Selby v. DuQuoin State Bank

• Decision Date: 31 December 1991
• Docket Number: No. 5-90-0518,5-90-0518
• Citation: 584 N.E.2d 1055,165 Ill.Dec. 621,223 Ill.App.3d 104
• Parties: , 165 Ill.Dec. 621 Aubra SELBY, Plaintiff-Appellee, v. DuQUOIN STATE BANK, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1055

584 N.E.2d 1055

223 Ill.App.3d 104, 165 Ill.Dec. 621

Aubra SELBY, Plaintiff-Appellee, v. DuQUOIN STATE BANK, Defendant-Appellant.

No. 5-90-0518.

Appellate Court of Illinois Fifth District.

Dec. 31, 1991.

Michael F. Dahlen, Paul G. Schoen, Feirich/Schoen/Mager/Green, Carbondale, for defendant-appellant.

Jerry B. Smith, Du Quoin, for plaintiff-appellee.

Justice WELCH delivered the opinion of the court:

Plaintiff, Aubra Selby, brought a small claims complaint against defendant, DuQuoin State Bank (hereinafter "the Bank"), alleging that the Bank converted and improperly set off $2,477.78 in funds deposited to the checking account she held jointly with Norman Smith, now deceased. Plaintiff sought judgment against the Bank in the amount of $2,477.78 plus interest thereon, costs, and attorney fees. Following hearing on plaintiff's complaint on May 9, 1990, the circuit court of Perry County entered judgment in favor of the defendant Bank, basing its judgment upon the supreme court's decision in Pescetto v. Colonial Trust & Savings Bank (1986), 111 Ill.2d 314, 95 Ill.Dec. 501, 489 N.E.2d 1365. Plaintiff filed a motion to vacate the judgment, which the circuit court granted by order entered July 10, 1990. Thereupon the court entered judgment in favor of plaintiff and against defendant Bank in the amount of $2,477.78, plus costs of $43.00. It is from the July 10, 1990, order of the circuit court of Perry County that the Bank brings this appeal.

A report of proceedings was certified by the circuit court pursuant to Supreme Court Rule 323(c). (134 Ill.2d R.323(c).) The report of proceedings and the exhibits placed into evidence at the hearing on plaintiff's complaint indicate that the following evidence was before the court in reaching its decision.

On July 26, 1988, plaintiff and the decedent, Norman Smith, opened a joint checking (NOW) account with defendant Bank, by executing a signature card. Both plaintiff and Smith made deposits into and wrote checks upon the account. The signature card, which was placed into evidence, provided that one signature was required for withdrawals from the account and that it was a joint account with survivorship. The signature-card agreement further provided that:

"Each depositor (individually and jointly) hereby acknowledges that this financial institution has the right to charge or set-off against any deposit of the depositor with this financial institution any debts or obligations owing by the depositor to this financial institution whether direct or indirect, secured or unsecured, absolute or contingent, joint or several, due or to become due, whether as maker, endorser, guarantor, or otherwise, now existing or hereafter contracted or acquired by this financial institution and wherever payable, and the interest thereon and expense, if any, which may be incurred by this financial institution in connection therewith, and this agreement shall be construed to be the consent of the depositor to make such a charge or set-off against his/her/their account(s) if consent be required by any present or future statute or law."

The decedent executed a note and security agreement in favor of defendant Bank on August 1, 1989. The proceeds of the loan were used by decedent to purchase a mobile home and lot, and decedent executed a mortgage on real estate owned by decedent in Perry County to further secure the indebtedness. The note and security agreement provided that decedent gave the bank a security interest in "the goods or property being purchased" and "[decedent's] deposit accounts and other rights to payment of money from [the Bank]." The default provisions of the note and security agreement provided, among other events of default, that decedent would be in default if he died.

Norman Smith died on November 10, 1989, and at the time of his death he was not in default for failure to have made any of the loan payments on the August 1, 1989, note and security agreement. On November 27, 1989, the Bank applied the $2,477.87 balance in the NOW account to the balance owed by decedent on the August 1, 1989, note and security agreement. Plaintiff demanded payment from the Bank of the $2,477.78 prior to filing suit for conversion.

The Bank presents the following issue for our review: whether a bank can enforce its security interest in a joint NOW account to secure payment of a loan that is in default by either (1) charging the account to the satisfaction of the loan pursuant to a pledge or (2) setting off the funds on deposit against the loan, where the surviving joint owner of the NOW account did not sign the combined promissory note and security agreement but did sign the signature-card agreement. The parties agree that there is no factual dispute in the instant case and that the issues involve only contract interpretation. The construction and legal effect of an instrument raises a question of law in the absence of any material question of fact. (Oldweiler v. Peoples Bank (1987), 161 Ill.App.3d 317, 320, 112 Ill.Dec. 878, 880, 514 N.E.2d 541, 543.) Consequently, since the evidence before the court below was entirely documentary in nature, this court is unrestrained by the trial court's findings and may independently construe the instruments involved. Oldweiler, 161 Ill.App.3d at 320, 112 Ill.Dec. at 880, 514 N.E.2d at 543.

We shall first discuss the issue of whether the Bank was entitled to set off the parties' joint checking account for the debt of one of the owners thereof. The common law right of set off provides that a Bank may apply its depositor's account for a debt he owes to the bank. (First National Bank v. Lewis (1989), 186 Ill.App.3d 16, 19, 134 Ill.Dec. 124, 126, 542 N.E.2d 124, 126, citing Kerner v. Kinsey (1943), 384 Ill. 180, 51 N.E.2d 126; International Bank v. Jones (1887) 119 Ill. 407, 9 N.E. 885; First National Bank v. Estate of Philp (1982), 106 Ill.App.3d 360, 62 Ill.Dec. 433, 436 N.E.2d 15.) Under common law a bank has the power to apply the deposit to the payment of such depositor's indebtedness only when there are mutual demands and debts between the parties and this right of setoff arises at the time the depositor's indebtedness to the bank has matured. Bonhiver v. State Bank (1975), 29 Ill.App.3d 794, 803-04, 331 N.E.2d 390, 398.

Plaintiff argues that there was neither mutuality of demand and debt nor maturity of debt in the instant case. We note the Bank's assertion in its phrasing of the issue on review that decedent's loan was in default. Plaintiff contends on appeal that the loan was not in default at the time of Smith's death and so under the rules of joint tenancy, the entire interest in the NOW account became vested in her. Plaintiff further contends that the Bank's purported right to set off the funds does not survive Smith's death because the loan was not in default at the time of his death.

The general rule is that a bank cannot apply the deposit of a debtor to an unmatured indebtedness in the absence of an express authority to do so. (Bonhiver, 29 Ill.App.3d at 804, 331 N.E.2d at 398.) It is similarly...