Opinion
14366
October 29, 1936.
Before DENNIS, J., Marion, December, 1934. Affirmed.
Action by W.J. Brown and others, as co-receivers of the Bank of Mullins, against J.E. Lowe and Mrs. J.E. Lowe. From a judgment in favor of the defendants, the plaintiffs appeal.
The decree of Judge Dennis follows:
The above-stated case was docketed on Calendar 1 and regularly called for trial before the Court and a jury. After the jury was sworn and the pleadings were read, upon suggestion from the Court that the paramount and substantially controlling issue appeared to be one of law, it was agreed by counsel that the case be withdrawn from the jury and heard by the Court, but with the understanding that any disputed questions of fact, not conceded by counsel on the hearing by the Court, might be later determined in the usual and regular way.
On or about November 1, 1932, on account of its insolvency, Bank of Mullins closed its doors, and the plaintiffs subsequently were appointed Receivers. This suit was instituted by the Receivers against the defendants on two promissory notes executed and delivered by the defendants to Bank of Mullins, one for the principal sum of $900.00 dated October 5, 1931, and payable on September 15, 1932, and the other for the principal sum of $2,000.00, dated March 2, 1932, and payable on November 15, 1932. The complaint alleges that there have been certain partial payments on the note for $900.00, but that no payments have been made on the note for $2,000.00, and judgment is asked for the balance alleged to be due on the first note and the total amount of the second note according to its terms. The defendants separately answered the complaint, the answers, however, being substantially the same, admitting the execution and delivery of the notes, but alleging that J.E. Lowe was the principal debtor and that Mrs. J.E. Lowe signed the notes merely for accommodation at the request of J.E. Lowe and Bank of Mullins, that J.E. Lowe was a depositor in Bank of Mullins before and at its closing, and that they are entitled to have the notes retired by offsetting against them the deposit of J.E. Lowe. The plaintiffs filed a reply to the answer of the defendants setting up an instrument in writing signed by J.E. Lowe on January 21, 1932, by which he agreed to leave on deposit with the bank 45 per cent. of his then existing deposit until November 15, 1932, and another 45 per cent. until November 15, 1933, and it was alleged by the plaintiffs that, since the funds of J.E. Lowe never became subject to withdrawal, the Receivers were without power to permit them to be used as an offset against the notes, and that to do so would be in violation of the agreement and would result in the unlawful preference of one depositor over the others.
During December, 1931, in order to prevent an apprehended run and to conserve its deposits, Bank of Mullins temporarily closed, and at that time J.E. Lowe had on deposit subject to check the sum of $3,024.71. With a view to reopening under favorable circumstances, the bank obtained from J.E. Lowe on January 21, 1932, an agreement to leave 45 per cent. of his deposit in the bank until November 15, 1932, and 45 per cent. until November 15, 1933, a copy of the agreement being set forth in the reply filed by the plaintiffs. Similar agreements were also obtained from numerous other depositors, although it is not apparent whether such an agreement was obtained from every depositor. Shortly after obtaining these agreements the bank reopened and continued in business in a regular and apparently normal manner until on or about November 1, 1932, when it was permanently closed. At the closing of the bank J.E. Lowe had a total balance of $2,898.73 to his credit as a depositor, and of this amount $2,722.74 represented the funds not subject to check under agreement of January 21, 1932, and $175.99 represented funds subject to check and deposited after the agreement:
It is conceded by the plaintiffs that the principal debtor is the defendant J.E. Lowe, and that Mrs. J.E. Lowe signed the notes merely for accommodation at the request of the bank and her husband, J.E. Lowe. It is further conceded that the defendants are entitled to have their claim of offset allowed against the note for $900.00, and that they are entitled to have $175.99, the funds deposited after the agreement above referred to, used as an offset against the note for $2,000.00, but they deny that the defendants are entitled to any further offset. It is therefore apparent that the sole issue for determination is the propriety of allowing the funds left in the bank under the agreement of January 21, 1932, to be used as an offset against the note for $2,000.00.
When a bank closes, it cannot be denied that a depositor who has borrowed from the bank occupies a much more desirable position in relation to his deposit than one who has not borrowed, and that in a certain sense the borrowing depositor may seem to be preferred, yet the right of offset under such circumstances is now too well settled to admit of question. Ex parte Rice, 161 S.C. 77, 159 S.E., 492, 79 A.L.R., 123. It also cannot be doubted that the depositor whose deposit is evidenced by a time certificate or agreement, or whose right of withdrawal is deferred for a stated time, is just as much a depositor as one whose deposit is subject to check and immediate withdrawal. Wilkes Co. v. Arthur, 91 S.C. 163, 74 S.E., 361. It is immaterial to the right of offset that the demands of the parties may not be due at the time of the closing of the bank. Woodrow v. Frederick, 133 S.C. 431, 131 S.E., 598; Folk v. Felder, 168 S.C. 103, 167 S.E., 27; Knaffle v. Knoxville Banking Trust Co., 128 Tenn., 181, 159 S.W. 838, 50 L.R.A. (N.S.), 167; Scott v. Armstrong, 146 U.S. 499, 13 S.Ct., 148, 36 L.Ed., 1059. See, also, South Carolina State Bank v. Santee Mills, 165 S.C. 448, 164 S.E., 1, in which an inactive deposit, which it was not anticipated would be subject to check, was allowed as an offset. Insolvency alone, whether the demands of the parties by their terms are immediately payable or not, is sufficient to give rise to the right to have one demand offset against the other. Carwile v. Metropolitan Life Insurance Co., 136 S.C. 179, 134 S.E., 285; Woodrow v. Frederick, supra; St. Paul Minneapolis Trust Co. v. Leck, 57 Minn., 87, 58 N.W., 826, 47 Am. St. Rep., 576. The right to offset mutual demands is founded upon equitable principles and the tendency of the Courts is to liberalize rather than restrict this right. Elliott v. Carroll, 172 S.C. 276, 173 S.E., 908.
