Lamb v. Morris

• Decision Date: 04 April 1889
• Docket Number: 14,810
• Citation: 20 N.E. 746,118 Ind. 179
• Parties: Lamb, Receiver, v. Morris
• Court: Indiana Supreme Court

20 N.E. 746

118 Ind. 179

Lamb, Receiver, v. Morris

No. 14,810

Supreme Court of Indiana

April 4, 1889

From the Marion Superior Court.

The judgment is affirmed, with costs.

W. H H. Miller and J. B. Elam, for appellant.

J. C Green, W. W. Herod, W. P. Herod, F. Winter, A. Baker and E Daniels, for appellee.

OPINION

Mitchell, J.

The questions for decision in the present case arise out of the following facts: On the 26th day of May, 1881, Alfred and John C. S. Harrison were partners, engaged in a general banking business in the city of Indianapolis. They loaned to Joshua G. Adams fifteen hundred dollars, for which he executed his note, due in ninety days, with Nathaniel N. Morris as surety. The note was not paid at maturity, and the evidence shows that payment was requested of Morris, who thereupon instructed the proprietors of the bank to charge the amount due on the note to his account, he having at the time an amount of money on deposit in the bank in excess of the sum due on the note. For prudential reasons, suggested by the bank, it was agreed that for the time being the note should not be charged up to Morris' account, but that the bank should consider an amount of the account equal to the sum due on the note as subject to be applied in payment thereof at any time, and that the note should remain and be held thenceforth by the bank, and be collected from Adams for Morris' benefit. The account was at no time to be drawn down to an amount less than that due on the note. Morris actually had to his credit from that time forward a balance in excess of the sum due on the note, and this balance was used by the bank in its general business, the same as was the money left by other depositors. The matter remained in this condition until July, 1884, when the bank failed, and its assets were taken in charge by the Marion Superior Court and placed in the hands of a receiver, at which time Morris had to his credit upwards of $ 4,000. The Adams note came to the hands of the receiver as part of the assets of the bank, and the latter collected from the principal maker about fourteen hundred dollars, which amount Morris claims should be paid over to him, he, as he alleges, having paid the note to the bank as surety for Adams.

The foregoing, among other facts, were set up in an intervening petition by Morris, who asked that the receiver be ordered to pay over the money so collected from Adams to him. The judgment at special term, which was adverse to the petitioner, was reversed on appeal to the general term, and the receiver now prosecutes this appeal.

Whether or not the petitioner may require the receiver to pay over the money collected by the latter from Adams, depends entirely upon the force and effect of the agreement between him and the bank.

On the receiver's behalf it is contended that the rights of the parties were in nowise affected by the agreement; that without the agreement the bank had the right to appropriate a sufficient amount of Morris' deposit to the payment of the note after it became due, and that the agreement therefore conferred no right which the bank did not have before it was made. This position is untenable. It is a peculiarity of a deposit of money in bank that the moment the money is deposited it becomes the property of the bank, and the bank and the depositor assume the legal relation of debtor and creditor. Bank of Republic v. Millard, 77 U.S. 152, 10 Wall. 152, 19 L.Ed. 897; Carr v. National Security Bank, 107 Mass. 45; Commercial Nat'l Bank v. Henninger, 105 Pa. 496; Morse Banks and Banking (3d ed.), section 289.

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'l Bank, etc., v. Hill, 76 Ind. 223; National Mahaiwe Bank v. Peck, 127 Mass. 298; Commercial Nat'l Bank v. Henninger, supra. This results from the right of set-off, which obtains between persons occupying the relation of debtor and creditor, and between whom there exists mutual demands. It is familiar law, however, that mutuality is essential to the validity of a set-off, and that, in order that one demand may be set off against another, both must mutually exist between the same parties. Accordingly, it is settled that a bank can claim no lien upon the deposit of one partner, made on his separate account, in order to apply it on a debt due from the firm, nor can the joint and several note of three persons be paid out of the individual deposit of one, unless he be the principal and the others sureties, or unless it becomes necessary in order to do complete equity or avoid irremediable injustice. Watts v. Christie, 11 Beav. 546; Dawson v. Real Estate Bank, 5 Ark. 283; Sefton v. Hargett, 113 Ind. 592, 15 N.E. 513; Morse Banks and Banking, section 326.

It follows that, in the absence of a contract giving it the right to do so, the bank could not have applied money due the petitioner, as a depositor, to the payment of the note upon which he was surety, any more than it could have successfully...