Holman v. Commercial & Savings Bank

• Decision Date: 20 November 1926
• Docket Number: 6160
• Citation: 210 N.W. 730,50 S.D. 524
• Court: South Dakota Supreme Court
• Parties: ED HOLMAN, Plaintiff and respondent, v. COMMERCIAL & SAVINGS BANK et al., Defendants and appellants, Farmers' Security State Bank, Intervener.

50 S.D. 524

210 N.W. 730

ED HOLMAN, Plaintiff and respondent,

v.

COMMERCIAL & SAVINGS BANK et al., Defendants and appellants, Farmers' Security State Bank, Intervener. South Dakota Supreme Court Appeal from Circuit Court, Minnehaha County, SD Hon. Herbert B. Rudolph, Judge #6160--Reversed Roy E. Willy, Platte, SD M. G. Luddy, Sioux Falls, SD Attorneys for Appellants. Peck & Wall, Sioux Falls, SD Attorneys for Respondent. Opinion filed November 20, 1926

BURCH, J.

This action is brought for the purpose of having a certain note adjudged, paid and satisfied, and to compel defendants to cancel and surrender said note. Defendants counterclaim and ask judgment on the note. Judgment was rendered as prayed for in the complaint, and defendants appeal from the judgment and an order denying new trial.

For a proper understanding of the questions involved it is necessary to have in mind the relation of the several parties to the transaction involved on the date of the transaction and subsequent thereto. Ed Holman, plaintiff, was a farmer and stock raiser living near Ahnberg and president of the Farmers' Security State Bank of Ahnberg, but not actively in charge of the bank. His son, M. E. Holman, was cashier and in active charge. Intervener is the above-named Ahnberg Bank. Defendant Commercial & Savings Bank of Sioux Falls was a going bank at the time of the transaction, but later became insolvent and at the time of the commencement of this action was in charge of defendant Smith, superintendent of banks of South Dakota. For convenience the two banks will hereafter be referred to as the Ahnberg Bank, having reference to the intervener, and the Sioux Falls Bank, having reference to defendant.

Some time in October or November, 1923, M. E. Holman, the son of plaintiff and cashier of the Ahnberg Bank, had a transaction with Louis Jacobs, cashier of the Sioux Falls Bank, as a result of which a note was executed: for $5,600, dated October 27, 1923, payable February 25, 1924, to the Commercial & Savings Bank of Sioux Falls, with interest at the rate of 7 per cent. The note was executed, and plaintiff's name was signed thereto by M. E. Holman, but plaintiff admits that his son was authorized to so sign his name, and raises no question as to the validity of the note. A chattel mortgage was also executed upon live stock to secure the note. The note was then sent to the Sioux Falls Bank, and $5,600 was credited to the account of the Ahnberg Bank, the Sioux Falls Bank being a correspondent bank of the Ahnberg Bank. The Ahnberg Bank had on deposit in the Sioux Falls Bank amounts equal to $5,600 or more during nearly all of the time following the transaction up to the time of the suspension of the Sioux Falls Bank, and at the time of the suspension of such bank the account of the Ahnberg Bank was over $6,000. It is claimed by the Ahnberg Bank, intervener, and also by the plaintiff, that the transaction was in fact made for and on behalf of the bank, and was a loan by the Sioux Falls Bank to the Ahnberg Bank upon the security of plaintiff's note; that the note is a primary obligation of the Ahnberg Bank and not of plaintiff; and for that reason the amount of the account in the Sioux Falls Bank standing to the credit of the Ahnberg Bank is a proper set-off against the note, on the theory that one owing an insolvent bank may set off his deposit against the debt. It is also claimed by plaintiff that the note was paid prior to the suspension of the Sioux Falls Bank. M. E. Holman, in giving his version of the transaction, testified:

"Our reserve was low, and we wanted money, and I came and told Mr. Jacobs about it and made arrangements with Mr. Jacobs to send down my father's note, well secured, and Mr. Jacobson would loan my bank the money on the note."

Jacobs testified:

"M. E. Holman came to the bank and said that his father would need some money, that he couldn't borrow from his own bank, and he wanted to know if we would loan him some money. I assured him we would. In that conversation I said we would like to have a chattel mortgage and a property statement, and later we received the note and chattel mortgage ... and also the property statement. ... Mr. Holman asked that we take the paper, credit the amount to the bank at Ahnberg for the use of his father, and his father would check it out. ... Neither in that conversation nor at any time before or after did Ed Holman or M. E. Holman or anybody connected with the bank at Ahnberg ever make...