Fralick v. Coeur D'Alene Bank & Trust Co.

• Decision Date: 02 August 1922
• Citation: 35 Idaho 749,208 P. 835
• Court: Idaho Supreme Court
• Parties: JOHN G. FRALICK, State Commissioner of Commerce and Industry, Respondent, v. COEUR D'ALENE BANK AND TRUST COMPANY, a Corporation, and F. W. REED and E. v. BOUGHTON, Individually and as Copartners Doing Business Under the Firm Name of REED & BOUGHTON, Appellants

208 P. 835

35 Idaho 749

JOHN G. FRALICK, State Commissioner of Commerce and Industry, Respondent, v. COEUR D'ALENE BANK AND TRUST COMPANY, a Corporation, and F. W. REED and E. v. BOUGHTON, Individually and as Copartners Doing Business Under the Firm Name of REED & BOUGHTON, Appellants

Supreme Court of Idaho

August 2, 1922

SETOFF-PARTNERSHIP CLAIMS AND OBLIGATIONS AS AGAINST INDIVIDUAL CLAIMS AND OBLIGATIONS-PARTNERSHIP SERVICES FOR INSOLVENT BANK-ATTORNEY'S LIEN ON JUDGMENT.

1. A partnership deposit in a bank cannot be set off by the partners individually against their individual debts to the bank, upon the insolvency of the bank.

2. Services rendered by a law firm to the special deputy of a state officer in charge of an insolvent bank at his request constituted a proper charge, as incidental expenses, payable out of the estate of such bank, under the orders of the court, and upon the value of such services being properly ascertained the amount allowed therefor may be applied upon the individual indebtedness of the members of the law firm to the bank or otherwise as they may direct. (C. S., secs 5292-5294.)

3. Under the provisions of C. S., sec. 6576, a law firm is entitled to an attorney's lien on the proceeds of a judgment in foreclosure on behalf of a bank obtained by them before the insolvency of such bank, which lien is prior to the lien of depositors or other creditors of the bank, the proceeds of which may be applied as directed by them.

APPEAL from the District Court of the Eighth Judicial District, for Kootenai County. Hon. John M. Flynn, Judge.

Action to collect debts of insolvent bank. Judgment against makers of two promissory notes. Reversed in part and remanded.

Cause remanded, with instruction. Costs awarded to appellants.

John P Gray, for Appellants.

Cases in which partnership claims have been set off: Tucker v Oxley, 5 Cranch (U.S.), 34, 3 L.Ed. 29; Funk v Young, 138 Ark. 38, 210 S.W. 143, 5 A. L. R. 79; St. Paul & Minneapolis Trust Co. v. Leck, 57 Minn. 87, 47 Am. St. 576, 58 N.W. 826.

If it is necessary to effect a clear equity or to avoid irremediable injustice, a setoff will be allowed though the debts are not mutual. (Cosgrave v. Cosby, 86 Ind. 511; Baker v. Kinsey, 41 Ohio St. 403; Fulkerson v. Davenport, 70 Mo. 541; Davis v. Industrial Mfg. Co., 114 N.C. 321, 19 S.E. 371, 23 L. R. A. 322; Sheafe v. Hastie, 16 Wash. 563, 48 P. 246.)

An attorney has a lien upon the cause of action from its beginning. (Sec. 6576, C. S.; Taylor v. Taylor, 33 Idaho 445, 196 P. 211.)

The trend of modern decisions is to protect the right of the attorney to receive compensation for his services. ( Kellogg v. Winchell, 273 F. 745, 16 A. L. R. 1159; Ingersoll v. Coram, 211 U.S. 335, 29 S.Ct. 92, 53 L.Ed. 208.)

Ezra R. Whitla, for Respondent.

The general rule of law is that a partnership indebtedness cannot be used against individual depositors and vice versa. (34 Cyc. 733, 734; 7 C. J. 745, par. 535; Adams v. First National Bank, 113 N.C. 332, 18 S.E. 513, 23 L. R. A. 111.)

Mutuality is essential to the validity of a setoff, and that, in order that one demand may be set off against another, both must mutually exist between the same parties. (Harrison v. Harrison (Lamb v. Morris), 118 Ind. 179, 20 N.E. 746, 4 L. R. A. 111; International Bank of Chicago v. Jones, 119 Ill. 407, 9 N.E. 885.)

Copartnership indebtedness or claims cannot be applied to individual indebtedness. (Thomas v. Stetson, 62 Iowa 537, 49 Am. Rep. 148, 17 N.W. 751; Eady v. Newton Coal & Lumber Co., 123 Ga. 557, 51 S.E. 661, 1 L. R. A., N. S., 650; Witherington v. Huntsman, 64 Ark. 551, 44 S.W. 74; 20 R. C. L., par. 162, p. 942; Olson v. Lamb, 56 Neb. 104, 71 Am. St. 670, 76 N.W. 433; 30 Cyc. 502.)

BUDGE, J. McCarthy and Dunn, JJ., concur.

OPINION

BUDGE, J.

From the record in this case it appears that prior to November 2, 1920, the Coeur d'Alene Bank and Trust Company, a corporation, was engaged in a general banking business at Coeur d'Alene, Idaho; that during the latter part of the year 1915 it employed E. V. Boughton, a member of the law firm of Reed and Boughton, to foreclose a chattel mortgage of $ 3,000; that proceedings in foreclosure were properly instituted, and thereafter a stipulation was entered into between the mortgagor and the bank, through said attorneys, whereby certain payments were to be made from time to time by the mortgagor to the bank, during which time and upon condition that the payments were so made, the proceedings were held in abeyance. On November 2, 1920, the bank became insolvent. The then Commissioner of Commerce and Industry, now Commissioner of Finance, took possession of all the assets of the bank for the purpose of liquidation, and appointed Ezra R. Whitla as special deputy, who as such took over the affairs of the bank. Thereafter Mr. Whitla directed the firm of Reed and Boughton to proceed with the foreclosure of the chattel mortgage, in the course of which proceedings the mortgagor surrendered possession of the property, which was turned over to the special deputy.

It further appears that the president of the now insolvent bank employed the firm of Reed and Boughton from October 25, 1920, until November 2, 1920, in connection with matters which led up to the closing of the bank on the latter date. After the bank closed the special deputy continued the services of Reed and Boughton in connection with numerous matters with which they were peculiarly familiar by reason of their former connection with the bank, and in connection with these services Mr. Boughton expended the sum of $ 15 for personal expenses.

When the bank closed its doors E. V. Boughton owed the bank $ 500 on a promissory note, and F. W. Reed owed the bank $ 400 on a promissory note; making a total of $ 900 and interest due the bank from Mr. Boughton and Mr. Reed, individually, while upon proceedings subsequently had in the district court the firm of Reed and Boughton were allowed a claim against the bank of $ 100 for services in connection with the foreclosure of the chattel mortgage, $ 500 for services rendered to the bank both at the request of its president and the special deputy $ 15 for expenses incurred, and $ 138.75 on account of a deposit in that amount to the credit of the firm when the bank closed, or a total of $ 753.75,...