Stegal v. Union Bank & Fed. Trust Co

• Citation: 176 S.E. 438
• Court: Supreme Court of Virginia
• Decision Date: 20 September 1934
• Parties: STEGAL et al. v. UNION BANK & FEDERAL TRUST CO.

176 S.E. 438

STEGAL et al.

v.UNION BANK & FEDERAL TRUST CO.

Supreme Court of Appeals of Virginia.

Sept. 20, 1934.

^*

Error to Circuit Court, Mecklenburg County.

Action by the Union Bank & Federal Trust Company against Mary Luck Stegal and another. To review the judgment, defendants bring error, and plaintiff assigns cross-error.

Modified and affirmed.

Argued before CAMPBELL, C. J., and EPES, HUDGINS, BROWNING, and CHINN, JJ., on original argument.

Argued before all the Justices upon re-argument on court's interrogatory.

Geo. E. Allen, of Richmond, and F. C. Bedinger, of Boydton, for plaintiffs in error.

Christian & Barton, of Richmond, and Sterling Huteheson, of Boydton, for defendants in error.

EPES, Justice.

This is an action brought by Union Bank & Federal Trust Company against Mary Luck Stegal and R. H. Moss to recover from them $900 with interest from October 30, 1930, until paid, and "10% thereof as attorney's fees, " which it claims to be due to it according to the tenor of the below-described negotiable note, which it alleges was "negotiated to it as a holder for value and in due course of business" by the Planters' Bank of Clarksville, Va.

So far as it is here material, the note sued upon reads as follows:

"$900 Clarksville, Va., Oct. 30, 1929.

"On demand days after date I promise to pay to the order of Planters Bank Nine Hundred ---- Dollars, negotiable and payable at the Planters Bank, Clarksville, Virginia, for the loan of money; and we, the makers and endorsers of this note, severally waive the benefit of our homestead exemptions as to this debt and agree to pay the holder hereof an attorney's fee of ten per centum of the amount due hereon in case the same be not paid at maturity; * * * and the maker and endorser, each hereby waives demand protest and notice of non-payment hereof.

"P. O. ----

"[Signed] Mary Lucke Stegal."

The note has the following indorsation and memorandum written on the back of it:

"R. H. Moss

"Int. Paid to June 30-1930 36.00 "Planters Bank Clarksville, Va. by C. S. Wood, Prest."

The defendants pleaded nil debet, and in accordance with the order of the court filed their grounds of defenses, which state that "the defendant will rely on all the defenses that can be properly raised under the plea of the general issue in this case, " and also sets forth, but with less particularity, the same defenses which were set up in their special pleas. They also filed four special pleas of set-off.

Special plea No. 4 alleges that the note sued on was negotiated by the Planters' Bank to the plaintiff an unreasonable length of time after its issue; that, therefore, the plaintiff is not a holder thereof in due course; that when the note was negotiated to the plaintiff and when the Planters' Bank suspended payment and was placed in the hands of a receiver, on December 12, 19:50, there was on deposit in the Planters' Bank to the individual credit of Mary Luck Stegal $115.95, for which sum the bank was, and still is, indebted to her; and that she is entitled to and offers to set off this sum against the sum remaining due and payable on the note sued upon.

Special plea No. 1 reads as follows:

