Division has unanimously decided that the findings of fact are supported by the evidence, the finding cannot be questioned in the Court of Appeals."

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§ 301. Amount of deposit received may be governed by statute. The amount received on deposit, from any one individual or firm may be regulated by statute; but this privilege more properly belongs to the powers vested in the board of trustees or directors, and is made a rule by the adoption of a by-law to that effect.5

302. When special deposit preferred.

When the by-laws of a mutual savings bank provide what classes of deposits may be received by the bank, specifying them: 1. As weekly deposits. 2. Special deposits and 3. Dime or regular deposits, one who makes a special deposit and receives a certificate in the words and figures following: * OFFICE OF THE WASHINGTON COUNTY SAVINGS INS. "HAGERSTOWN, November 20, 1873. "Received from Tyron H. Edwards, one thousand and thirty dollars, on special deposit, to draw interest from July

3 Israel r. Bowery Savings Bank, 9 Daly (N. Y.) 507; Eaves r. The People's Savings Bank, 27 Conn. 228.

4 Farleigh . Cadman, 159 N. Y. 169.

5 Taylor r. Empire State Bank, 66 Hun (N. Y.) 538.