Pursifull v. Pineville Banking Company

• Decision Date: 22 March 1895
• Citation: 97 Ky. 154
• Parties: Pursifull v. Pineville Banking Company.
• Court: Kentucky Court of Appeals

97 Ky. 154

Pursifull v. Pineville Banking Company.

Court of Appeals of Kentucky.

March 22, 1895.

APPEAL FROM BELL CIRCUIT COURT.

W. J. WELLER AND N. B. HAYS FOR APPELLANT.

WARREN MONTFORT FOR APPELLEE.

JUDGE EASTIN DELIVERED THE OPINION OF THE COURT.

This action was brought December 12, 1893, in the Bell Circuit Court, by appellee, as assignee of the Pineville Banking Company, against appellant and one Hurst, on a note executed by them December 23, 1889, and payable thirty days thereafter to the order of said banking company, and negotiable and payable at said bank. This note was discounted at and was held and owned by said bank at the time of its maturity, January 23, 1890.

Appellant filed an answer in the court below, in which he alleged, among other things, that he was merely a surety and that his co-defendant, Hurst, was the principal in said note, and that these facts, as well as the fact that he had received no part of the proceeds of said discount, were well known to the bank at the time. Said answer further alleges that, at the time said note matured, and prior thereto, and for some time thereafter, the principal therein was a depositor with, and had to his credit as a general deposit in said bank a large sum of money, much more than sufficient to pay said note, that the bank had a lien thereon for the payment of said note, but without the knowledge or consent of appellant released its said lien and permitted Hurst, the principal in said note, to withdraw the whole of said deposit, leaving the note unpaid; that it did not, at the maturity of said note, or at any other time, notify appellant that the note was unpaid, and that he, knowing that Hurst had this large deposit in the bank at and after the maturity of the note, supposed it had been paid until this suit was brought against him thereon nearly four years thereafter. The answer further alleges that Hurst has, in the meantime become and is wholly insolvent, and that, if he shall be compelled to pay said note by reason of the bank having released its lien on said deposit, he will now be entirely without remedy against his principal.

To this answer appellee filed a general demurrer, which was sustained by the court, and thereupon, at the same term of court, appellant offered to file and tendered an amended answer in which, after reiterating the statements of his original answer, he also charges that this note, being made negotiable and payable at the bank, was, in effect, an order from Hurst on said bank to appropriate and apply from his deposit therein a sufficient sum to pay the note at maturity; that the bank was thereby made his agent to pay the same, and that, by the negligence of said bank, this application was not made, and the note not paid. It further pleads and relies upon the failure of the bank to apply to the payment of the note other deposits made by Hurst after the maturity of the note and when his insolvency was known to the bank.

To the filing of this amended answer appellee objected and insisted on his demurrer to the answer as offered to be amended, and the court sustained the objection and refused to allow the amended answer to be filed. Appellant declined to plead further, the petition was taken for confessed, a judgment for the amount of the note and interest was entered against him, and from that judgment he prosecutes this appeal.

In view of this statement from the record, and of the action of the court below in sustaining the demurrer to the original answer and refusing to allow the amended answer to be filed, we think there is but one question to be considered by this court.

That question is, whether or not, in this State, the surety on a negotiable note, made payable at, and discounted to and owned by, a bank which holds, on general deposit for the principal in the note, at the maturity thereof, a sum more than sufficient to pay the same, is discharged from liability thereon, by reason of the failure of such bank to apply to the payment of the note a sufficient sum from this unappropriated deposit, and by reason of its permitting the entire deposit to be checked out, for other purposes, by the principal who afterwards becomes insolvent?

This question has never been settled by any adjudication of this court, and we are aware that the decisions of the courts of other States are not in entire harmony, and that there is some contrariety of opinion among the text writers on the subject.

In considering the proposition, it is well for us to remember that this bank was the absolute owner of this note and not a mere collecting agent to look after the proper presentment of the note, and to demand payment in behalf of another. The bank was the creditor of Hurst, the principal in the note, to the amount thereof, and was his debtor in the amount of the deposit then standing to Hurst's credit in the bank.

As to the right of the bank, under the doctrine of set off, to have applied, to the...