Greenwood v. Bank of Illmo

• Citation: 782 S.W.2d 783
• Decision Date: 15 December 1989
• Docket Number: No. 16208,16208
• Parties: Tonya GREENWOOD and Mary Ellen Keene, as Next Friend for Jay Greenwood, a Minor, and Mary Ellen Keene, Individually, Plaintiffs-Respondents, v. BANK OF ILLMO, a Banking Corporation, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 783

782 S.W.2d 783

Tonya GREENWOOD and Mary Ellen Keene, as Next Friend for Jay Greenwood, a Minor, and Mary Ellen Keene Individually, Plaintiffs-Respondents, v. BANK OF ILLMO, a Banking Corporation, Defendant-Appellant.

No. 16208.

Missouri Court of Appeals,

Southern District,

Division Two.

Dec. 15, 1989.

Motion for Rehearing or to Transfer

Denied Jan. 5, 1990.

Application to Transfer Denied Feb. 13, 1990.

Albert C. Lowes, Lowes & Drusch, Cape Girardeau, for defendant-appellant.

Jim S. Green, Sikeston, for plaintiffs-respondents.

FLANIGAN, Presiding Judge.

The basic issue is whether a bank, which issued a certificate of deposit ("CD") jointly to A, B, and C, may, on the maturity of the CD, set off its proceeds against A's delinquent note held by the bank when B and C furnished the money for the CD. This court, on the facts at bar, answers the question in the negative.

On October 23, 1981, Bank of Illmo, defendant below and appellant here, issued a CD in the amount of $6,500 with a maturity date of April 23, 1984, and an interest rate of 15.40 percent per annum. The depositors were Mary Ellen Keene and her children, Tonya Greenwood and Jay Greenwood, plaintiffs below and respondents here. The parties agree that the certificate was in such form as to comply with § 362.470, ¹ dealing with joint deposits. When the CD was issued, Tonya Greenwood was 19 and Jay Greenwood was 14. ²

The face of the CD included the following:

"Depositor(s) Mary Ellen Keene or Tonya Greenwood or Jay Greenwood, JWROS, ³ Deposit $6,500,

Payable to said depositor, or, if more than one, to either or any of said depositors or the survivors or survivor, upon presentation and surrender of this certificate, properly endorsed, on the Maturity Date. For all purposes, including payment, presentation and transfer of this certificate, payment of interest hereon, and any notice, this bank may deem and treat as the absolute owner hereof any depositor named above. If more than one depositor is named above, this certificate and the deposit evidenced hereby shall belong to said depositors as joint tenants with right of survivorship, but this bank may deem and treat either or any of said depositors or the survivors or survivor as the absolute owner, and each such depositor shall be the agent of each other depositor for all the foregoing purposes. In mailing interest check and any notice, this bank may rely upon such address as is shown upon its books."

On the date the CD was issued, it was accompanied by a signature card which contained four lines for signatures. Immediately above those lines was the language, "The undersigned agree to the conditions printed on the back side of this card." Only Mary Ellen Keene signed the signature card. Neither Tonya Greenwood nor Jay Greenwood signed it.

On the back side of the signature card the following language appears:

"The Signed Depositors hereby agree to the conditions printed on the reverse side hereof for the transaction of business with you for the account named. They also agree each with the other(s) and with you that all sums now on deposit or hereafter deposited by either or any of the depositors shall be the property of the depositors jointly and severally, with right of survivorship, and also the depositors jointly and severally hereby authorize the bank, at any time it deems itself insecure, or in case of the death or insolvency of any depositor to charge or setoff against any deposit of the depositors with the bank, any debts or obligations owing by the depositors to the bank whether direct or indirect, secured or unsecured, absolute or contingent, joint or several, due or to become due, either as maker, endorser, guarantor, or otherwise, now existing or hereafter contracted or acquired by the bank and wherever payable, and the interest thereon and expense, if any, which may be incurred by the bank in connection therewith, and this agreement shall be construed to be the consent of the depositors jointly and severally to make such a charge or setoff against his her their account(s) if consent be required by present or future statute or law. Each of the depositors hereby appoints the other or each of the others his attorney, with power to deposit, withdraw (on an expiration date), and assign the account for loan collateral." (Emphasis added.)

On April 23, 1984, the date of maturity, Mary Ellen Keene, accompanied by her daughter and co-depositor Tonya Greenwood, presented the CD to the bank for payment. After obtaining the endorsement of Mary Ellen Keene on the CD, the teller escorted her to the office of the bank's president. There she was informed, according to the testimony of John Cochran, the bank president, "that the proceeds of the CD were going to be applied to one of her notes that had been charged off as lost. She had two or three notes. Those would have been her notes individually."

