Clendening v. The Red River Valley Nat. Bank of Fargo

• Decision Date: 05 May 1903
• Docket Number: 6731
• Citation: 94 N.W. 901,12 N.D. 51
• Court: North Dakota Supreme Court

94 N.W. 901

12 N.D. 51

A. E. CLENDENING, TRUSTEE IN BANKRUPTCY OF THOMAS KLEINOGEL, BANKRUPT, v. THE RED RIVER VALLEY NATIONAL BANK FARGO

No. 6731

Supreme Court of North Dakota

May 5, 1903

Appeal from District Court, Cass County; Charles A. Pollock, J.

Action by A. E. Clendening, trustee of Thomas Kleinogel, bankrupt against the Red River Valley National Bank of Fargo. Judgment for plaintiff. Defendant appeals.

Reversed.

Judgment of the district court reversed, and order entered dismissing the action.

David R. Pierce and Newton & Smith, for appellant.

A bank may require written authority from a customer for payment, or transfer of his account, certainly when "subject to check," before it is called upon to make a distribution of it. Aetna National Bank v. Fourth National Bank, 46 N.Y. 82, p. 88. A bank has a right to select its customers, and was under no obligation to open an account with the plaintiff on his demand. Thatcher v. State Bank, 15 Sandf. (N. Y.) 121. Payment must be demanded of a bank of deposit before it can be put in default. Fowler v. Bowery Savings Bank, 113 N.Y. 450, 21 N.E. 172, and cases cited. Had bank paid to a stranger the rule would be the same. Davis et al. v. Smith, 12 N.W. 531. When there is a deposit of money to be kept in specie, the rule is different. Such deposit is a bailment, and any use of it would justify an action for conversion without demand. But a general deposit creates the relation of debtor and creditor between the bank and its depositor, and the former's obligation is to pay only upon a written demand, or check. Wray v. Tuskogee Ins. Co., 34 Ala. 58; Brahm v Adkins, 77 Ill. 263; State v. Tenn. Coal, etc., R C. 29 S.W. 121; Janin v. London, etc., Bank, 92 Cal. 14, 27 Am. St. Rep. 82, 27 P. 1100; Carr v. Nat'l Security Bank, 107 Mass. 45, 9 Am. Rep. 6; Perley v. Muskegon Co., 32 Mich. 132, 20 Am. Rep. 627; Davis v. Smith, 12 N.W. 531; Chapman v. White, 6 N.Y. 412, 57 Am. Dec. 464; Curtis v. Levitt, 15 N.Y. 52; Aetna Nat'l Bank v. Fourth Nat'l Bank, 74 N.Y. 464; People v. Mechanics Savings Institute, 92 N.Y. 7; Fowler v. Bowers Savings Bank, 113 N.Y. 450; Shipman v. State Bank, 126 N.Y. 318; Bank v. Hughes, 17 Wend. 100; Henry v. Martin, 88 Wis. 367, 60 N.W. 263. Banks of deposit do not undertake to pay without respect to place, but at its banking house when payment is called for. Morse on Banks, 40; Watson v. Phoenix Bank, 8 Metc. 217; Bank v. Bank, 39 Pa. 92; Downes v. Phoenix Bank, 6 Hill. 297. The bank is not in default as a debtor until demand of payment is made. Downes v. Bank, 6 Hill 297, 16 N.Y. Com. Law, L.Ed. 365; Payne v. Goodner, 27 N.Y. 262; Brown v. Brown, 11 N.W. 64; Branch v. Dawson, 23 N.W. 552. Bringing suit is not such a demand, in cases where actual demand is necessary, as constitutes one element of a cause of action. Downes v. Bank, 6 Hill, 297, 16 N.Y. Com. Law, L.Ed. p. 365; Payne v. Gardner, 29 N.Y. 146; Smiley v. Fry, 10 N.Y. 262; Brown v. Brown, 11 N.W. 64; Branch v. Dawson, 23 N.W. 552. A banker has a lien, at common law, only for indebtedness past due. Jordan Adm'r v. Bank, 74 N.Y. 467; Beckwith v. Bank, 9 N.Y. 211; Morse on Banking, (2nd Ed.) 45; Fourth National Bank of Chicago v. The City National Bank of Grand Rapids, 68 Ill. 398; Bank v. Bank, 80 Ill. 212, 22 Am. Rep. 751; National Bank of the Republic v. Millard, 10 Wall, 152, 19 L.Ed. (U. S.) 897, and note. A bank has an equitable right, like stoppage in transitu, over credit given a borrower, who becomes insolvent, upon the proceeds of a note, which it has discounted for him. Daugherty Bros. v. Central National Bank, 13 Leg. Ns. 2, Pa. cited in Ball on National Banks, p. 109 note 4. The facts are sufficient in equity to warrant a set-off of the items upon the indebtedness evidenced by the notes even before maturity. Jordan v. N. S. & L. Bank, 74 N.Y. 467, and citations infra; Clark v. Sullivan, 2 N.D. 103, 55 N.W. 733; Bathgate v. Hoskins, 59 N.Y. 533; Lindsey v. Jackson, 2 Paige Ch. 581, 2 N.Y. Ch. Rep. L.Ed. 1038 and note; Seligman v. Felton, 43 N.Y. 419; Smith v. Fox, 48 N.Y. 674; Cavilli v. Allen, 57 N.Y. 508.

