CHAPTER XXXVII. NOTES AND ACCEPTANCES. § 251. When note made payable at bank-Duty of bank. The general rule laid down in the case of Indig v. National City Bank, 80 N. Y. 100, is that when the note of a depositor is made payable at a bank where he does business, that when the note falls due, if the bank is in funds, it is the duty of the bank to pay the same. It is the duty of the bank to pay checks when drawn upon it by its depositors, but unless the maker of the note has authorized the bank to pay the same when presented, the later and better rule is that the bank is not bound to do so, neither is it the duty of the bank to pay the same. If the bank is made the agent of the maker of the note, the authority exists, and then it is Lound to pay a note when presented, if it is in funds. In Illinois the Supreme Court in the case of Ridgely Bank v. Patton & Hamilton, 109 Ill. 479, says that a banker has no right to apply money on deposit to the payment of a note of the depositor payable at the bank without the order or check of the depositor. Citing Wood & Co. v. Merchants' Savings Loan and Trust Co., 41 Ill. 267. In Indiana, in the case of the Second National Bank of Lafayette v. Hill et al., 75 Ind. 223, the courts holds that: Syllabus. "In an action by a bank upon a promissory note, the sureties answered, alleging that the note was given for money borrowed from the bank by their principal, and that they were sureties only therein, which the bank knew at the time the note was executed; that prior to its maturity the principal consented and directed the bank to allow and pay the note after its maturity, out of his general deposits therein; that after its maturity the bank had, of the funds of the principal on deposit, more than sufficient to pay the note and interest; that the bank failed to apply the funds of the principal so deposited in payment of the note, but subsequent to its maturity suffered the principal to check his funds out of the bank. Wherefore, they claim that they are released. Held, on demurrer, that the answer was insufficient. “Held, also, that the failure of the bank to apply to the payment of the note the money which the principal had on general deposit in the bank at and after the maturity of the note did not discharge the sureties. "Held, also, that the bank had a right to apply the money which the principal had on general deposit after the maturity of the note, to its payment, with or without the consent or direction of the principal, but that the checks subsequently drawn by him were a withdrawal of his previous directions upon the subject." A leading case and one reviewing many of the authorities discussing this subject, is the case of Grissom. v. The Bank, 87 Tenn. 350. A summary of the court's opinion in this case may be stated as follows: "The fact that a note is made payable at a bank does not (without more) confer authority upon the bank to pay the note when due to and presented by a third person out of funds standing on deposit to the credit of the maker at maturity of the note." Custom. "Custom to authorize such payment must be general, uniform, and certain and known to both parties. They are presumed in such case to contract with reference to such custom." "Where a bank has without authority paid a note on which its depositor is accommodation indorser, it is estopped to claim such payment as is set off against the depositor, where by reason of the bank's failure to give notice of the payment, the indorser is deprived of effectual recourse against his principal." In the case of Bank v. Peltz, Appellant, 176 Pa. St. 513, the court lays down a modified or optional rule and states it as follows: "The bank may apply the deposit to the payment of the note, yet it is not in general bound to do so, but where the bank holds funds of the maker when the note matures it is bound to consider the interests of the indorser or sureties, and if it allows the maker to withdraw his funds after protest and the indorsers are losers thereby, the bank is liable to them." The court then proceeds to justify its opinion and says: "The reason of the rule is that the maker is the principal debtor and liable to all the indorsers whose undertaking is to pay if he does not." The court, in further discussion of this question, says: "While a bank which is the holder of a note and has on deposit at the time of maturity a sum to the credit of any party liable to it on the note sufficient to pay it, and not previously appropriated by the depositor to be held for a different purpose, may apply the deposit to the payment of the note, yet it is not in general bound to do so. The cases where the right becomes a duty on the part of the bank rest on the special equity of the party, usually the indorser, to have the payment enforced against the depositor as the one primarily liable. Commercial National Bank v. Henninger, 105 Pa. St. 496. And even in these cases all the circumstances enumerated must exist. Thus the deposit must be sufficient at the time of maturity of the note. Subsequent deposits will not raise the duty. People's Bank v. Legrand, 103 Pa. St. 309; First National Bank v. Shreiner, 110 Pa. St. 188. And the deposit must not have been previously appropriated to any other use. Cases cited, supra, and German National Bank v. Foreman, 138 Pa. St. 474, where the principle was conceded, though an exception of doubtful correctness was made against a mere notice from the depositor not to pay, unaccompanied by a specific appropriation to a different purpose. And lastly the deposit must be to the credit of the party primarily liable. The rule is thus stated by our brother, Williams, in the latest case on the subject. Mechanics' Bank v. Seitz, 150 Pa. St. 632. 