Thomas v. Exchange Bank

Deemer, J. [206] For ten years or more, prior to the seventh day of August, 1893, A. T. Pearson, under the name of the Exchange Bank of Angus, had been doing business with the Citizens’ National Bank of Des Moines. About the time he established his business he borrowed one thousand dollars of the Citizens’ Bank, and renewed the note given as evidence thereof, from time to time, until June 28, 1893, when he gave the note which the bank is now seeking to protect. Mosher was a surety on this note. Pearson put the money borrowed into the bank at Angus. He also made the national bank his correspondent at the city of Des Moines, and kept a deposit account with it, upon which he issued checks and drafts to his customers. On the seventh and ninth days of August, he had a general balance in his deposit account of one thousand forty-four dollars and fifty cents. On the seventh of August, he sold and issued to plaintiff, Thomas, a draft or check upon the Citizens’ Bank for the sum of one thousand dollars, and on the same day sold and issued to plaintiff, Muir, a like check or draft for the sum of one hundred and ninety-five dollars. After [207] issuing these drafts, and on the same day, he made a general assignment for the benefit of his creditors. The Citizens Bank was informed of this assignment the day it was made, or the next day thereafter; and when appellants’ drafts or checks were presented, which was on the ninth day of August, it refused to honor or pay them, claiming it was entitled to hold the balance in the deposit account as an offset to the note given it by Pearson and Mosher, which, as we have already said, was not then due. Pearson was insolvent at the time he issued the checks to appellants, and had been so for more than thirty days. When the Citizens’ Bank learned of Pearson’s assignment, it determined to set off the deposit account against the note, and for that reason refused to pay appellants’ checks when presented. 2 It is argued by appellants that, under this state of facts, the appellee had no right to offset or appropriate the deposit account standing in the name • of the Exchange Bank against the individual note of A. T. Pearson, for the reason that the debtor and depositor were not the same. There is no force in this contention, for we have seen that Pearson and the Exchange Bank were one and the same. The Exchange Bank was not incorporated. It was simply a name which Pearson adopted under which to do business. Whatever he owned belonged to the bank, and whatever the bank possessed was his. The difference was simply, in name. The fact that Mosher signed the Pearson note as surety, if of any importance, is a stronger reason why the bank should insist on its right to the deposit account. He, as surety, had the right to demand of the national bank that it resort to the funds then in its hands belonging to Pearson. It is more than likely that, if the bank had neglected to enforce its rights to the fund, it would have released Mosher from his obligation. [208] 8 Appellants further contend that, as the note was not due, the bank had no .right or authority to offset the deposit as against it. That this is or has been the rule at law may be conceded; but such is not the rule in equity, and it may well be doubted whether under our statutes it is now the rule at law. But this question we need not determine, for it is almost universally held that, if the debtor be insolvent, a bank may offset as against a debt not due any sum which it may be owing to the debtor, unless of course the account which it owes has been pledged to some specific purpose, or is impressed with some trust. See Morse, Banks, section 329; Scott v. Armstrong, 146 U. S. 499 (13 Sup. Ct. Rep. 148); Schuler v. Israel, 120 U. S. 506 (7 Sup. Ct. Rep. 648); North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., 152 U. S. 596 (14 Sup. Ct. 710); Davis v. Milburn, 3 Iowa, 163; Kentucky Flour Co. v. Merchants' National Bank (Ky.) (13 S. W. Rep. 910); Nashville Trust Co. v. Fourth National Bank (Tenn.) (18 S. W. Rep. 822); Bank v. Green (N. J. Ch.) (17 Atl. Rep. 689); Morse, Banks (3d Ed.) section 337; Trust Co. v. Leck (Minn.) (58 N. W. Rep. 826.) [209] 5 6 [208] It is contended, however, that the issuance of the checks in suit was an equitable assignment to appellants, fro tanto, of the funds in the national bank, which gave to the payees thereof an immediate right of action against the bank, and that in such an action the payees have a superior right to the fund; and Roberts v. Corbin, 26 Iowa, 315 is cited. All that is held in that case is that the holder of checks secures thereby an equitable assignment to the funds of the drawer in the hands of the bank against which it is drawn, and that the holder may bring an action against the bank in his own name. It is also said that the rights of the drawee of the check are superior to those of an assignee for the benefit of the creditors of the drawer. It was not held that the holder of the [209] check had any greater rights than the drawer would have had as against the bank holding the funds, had no assignment been made; nor do we think such a rule ought to be established. All that the holder receives is an assignment or pro tanto assignment of the funds of the drawer, in the bank against which the check or draft is drawn. In this' case the Citizens’ Bank had no notice of the issuance of the checks until after it discovered the insolvency of Pearson. It then had the right, as we have seen, to use the deposit account as an offset to the amount due it on the note; and the holders of the drafts had no greater rights than Pearson would have had had he been attempting to collect the deposit. Our statutes expressly provide that an assignee of an open account has no greater rights than bis assignor. The section referred to is as follows: “Open Account Assignable. An open account of sums of money due on contract may be assigned, and the assignee will have the right of action in his own name, but subject to the same defenses and counter-claims as the instrument mentioned in the preceding section, before notice of such assignment is given in writing by the assignee to the debtor.” Code, 1878, section 2987. Section 2546 of the Code also provides: “In case of the assignment of a thing in action, the action by the assignee shall be without prejudice to any counter-claim, defense or cause of action, whether matured or not, if matured when plead, existing in favor of the defendant and against the assignor before notice of the assignment. But this section shall not apply to negotiable instruments transferred in good faith and upon valuable consideration before due.” In the case of Downing v. Gibson, 58 Iowa, 517 (5 N. W. Rep. 699), we held in construing this section that the defendant in an action by the assignee of a negotiable promissory nóte transferred [210] after due, may set up as a counter-claim or cause of action a note held by him against the assignor, which was acquired by him before notice of the transfer of his note by such assignor. The cases of Bank v. Robinson (Ky.) (31 S. W. Rep. 136), and Dawson v. Bank. 5 Ark. 283, relied upon by appellants, are clearly distinguishable from the one at bar. The latter case was one at law, and there was no showing that the depositor was insolvent. Again, the decision is made to turn upon the statutes of the state of Arkansas, which expressly exclude such a set-off as is here pleaded. It does not appear whether the first case cited is made to turn upon a statute or not; but, if it be conceded that it was decided upon equitable principles, it seems to us that the ruling there made is contrary to the weight of authority, and we decline to follow it. The supreme court of the United States in the ease of Bank v. Schuler, 7 Sup. Ct. Rep. 644, has announced the correct rule as we understand it. This disposes of all the questions argued by appellants’ counsel, and we find that there is no reason for disturbing the judgment and decree of the district court. — Affirmed.