Opinion
(Decided 25 April, 1899.)
Partnership — Surviving Partner — Bank Deposit — Bank Debt — Set-off.
1. In the absence of an agreement to the contrary, a bank may apply deposits, other than special, to any indebtedness due it in the same right of the depositor, provided such indebtedness has matured, and if the depositor has become insolvent, whether the indebtedness has matured or not.
2. The same right of set-off and application exists whether the depositor is an individual or a firm, where the indebtedness is in the same right; and it matters not whether the deposits stand in the name of the firm or of a surviving partner. The rule is otherwise in case of an executor or administrator.
3. A partnership is not liable for the debts of its members, and a bank has no right to apply deposits standing in the name of the firm in payment of the individual indebtedness of any of its members; nor can the bank apply individual deposits of a partner to the indebtedness of the firm to the bank.
ACTION upon a money demand for the recovery of deposits alleged to have been misapplied, tried before McIver, J., at August Term, 1898, of FORSYTH.
The plaintiff is surviving partner of the firm of Hodgin Bros. Lunn, composed of himself and L. L. Lunn. The firm became indebted to the bank in the sum of $5,800, and effected a compromise at 50 per cent, and executed a note at the bank for $2,900, dated 5 December, 1893, payable six months after date, with privilege of renewal. On 16 March, 1896, L. L. Lunn died, and plaintiff Hodgin, as surviving partner, proceeded to collect and close up the business, making deposits of the assets of the firm in the bank. In addition to the (541) firm note, the bank held the individual note of L. L. Lunn, endorsed by G. D. Hodgin for $650, payable at 90 days from date, 29 January, 1896.
On 10 April, 1897, it became known that the firm was insolvent, that Hodgin was insolvent, and so was the estate of L. L. Lunn. At that date the firm indebtedness to the bank was $2,350.50, and the individual debt of Lunn was $687.29, aggregating $3,037.77; this amount the bank charged up against the firm, and deducted from its deposits, and for this amount the plaintiff brings suit. The defendant claimed that it was entitled to deduct both amounts from plaintiff's deposit account, the plaintiff contends that neither amount could be deducted, and that all the defendant was entitled to was to pro rate with other creditors of the firm in the partnership assets for the firm debt only, and not upon the individual debt of Lunn at all. His Honor declined to so instruct the jury; plaintiff excepted.
There was a verdict in favor of defendant, and judgment that the plaintiff take nothing by this suit. Plaintiff appealed.
Holton Alexander, Shepherd Busbee, E. E. Gray and Charles Price for plaintiff.
Glenn Manly, Watson, Buxton Watson, Jones Patterson and A. H. Eller for defendant.
FURCHES and DOUGLAS, JJ., dissent.
A bank has the right to apply the debt due by it for deposits (542) to any indebtedness by the depositor, in the same right, to the bank, provided such indebtedness to the bank has matured. Bank v. Hill, 76 Ind. 223; Knapp v. Cowell, 77 Iowa 528; Coats v. Preston, 105 Ill. 470; Bank v. Bowen, 21 Kansas, 354; Clark v. Bank, 160 Mass. 26; Bank v. Armstrong, 15 N.C. 519; Muench v. Bank, 11 Mo. App. 144; Morse on Banks, sec. 324; Bank v. Hughes, 17 Wend., 94; Eyrich v. Bank, 67 Miss. 60. Even if the indebtedness to the bank has not matured, if the depositor becomes insolvent, the bank by virtue of the right of equitable set-off may apply the deposits with it of such debtor to his indebtedness. Dammon v. Bank, 50 Mass. 194; Flour Co. v. Bank, 90 Ky. 225; Trust Co. v. Bank, 91 Tenn. 336; Seed Co. v. Talmage, 96 Ga. 254; Waterman on Set-off, 432.
The money deposited by Hodgin as surviving partner was kept under the same heading in the bank's book, "Hodgin Bros. Lunn," as before the death of Lunn, and was merely a continuation of the old line of deposits. This would have been equally true if the deposits after the death of Lunn had been made in the name of "Hodgin, surviving partner." In either event the deposits were in behalf of the firm, and were in the same right as the note held by the bank against said firm, and on the insolvency of the firm the bank had the right to apply the deposit made by the surviving partner in behalf of the firm to the indebtedness of the firm, whether matured or not. If the surviving partner had made a deposit, a special deposit, or if there had been an agreement with the bank that these deposits should not be applied to the indebtedness of the firm to the bank, then the bank's right of set-off would have been tolled. Morse on Banks, sec. 325. But there was no evidence to that effect.
(543) It is true that deposits made by an executor or administrator in a bank cannot be applied to the indebtedness to the bank of the deceased. Jordan v. Bank, 74 N.Y. 467; Appeal of Bank, 48 Pa. St., 57. But that is because the personal representative holds the funds of the estate for the payment of the debts in the order prescribed by statute, and then pro rata in each class, which would be disturbed if the bank could apply the funds deposited by the executor or administrator to the indebtedness due to it by the deceased, though the deposits at the death of the testator could be applied to any indebtedness of his, then due. Jordan v. Bank, supra. It is otherwise as to the surviving partner, who merely continues the business for the purpose of winding it up, and of whom the law does not require the application of the funds in his hands to the debts, in any prescribed order.
The bank had no right, however, to apply the deposits on behalf of the firm, whether made during its existence or by the surviving partner, to the indebtedness held by it against one of the partners, and it could make no difference that this was the note of one partner endorsed by the other. It was an individual indebtedness, and partnership deposits could not be applied to it. A partnership is not liable for the debts of its members. Straus v. Frederick, 91 N.C. 121. Though each partner (except in limited partnerships) is severally responsible for the entire indebtedness of the firm, yet, notwithstanding that fact, the individual deposits of a partner cannot be applied to the indebtedness of the firm to the bank. Adams v. Bank, 113 N.C. 332; S. c., 23 L.R.A., and notes; Bank v. Jones, 119 Ill. 407; Raymond v. Palmer, 41 La. Ann., 425; Dawson v. Pike, 5 Pike, 283.
Upon the issues as found, the judgment might have been (544) corrected to accord with the above opinion but for the finding upon the eighth issue. The plaintiff is entitled to recover the excess of the deposits above the indebtedness of the firm, with interest from date of demand.
NEW TRIAL.
DOUGLAS, J. I concur in the dissenting opinion. Cited: S. c., 125 N.C. 507, 511, 513; S. c., 128 N.C. 111; Bank v. Hodgin, 129 N.C. 248; Moore v. Bank, 173 N.C. 182; Moore v. Trust Co., 178 N.C. 128.
(547)