Story Case

Wiley Lanbridge, about to leave San Francisco on a long journey, deposited his valuables, securities, documents, and assortment of silverware, curios, and family jewels, in a special vault, furnished by the Citizens' Loan and Trust Company. Before his return, the San Francisco earthquake occurred, and one of the buildings most seriously damaged was that of the Citizens'

Loan and Trust Company. During the disorder following, the vault was broken into, and some of the valuables of Lanbridge were stolen. He sued the bank for their value. It was shown that the vaults used were of the most modern and approved construction, and that watchmen were employed in addition, and that special efforts had been exercised after the earthquake. It was further shown that the quake had cracked and opened the outer wall of the safety cellar, that the debris from the ruined building had for several hours interfered with access to the vaults, and that, in that interim, access had been gained through tunnels from neighboring cellars. Lanbridge objected to the consideration of all these matters, claiming that the existing agreement to return the goods had been broken by the failure to do so. He asked damages equal to the value of the stolen goods, regardless of the reason for their loss. Should the court consider the question of blame, or is Lanbridge entitled to recover, merely upon the showing of loss of the goods?

Ruling Court Case. Merriam Vs. Gray, Volume 148 Illinois Reports, Page 179; Volume 32 Lawyers' Reports Annotated, Page 769

The firm of Preston, Kean, and Company, of which Gray was a member, was engaged in the banking business in Chicago. Merriam, for several years before this action was begun, had kept a running and check account with them, and had borrowed money of the firm on several occasions. Merriam purchased twelve United States four per cent bonds, valued at $1,000 each. In that same year, he borrowed $15,000 of the bank. By way of collateral security for the loan, he sent the twelve bonds to the banking firm. These bonds were stolen by Kir, while he was acting as assistant cashier. It was shown that he frequently speculated on the Chicago Board of Trade, although he had no capital except his salary of $1,800 per year. Although these facts were known to the head of the banking firm, no investigation was made, and no order made that Kir cease to speculate.

It was shown that Kir, in the course of his duties, had access to the bonds in question; that, quarterly, he detached the coupons from the bonds and gave credit upon the books of the firm to Merriam for the amount thereof. Merriam sues Gray, as a member of the firm, for the value of the bonds after Kir absconded. Gray contends that the banking firm was merely a gratuitous bailee, and liable for loss only in case of gross negligence. He denied that this loss was caused by gross negligence on the part of the bank. Decision: When a person deposits money or bonds, as a special deposit, by way of collateral security, the relation of bailor and bailee exists, as in any case of special deposit. But, strictly speaking, it is not a gratuitous bailment, because the bailment is for the mutual benefit of both parties. The bailee is under a duty to exercise a higher degree of care than in a gratuitous bailment. The court was of the opinion that the circumstances in this case showed that the banking firm had not exercised that degree of care which the character of the bailment demanded. Therefore, Gray, as a member of the firm, was held liable for the value of the stolen bonds.

Mr. Justice Magruder said: "While the bonds were thus held as collateral, the character of the bailment was changed from a bailment for the exclusive benefit of the bailor, to one for the mutual benefit of the bailor and bailee. In ordinary cases of special deposit without reward, the banker has no right to handle or examine the property, except so far as its safety may require. But, here, the bankers had access to the package containing the bonds, and detached the interest coupons when they fell due, and collected the interest, and deposited it to the credit of the plaintiff to be checked out by him in the regular course of business." Judgment was given for Merriam.

Ruling Law. Story Case Answer

Frequently a special deposit of bonds or like security will be made to secure a loan; such collateral security is a bailment, but a bailment for the mutual benefit of both parties. In such a case, the bank owes a higher degree of care to the collateral than had the bailment been for the benefit of the owner exclusively.

The special deposits made by Lanbridge are an ordinary bailment, wherein the bailee does not agree absolutely to account for the safe return of the goods, but where the obligation is to use the measures required by the agreement or by the business usage, which the parties include by implication in their contract. The courts should consider whether the bank did all that it represented to Lanbridge it would do, and all that the custom of safety deposit companies in the city of San Francisco included. The bank has shown that it has not failed to do that, and that the loss was caused without its fault and in spite of its efforts, as a result of an unusual and unforseeable event, the earthquake. In these circumstances, the bank is not liable. Judgment should be given for the defendant, the Citzens' Loan and Trust Company.