O'Grady v. Stotts City Bank

• Decision Date: 26 April 1904
• Citation: 80 S.W. 696,106 Mo. App. 366
• Parties: O'GRADY v. STOTTS CITY BANK.
• Court: Missouri Court of Appeals

80 S.W. 696

106 Mo. App. 366

O'GRADY v. STOTTS CITY BANK.

St. Louis Court of Appeals. Missouri.

April 26, 1904.

BANKS—DEPOSITOR'S GUARANTY OF CHECK—APPLICATION OF DEPOSIT—PROPRIETY.

1. A bank has no right, without a depositor's consent, to apply his deposit to the payment of the check of a third person, drawn in favor of a fourth, and guarantied by the depositor.

Appeal from Circuit Court, Lawrence County; Henry C. Pepper, Judge.

Action by J. M. O'Grady against the Stotts City Bank. Judgment for defendant, and plaintiff appeals. Reversed.

W. B. Skinner and Henry Brumback, for appellant. E. J. White, for respondent.

BLAND, P. J.

The suit is to recover damages for the refusal of the defendant bank to pay plaintiff's check, dated May 26, 1902, drawn on it in favor of C. E. Fuller, for the sum of $10. It is admitted that the defendant refused to honor or pay the check. Its excuse for refusing to pay the check is that the plaintiff had no funds in the bank with which to pay it when it was presented, May 31, 1902. The evidence shows: That, on the day the check was dated, plaintiff had on deposit to his credit with the defendant bank $248.94. That on the 13th day of May, 1902, the M. B. Mining Company drew its check for $372.94 on the defendant bank in favor of Ed Hill. That on May 19, 1902, the following indorsement was written on the back of this check: "May 19, 1902. For value rec'd, we hereby guarantee payment of the within check May 26, 1902. J. M. O'Grady, C. E. Fuller." That on May 27th Hill presented this guarantied check to the cashier of the defendant bank for payment, and the cashier took the check, and charged plaintiff's account with the amount of the check, and credited Hill's account with the bank for a like amount. After plaintiff was apprised of this transaction, and after the $10 check had been dishonored, he, on June 3, 1902, deposited $372.94 with the bank, and directed that the deposit be applied to the payment of the check which he had guarantied. His request was complied with, and the check marked "Paid" and turned over to him. The evidence of plaintiff is that the M. B. Mining Company had no deposit account with the bank, and was insolvent. Under instructions given by the court, the verdict was for the defendant. Plaintiff appealed.

The legal question at issue is whether or not the bank had the right to apply the deposit fund of plaintiff toward the payment of the guarantied check, and set off the check against his deposit account, without his request or permission to do so. The relation of a bank and its depositor is that of debtor and creditor, and it is the duty of the bank to pay the checks of its depositor on presentation, when he has funds sufficient to his credit. A bank may apply the funds of its depositor in payment of his matured note due to the bank, and set off the debt against his deposit account. Mt. Sterling Nat. Bank v. Green (Ky.) 35 S. W. 911, 32 L. R. A. 568. But it has no right to apply money of its depositor to the payment of a note on which he is security or guarantor. In Harrison v. Harrison (Ind.) 20 N. E. 747, 4 L. R. A., loc. cit. 112, the court said: "The general rule in keeping the account of a depositor is that, as money is paid in and drawn out, a balance may be considered as struck at the date of each payment or entry on either side of the account; and it is the right of the bank, in case the depositor becomes indebted to it by note or otherwise, and the deposit is not specially applicable to a particular purpose, or there is no express agreement to the contrary, to apply a sufficient amount thereof to the payment of any debt due and payable from the depositor to the bank. Second Nat. Bank v. Hill, 76 Ind. 223 ; Nat. Mahaiwe Bank v. Peck, 127 Mass. 298 ; Commercial Nat....