Kaw Valley State Bank and Trust v. Commercial Bank of Liberty, N.A., KCD

• Decision Date: 12 June 1978
• Docket Number: No. KCD,KCD
• Citation: 567 S.W.2d 710
• Parties: KAW VALLEY STATE BANK & TRUST, Plaintiff-Appellant, v. COMMERCIAL BANK OF LIBERTY, N.A., Defendant-Respondent. 28859.
• Court: Missouri Court of Appeals

Page 710

567 S.W.2d 710

KAW VALLEY STATE BANK & TRUST, Plaintiff-Appellant, v. COMMERCIAL BANK OF LIBERTY, N.A., Defendant-Respondent.

No. KCD 28859.

Missouri Court of Appeals,Kansas City District.

June 12, 1978.

John R. Caslavka, William B. Prugh, Shughart, Thomson & Kilroy, Kansas City, for plaintiff-appellant.

William D. Adkins, Liberty, for defendant-respondent.

Before SOMERVILLE, P. J., and PRITCHARD and DIXON, JJ.

DIXON, Judge.

Plaintiff appeals from an order granting summary judgment in favor of the defendant, Commercial Bank of Liberty. Plaintiff's petition filed on December 3, 1975, alleges that on November 1, 1973, defendant issued a $10,000 certificate of deposit to John D. Cox; that on August 20, 1974, John D. Cox delivered this certificate of deposit to plaintiff as security for a $10,163.64 promissory note executed that same day; that the promissory note was in default; and that plaintiff demanded the $10,000 represented by the certificate of deposit, but defendant failed and refused to pay such sum to plaintiff. Plaintiff prayed for judgment in the amount of $10,000 plus accrued interest from November 1, 1973. Defendant filed a motion to dismiss for failure to state a claim upon which relief can be granted. Affidavits and suggestions in support and opposition of defendant's motion to dismiss were filed with the court. On May 4, 1976, the trial court sustained defendant's motion to dismiss stating only that the motion would be considered as one for summary judgment pursuant to Rule 55.27(a).

The certificate of deposit which forms the basis of this action denotes John D. Cox as the registered depositor and provides that the deposit is "payable to the Registered Depositor hereof in current funds upon the surrender of this Certificate properly endorsed 48 months after date or at any subsequent maturity date as hereinafter provided." The certificate further provides that "(t)he depositor may redeem this Certificate at any interest date upon 30 days' prior notice under rules and regulations as promulgated by the Bank."

May 1 and 12, 1974, John D. Cox was in default on two promissory notes executed in favor of defendant. These notes provided that "the holder hereof shall have all legal setoff rights on maker(s) properties and bank accounts which legally are in and come into the holder's possession." A "banking restraint" was placed on the deposit in question on May 20, 1974.

This certificate was delivered to plaintiff on August 20, 1974, as security for a note which subsequently fell into default. The same day, Cox executed an assignment of the deposit to plaintiff. Plaintiff advised defendant in a letter dated August 22, 1974, that plaintiff had taken the certificate as collateral on a loan.

One point of error is urged on this appeal. Plaintiff contends that there was a material issue of fact as to whether defendant had exercised any right of setoff it might have had against Cox prior to the assignment of the certificate to plaintiff and that therefore summary judgment was inapplicable.

Under the procedural posture in which this case is presented, appellate review is equivalent to reviewing a court-tried or equity proceeding and if as a matter of law the judgment is sustainable upon any theory, the judgment of the trial court will be sustained. Swink v. Swink, 367 S.W.2d 575 (Mo.1963). Kerr v. Grand Foundries, Inc., 525 S.W.2d 783 (Mo.App.1975). It is not necessary to this review to consider summary judgment procedure in detail; it is sufficient to note that a summary judgment is a determination as a matter of law that there is no issue of fact to be tried. Rule 74.04(c); Elliott v. Harris, 423 S.W.2d 831 (Mo. banc 1968); Hurwitz v. Kohm, 516 S.W.2d 33 (Mo.App.1974); Adzick v. Chulick, 512 S.W.2d 194 (Mo.App.1974).

The certificate of deposit was not payable to order or to bearer, but payable only upon return of the instrument properly endorsed and is, therefore, not a negotiable instrument. Sections 400.3-104 and 400.3-110(2) RSMo 1969; Aufderheide v. Moeller, 221 Mo.App. 442, 281 S.W. 965 (1926). Legally, a certificate of deposit is a bank's promissory note, payable only according to its terms. Western Casualty & Surety Co. v. First State Bank,390 S.W.2d 913 (Mo.App.1965); W. J. Howey Co. v. Cole, 219 Mo.App. 34, 269 S.W. 955 (1925).

This certificate of deposit was pledged to plaintiff as collateral security for a promissory note. Hughes v. Community Bank of Dawn, 336 Mo. 305, 78 S.W.2d 98 (1934); Milliken-Helm Commission Co. v. C. H. Albers Commission Co., 244 Mo. 38, 147 S.W. 1065 (1912). A contract of pledge has been defined as "a legal obligation, effectuated by the pledgor depositing with the pledgee personal property as security for an indebtedness or other engagement, with an implied power of sale in the pledgee on default." Tennent v. Union Cent. Life Ins. Co., 133 Mo.App. 345, 112 S.W. 754, 759 (1908).

The pledgee's interest in the certificate of deposit is, to the extent of the pledgor's indebtedness, identical with that of the pledgor. Civic Plaza Nat. Bk. v. University Nursing Home, Inc., 504 S.W.2d 193 (Mo.App.1973). Upon default, the pledgee has the right to enforce the pledge when it becomes due. Tennent v. Union Cent. Life Ins. Co., supra. But here, the two promissory notes executed by Cox in favor of defendant were in default on May 1 and 12, 1974, and those notes expressly provided that defendant had setoff rights on Cox's properties and bank accounts which were in the defendant's possession. Subject to exceptions inapplicable here, a bank may setoff deposits in its hands against the matured indebtedness of its depositor. This right grows out of the debtor and creditor relationship existing between the bank and its depositor and the bank has the right to apply a deposit to payment of the depositor's matured debts or obligations held by the bank, in the same way that another debtor might assert setoff as a defense to an action on the debt. Adelstein v. Jefferson Bank and Trust Company, 377 S.W.2d 247 (Mo.1964).

Defendant's right to setoff the deposit represented by the certificate in dispute arose more than three months before the certificate of deposit was assigned to plaintiff as collateral security. Notice of the assignment was not given to defendant until August of 1974. The assignee of a nonnegotiable instrument takes it subject to all defenses the maker may have against the instrument prior to notice of the assignment. Weinwick v. Bender, 33 Mo. 80 (1862); Sections 431.160 and 509.480 RSMo 1969. The purpose of these statutes is to make available to a defendant in a suit by an assignee of a nonnegotiable instrument:

"every defense existing in his favor at the time of his being notified of the assignment which would have been available to him in an action by the assignor, to the end that the assignee be not allowed to take judgment against defendant on the chose when the assignor himself would not have been entitled to judgment thereon." Fricke v. W. E. Fuetterer Battery & Supplies Co., 220 Mo.App. 623, 288 S.W. 1000, 1003 (1926).

Defendant's right to setoff existed prior to Cox's assignment of the certificate of deposit to plaintiff....