Generally, the Illinois Supreme Court has held that a joint deposit account is subject to the provisions of the contract between the bank and its depositors, and one joint depositor may unilaterally pledge the interests of an entire joint account if allowed by the account agreement. Whether all joint depositors must be notified of such a pledge most likely also would depend on the account agreement’s terms.

Specifically, the Illinois Supreme Court has recognized that jointly owned CDs by their very nature belong to each joint owner in full, and in one case it further held that where jointly owned CDs provided that “the defendant bank could treat each depositor on the CDs as the absolute owner and that each depositor shall be the agent of each other for all purposes relating to the CDs,” one of the depositors could sign a loan agreement granting the bank a right of setoff against the jointly owned CDs. While the CDs at issue did not expressly provide for a right of setoff, the Court found that it was “sufficient that the CDs allowed the defendant bank to treat any name on the accounts as the sole owner and agent of that account.”

In a similar case involving a joint savings account, the Illinois Supreme Court found that where one depositor pledged the savings account as collateral for several loans – without the knowledge of the other joint owner – “[o]nly one signature was required to transact business as to the interest of both joint tenants,” since the signature card “authorized the bank to honor the signature of either joint depositor ‘in the payment of funds or the transaction of any business for this account.’” The Court also found that the death of the depositor who took out the loans did not extinguish the bank’s interest in the savings account, since the signature of the deceased depositor was sufficient to pledge the surviving depositor’s interest.

Consequently, we recommend reviewing your deposit account agreements to determine whether their terms support one joint owner pledging the interests of all the joint owners. Irrespective of the answer, however, it would be prudent when practical to obtain all joint owners’ signatures when pledging a savings account or a CD as collateral for a loan to avoid the prospect of future disputes.  Likewise, irrespective of the applicable language in your account agreement, we would recommend notifying all joint owners when such a pledge is made by one of the account owners.

For resources related to our guidance, please see:

• Pescetto v. Colonial Trust & Savings Bank, 111 Ill. 2d 314, 316 (1986) (“A joint bank account is not the same as a joint tenancy in real property, and is subject to the provisions of the contract between the bank and its depositors. . . . If the agreement allows one joint depositor to unilaterally pledge the interests of all of the joint depositors then such a pledge would survive the death of the pledgor.”)

• Fisher v. State Bank of Annawan, 163 Ill. 2d 177, 181 (1994) (“Plaintiff's CD accounts with defendant bank were held jointly with his sons. By their very nature then, the CDs belonged to each name on the account in full. (See 765 ILCS 1005/2(a) (West 1992).)”)

• Joint Tenancy Act, 765 ILCS 1005/2(a) (“When a deposit in any bank or trust company transacting business in this State has been made or shall hereafter be made in the names of 2 or more persons payable to them when the account is opened or thereafter, the deposit or any part thereof or any interest or dividend thereon may be paid to any one of those persons whether the other or others be living or not, and when an agreement permitting such payment is signed by all those persons at the time the account is opened or thereafter the receipt or acquittance of the person so paid shall be valid and sufficient discharge from all parties to the bank for any payments so made.”)

•  Fisher v. State Bank of Annawan, 163 Ill. 2d 177, 181 (1994) (“Plaintiff's CDs provided that the defendant bank could treat each depositor on the CDs as the absolute owner and that each depositor shall be the agent of each other for all purposes relating to the CDs. Robert's name was on the CD accounts and his signature was on the signature card. As such, both plaintiff and Robert, as well as Harold, agreed that Robert could be treated by the defendant bank as the absolute owner of the CDs, and that he was the agent of the others in regard to the CDs. Thus, the defendant bank could treat Robert as owning the CDs and Robert could grant the defendant bank the right of setoff in his loan agreements. The defendant bank had the contractual right to set off the amount Robert owed for the farm loans against the CDs.”)

• Fisher v. State Bank of Annawan, 163 Ill. 2d 177, 181, 643 N.E.2d 811, 813 (1994) (“The contract between plaintiff, his sons, and the defendant bank provides an independent basis for a setoff. . . . The appellate court also found a setoff improper because the CDs themselves did not explicitly provide for a setoff. However, it is sufficient that the CDs allowed the defendant bank to treat any name on the accounts as the sole owner and agent of that account.”)

• Pescetto v. Colonial Trust & Savings Bank, 111 Ill. 2d 314, 315-316 (1986) (“In 1969 plaintiff and her husband, Battist Pescetto, opened a joint savings account with the defendant bank. . . . Mr. Pescetto subsequently took out several loans from defendant, pledging the savings account as collateral. Plaintiff was aware of neither the loans nor the pledge of the savings account as collateral. Mr. Pescetto died in March of 1981 leaving the loans in default.  A few weeks later defendant enforced its security interest in the savings account to the extent of the $ 9,257.44 balance due on the loans.”)

• Pescetto v. Colonial Trust & Savings Bank, 111 Ill. 2d 314, 317 (1986) (“In the instant case the signature card, signed by both joint depositors, clearly created the right of survivorship. The signature card, however, also authorized the bank to honor the signature of either joint depositor ‘in the payment of funds or the transaction of any business for this account.’ Only one signature was required to transact business as to the interest of both joint tenants. Thus Mr. Pescetto's signature on the loan forms pledging the savings account as collateral was sufficient to pledge both his interest and plaintiff's interest in the account. Therefore, even if Mr. Pescetto's interest in the savings account was extinguished by his death, the bank's interest in the account as collateral was not extinguished because the surviving tenant's interest had also been pledged.”)