Callaham v. Bank of Anderson

The opinion of the Court was delivered by Mr. Justice Gary. The plaintiff, in his first cause of action, - alleges that he was a depositor with the defendant, and drew a check on it in favor of S. E. Royster Guano Co. for $300, which the bank refused to honor, although there were funds to his credit on his deposit account; that he was compelled to take up this check, and by the action of the bank was damaged in the sum of $5,000. The second cause of action is substantially the same, except the further allegations that he was so seriously in *376 jured in his business and reputation as to be compelled to go into bankruptcy. The plaintiff demurred to the second and third defenses. The second defense is as follows: “1. That at the time mentioned in the complaint and for some time previous and subsequent thereto1, the plaintiff was indebted to the defendant on past due notes both as maker and indorser in a sum largely in excess of the amount which defendant was due to the plaintiff on his deposit account or otherwise. “2. That the defendant thereby acquired a banker’s lien on all deposits of plaintiff and a right to hold and set off any amount due on deposit to plaintiff against the said past due notes, and thereupon defendant held and applied the amount due on deposit account of plaintiff as far as the same would go to the settlement of the said past due notes of plaintiff, and upon this application being made, the plaintiff had no funds left to' his credit to meet the check mentioned in the complaint when the same was presented and defendant refused to pay same.” The third defense is similar, except it further alleges the plaintiff’s insolvency as a reason for applying his deposits to his indebtedness. The question in the case is whether the plaintiff has a right of action against the defendant for its refusal to' pay a check drawn by him in favor of a third party, in the absence of notice tO' the plaintiff that the bank had applied his funds on deposit in extinguishment of past due claims held against him by the bank, when he had deposited with the bank sums of money sufficient to' meet payment of the draft. Conceding the general proposition that the relation of debtor and creditor exists between the depositor and the bank, it is necessary in this case to determine whether there are rights and duties, arising from the very nature of the banking business, that are not ordinarily incident to the relation of debtor and creditor. Such rights and duties are thus st'ated in Stillman v. Bank, *377 2 Rich., 518 : “In the best conducted banking institutions, the well recognized usage is: when a customer deposits funds, the bank is understood to receive them, with a tacit engagement to pay them out to his order or check drawn in his own favor, or in favor of third persons with whom he may have dealings. This is understood to be the bank’s duty and engagement incurred by the simple act of receiving the deposits, .as a consideration for its right to employ the money, and which it is to perform, upon the single condition of being notified of the existence of the check, in such manner as to free it from danger of being made liable to pay the same amount twice — that is to say, the checks take precedence according to the order of the notification.” Again, the Court says: “Banks, by going into business, are understood to hold themselves out as having undertaken and assumed upon themselves to- be liable for all that that business, in commercial usage, obliges them to do. * * * This bank may, therefore, be considered to have promised Bankcroft, when it obtained the custody of his money, that it would honor his checks by paying out the funds either to himself or to other persons, as his checks might direct. When a draft under these circumstances comes to the bank, it comes as its own contract, made by it on the consideration of having received funds as the means of its fulfillment; and as between the bank and the holder of the check (when drawn to a third person), Bankcroft is really the bank’s agent empowered to give the order. The contract presented is the original personal promise of the bank itself. These dealings in bank checks stand upon peculiar grounds. The exigencies of trade do not admit of delays attending the process of acceptance, or arising from the effect of days of grace. If these drafts are delayed, if the bank, being in funds, be at liberty to refuse payment, the inevitable consequence to the parties disappointed can be none other than such as the want of scrupulous punctuality always inflicts. The drawer's credit suffers; and it is well known that for this injury a depositor is entitled to his detion against the hank” (italics ours). *378 The reasoning of the Court in the case just mentioned was strongly approved in Simmons v. Bank, 41 S. C., 177, 17 S. E., 502, which is conclusive of the case under Consideration. The Court, in the case last cited, in speaking of the principles decided in Stillman y. Bank, uses this language: “That case shows just what the Circuit Judge held in this case, that the true theory is that, when ■a bank receives the money of a depositor and places the amount to' the credit of such depositor on his deposit account, the implied contract on the part of the bank is, that it will pay all checks drawn by the depositor, in such amounts and to' such persons as may be mentioned in such checks, as long as there remains to- the credit of the depositor on such account an amount sufficient to pay such checks.” Again, the Court says: “The fifth question involves the inquiry whether the bank had the right to> set up the past due notes of Jervey & Co., and the balance against them on the cotton account. If, as we have seen, the bank received the deposits on the merchandise account under an implied promise to pay the checks of Jervey & Co. on that account as they were presented, then there was an application of that fund to that purpose, and the bank- could not afterwards apply the same to any other purpose, certainly not zvithout the consent of, or previous notice to Jervey & Co.” (italics ours). Permission was granted to' review the case of Simmons v. Bank, 41 S. C., 177, but this Court sees noi reason for receding from the principles therein stated. As the questions raised by this appeal are conclusively settled by our own decisions, we have not deemed it necessary to cite those elsewhere. The judgment of the Circuit Court is affirmed. Mr. Chiee’ Justice Pope concurs. Mr. Justice Woods dissents, and concurs in the dissenting opinion of Mr. Justice Jones.