Reed v. The Central National Bank of Wilmington

• Decision Date: 04 May 1936
• Citation: 184 A. 772,37 Del. 429
• Court: Delaware Superior Court
• Parties: ANNA R. REED, Executrix of John Warner Reed, Deceased, v. THE CENTRAL NATIONAL BANK OF WILMINGTON, a corporation of the United States of America

184 A. 772

37 Del. 429

ANNA R. REED, Executrix of John Warner Reed, Deceased, v. THE CENTRAL NATIONAL BANK OF WILMINGTON, a corporation of the United States of America

Superior Court of Delaware, New Castle County

May 4, 1936

Superior Court for New Castle County, Action of Assumpsit No. 71, January Term, 1936.

Case heard on an agreed statement of facts.

The facts agreed on were, in substance, as follows:

1. That Colonel John Warner Reed died on the 3d day of May, 1935, and letters testamentary on his estate were granted to Anna R Reed, the executrix named in his will, on May 10, 1935.

2. That at the time of his death Colonel Reed had a balance to his credit on general deposit in the Central National Bank of Wilmington, the defendant, of $ 139.45.

3. That that bank also held his promissory note for $ 200, dated April 18, 1935, which was not due until May 18, 1935.

4. That at the time of his death Colonel Reed was insolvent.

5. That "immediately following the appointment" of the said Anna R. Reed as executrix of the said John Warner Reed deceased, she demanded payment of the said balance standing to his credit in the Central National Bank, the defendant, but that demand was refused by that bank.

6. That on June 27, 1935, the said Central National Bank credited the said bank balance of $ 139.45 on the note of Colonel Reed for $ 200 held by it and forwarded to the plaintiff, as his executrix, a probated claim for $ 60.55, which was the balance due on that note.

It was further agreed that if the judgment should be for the plaintiff it should be for $ 139.45, "being the amount on deposit with the defendant at the time of the death of the said John Warner Reed, together with costs"; and that if the judgment should be for the defendant it should merely be for costs.

Judgment is entered for the defendant.

John B. Jester for plaintiff.

Paul Leahy (of Ward and Gray) for defendant.

HARRINGTON, RICHARDS and SPEAKMAN, J. J., sitting.

OPINION

HARRINGTON, J.

Colonel John Warner Reed died insolvent. At the time of his death he had $ 139.45 on general deposit to his credit in the Central National Bank of Wilmington, the defendant. He, also, owed that bank $ 200, represented by a note which was not due until about two weeks after his death. Some days before the note held by the bank became due, the executrix of Colonel Reed demanded payment of the deposit standing to his credit on the books of the bank; how that demand was made does not appear, but payment was refused, and shortly after the note had become due the bank credited that deposit on it and filed a claim with the executrix for the unpaid balance. Colonel Reed's executrix denied the bank's right to retain and credit his deposit on the note and shortly thereafter brought suit in a contract action, but solely for the recovery of the deposit; this appears from the statement of facts agreed on by the parties.

The defendant, the Central National Bank, contends:

1. That when a depositor becomes insolvent, all of his debts, though payable at a future date, are treated as though they were then due, even by a court of law. That when insolvency exists, a bank may, therefore, apply a deposit, standing to the credit of the insolvent depositor to his unmatured note; and that this is true, whether such depositor be living or dead.

2. That, in any event, the action of the bank, in retaining and subsequently applying Colonel Reed's bank balance to his note, can be justified under the set-off statute; and that this is particularly true as his note was due when the suit was brought.

When money is deposited in a bank on general deposit, it becomes the property of the bank, and the relation between such bank and the depositor is merely that of debtor and creditor. Laighton v. Brookline Trust Co., 225 Mass. 458, 114 N.E. 671, L. R. A. 1917C, 129; People's National Bank v. Rhoades, 5 Boyce (28 Del.) 65, 90 A. 409; Graham v. National Bank of Smyrna, 2 W. W. Harr. (32 Del.) 264, 122 A. 85; Scammon v. Kimball, 92 U.S. 362, 23 L.Ed. 483. Perhaps because of that fact, a bank, undoubtedly, has the right to apply a balance on general deposit to a matured note or other debt held by it against a depositor. McDowell v. President, etc., of Bank of Wilmington & Brandywine, 1 Harr. 369; Morse on Banks and Banking (6th Ed.), §§ 324, 326, 559.

So far as the maker of a note is concerned, this is merely a discretionary right on the part of the bank, and if it fails to collect its debt in that way that does not affect its subsequent right to collect it in some other appropriate manner. Morse on Banks and Banking (6th Ed.), supra.

A different rule applies, however, in equity when the rights of an endorser on such a note are involved. McDowell v. President, etc., of Bank of Wilmington & Brandywine, 1 Harr. 369; see, also, Morse on Banks and Banking (6th Ed.) 562, 563.

