Ames Trust and Sav. Bank v. Reichardt

• Decision Date: 09 April 1963
• Docket Number: No. 50869,50869
• Citation: 254 Iowa 1272,121 N.W.2d 200,7 A.L.R.3d 900
• Parties: , 7 A.L.R.3d 900 AMES TRUST AND SAVINGS BANK, an Iowa Corporation, Appellee, v. Herma E. REICHARDT, Administratrix of the Estate of Charles R. Reichardt, Appellant.
• Court: Iowa Supreme Court

Page 200

121 N.W.2d 200

254 Iowa 1272, 7 A.L.R.3d 900

AMES TRUST AND SAVINGS BANK, an Iowa Corporation, Appellee, v. Herma E. REICHARDT, Administratrix of the Estate of Charles R. Reichardt, Appellant.

No. 50869.

Supreme Court of Iowa.

April 9, 1963.

Pasley, Singer & Seiser, Ames, for appellant.

Hirschburg, Reynolds, Gilchrist & Nutty, Ames, for appellee.

MOORE, Justice.

The question presented by plaintiff bank's petition in equity for declaratory judgment is whether it had a right to apply the balance of Charles R. Reichardt's deposit as payment on his note which was unmatured and unsecured at the time of his death. Defendant administratrix contends: (1) plaintiff had no right of equitable setoff, (2) it would defeat the rights of other creditors, and (3) plaintiff waived any right to and is estopped from claiming a setoff. The trial court entered a decree for plaintiff. Defendant on this appeal asserts the court erred in denying each of her three contentions.

There is no dispute as to the evidentiary facts. Defendant's answer and application for adjudication of law points admit the facts as pleaded in the petition. The decree is based on the undisputed facts and the law applicable as adjudicated by the trial court.

On March 9, 1962, Charles R. Reichardt paid a $5,606.48 note to plaintiff, leaving a balance of $103.48 in his checking account in plaintiff's bank. He then borrowed $3,000 from plaintiff on an unsecured note maturing September 5, 1962. The $3000 was deposited to his account. Mr. Reichardt died intestate March 21, 1962. Between March 9 and 21 he wrote seven checks and made a deposit of $600. Five of the checks totaling $560.97 were paid before his death. The other two totaling $355.41 payable to Story County for taxes were paid March 23 from the deposit in Mr. Reichardt's name. This left a balance of $2787.10 which on April 2 was transferred by plaintiff bank to the credit of the estate of Charles R. Reichardt, Herma E. Reichardt, administratrix, she being the widow and duly appointed administratrix.

Between April 2 and 17, 1962 she deposited $143.85, proceeds of an account collected by her, and drew a check of $47.50 to pay her bond premium and two checks of $150 each payable to her personally in part payment of her widow's allowance. She had obtained an ex parte order on April 5, 1962 for a $1500 widow's allowance.

On April 17, 1962 the financial condition of the estate first became known to plaintiff. It refused to pay any further checks drawn on the estate account and claimed the right to set off the $2583.45 balance in the account against decedent's $3000 note.

The financial condition of the estate was:

Exempt property of the total value of $19,901.57 consisting of the equity in a homestead held in joint tenancy by the decedent and Herma E. Reichardt with right of survivorship, having a net value of $16,701.57, a Pontiac car valued at $1700, household furnishings valued at $1000 and cash received from the sale of tools in the sum of $500.

Nonexempt property of the total value of $4449.57 itemized as follows: Bank balance $2583.45, cash on hand from an account collected of $1166.12 from which $200 was retained by the administratrix as widow's allowance, leaving net cash on hand of $966.12 and $900 in cash realized from the sale of the remaining property belonging to the estate, being a truck sold for $500, building material sold for $250 and an automobile sold for $150.

Liabilities of the estate in the total sum of $6970.58 and consisting of the following listed in the order of their priority of payment: Costs of administration $750, expenses of last illness and burial $1898.60, payment of balance due on the widow's allowance $1000, totaling $3648.60. This would leave a balance of $800.97 with which to pay claims of plaintiff and McDowell Insurance Agency which total $3321.98.

I. The homestead held in joint tenancy with right of survivorship is not property subject to the claims of any creditor of the estate. The survivor does not acquire title through the deceased, but by virtue of the deed. Wood Admr. v. Logue, 167 Iowa 436, 149 N.W. 613; Tiemann v. Kampmeier, 252 Iowa 587, 107 N.W.2d 689 and citations.

The exempt personal property, by section 635.7, Code 1962, I.C.A., is 'set aside' to the widow as 'her property'. The statute provides that when the head of the family dies the exempt personalty will be the widow's and exempt in her hands. Section 635.7 vests absolute property in the widow immediately upon the death of the intestate. The purpose of the inventory is to identify the property to see if it is actually exempt. It forms no part of the deceased's estate and is not subject to the debts of, or distribution in, the estate. In re Estate of Jones, 239 Iowa 1364, 35 N.W.2d 36 and citations. Without the homestead and exempt personalty the estate in the case at bar is insolvent. It is the primary ground on which the bank claims a right of setoff.

II. The first two propositions relied on for reversal by administratrix are interwoven and are considered together. If the bank is permitted the claimed right of set-off, funds for payment of other creditors will necessarily be reduced.

The precise question of whether a bank may set off a deposit against the unmatured debt of a deceased depositor where the estate is insolvent has not previously been presented to this court. It is a question on which many opinions have been written resulting in a sharp split of authority. In 7 Am.Jur., Banks, section 634, pages 460-461, it is said:

' § 634. Effect of Death of Depositor.--The bank's right of setoff or application to the payment of a depositor's indebtedness exists as against the administrator or representative of the depositor, attempting to recover the deposit after his death. According to the weight of authority, the fact that the debt owing to the bank is not mature does not, where the estate is insolvent, prevent the bank from setting off the debt against the deposit of the decedent. And in a case where the debt matured the day after the death of the depositor, the bank was allowed to set it off against the deposit. However, in the absence of circumstances entitling it to equitable relief, a bank has been denied the right to set off a claim against a decedent which was not due until after his death. Some courts deny the right of a bank to set off an unmatured debt of a decedent against a deposit standing in the decedent's name, even though the decedent's estate is insolvent.'

In the pocket part this amendment to follow the first sentence of section 634 is found:

'On the question of whether the claim of setoff is entitled to priority over a family's or widow's claim for allowance, the authorities seem to favor the view that where the bank has the right of setoff, the deposit is not the proper subject of such an allowance to the widow or family. The state of the authorities renders it unwise, if not impossible, to lay down any general rule in regard to the bank's right of setoff where the depositor is deceased and the debt is unmatured. This question is controlled by several different considerations, any one of which may be sufficient ground for allowing or disallowing the bank's claim. If any rule can be said to be fairly well established in this class of case, it would seem to be the rule that apart from statutory provisions, whatever right the bank possesses depends upon equitable principles.'

See also 9 C.J.S. Banks and...