Peoples' Bank v. Legrand

Mr. Justice Green .delivered the opinion of the court, We assume that the matters contained in the fifth clause of the agreement of facts signed by the parties, constituted an actual agreement, though it is not so stated. The sixth clause, however, refers-to the subject of the fifth as “the agreement, aforesaid,” and it has been so treated, both in the printed and oral arguments. As there stated, the agreement between the bank and Lowenstein, extending the time for the payment of the note in suit, was indefinite, as “ no particular time was specified or agreed upon.” The learned court below held that the extension of the time of payment was sufficiently definite to meet the requirements of the law, and that it was founded upon a valid consideration, and, therefore, the endorser was discharged., We. are.not able to concur, with the court as to [313] the character of the agreement for extension of the time of payment. Nothing is said about it in any other part of the paper except the fifth clause, and there it is distinctly stated that no particular time was specified or agreed upon. The remainder of the clause speaks only of a proposition for more time to pay the noté, an increase in the rate of interest to be paid, and a continuation of business by Lowenstein with the bank. W e see no element of certainty in this as to the time when the note was to be paid. On the contrary, that time is essentially indefinite and uncertain, and there was nothing to prevent the bank from bringing suit on the note the next day after the agreement to extend was made. This being so, the indorser could, by paying off the note, demand its surrender and commence an action immediately. This consideration brings the case clearly within the operation of the rule as stated in Miller v. Stem, 2 Barr 286, and the line of eases which have followed and never questioned it. All the elements of the rule are thus presented in Henderson’s Adm’r v. Ardery’s Adm’r, 12 Cas. on p. 451. “ That a creditor having a principal debtor and a surety, discharges the surety by entering into an agreement with the principal, which can be enforced at law or in equity, whereby he extends the time of payment for any definite period beyond that mentioned in the original contract, is proved abundantly by our authorities.” In Miller v. Stem, the case turned upon this very question, together witli an absence of consideration. On p. 288 we said : “ But mere consent to forbear for a loose and uncertain period does not tie up the creditor’s hands and also, “ To take away from the plaintiff a just debt in order to relieve a surety, justice requires there should be a clear, distinct agreement by the creditor, placed beyond reasonable doubt for a time certain, or total forbearance, or forbearance for a reasonable time.” In Brubaker v. Okeson, in 12 Cas. on p. 522, Strong, J. said, “ nothing short of an agreement to give time, which binds the creditor and prevents his bringing suit, will discharge the surety.” As we have observed, there was no agreement to extend the payment of the note in suit for any definite time, and therefore the bank was not prevented from bringing suit at any time, and the judgment of the court below must be reversed for this reason. Another point was made, however, though not determined by the court, notwithstanding it was reserved, which, if sound, would still defeat the plaintiff’s right of recovery. It grew out of the fact that Lowenstein continued" to do business with the bank, and had at various times sums on deposit with the plaintiff sufficient to pay the note. It is contended that these funds being within the power [314] of the plaintiff, an obligation arose to appropriate them to the payment of the note, as in favor of the indorser, and. this not being done, the latter was discharged. We do not think so. While it is true that1 a bank is a mere debtor to its depositor for the amount of his deposit, and, therefore, in an action by the bank against the depositor, on a note upon which he is liable, the latter may set-off his deposit, yet we do not think the bank is bound to hold a deposit for the protection of an endorser of the depositor. A bank deposit is different from an ordinary debt in this, that from its very nature it is constantly subject to the check of the depositor, and is always payable on demand. The convenience of the commercial world, the enormous amount of transactions by means of bank checks, occurring on every business day in all parts of the country, require that the greatest facilities should be afforded for the use of bank deposits by means of checks drawn against them. The free use of checks for commercial purposes would be greatly impaired, if the banks could only honor them on perii of relieving indorsers, without an investigation of the state of the depositor’s liabilities upon discounted paper. This question does not seem to have frequently arisen in the courts, but in three cases out of four, to which we have been referred, the right of the bank to pay out the deposit of the party in default on his paper, without relieving the indorser, has been affirmed. ■ Thus in Maryland, in the case of Martin v. Mechanics’ Bank, 6 Harr. & Johns. 