BAIRD v. UTECHT

Citation Codes

Equivalent Citations

citation codes

Docket Number

File No. 6482.

Attorney(S)

F.J. Graham, for appellant. Insolvency of party against whom set-off is sought may be sufficient ground for equity court to allow set-off not provided by statute. Marmarth School Dist. v. Hall, 65 N.D. 509, 260 N.W. 411. Depositors in insolvent state bank may maintain action to set off deposit against indebtedness to bank, but counterclaim or set-off is not preference. Huether v. Baird, 62 N.D. 434, 244 N.W. 125. A bank's right to credit a customer's deposit on his note to the bank does not toll the statute of limitations where the right is not exercised. Amos v. Smith, 1 H. C. 238, 158 Eng. Reprint, 873; Desha Bank T. Co. v. Quilling, 118 Ark. 114, 176 S.W. 132, L.R.A. 1915E, 794; Shuman v. Cititzens State Bank, 27 N.D. 599, 147 N.W. 388; Gilbertson v. Northern Trust Co. 53 N.D. 502, 207 N.W. 42; 7 C.J. 746. E.F. Coyne, for respondent. A receiver takes the estate of an insolvent for the benefit of the creditors and has the same rights and obligation that the insolvent had at the moment of insolvency. Gilbertson v. Northern Trust Co. 53 N.D. 502, 207 N.W. 42. It is the payment and not the indorsement on the evidence of debt that operates to toll the statute of limitations. First Nat. Bank v. Brehmer, 56 N.D. 81, 215 N.W. 918. When a credit on a note is denied by the payor, the burden rests on the holder to prove it. Owsley v. Boles (Ky.) 99 S.W. 1157. A creditor cannot, by any act of his own, such as giving a unauthorized or surreptitious credit, toll the running of the statute of limitations. Phillips v. Mahan, 52 Mo. 197; Wright v. Wayland (Mo.) 188 S.W. 928. A part payment to be effectual to interrupt the statute of limitations must be voluntary on account of the debt in suit, and free from any uncertainty as to the identification of the debt on which it is made. Arthur v. Burke, 145 P. 974; 37 C.J. 1146. A payment by an assignee for the benefit of creditors is held not to be a voluntary payment. Connor v. Becker, 62 Neb. 856, 87 N.W. 1065; Dehaven Son Hardware Co. v. Gellanders (Or.) 261 P. 63; Hardin v. Grim (Or.) 36 P. 634; Wood, Limitations, § 97; Sears v. Hicklin (Colo.) 33 P. 137. One holding another's note cannot, without the consent or direction of the maker, apply an indebtedness which he owes the maker on open account in reduction of the note, so as to toll the statute of limitations. Samuel v. Samuel (Ky.) 151 S.W. 676, 42 L.R.A.(N.S.) 1155; Slagle v. Box (Ark.) 186 S.W. 299.

Judges

MORRIS, J.

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Smart Summary

Factual and Procedural Background

On December 12, 1929, the defendant executed three promissory notes payable to The Farmers Merchants State Bank of Verona. The bank closed on March 29, 1930, and was placed into receivership with the plaintiff as receiver. At closing, the defendant had $16.08 on deposit, which the plaintiff applied to the defendant's notes without his knowledge or consent by endorsing credits on the notes. The plaintiff commenced this action on December 20, 1935, seeking to toll the statute of limitations by this application. The defendant answered, asserting the statute of limitations as a defense. The case was tried to the court without a jury, resulting in judgment for the defendant. The plaintiff appeals.

Legal Issues Presented

Whether a receiver of an insolvent bank may apply a depositor’s funds on deposit to unpaid notes owed by the depositor without the depositor’s consent or legal process.
Whether such application by the receiver constitutes a payment sufficient to toll the statute of limitations on the notes.

Arguments of the Parties

Appellant's Arguments

The insolvency of the bank justifies allowing set-off not otherwise provided by statute.
The receiver has the right to set off the depositor’s account against the depositor’s indebtedness to the bank.
The application of the deposit to the notes constitutes a payment that tolls the statute of limitations, restarting the limitation period.

