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Home > Journals > Michigan Law Review > MLR > Volume 31 > Issue 4 (1933)

 

Abstract

The appearance of the corporate fiduciary, the trust company, in the modern banking and business world has, because of its peculiar composite structure, been attended by some confusion in the application to it of certain rules designed for the administration of trusts by private persons as trustees. The trust company maintains a department which acts as trustee, executor under wills, and in such other capacities as a natural fiduciary might assume; and in addition there usually exists, within the same corporate structure, a commercial and savings banking business. Each of these departments is capable of dealing with the other as with a similar department of a separate institution. Each makes its profits in the way characteristic of the function it serves: the bank from interest on money lent, the trust side from commissions on trust employment. Nevertheless, although the parts are distinct, together they comprise but a single business unit, directed by a unified control. Now, the ordinary trustee must usually have dealings with a bank; although his primary obligation is to make investments, it is often necessary that a temporary deposit of at least some of the trust funds be made in some depositary. When such a deposit is rightfully made, it is well settled that the bank is nothing more than a debtor, the trust fund creditor having no priority over other creditors upon the depositary's insolvency. On the other hand, it is equally well established that the trustee can not himself so deal with the trust estate as to make a profit from it, and that he can not divest the res of the trust while retaining it in his own hands. Corporate fiduciaries, like other trustees, must make deposits, and their own commercial side is most convenient for this purpose; but the fact that a trust company has at the same time characteristics of fiduciary and depositary has complicated the situation where the trust department deals with its own bank, and led to some variance of decision among courts attempting to apply to the problem the above-stated rules. In general, when a trust company deposits in its own banking department money which it holds in trust, two questions are presented: (1) Is such a deposit rightful? (2) If it is rightful, what is the relation, as regards the money so deposited, between the trust company and the beneficiary of the trust?

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