235, in an action on an inland bill of exchange, by an incorporated bank, as the holder of the bill which they had discounted before it became due, against the payee, evidence was given that the acceptors of the bill, on the day it became due and for a long time before, and for several months thereafter, kept an account at the said bank, by depositing, and from time to time checking out money, and that on the day the bill became due they had no money in bank, but that about a month afterwards a balance was struck between the bank and the acceptors, when they had a sum of money sufficient to have discharged the bill, Held, that the bank was entitled to recover the amount of the bill from the payee, that the conduct of the holders of the bill with regard to the acceptors, was not a waiver'of their right against the indorsers, nor a release as to them. And as between the holders and the acceptors, there was no payment. The case was elaborately argued by counsel and fully considered by the court. It was held that a deposit of money in a bank by a regular depositor is not to be regardéd ás an appropriation by him of the money deposited, to the payment of an existing indebtedness of his, but rather for the mutual benefit and convenience of the bank and the depositor, “ according to the common course of business in our moneyed [315] institutions.” On p. 247, the chief justice said, “ The mere placing money in bank on deposit by the Messrs. Woods, had not of itself the effect to discharge the appellant from his liability as indorser of the bill : and the not diverting, by the plaintiffs, the money, from the purpose for which it was so placed and received by them in bank, and applying it to the payment of the bill, was not more to the prejudice of the indorsers than their forbearing to sue the acceptors, and did not amount in law to a waiver of their right of action against either of the parties.” In Voss v. The German American Bank, 83 Ill. 599, it was held that where the principal on a note payable to a bank, has funds on deposit in the bank after maturity, more than sufficient to pay it, the omission of the bank to appropriate the deposit to the payment of the note will not discharge the surety. In New York, in the case of The National Bank of Newburgh v. Smith, 66 N. Y. 271, it was held, that where, after the maturity of a promissory note held by a bank, and due protest and notice thereof, the maker makes a general deposit in the bank, of an amount sufficient to pay the note, this does not of itself as between the bank and an indorser operate as a payment. In the absence of any express agreement or directions, it is optional with the bank whether or not to apply the money in payment, it is under no obligation to do so. The case of McDowell v. The Bank of Wilmington, 1 Harrington 369, in the state of Delaware, holds the contrary doctrine, but we think the better reason is witli the three preceding cases above cited. It is beyond qnestion that the bank, in the absence of any special appropriation of the deposit by the depositor, would have the right to apply a general deposit to the payment of any existing, matured indebtedness of the depositor. But that privilege is a right which the bank may or may not exercise in its discretion. As before stated, a bank deposit creates a form of indebtedness of a peculiar and exceptional character. It is thus stated in Morse on Banks and Banking, p. 35: “ The bank is under the obligation of honoring the customer’s drafts and checks whenever the same are presented for payment, provided that at the time of such presentment the balance of the account, if then struck, would show a credit in favor of the customer of funds, on which the bank has no lien, sufficient to meet the sum called for by the cheek or draft. The contract so to honor the depositor’s orders is implied from the usual course of business. The deposit is made with the tacit understanding that the bank shall respond to the depositor’s orders, so long as there is sufficient balance to his credit.” It may well be that special circumstances may exist in particular cases, which will convert into an obligation or legal duty, as to indorsers and others contingently liable, that which would otherwise be a mere privilege [316] of the bank. Thus an original direction by the maker, or an agreement between the maker and indorser on the one hand, and the bank on the other, that general deposits of the maker should be applied in discharge of (he indorsed paper after maturity, or possibly a course of dealing to that effect, might suffice to create such an obligation. But in the absence of such circumstances, and of special directions, we think that general deposits made after maturity of the depositor’s obligation, are to be treated in the same manner, subject of course to the option of the bank, as. the same class of deposits made at any other time and before maturity, that is, according to the general usage and understanding prevailing in the commercial world. We fully recognize the rule that where a principal creditor has the means of satisfaction actually or potentially within his grasp, he must retain them for the benefit of the surety, but we regard the case of bank deposits as an exception to the rule. We are not prepared to say, and do not hold, that when the bank has funds of the maker in hand, at the time of bringing suit, the endorser may not avail himself of the maker’s right of set off in defence. In such a case the equities of the maker touch the holder directly, and are available to the indorser. Such was' the decision of this court in the case of Sitgreaves v. The Bank, 13 Wr. 362, and we know of no reason why that doctrine would not be as applicable to the case of a deposit, as to any other form of obligation by the bank to the maker. But in the present case the doctrine is inapplicable, because at the time of bringing this suit it does not appear that the plaintiff held any money of Lowenstein on deposit. In addition to this, it was part of the agreement for extension of the time of payment between Lowenstein and the bank, that he should continue to do business with the bank. If he could not draw out funds deposited, he could not do banking business, and we think there, is a clear implication from the agreement for. extension, that Lowenstein was to be at liberty to draw against his future^ deposits, notwithstanding the dishonor of the note in suit.- Suelvan* understanding would operate against the right of the bank to appropriate such deposits to the payment of the note. In view of these considerations we thinlc the learned court below, was in error in not entering judgment in favor of the plaintiff for the amount of the note and interest on the points reserved,, in accordance with the verdict of the jury. . . Judgment reversed, and now judgment is entered on the verdict in favor of the plaintiff and against . the defendant for twenty-nine hundred and seventy-seven dollars with interest from the date of the verdict and costs mf suit. . ■