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In Re Estate of Muhammad

OPINION FILED MARCH 22, 1984.

IN RE ESTATE OF ELIJAH MUHAMMAD, DECEASED (MARIE MUHAMMAD FARRAHKAN ET AL., PETITIONERS-APPELLEES

v.

THE FIRST PACIFIC BANK OF CHICAGO, RESPONDENT AND THIRD-PARTY PLAINTIFF-APPELLANT AND CROSS-APPELLEE (THE NATION OF ISLAM ET AL., THIRD-PARTY DEFENDANTS-APPELLEES AND CROSS-APPELLANTS)).



Appeal from the Circuit Court of Cook County; the Hon. Henry A. Budzinski, Judge, presiding.

JUSTICE JIGANTI DELIVERED THE OPINION OF THE COURT:

Rehearing denied May 24, 1984.

Elijah Muhammad, the leader and Supreme Minister of an organization known as the Nation of Islam (the Nation), died in 1975 and was survived by a number of legitimate and illegitimate children. At the time of Elijah Muhammad's death, over $3 million remained in certain bank accounts at the First Pacific Bank of Chicago (the Bank). Based upon representations which shall be referred to later in this opinion, the Bank believed that the funds in the account belonged to the Nation. Following Elijah Muhammad's death, the Bank closed the accounts and transferred the funds into new accounts opened by the Nation, under which Wallace Muhammad, Elijah Muhammad's successor as leader of the Nation, was a signatory. The propriety of the Bank's transfer of funds to the Nation forms the backdrop for all of the issues raised in this appeal.

Elijah Muhammad's estate subsequently went into probate. A number of his legitimate and illegitimate children (the Estate) filed a recovery citation proceeding on behalf of the estate against the Bank, asserting that the funds which had been transferred to the Nation were Elijah Muhammad's individual accounts and were therefore a part of his estate. Thereafter, the Bank filed a third-party claim against the Nation and nine of its affiliates (hereinafter referred to collectively as the Nation). The Bank maintained that if it was ultimately found liable to the Estate, the Nation was unjustly enriched by the transfer of funds and the Bank was therefore entitled to restitution.

The trial court entered judgment in favor of the Estate in the recovery citation proceeding. The Bank now appeals from that judgment. In the third-party proceeding, the trial court ruled in favor of the Bank but granted only a portion of the relief sought. The Bank also appeals from this ruling, and the Nation cross-appeals.

The record and briefs in this case are extensive and reveal a veritable litany of facts and events pertinent to the issues raised by the parties. For the purpose of clarity, we shall address the relevant facts in conjunction with each issue. The central issue on appeal is raised by the Bank. The substance of the Bank's argument is that, even if Elijah Muhammad was found to be the contractual and legal owner of the accounts, the court was required to determine whether the equitable and beneficial ownership of the accounts rested in someone other than Elijah Muhammad, namely, the Nation. The Bank does not concede that the trial court properly found Elijah Muhammad to be the contractual owner of the accounts and thus also raises the issue of contractual ownership on appeal. A number of additional and peripheral issues have been raised by the parties and shall be discussed later in this opinion.

The Bank and the Nation first argue that, as a matter of law, the trial court improperly refused to admit or consider evidence of equitable ownership. The Bank and the Nation further maintain that, because the Nation was allegedly the equitable owner of the accounts, the Bank properly transferred the funds to the Nation. In contrast, the Estate contends that the court was bound to look exclusively to the contractual or legal ownership of the accounts as evidenced by the contract between the Bank and the depositor. Consequently, the Estate argues that because Elijah Muhammad was allegedly the accounts' contractual owner, the trial court properly found that the Bank's transfer of funds to the Nation was unlawful. Thus, before considering the factual question of the actual identity of the accounts' contractual or equitable owners, we must decide one threshold question of law: whether the court was required to consider relevant evidence of equitable ownership.

As a general rule, the relationship between a bank and its depositor is one of creditor and debtor. (See generally 5 Michie, Banks and Banking sec. 79, at 216 (1950); Union Stock Yards National Bank v. Gillespie (1890), 137 U.S. 411, 422, 34 L.Ed. 724, 728, 11 S.Ct. 118, 122.) The Estate's position is that this contractual relationship applies for all purposes and that the court may not inquire as to whether the beneficial ownership of an account lies in one other than the contractual depositor. Following our review of the case law in this area, we disagree with the Estate's contention.

• 1 For over a century the United States Supreme Court has ruled that courts> may exercise their equitable powers to determine the beneficial or equitable ownership of a bank account. In Central National Bank v. Connecticut Mutual Life Insurance Co. (1881), 104 U.S. 54, 66, 26 L.Ed. 693, 699, the court stated: "But although the relation between the bank and its depositor is that merely of debtor and creditor, and the balance due on the account is only a debt, yet the question is always open, To whom in equity does it beneficially belong?" (Accord, Union Stock Yards National Bank v. Gillespie (1890), 137 U.S. 411, 422, 34 L.Ed. 724, 728, 11 S.Ct. 118, 122.) Both of the Supreme Court decisions cited above further lead us to believe that when a bank has either actual or constructive notice that the beneficial ownership of an account lies outside the legal title, the bank may not deal with the account's contractual owner to the detriment of the equitable owner. Thus, evidence of equitable ownership must be considered by the court because the rights of an equitable owner may control over those of an account's contractual owner when the bank has been put on notice regarding the existence of an equitable owner. See also 5 Michie, Banks and Banking sec. 79, at 217 (1950) ("* * * the true ownership of a deposit may be proved to be in another than the person in whose name it is made").