But as we have already intimated unless our present set-off statute changes that right certainly, so far as a court of law is concerned, a general balance can only be applied by a bank when its debt against the depositor is then due and payable. Jordan v. National Shoe, etc., Bank, 74 N.Y. 467, 30 Am. Rep. 319; Ellis v. First Nat. Bank, 22 R.I. 565, 48 A. 936; Morse on Banks and Banking (6th Ed.), §§ 329, 561; 3 R. C. L. 593; 7 C. J. 565.

It is true that the defendant's attorney cites numerous cases, apparently decided by courts of law, which seem to hold that when insolvency exists a bank may apply a deposit to a note not then due. Clarke v. Lincoln Trust Co., 50 R.I. 493, 149 A. 592; Conquest v. Broadway National Bank, 134 Tenn. 17, 183 S.W. 160; Laighton v. Brookline Trust Co., 225 Mass. 458, 114 N.E. 671, L. R. A. 1917C, 129; Mich. on Banks and Banking (Per. Ed.), § 116; 43 A. L. R. 1328, note; 3 R. C. L. 593, 35 Ann. Cas. 689; 7 C. J. 656; Zane on Banks and Banking, 230.

These cases are, however, apparently from states having no Court of Chancery and in which, perhaps because of that fact, equitable pleas of a broad nature seem to be permitted; but regardless of whether in this state insolvency alone, unaccompanied by any other facts affecting the equitable rights of the complainant, would even justify a court of equity in decreeing a set off (see Small v. Collins, 6 Houst. 273; Lockwood v. Bates, 1 Del. Ch. 435, 454, 12 Am. Dec. 121; 57 C. J. 364), it would seem that no such rule could be applied by a court of law.

In 5 Mich. on Banks and Banking (Per. Ed.), § 116, the author said: " The death of a depositor does not deprive a bank of its right to apply his deposit to the payment of his indebtedness although there may be debts outstanding against his estate of superior dignity to that due the bank, and it may plead such debt in off set to an action by the administrator." See, also, Morse on Banks and Banking (6th Ed.), § 340; Jester and McDaniel v. Knotts, Adm'r, 7 Boyce (30 Del.) 350, 57 A. 1094.

So far as courts of law are concerned, the right of set-off, though based on principles of right and justice, is wholly of statutory origin. Woolley's Del. Pr., § 492; Halsbury's Laws of England, Vol. 25, p. 486, note; 34 Harv. Law Rev. 178; 57 C. J. 360.

It seems that that doctrine was borrowed from the civil law, but however that may be equity recognized and enforced the right of set-off in some cases, even before the enactment of any statutory provision on the subject. Jordan v. National Shoe, etc., Bank, 74 N.Y. 467, 30 Am. Rep. 319; Ex parte Steph., 11 Vesey Jr. 24; Morse on Banks and Banking (6th Ed.), § 329, p. 773; Hals. Laws of Eng., Vol. 13, p. 162, Vol. 25, p. 486, note; 8 Bac. Abr. 640; 2 Kent's Com. 472, note; 34 Harv. Law Rev. 179.

Lord Halsbury, in his Laws of England (Vol. 13, p. 162, note) quoting Lord Cottenham, in Rawson v. Samuel, Craig & P. 161, 178, said: "Equitable set-off exists in cases where the party seeking the benefit of it can show some equitable ground for being protected against his adversary's demand." He added, however, "Otherwise equity follows the statutory right at law." See, also, Jordan v. National Shoe, etc., Bank, 74 N.Y. 467, 30 Am. Rep. 319, supra; Adair v. Newlin, 11 Del. Ch. 242, 100 A. 792; Small v. Collins, 6 Houst. 273.

Applying these principles that there, undoubtedly, are cases where equity will set off a claim, which strictly speaking is not a mutual debt within the meaning of the usual set-off statute, but is rather in the nature of a mutual credit, must be conceded. Lockwood v. Bates, 1 Del. Ch. 435, 454, 12 Am. Dec. 121; Small v. Collins, 6 Houst. 273; James v. Kynnier, 5 Vesey Jr. 108, 31 Eng. Repr. 496; Rose v. Hart, 129 Eng. Repr. 477.

There was an earlier statute relating to bankruptcy [4th and 5th Anne, Chap. 4 (1705); see, also, 5 Geo. I, Chap. 24 (1718) and 5 Geo. II, Chap. 30 (1732)], but the earliest general set-off statute in England was 2 Geo. II, Chap. 22 (1729). This was merely a temporary enactment, but it was re-enacted and made permanent by 8 Geo. II, Chap. 24 in 1735. Donaldson v. Griffith, 3 W. W. Harr. (33 Del.) 118, 131 A. 320; Hals. Laws of England, Vol. 25, pp. 485, 486, note. These acts did not apply here, but in the year 1740 (13 Geo. II) our Legislature passed an act entitled "An Act about defalcation," which related to the same subject.

It provided "for the avoiding numerous suits at law within this government, Section 1 * * * If two men dealing together be indebted to each other upon bonds, bills, bargains and the like, the defendant may in his plea or answer to the plaintiff's declaration acknowledge the debt which the plaintiff demands from him and defalk what the plaintiff is indebted to him, the said defendant." Laws of Del., Vol. 1, page 162.

This statute made no express provision for a set-off in actions...