These well-settled principles are not seriously questioned by the plaintiffs, but they contend that they are not applicable in this case in view of the agreement signed by J.E. Lowe, which they insist is equivalent to an express promise by him not only to leave his money in the bank until the time specified in the agreement, but also never to claim it as an offset against any indebtedness to the bank subsequently incurred, in the event of the bank's insolvency. In effect, they contend that he ceased to be a depositor in the bank, and not only agreed to defer the date of withdrawal of his money, but also in addition to surrender the other usual rights incident to the relation of depositor. I have given the agreement very careful and painstaking consideration, and I am not able to so construe it. It will be observed that it is not an agreement contemplating aid to and settlement of the affairs of an insolvent bank, but on the contrary the agreement itself expressly recites that the state bank examiner has caused a thorough and complete audit and examination to be made, which shows the bank to be "absolutely solvent." Without reading into the agreement something that it does not contain, and to which the signer did not agree, I am unable to construe it as anything substantially more than a mere agreement for a time deposit in an "absolute solvent" bank, which the parties had a perfect right to make without injustice to anybody, and which under the well-settled law of this State carried with it, as an incident of the relation created, the right of offset in the event of subsequent insolvency.
Even should it be conceded, in the light of afterevents, that more perfect justice would have been accomplished, and that the settlement of the affairs of the bank by the Receivers would have been rendered less difficult, if an agreement has been obtained from the depositor not only to defer his right of withdrawal but also to surrender all the other usual rights of a depositor, such as the right of offset and right to share in the liability of stockholders in the event of insolvency, yet the depositor has made no such agreement, and I am not at liberty to make it for him by writing into the contract something that it does not contain, either expressly or by reasonable implication.
The right claimed by the defendants is one plainly given them by the law of the State, and to protect them in the exercise of that right obviously is not to give them an unlawful preference over other depositors. It would seem, however, that the construction given the agreement by the plaintiffs would clearly result in a preference in favor of those who made deposits after the agreement and a most inequitable discrimination against those who signed such agreements. As plaintiffs construe these agreements, those who made deposits after they were made are entitled to the right of offset without restriction, even though they might have borrowed money deposited by the signers of these agreements, or arising from assets acquired with their money. It is admitted that there was no segregation of the assets existing at the time of the execution of the agreements from those subsequently acquired, but on the contrary the assets were mingled indiscriminately and treated as a consistent whole, yet plaintiffs assume that those who made deposits after the agreements have acquired the status of preferred creditors in the distribution of all the assets of the bank over those who signed these agreements. Surely it cannot be contended that one depositor has a superior right over another, merely because he deposited at a later time, or that the depositor who deposits last must be paid first. Matters of this nature are not referred to in the agreement, and, if such far-reaching results had been contemplated, it is inconceivable that all reference to them would have been omitted from the written agreement of the parties. It is also difficult to conceive that when J.E. Lowe signed this agreement he intended thereby to create a class of prior and preferred claimants against assets constituting the only recourse for the repayment of his deposit.
I therefore find that the defendants are entitled to have all deposits of J.E. Lowe in Bank of Mullins, whether immediately subject to check or otherwise, offset against the notes described in the complaint, and it is so ordered.
Messrs. R.B. Harrelson and L.D. Lide, for appellants, cite: Equitable offset: 165 S.C. 448; 161 S.C. 77; 91 S.C. 163; 133 S.C. 431; 168 S.E., 103; 159 S.W. 838; 146 U.S. 499; 36 L.Ed., 1959; 136 S.C. 179; 47 A.S. R., 576, 172, 276; 131 N.E., 857; 166 A., 871; 80 A.L.R., 1480. Assets of insolvent corporation should be distributed ratably among creditors: 77 S.C. 310.
Mr. A.F. Woods, for respondents, cites: As to agreed stipulation of fact: 174 S.C. 24; 176 S.E., 880; 114 S.C. 494; 104 S.E., 184; 156 S.C. 480; 153 S.E., 462; 175 S.C. 291; 179 S.E., 34; 176 S.C. 318; 180 S.E., 188. Offset: 7 C.J., 641; 101 S.C. 457; 86 S.E., 26; 172 S.C. 305; 174 S.E., 23; 91 S.C. 163; 74 S.E., 361; 136 S.C. 179; 134 S.E., 285; 131 N.E., 857; 16 A.L.R., 1484; 90 A., 369; 166 A., 871.
October 29, 1936. The opinion of the Court was delivered by
The Court is satisfied, from a careful study of the questions presented by this appeal, that Judge Dennis correctly construed the written agreement referred to in his order, and that he properly disposed of all issues involved in the case. For the reasons, therefore, stated by him in his decree, which will be reported, the judgment of the Circuit Court is affirmed.
MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE, and MR. ACTING ASSOCIATE JUSTICE A.L. GASTON concur.