'The general rule is well settled that, while the bank may appropriate funds in its hands belonging to any previous party to the note, to the payment of it, * yet it is not bound to do so. The note may be treated as, in effect, an order or check authorizing the bank to apply the deposit to the pavment, but the deposit is not payment in law. * * * But where the bank holds funds of the maker when the note matures, it is bound to consider the interests of the indorsers or sureties, and if it allows the maker to withdraw his funds after protest, and the indorsers are losers thereby, the bank is liable to them. The reason of this rule is, that the maker is the principal debtor and liable to all the indorsers, whose undertaking is to pay if he does not.'" This subject is again discussed in the case of National Mahaime Bank v. Peck, 127 Mass. 298. Where the rule we believe is correctly stated. The court, in its opinion, says: "Money deposited in a bank does not remain the property of the depositor, upon which the bank has a lien only, but it becomes the absolute property of the bank, and the bank is merely a debtor to the depositor in an equal amount. Foley v. Hill, 1 Phil. 399 and 2 H. L. Cas. 28; Bank of Republic v. Millard, 10 Wall. 152; Carr v. National Security Bank, 107 Mass. 45. So long as the balance of account to the credit of the depositor exceeds the amount of any debts due and payable by him to the bank, the bank is bound to honor his checks and liable to an action by him if it does not. When he owes to the bank independent debts already due and payable, the bank has the right to apply the balance of his general account to the satisfaction of any such debts of his. But if the bank instead of so applying the balance, sees fit to allow him to draw it out, neither the depositor nor any other person can afterward insist that it should have been so applied. The bank being the absolute owner of the money deposited and being a mere debtor to the depositor for his balance of account, holds no property in which the depositor has any title or right of which a surety on an independent debt from him to the bank can avail himself by way of subrogation, as in Baker v. Briggs, 8 Pick. 122, and American Bank v. Baker, 4 Met. 164, cited for the defendant. The right of the bank to apply the balance of account to the satisfaction of such a debt is rather in the nature of a set-off, or of an application of payments, neither of which, in the absence of express agreement or appropriation, will be required by the law to be so made as to benefit the surety. Glazier v. Douglass, 32 Conn. 393; Field v. Holland, 6 Cranch, 8, 28; Brewer v. Knapp, 1 Pick. 332; Upham v. Lefavour, 11 Met. 174; Bank of Bengal v. Radakissen Mitter, 4 Moore P. C. 140, 162. "The general rule accordingly is that where moneys drawn out and moneys paid in or other debts and credits are entered by the consent of both parties in the general banking account of a depositor, a balance may be considered as struck at the date of each payment or entry on either side of the account, but where by express agreement or by a course of dealing between the depositor and the banker, a certain note or bond of the depositor is not included in the general account, any balance due from the banker to the depositor is not to be applied in satisfaction of that note or bond, even for the benefit of a surety thereon, except at the election of the banker. Clayton's Case, 1 Meriv. 572, 610; Bodenham v. Purchas, 2 B. & Ald. 39, 45; Simpson v. Ingham, 2 B. & C. 65; S. C., 3 D. & R. 249; Pemberton v. Oakes, 4 Russ 154, 168; Pease v. Hirst, 10 B. & C. 122; S. C., 5 Man. & Ryl. 88; Henniker v. Wigg, Dav. & Meriv. 160, 171; S. C., 4 Q. B. 792, 795; Strong v. Foster, 17 C. B. 201; Martin v. Mechanics' Bank, 6 Harr. & J. 235, 244; State Bank v. Armstrong, 4 Dev. 519; Commercial Bank v. Hughes, 17 Wend. 94; Allen v. Culver, 3 Den. 284, 291; Newburgh Bank v. Smith, 66 N. Y. 271; Voss v. German-American Bank, 83 Ill. 599." § 253. Makers right of set off. While the rule is that the bank may apply the deposit in payment of the matured note, especially when authorized so to do, the maker of a note can compel it to do so, and an assignment by the bank of a note before its maturity does not prevent the depositor and maker of the note from claiming the right of set-off.1 § 254. Special deposit, when accepted to pay note. When a customer makes a special deposit in a bank, of funds for the purpose of paying notes made by him, and which may be from time to time presented to the bank for payment, it becomes a deposit which cannot be used by the bank for any other purpose. Such funds are held by the bank more in the nature of trust funds and must be applied as directed by the debtor. A special deposit cannot be used to pay a note due the 1 McCagg r. Woodman, 28 Ill. 84. |