Graham v. Proctorville Warehouse

Connor, J. Prior to the adjudication that it was insolvent and to the appointment of plaintiff as its receiver,' the Bank of Proetorville had on deposit to the credit of J. R. Lawson and subject to his check the sum of $219.60. The relation of debtor and creditor existed between the said Lawson and the said bank by reason of said deposit. Reid v. Bank, 159 N. C., 99; Boyden v. Bank, 65 N. C., 13. The Bank of Proetorville also held the note executed by J. R. Lawson, payable to Proetorville Warehouse Company, and transferred by endorsement to the bank. The bank was a creditor of said Lawson by virtue of said note. Both the indebtedness of Lawson to the bank by virtue of the note and the indebtedness of the bank to Lawson by virtue of the deposit arose out of contract. Each had a cause of action against the other, arising out of contract and existing at the commencement of this action, unless the indebtedness of the bank to Lawson had been paid prior to appointment of plaintiff as receiver; if not, each was entitled to a counterclaim against the cause of action of the other. C. S., 521, sec. 2; 14 R. C. L., 655, and cases cited. The bank had the right to apply the deposit as a payment, pro tanto, on the note after same became due; Hodgin v. Bank, 124 N. C., 540; Moore v. Bank, 173 N. C., 180; Moore v. Trust Co., 178 N. C., 128; Trust Co. v. Trust Co., 188 N. C., 766; and so, defendant Lawson had the right to have any sum due him by the bank at the date of its insolvency applied as a payment on his note held by the bank; Davis v. Mfg. Co., 114 N. C., 321. In his opinion in this last cited case, Justice Burwell says: “We declare that, in our opinion, equity and justice require that the receiver, when he comes to make a settlement with one who is a creditor of the bank, shall deduct from his credit all those sums for which he is debtor, and when he settles with a debtor to the bank he shall allow him credit for all sums for which he is a creditor of the bank.” Plaintiff contends, however, that the amount due by the bank to Lawson, by reason of said deposit, upon the facts agreed, has been paid, and that the relation of debtor and creditor between the bank and Lawson did not exist at the commencement of this action. Lawson contends that upon the agreed facts the amount has not b,een paid, but was and still is due him by the bank. *536 When Lawson’s check for $219.60, the amount of the deposit, payable to A. Weinstein, was presented for payment by the American Exchange National Bank of Greensboro to the Bank of Proctorville a few days before it became insolvent, and while it was open for the transaction of its usual business, it was the duty of the Bank of Proctorville, by virtue of its contract Avith Lawson, its depositor, to accept the check and pay the amount for which it was drawn to the payee or endorsee. Prior to acceptance it owed no duty to the payee or endorsee of said check; Perry v. Bank, 131 N. C., 118. It accepted the check, however, and undertook to pay the same by sending to the American Exchange National Bank its check, drawn on its correspondent bank at Wilmington, N. C., including in the amount for which it was drawn the amount of the Lawson check. It marked the Lawson check “Paid,” charged it to his account, and subsequently returned the same to Lawson, canceled. The check sent to the American Exchange National Bank was only a conditional payment of the Lawson check. No facts appear in the statement of agreed facts from which it can be found that it was agreed by the Bank of Proctorville and the American Exchange National Bank that said check was sent or accepted as an unconditional payment of the Lawson check or as a full and final discharge of the liability of the Bank of Proctorville for the proceeds of the collection of said check. In the absence of an agreement to the contrary, the delivery of a check by the debtor to the creditor and the acceptance by the creditor of the check is not a payment of the indebtedness until the check has been paid; Bank v. Barrow, ante, 303. The check bn the Bank of Wilmington has not been paid; it must follow, therefore, that the proceeds of the collection of the Lawson check have not been paid. The Bank of Proctorville, at the date of the appointment of plaintiff as receiver, had, among its assets, which passed to plaintiff, the money which Lawson had deposited with it. Its balance in the Wilmington bank, on which it had drawn its check covering the amount of the Lawson check, had not been diminished by reason of said check, but passed to plaintiff, intact, so far as said check was concerned. Neither Lawson nor the payee or