In Hanna v. Drovers' National Bank (1901), 194 Ill. 252, 257, the Illinois Supreme Court accepted the above reasoning and stated: "It may be conceded that, as a general rule, it is the duty of a banker to pay money on deposit with it to the party in whose name it is deposited; but where it has notice of the fact that the fund belongs to another, it may refuse to pay it to the depositor and be compelled to pay it to the real owner." Furthermore, when the issue of equitable ownership arises, relevant evidence may include facts surrounding the creation and history of the account (see In re Estate of Cronholm (1962), 38 Ill. App.2d 141, 186 N.E.2d 534; 5 Michie, Banks and Banking sec. 369b, at 346-47 (1950)), as well as facts reflecting the intent of the depositor and the source of the funds (see People ex rel. Nelson v. Bank of Harvey (1934), 275 Ill. App. 415).

• 2 The Estate nonetheless contends, without addressing or attempting to distinguish the cases cited above, that this court is bound by Landretto v. First Trust & Savings Bank (1928), 333 Ill. 442, 448, 164 N.E. 836, 839, wherein the Illinois Supreme Court stated: "The right to draw and the duty to pay checks against the account rests upon contract. It does not depend upon the ownership of the fund." In Landretto, a husband and wife possessed a joint bank account from which the husband withdrew all of the funds. The wife, a joint depositor and authorized signatory of the account, sued the bank and claimed that because she had earned all of the money in the account, the bank improperly permitted the husband to withdraw the funds. The court held that the bank was not liable for paying the funds to the husband, who was the other joint depositor and authorized signatory. The court never considered or ruled upon the issue of equitable ownership but simply found that if a bank pays funds to one of two joint depositors, the bank will not be liable. The Landretto holding concerning joint bank accounts is presently codified in section 2(a) of "An Act to revise the law in relation to joint rights and obligations" (Ill. Rev. Stat. 1981, ch. 76, par. 2(a)). The instant case does not address Landretto's narrow issue of a bank's role in relation to actions taken by a checking account's joint owners; rather, it concerns the propriety of the Bank's payment of funds to an alleged equitable owner (the Nation) rather than to an alleged contractual owner (the Estate). *fn1 We conclude that Landretto does not vary or contradict the legal principle set out above that if a bank has notice of an equitable owner of an account, it may be required to pay funds on deposit to the account's equitable rather than contractual owner. We therefore find that the trial court in the instant case was required to consider relevant evidence of the equitable ownership of the accounts at question.

The Estate contends that even if the court was bound to consider evidence of equitable ownership, the trial court properly did so in this case prior to reaching its decision. The record discloses, however, that throughout the trial, the trial court repeatedly stated that Landretto controlled the court's decision and that the source of the funds in the account and thus the beneficial ownership of the account were of no consequence. On at least five occasions the trial judge specifically cited the Landretto case in ruling upon the admissibility of certain evidence and testimony, finding that the beneficial ownership and the source of the funds were not relevant to the issues in the recovery citation proceeding. The court also repeatedly found that the contractual relationship between the Bank and its depositor was the sole factor to be considered in determining who was entitled to the funds in the accounts. Indeed, the focus of the entire trial was the identity of the contractual depositor as defined by the contract documents and other extrinsic evidence which clarified the provisions of the documents and the events surrounding the creation of the contractual relationship. The case was tried purely as a case of contractual ownership, although evidence of beneficial ownership was allowed to a certain extent for purposes of the third-party restitution action between the Nation and the Bank. The court stated, however, that between the Estate and the Bank, the ownership and source of the funds were irrelevant.

Based upon our previous discussion of equitable and beneficial ownership, we believe the trial court erroneously found that equitable ownership was not a pertinent issue in this case. Although evidence was admitted on this issue for other purposes, the court never considered evidence which arguably determined whether the Bank or the Estate was the equitable owner of the accounts. Because we have found that the rights of an equitable owner may be superior to those of an account's legal owner, we think that the parties were entitled to have the trial court specifically consider the issue of equitable ownership. The issue may be determinative of the entitlement to the funds in the accounts and, for this reason, we reverse and remand the action between the Bank and the Estate to the trial court for a new trial.

We offer no opinion here concerning the contractual ownership of the accounts because we believe that the issues of contractual and equitable ownership are intertwined to such an extent that they should be considered together by the trial court after all relevant evidence has been presented. Furthermore, because the third-party restitution action between the Nation and the Bank ...


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