Also on April 23, 1984, according to Cochran's testimony, "proceeds of the CD were placed in an escrow account called Keene/Greenwood Escrow Account."

The bank's brief states: "The amount of the escrow, together with interest earned while in escrow, was set-off against Note No. A8115 ⁴ on June 18, 1984. The note was signed by Mary Ellen Keene individually and was for a principal amount of $12,500. The sum applied to said note was $9,418.73."

The three co-depositors, as plaintiffs, instituted this action against the bank, alleging that the bank converted the CD to its own use. The petition sought actual damages "together with interest as allowable by law." ⁵

After conducting extensive discovery, each side filed a motion for summary judgment. The trial court, in a judgment entered February 7, 1989, granted plaintiffs' motion and denied the bank's motion. The trial court awarded plaintiffs $13,577.90 in actual damages. The bank appeals.

In support of plaintiffs' motion for a summary judgment, the three plaintiffs filed separate affidavits, each of which stated that the CD was purchased for $6,500, half of which was contributed by Jay Greenwood and the other half was contributed by Tonya Greenwood. The affidavits stated that the two children obtained the money through gifts from their father and grandfather and from interest accrued thereon.

Although the bank's brief, as appellant here, contains seven "points relied upon," the bank's contentions in challenging the judgment essentially are these: The bank properly set off the proceeds of the CD against the delinquent note of Mary Ellen Keene; "mutuality necessary to a proper set off did exist in that the funds of an individual joint tenant were set off against the individual debt of that joint tenant"; "any joint depositor was entitled to the whole of the [CD]"; "Mary Ellen Keene treated [the CD] as her own, pledging [it] against her personal debts [to another bank] and using her own social security number as an identifier"; evidence as to the source of funds for the CD was inadmissible; the terms of the CD and the signature card comprised the complete agreement between the parties; the statute (§ 362.470.1 set forth in footnote 2) allows minors to hold joint bank accounts; the bank did not have knowledge of the trust nature of the account; the right to set off is inherent in the debtor/creditor relationship.

"As a general rule a bank may look to deposits in its hands for the repayment of any indebtedness to it on the part of the depositor and may apply the debtor's deposits on his debts to the bank as they become due * * *. [S]uch right grows out of the debtor and creditor relation subsisting between bank and depositor, and finds its basis in the right of setoff, and in the application of equitable principles."

Adelstein v. Jefferson Bank and Trust Co., 377 S.W.2d 247, 251 (Mo.1964).

"It is a general rule of practically universal application at law that, to warrant a set-off, the demands must be mutual and subsisting between the same parties and must be due in the same capacity or right. Equity usually follows the law, and it is held as a general rule that in equity as at law the right of set-off is reciprocal, and only mutual claims and such as are in the same capacity or right can be set off."

Dalton v. Sturdivant Bank, 230 Mo.App. 800, 76 S.W.2d 425, 426 (1934). To similar effect see Roosevelt Fed. Sav. & Loan v. First Nat. Bank, 614 S.W.2d 289, 292 (Mo.App.1981); Mercantile Trust Co., Nat. Ass'n v. Mosby, 623 S.W.2d 22, 24 (Mo.App.1981). In Mitchell v. Bank of Ava, 333 Mo. 1195, 65 S.W.2d 104, 106 (1933), the court said: "The test of the right to set-off is the mutuality of the indebtedness."

A leading text has discussed the element of mutuality, essential to the validity of set off, as it pertains to joint deposits.

"The right of the bank to apply a deposit to an indebtedness due from the depositor results from the right of setoff which obtains between persons occupying the relation of debtor and creditor, and between whom there exist mutual demands, and it is familiar law that 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. Thus, the joint and several note of two or more persons cannot be paid out of the individual deposit of one, unless he is the principal and the others sureties, or unless it becomes necessary in order to do complete equity or avoid irremediable injustice. Upon like principle, a bank has no right to set off against a deposit in the names of two persons or the survivor of them a debt due from one of them, save to the extent to which its debtor is shown to be the actual owner of the moneys deposited, even though the bank accepted the deposit without knowledge as to the actual ownership of the money." (Emphasis added.)

10 Am.Jur.2d Banks § 667, p. 637.

Out-state authorities hold that, in the absence of a statute or a specific agreement between joint depositors and the bank conferring...