endorsee of his check for the amount of his deposit in the Bank of Proctorville had received any part of same, so that neither the proceeds of the collection nor the check have been paid by the Bank of Proctorville. It is true that it is agreed that Lawson’s check after it came into the possession of the Bank of Proctorville was marked “Paid” by the said bank and that entries were made on the books of the bank showing that said check h^d been charged to Lawson’s account. Debts, however, can-' not be paid or obligations discharged by mere entries upon books, which *537 are inconsistent with facts. Such entries, certainly wben made ex parte, cannot be beld as conclusive; they can be, at best, no more than evidence. In Bank v. Bank, 119 N. C., 307, Justice Montgomery says: “Simply entering credits on mutual accounts between tbe actual collecting banks and tbeir intermediaries will not protect tbe actual collector of drafts or checks from tbe demands of tbe owner under tbe circumstances of tbis case.” Tbe Bank of Proctorville, not having paid tbe amount due to Lawson' by reason of bis deposit, plaintiff, as receiver, still owes tbis amount. He does not owe it to tbe American Exchange National Bank, for tbis bank has been released of any obligation which it incurred to tbe Bank of Lumberton, from which it received tbe Lawson check for collection. He does not owe it to Bank of Lumberton, for it has charged tbe amount of tbe Lawson check to "Weinstein, from whom it received tbe check for deposit. Nor does be owe it to Weinstein, tbe payee; Lawson, doubtless, being advised that bis indebtedness to Weinstein has not been paid, because bis check given in payment thereof was not paid by tbe Bank of Proctorville, has fully paid Weinstein and discharged bis indebtedness to him. Tbe indebtedness of plaintiff, as receiver of Bank of Proctorville, on account of tbe deposit, not having been paid, is still due to J. R. Lawson, both in fact and in law. Upon tbe agreed facts, whatever rights to said indebtedness were acquired by Weinstein or tbe bank at Lumberton or tbe American Exchange National Bank by reason of Lawson’s check and its acceptance by tbe Bank of Proctorville have been released and extinguished. If there is any liability still existing against tbe Bank of Proctorville arising out of its check on tbe Bank of Wilmington to American Exchange National Bank, upon tbe agreed facts tbe same cannot be enforced by said bank so as to include tbe amount of tbe Lawson check. Lawson has acquired tbe right to enforce sucb liability by subrogation. In any event, at tbe commencement of tbis action, plaintiff was indebted to Lawson in tbe sum of $219.60, either because tbe amount of bis deposit has not been paid, or if it was paid, because be has been subrogated to tbe rights of tbe American Exchange National Bank in and to tbe check, which includes tbe proceeds of tbe collection of Lawson’s check, payable to Weinstein. Defendant, Lawson, is, therefore, entitled to have sucb indebtedness applied as a payment, pro tanto, upon bis note, in accordance with bis plea of counterclaim. There was error in rendering judgment denying defendant Lawson bis counterclaim. We have not overlooked tbe contention of plaintiff that by reason of chapter 20, Public Laws 1921, tbe Bank of Proctorville bad tbe option to pay tbe check of J. R. Lawson, its depositor, wben same was sent *538 to it for collection through the post office by draft on the bank at Wilmington. This statute has been declared by the Supreme Court of the United' States not to be in violation of the Constitution of the United States, and; therefore, valid; 262 U. S., 649; 67 L. Ed., 1157. The provisions of the statute, however, must be construed in accordance with well settled rules of law; it will not be held that a drawee bank can charge checks drawn on it by its customers to the accounts of such customers, remit in drafts or exchange to the forwarding bank, and thereby be released, notwithstanding that said drafts or exchange are, for valid and lawful reasons, not paid. Where a check drawn on a bank or trust company chartered by this State is presented to the drawee bank, “by or through any Federal Reserve Bank, post office or express company or any respective agent thereof,” and such bank or trust company, in the exercise of the option conferred by said statute, sends to the forwarding bank its draft on its reserve deposits in payment of such check, it will not be discharged of liability for the collection of its depositor’s check until such draft on its reserve deposit has been paid. There was error in rendering the judgment and same is Reversed. YaeseR, J., did not sit.