Respondent's Arguments

A receiver stands in the shoes of the insolvent bank and has no greater rights than the bank had before insolvency.
Statute and case law prohibit a bank from charging a depositor’s account against debts without consent or legal process.
Application of the deposit without consent does not constitute payment sufficient to toll the statute of limitations.
Any credit or payment to interrupt the statute must be voluntary, unequivocal, and on account of the debt.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Marmarth School Dist. v. Hall, 65 N.D. 509, 260 N.W. 411	Insolvency may justify equitable set-off not provided by statute.	Referenced by appellant to support equitable set-off argument.
Huether v. Baird, 62 N.D. 434, 244 N.W. 125	Depositors in insolvent banks may maintain set-off actions; counterclaim/set-off not a preference.	Referenced by appellant regarding depositor rights in insolvency.
Amos v. Smith, 1 H.C. 238, 158 Eng. Reprint 873; Desha Bank T. Co. v. Quilling, 118 Ark. 114, 176 S.W. 132; Shuman v. Citizens State Bank, 27 N.D. 599, 147 N.W. 388; Gilbertson v. Northern Trust Co., 53 N.D. 502, 207 N.W. 42; 7 C.J. 746	A bank’s right to credit a customer’s deposit on his note does not toll the statute of limitations if the right is not exercised.	Supports the principle that mere crediting without consent does not toll limitations.
Gilbertson v. Northern Trust Co., 53 N.D. 502, 207 N.W. 42	A receiver stands in the shoes of the insolvent bank with the same rights and obligations.	Applied to reject plaintiff’s argument that the receiver had greater rights than the bank.
First Nat. Bank v. Brehmer, 56 N.D. 81, 215 N.W. 918	It is payment, not mere indorsement, that tolls the statute of limitations.	Cited to emphasize that application of credit without payment does not toll limitations.
Owsley v. Boles (Ky.) 99 S.W. 1157	The burden is on the holder to prove payment when credit is denied by payor.	Supports respondent’s position regarding proof of payment.
Phillips v. Mahan, 52 Mo. 197; Wright v. Wayland (Mo.) 188 S.W. 928	A creditor cannot toll the statute of limitations by unauthorized or surreptitious credit.	Supports the conclusion that unauthorized crediting does not interrupt limitations.
Arthur v. Burke, 145 P. 974; 37 C.J. 1146	Part payment must be voluntary and clearly identified to interrupt statute of limitations.	Reinforces the requirement of voluntary payment for tolling.
Connor v. Becker, 62 Neb. 856, 87 N.W. 1065; Dehaven Son Hardware Co. v. Gellanders (Or.) 261 P. 63; Hardin v. Grim (Or.) 36 P. 634; Wood, Limitations, § 97; Sears v. Hicklin (Colo.) 33 P. 137	Payment by assignee for benefit of creditors is not voluntary payment.	Supports the court’s view that receiver’s application is not voluntary payment.
Samuel v. Samuel (Ky.) 151 S.W. 676; Slagle v. Box (Ark.) 186 S.W. 299	Without maker’s consent, creditor cannot apply indebtedness on open account to reduce note and toll limitations.	Used to reject plaintiff’s claim of right to apply deposit to notes without consent.

Court's Reasoning and Analysis

The court began with the premise that the notes were payable on demand and thus due from delivery, triggering the statute of limitations period of six years. The plaintiff argued that the receiver's application of the depositor’s funds to the notes constituted payment that tolled the statute. The court analyzed the statutory prohibition against banks charging deposits against debts without depositor consent or legal process, concluding this prohibition applies equally to receivers who stand in the bank’s shoes. The cited precedent confirmed that a receiver has no greater rights than the insolvent bank had at the time of insolvency. The court further emphasized that mere crediting of a deposit on a note without the depositor’s consent is not a voluntary payment sufficient to interrupt the statute of limitations. Because the plaintiff failed to show voluntary payment or consent, the statute of limitations barred the action. Accordingly, the defendant’s statute of limitations defense was valid, supporting the trial court’s judgment.

Holding and Implications

The judgment of the trial court is affirmed.