"These defendants, by their attorneys, come and say, that at and before the making and delivery of the note sued on in the notice of motion for judgment in this action, these defendants were administrators of the estate of the late ---- Stegal, deceased; that these defendants had on deposit in the Planters Bank of Clarksville, the plaintiff's transferer, a sum of money approximating the amount of $5000, as administrators of the estate of the said ---- Stegal, deceased; that the estate consisted of a much larger sum, and the commissions allowed by law to these defendants as administrators of said estate, amounted to the sum of $2,821.77; that upon the date of the execution and delivery of the said note, the said commissions had accrued to these defendants, and $2,821.77 of the said $5000 actually belonged to these defendants; that the said note sued on was executed by these defendants and delivered to the said Planters Bank of Clarksville upon the condition that the same should not leave the Planters Hank of Clarksville or be in any way pledged or hypothecated or otherwise transferred to any third party; and that the same would be kept in the files of the Planters Bank of Clarksville so that these defendants might, at any moment they desired, withdraw their said commissions and pay off the said note; that in consideration that these defendants would execute and deliver said note to the Planters Bank of Clarksville, the said bank agreed to the said conditions, annexed to said note upon the delivery thereof, and received the notes upon the express condition that the same would not be removed from the files of the Planters Bank of Clarksville, but would at all times remain in said files so that it might be paid at any moment by a withdrawal from the said account of the commissions aforesaid to which these defendants were entitled; that subsequently, these defendants withdrew one-half of the said commissions, to-wit: the sum of $1,410.88, but left the residue of the said sum of $2,821.77 to the credit of these defendants, as aforesaid, for the express purpose of pay-ing the said notes here sued on, and another note of these defendants for the sum of $500, delivered to the Planters Bank of Clarksville at the same time of the delivery of the said $900 note, and delivered upon the same conditions that the said $900 note tons delivered upon; and, these defendants say, that they, confiding in the said promise and undertaking of the said Planters Bank of Clarksville, did afterwards, to-wit: on the day, month and year last aforesaid, execute and deliver to the said Planters Bank of Clarksville the said note whereon this action, is founded, for the sum, of $900, and there was no other cause, inducement or consideration whatsoever for the making and delivery of said note. And these said defendants further say that the Planters Bank of Clarksville did not perform, fulfill or regard its said promise and undertaking, but wholly failed and made default in this, that the said Planters Bank of Clarksville after keeping the said note in its files in accordance with the said promise and undertaking, and in accordance with the said condition upon which the same was delivered, for about a year, in flagrant violation of its said promises and undertakings, undertook to transfer and deliver said note long after the same had become past due, to the plaintiff herein, the Union Bank & Federal Trust Company, while there was still on deposit the said sum of $1,410.88, being the commissions aforesaid belonging to these defendants, which had been kept on deposit aforesaid, in accordance with the agreement of the parties, for the sole purpose of meeting and paying off said note, together with said other note of $500.

"And these defendants further say that the said plaintiff having taken said note after its maturity, holds the same subject to the said equities in favor of these defendants; that the said plaintiff is not a bona fide holder of said note, in due course, and these defendants have a right to set off against their liability on said note the said sum of $1,410.88, aforesaid, and that the said defendants are ready and willing, and hereby offer to set off and allow sp much of the said sum of $1,410.88 against the sum of money remaining due and payable by virtue of the said note here sued on. And this the said defendants are ready to verify."

The import of the italics in the above-quoted plea, which are ours, will appear later.

Special plea No. 3 is to the same general effect as special plea No. 1, except that it is filed by Mary Euck Stegal alone, and alleges that the $1,410.88 (a part of the $5,000 deposit standing in her name and that of R. ii. Moss as administrators) which she offers to set off is a debt due by the bank to her in her individual capacity.

Special plea No. 2 is also filed by Mary Luck Stegal alone, and is to the same general effect as special plea No. 3, but contains this additional allegation:

"And this defendant, Mary Luck Stegal, further says that subsequent to the aforesaid transactions, she has become the sole heir and distributee of the entire fund of five thousand dollars, or more; that she is now not only the sole owner of $1,410.88, that part of said fund comprising her commissions, but she is the sole owner of the residue of said deposit of five thousand dollars, or more."

This allegation in special plea No. 2 is, in effect, a plea of a set-off against the bank which was acquired by descent cast after a receiver was appointed for it. Such after-acquired rights cannot avail her. A depositor's right of set-off against an insolvent bank is limited to indebtedness of the bank to the depositor existing at the time the bank suspended payment and was placed in the hands of a receiver. A set-off thereafter acquired, whether by assignment or by operation of law, cannot be pleaded against the receiver. The rule is well settled that a debtor of a bank who has acquired the right of a depositor by assignment after a receiver has been appointed for it cannot set the same off against an indebtedness owed by him to the bank at that time. Exchange Bank v. Knox, 60 Va. (19 Grat.) 739; Finney v. Bennett, 68 Va. (27 Grat.) 365; Yardley v. Philler, 167 U. S. 344, 17 S. Ct. 835, 42 L. Ed. 192; Ellerbe v. Studebaker Corp. (C. C. A.) 21 F.(2d) 933; Paton's Digest, vol. ii, § 4417 (a); 25 A. L. R. 954; 82 A. L. R. 672; 7 C. J. 746. On principle, the rule is the same where a set-off is acquired by operation of law. So far as it can be effective, special plea No. 2 and special plea No. 3 are to identically the same effect; and we shall not further notice special plea No. 2.

The plaintiff moved to strike out all the special pleas filed by the defendants. The court did not rule on this motion until all the evidence had been...