In proving claims against a bankrupt's estate under the Bankrupt Law of 1898, a counter claim shall not be allowed which is not provable against his estate, or was purchased by, or transferred to, him, after the filing of the petition, or within four months before such filing of the claim. Bankrupt Laws of 1898, section 68; Bush on Bankruptcy, 376; L. Snyder Sons Co. v. Armstrong, 37 F. 18; in re Dillon, 10 F. 627; Rothschild v. Mack, 115 N.Y. 1, 21 N.E. 726; N. C. R. M. Co. v. St. L. O. & S. Co., 152 U.S. 596, 14 S.Ct. 710, 38 L.Ed. (U. S.) 655; Scott v. Armstrong, 146 U.S. 499, 13 S.Ct. 148, 36 L.Ed. 1059; in re Meyer, 107 F. 86; in re Little, 110 F. 621. Where the creditor has goods or choses in action, of the bankrupt, put into his hands before bankruptcy by a valid contract, by the terms of which it will result in a debt, as if they are deposited for sale or collection, the case of mutual credit has arisen within the meaning of the bankrupt law. Ex. parte Caylus, et al., v. Lowell, 5 F. Cases, 325; Catlin v. Foster, 3 B. R. 540, S. C. 1 Saw. 37; S. C. 1 L. T. B. 192; Murray v. Riggs, 15 Johns. 571. The claim may be set-off by the holder, although he has never proved it in bankruptcy, Tucker v. Otley, 5 Cranch 34, 3 L.Ed. 29 (U. S.); Winslow v. Bliss, 3 Lans. 220; Harmonson v. Bain, et al., 1 Hughes 391, 11 Fed. Cases, 539; Marks et al. v. Baker et al., 1 Wash. C. C. 178, S. C. 16, Fed. Cases, 765.

Turner & Lee, for respondent.

Claim of title in the defendant makes the demand useless and hence unnecessary. 9 Am. & Eng. Enc. of Law (2d Ed.) 209, and cases cited.

By the bankruptcy proceedings, title to the bank deposit and Lincoln account passed to the creditors of the bankrupt. The law of set-offs does not govern this case, but the law of preference does. Pirie v. Trust Co., 182 U.S. 438, 45 L.Ed. 1171; in re Stoge, 8 Am. Bank Rep. 621, 116 F. 342; in re Keller, 6 Am. Bank Rep. 621, 110 F. 348, same title, 6 Am. Bank Rep. 487; Swartz v. Bank, 8 Am. Bank Rep. 673, 117 F. ; Swartz v. Seigel, 8 Am. Bank Rep. 689, 117 F. ; Kleinogel, the bankrupt, had done business up to the day on which he was adjudged bankrupt. His balance on that day, was a fund which the bank had no right to apply upon its unmatured notes. Had the bankrupt given a check upon his deposit to apply on his debt, to the bank, the trustee in bankruptcy could recover the amount in this suit. In re Lyon, 114 F. 326; Traders Nat. Bank v. Campbell, 6 N. B. Rep. 353, 14 Wall 87; in re Warner, 5 N. B. Rep. 414; in re Meyer, 115 F. 997; in re Kellar, 110 F. 348; Adams v. Merchants' Nat. Bank, 2 F. 174; in re Black, et al., 3 Fed. Cases, 495; in re Waterbury Fur Co., 114 F. 225.

The referee might refuse to allow the claim for any purpose; but it was also proper for him to allow it for the undisputed amount, and leave the trustee to recover the amount of any preference received by the creditor. Bankruptcy Act, section 60b; Morgan et al. v. Mastick, 17 Fed. Cases, 752; Fox v. Gardner, 21 Wall 475, 88 U.S. 456, 22 L.Ed. 685; Forsyth v. Merrill et al. 9 Fed. Cases 464. Lincoln Bros.' agreement does not amount to a pledge. In re Sheridan, 98 F. 406; Lucketts v. Townsend, 49 Am. Dec. 723 and note.

OPINION

YOUNG, C. J.

The plaintiff is the trustee in bankruptcy of Thomas Kleinogel who was adjudged a voluntary bankrupt by the United States District Court for the Southeastern District of North Dakota on January 2, 1901. This action was instituted in the district court of Cass county on March 28, 1901, to recover from the defendant bank the sum of $ 817.45, which the trustee claims was due to the bankrupt at the date of filing his petition. This sum consists of two items, which are set forth in the complaint as separate causes of action. The first consists of a balance of $ 158.43, which the bankrupt had on deposit with the defendant when his petition in bankruptcy was filed. The second cause of action is for the recovery of the sum of $ 659.02, which the complaint alleges the defendant had theretofore received from Lincoln Bros. for the use and benefit of the bankrupt, which sum the complaint alleges had been paid by said Lincoln Bros. to the defendant upon an account for goods purchased from the bankrupt prior to his insolvency. The complaint further alleges that the defendant is a creditor of the bankrupt, and that "at a meeting of the creditors of said Thomas Kleinogel, bankrupt, duly and regularly held, which said meeting was duly called and presided over by Guy L. Wallace, referee in bankruptcy, and at which said meeting the said defendant was duly represented as a creditor and there proved its claim against said bankrupt, which said claim was allowed by said referee, this plaintiff was duly elected by said creditors as the trustee in bankruptcy of said bankrupt." The defendant, by its answer, denies all indebtedness, and alleges that on the 2d day of January, 1901, Thomas Kleinogel was indebted to it in the sum of $ 3,000, evidenced by six promissory notes of $ 500 each; that on the 2d day of January, 1901, it indorsed and applied the deposit of $ 158.43 on said indebtedness. In answer to the plaintiff's second cause of action, the defendant alleges that it was agreed between it and the said bankrupt that, when the amount due from Lincoln Bros. on said account should be collected by it, the sum should be applied upon Kleinogel's indebtedness to it; that said sum has never been collected, and it has not now and never has had the sum of $ 659.02, or any other sum, belonging to Lincoln Bros., to pay said account. We may state here that the undisputed evidence shows that the defendant also indorsed the amount of the above account...