The court held that a receiver of an insolvent bank cannot, without the depositor’s consent or legal process, apply a depositor’s funds to outstanding notes so as to toll the statute of limitations. The direct effect is that the plaintiff’s claim was barred by the statute of limitations. No new legal precedent was established beyond reaffirming the receiver’s limited rights in this context relative to the statute of limitations and bank-depositor relationships.

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L.R. BAIRD, as Recei v. r of the Farmers Merchants State Bank of Verona, an Insol

MORRIS, J.

On December 12, 1929 the defendant executed and delivered three promissory notes payable to The Farmers Merchants State Bank of Verona for $100.00, $235.00, and $75.76, respectively. All three notes bear interest at nine per cent per annum and are payable on demand. The bank closed on March 29, 1930 and shortly thereafter was placed in the hands of the plaintiff as receiver. At the time of the closing of the bank the defendant had on deposit in a checking account the sum of $16.08 which the plaintiff applied upon the defendant's notes without his knowledge or consent. Application was made by placing on each note the following endorsement: "Credit by offset 3/30-30 $5.36." The plaintiff commenced this action on December 20, 1935. The defendant interposed an answer setting up the statute of limitations. A jury was waived and the case was tried to the court. From a judgment in the defendant's favor the plaintiff appeals.

The notes being payable on demand and containing no other provisions that might be construed to the contrary were due and payable from the time of their delivery. Shuman v. Citizens State Bank, 27 N.D. 599, 147 N.W. 388, L.R.A. 1915A, 728; 3 R.C.L. 1211; 37 C.J. 845. An action on a promissory note must be commenced within six years after the cause of action thereon shall have accrued. Comp. Laws 1913, § 7375. The causes of action on the notes involved in this case accrued on December 12, 1929, the date of their delivery, and no action could be commenced thereon after six years from that date unless the running of the statute was tolled. The plaintiff contends that the application of the deposit by the receiver upon the defendant's notes constitutes such a payment as will toll the statute of limitations, and that the period fixed by the statute begins to run anew from the date of such payments. This raises the question as to whether the receiver of an insolvent bank has the right without the depositor's consent to apply the deposit upon past due notes which the depositor owed the bank at the time it closed. The power of the receiver in this respect is no greater than that of the bank before it went into receivership. In this state a bank is prohibited by statute from charging against a deposit a claim which it may have against a depositor or appropriating a deposit to the payment of a debt due to the bank from the depositor "without legal process or without the consent of the depositor." Section 5220a1, 1925 Supplement to Comp. Laws; chapter 96, § 41, Session Laws of North Dakota for 1931; First International Bank v. Brehmer, 56 N.D. 81, 215 N.W. 918, 61 A.L.R. 1454.

The plaintiff contends that the above rule applies only to banks as going concerns and that a different rule should apply to the receiver whose duty it is to wind up the affairs of an insolvent bank. He argues that the right of set-off exists between the receiver and the debtor-depositor and that the receiver is entitled to make the set-off by crediting the deposit on the debt, and cites Gilbertson v. Northern Trust Co. 53 N.D. 502, 207 N.W. 42, 42 A.L.R. 1353. That case does not support the plaintiff's right to credit the deposit on the debt. In the syllabus it is said,

"A receiver takes the estate of an insolvent for the benefit of the creditors. He is, in effect, an assignee, and stands in the shoes of the insolvent with exactly the same rights and obligations that the latter had at the moment of insolvency; therefore choses in action pass to him subject to any right of set-off existing at the time of insolvency." The question here, however, is not whether a set-off exists, but whether the receiver may apply a deposit upon notes of the depositor without the depositor's consent so as to interrupt the running of the statute of limitations. At the time of insolvency the bank had no right to so apply the deposit without legal process or without the consent of the depositor. With respect to both the deposit and the notes, the receiver stands in the shoes of the insolvent bank. Neither the bank as a going concern, nor the receiver appointed after the bank closed could interrupt the running of the statute of limitations by crediting the debtor's deposit on his note without his consent. The defendant having pleaded the statute of limitations, and it appearing that the causes of action on the respective notes accrued more than six years prior to the commencement of the action, a good defense has been established and the judgment of the trial court is correct.

Affirmed.

CHRISTIANSON, Ch. J., and BURR and NUESSLE, JJ., and MILLER, Dist. J., concur.