Macon Nat. Bank v. Smith

• Decision Date: 15 April 1930
• Docket Number: 7385.
• Parties: MACON NAT. BANK v. SMITH. [*]
• Court: Georgia Supreme Court

153 S.E. 4

170 Ga. 332

MACON NAT. BANK v. SMITH. ^[*]

No. 7385.

Supreme Court of Georgia

April 15,1930

Syllabus by the Court.

Note to bank by depositor authorizing application of deposit on loan transfers deposit as collateral security and gives bank priority over garnishing creditor of maker (Civ. Code 1910, § 3653).

If a bank receives a promissory note for a loan of money from a person carrying a deposit account with the bank, the note being secured by the indorsement of a third person, and the pledge of certain other promissory notes payable to the pledgor, and the note contains the clause, "Each of us further agrees that any and all deposits due by said bank to either of us may at all times be considered by said bank as collateral to this loan, and may be applied at any time by said bank in whole or part payment of this loan," such clause in the note will operate from the date of the note to transfer the account as collateral security as it existed at the date of the transaction, and as it may exist at any time prior to payment of the secured note, and will give to the bank priority over a garnishing creditor of the maker of the note, for the amount of the deposit account as it existed on the date of service of the summons of garnishment accomplished subsequently to the date of the note and prior to its maturity.

Note pledged as collateral security could not be reached by ordinary statutory garnishment without aid of equitable pleading (Civ. Code 1910, § 5296).

If the promissory notes pledged as collateral security, which were returned to the pledgor on payment of the secured debt after its maturity, could in any circumstances be reached by the process of garnishment served upon the pledgee, before surrender of the notes, they could not be so reached by the ordinary statutory garnishment without the aid of equitable pleadings.

Under application of the foregoing principles, the Court of Appeals erred in affirming the judgment of the trial court rendered against the garnishee.

Certiorari from Court of Appeals.

Suit by J. A. Smith against the General Sprayer Company, defendant and the Macon National Bank, garnishee. Judgment for plaintiff was affirmed by the Court of Appeals (149 S.E 172), and garnishee brings certiorari.

Reversed.

Note to bank by depositor authorizing application of deposit on loan transfers deposit as collateral security and gives bank priority over garnishing creditor of maker (Civ.Code 1910, § 3653).

The General Sprayer Company, while carrying an ordinary deposit and checking account with the Macon National Bank, executed a promissory note for $12,000 to the bank, dated October 22 1927, and payable January 20, 1928. The note was indorsed by the president of the company individually, and was further secured by transfer of several notes as collateral security payable to the company by different individuals, aggregating $14,065.62. The collateral notes were immediately returned to the company under a trust receipt for collection for the bank. The principal note contained the clause: "Each of us further agrees that any and all deposits due by said bank to either of us may at all times be considered by said bank as collateral to this loan, and may be applied at any time by said bank in whole or part payment of this loan."

On the collateral notes $995.05 were collected prior to December 8, 1927, which went into the deposit account in the bank. On the date last stated, the bank was served with a summons of garnishment based on a pending suit instituted by J. A. Smith against the company. At that time the balance on deposit to the credit of the company was $1,456.64. The bank immediately notified the company that it could not check against said balance, except to pay the note. There had been continuous deposits and checking against the account ever since execution of the note, but there were no deposits or checks against the account after service of the garnishment. On December 14, 1927, other notes from different individuals, payable to the company, aggregating $4,534.73, were transferred to the bank as additional collateral security for the note, and were returned to the company under a trust receipt for collectionfor the bank. On January 23, being the third day after maturity of the principal note, that paper was retired by applying to its payment the above-mentioned $1,456.64 balance on deposit, and a check drawn by another corporation on the bank for the balance due on the note. On that day, the principal note, the two trust receipts, and all the uncollected collaterals were surrendered to the company.

It appears from a list of the first lot of collaterals that in addition to the $995.05 above mentioned, which went into the bank deposit, there were other collections on such collaterals aggregating $3,571.26. These collections were made subsequently to December 8, 1927. On December 8, 1927, the total liabilities of the company were approximately $113,000, and the estimated value of its assets was $100,000. The company executed a mortgage on practically all its property in the latter part of October, 1927. There was no evidence that the indorser on the principal note was insolvent. On March 5, 1928, the bank filed its answer to the summons of garnishment, in which it was stated that at "the time of *** service of said summons of garnishment [the] garnishee had no property, money or effects of the said defendant in his hands, except $1,456.64 on deposit, and that since the date of the service of said summons of garnishment no property, money, or effects of said defendant have come into garnishee's hands. *** That at the time of the service of said summons of garnishment, garnishee was not indebted to said defendant in any sum except $1,456.64, and since the date of service of said summons garnishee has not become indebted to said defendant in any sum. *** Defendant was indebted to garnishee in an amount much larger than the above sum, and garnishee applied the above amount held on deposit against defendant's debt to it; and therefore is not indebted, and so answers."

On March 24, 1928, J. A. Smith filed a traverse to the answer of the garnishee, alleging: "Comes now the plaintiff and traverses and denies the truth of the within answer, and says the garnishee was indebted to the deft. when said garnishment was served, and the garnishment is a lien on said money to the extent of $1456.64, superior to any claim of the garnishee."

On March 27, 1928, the plaintiff filed notice to the garnishee of the traverse, in which notice it was stated: "Plaintiff has traversed said answer on the ground that said answeris not true, but that the garnishee was indebted to the defendant at the time of the service of the summons of garnishment in the sum of $1456.64, and that the plaintiff by the service of said summons of garnishment acquired a lien against the money superior to any claim of the garnishee against the same, and that garnishee was indebted to the defendant at the date of service of said summons of garnishment in the sum of $1456.64." Service of the notice was duly acknowledged.

On January 25, 1929, the plaintiff, J. A. Smith, obtained a judgment for $1,803.48 against the company in the pending suit on which the garnishment was based. On March 23, 1929, the garnishment case was tried, the pleadings and evidence being substantially as above stated, and judgment was rendered as follows: "I find in favor of the traverse and against truth of the answer as made by the garnishee. I find that on the date the summons of garnishment was served on the garnishee, that the garnishee was indebted to the defendant in the sum of $1,456.64, and that this sum was subject to the plaintiff's garnishment. The plaintiff having recovered judgment against the defendant for $1,803.48, and the execution being introduced in evidence, I find for the plaintiff, J. A. Smith, against the garnishee, Macon National Bank, in the sum of $1,456.64 principal."

The bank excepted to this judgment, and in the bill of exceptions returnable to the Court of Appeals assigned error as follows "The Macon National Bank then and there excepted, and now excepts and assigns error on the said finding and judgment, and contends that under the undisputed evidence in the case and the law applicable thereto, as a matter of fact and of law, the court should have found against the traverse and in favor of the truth of the answer as made by the garnishee, and should have tendered judgment in favor of the garnishee and against the plaintiff on his traverse, for the following reasons: 1. Because *** the note given by the General Sprayer Company to the Macon National Bank on October 22, 1927, created a lien or right against the money of General Sprayer Company in said bank in favor of the Macon National Bank, superior to the lien of J. A. Smith. 2. Because *** the evidence shows that General Sprayer Company was insolvent, and therefore the Macon National Bank had a right to set off the amount on deposit with it against the indebtedness of General Sprayer Company to the Macon National Bank prior to the maturity of the indebtedness, and such right was superior to the rights of J. A. Smith under...