Summary
In Brown, the Missouri Supreme Court reasoned that the "loan limit" statute was enacted to protect the bank and its depositors and not the borrower who benefitted from the bank's violation of the statute.
Summary of this case from Killion v. Bank Midwest, N.A.Opinion
May 11, 1931.
1. SET OFF: Debt of Bankrupt. Any debt against assignees of insolvents or trustees in bankruptcy which had become due at the time of the assignment or bankruptcy may be set off against the assignee or trustee.
2. ____: ____: Due Insolvent Bank. Notes to the bank not due at the time the bank closed and its assets passed into the hands of the Commissioner of Finance for purposes of liquidation, but due at the time the maker was adjudged a bankrupt, can be set off against a time deposit owing by the bank to such maker.
3. ____: ____: Notes Signed by Others. Notes to the bank signed by accommodation makers for the sole benefit of the bankrupt, given to and held by the bank as evidence of a loan of money to him and credited to his account, are his debts to the bank, and if due at the time he was adjudged a bankrupt, should be set off against his time deposit in the bank.
4. ____: Excessive Loan: Binding on Borrower. The statute (Sec. 5357, R.S. 1929) does not in terms declare that contracts to pay excessive loans by a bank are void or unenforceable, and a borrower from a bank cannot escape the payment of a loan on the ground that it was in excess of the amount the bank had a legal right to loan to him.
Appeal from Lawrence Circuit Court. — Hon. Emory E. Smith, Judge.
AFFIRMED.
Ray E. Watson and Thos. J. Roney for appellants.
(1) Money on deposit in a bank subject to check becomes due without a demand when the bank becomes insolvent. 7 C.J. 741, sec. 518. And so when the Stotts City Bank closed its doors, ceased doing business and was taken over by the Commissioner of Finance, on November 30, 1928, the demand deposit of E.C. Hill, amounting to $27,216.80, became due on that date, without formal demand for payment. Thompson v. Trust Co., 130 Mich. 508, 90 N.W. 294. (2) The fact that Edward C. Hill was adjudged a bankrupt subsequent to the closing of the Stotts City Bank would not change the rights or liabilities of the parties. Craig v. Bank of Granby, 210 Mo. App. 334, 238 S.W. 509. (3) Defendant Commissioner of Finance, to whom the bank was turned over for the purpose of liquidation, merely succeeds to the rights and liabilities which the bank had at the time it ceased doing business, and the right of set-off either in favor of or against such commissioner is to be governed by the state of things existing at the time the bank was turned over to him for liquidation and not by conditions thereafter created. 7 C.J. 746, sec. 536; Aab v. French (Mo. App.), 279 S.W. 435; Merchants Ice Fuel Co. v. Holland Banking Co. (Mo. App.), 8 S.W.2d 1030; Stephens v. Schuchman, 32 Mo. App. 333; Storts v. Mills, 93 Mo. App. 206; Green v. Conrad, 114 Mo. 651; Huse v. Ames, 104 Mo. 91; Storts v. George, 150 Mo. 91; Homer v. Bank, 140 Mo. 225. (4) At the time the Stotts City Bank closed its doors and was turned over to the Commissioner of Finance for liquidation it had no right to set off the notes set up in defendant's answer. A bank cannot set off against a depositor an unmatured note of the depositor held by the bank, and even though the depositor is insolvent, the bank cannot apply his deposit to the satisfaction of his unmatured indebtedness to the bank. Homer v. Bank, 140 Mo. 225; Kortjohn v. Bank, 63 Mo. App. 166; Iler v. Rieger, 69 Mo. App. 64; Horegan Co. v. Bank (Mo. App.), 273 S.W. 772. (5) To entitle one to set-off there must be a mutuality of debts. Sec. 1292, R.S. 1919. The right of set-off must be perfect and available at the time of the appointment of the receiver. In this case the right of defendant to set off a debt against the deposit of E.C. Hill depended upon whether at the time the bank closed and was taken over by the Commissioner of Finance, there existed a mutual indebtedness between the bank and E.C. Hill, that is, such as would have entitled Hill to an action against the bank and the bank to an action against Hill. The fact that the law prohibited E.C. Hill from filing suit until his claim had been filed and rejected by the commissioner would not operate to give the commissioner any greater right than he acquired on the day the bank was turned over to him and E.C. Hill thereby prevented from drawing out his deposit. See cases under Point 3. (6) A debt not due cannot be available as a set-off. Therefore notes of E.C. Hill, not being due at the time bank was turned over to the Commissioner of Finance for liquidation, were not proper items of set-off against his deposit. Homer v. Bank, 140 Mo. 225; Kortjohn v. Bank, 63 Mo. App. 166; Iler v. Rieger, 69 Mo. App. 64; Horegan Co. v. Bank (Mo. App.), 273 S.W. 772. (7) The debts of Lulu Hill and P.J. Hill to the bank could not be available by the bank as a set-off against the deposit of E.C. Hill since there would be no mutuality of accounts or debts. (8) There could be no recovery against E.C. Hill on the notes of Lulu Hill or P.J. Hill, and defendants' answer is not sufficient for a claim of money had and received. Union Natl. Bank v. Lyons, 220 Mo. 538. (9) Even though the notes of Lulu Hill and P.J. Hill be conceded to be as the debts of E.C. Hill, they could not be proper items of set-off since the debts thereby created were not due at the time the bank was turned over to the Commissioner of Finance for liquidation. Cases cited under Point 6. (10) The fact that E.C. Hill received the proceeds of the Lulu Hill notes and the P.J. Hill note would not make him liable for the debt of Lulu Hill and P.J. Hill evidenced by their notes. Gate City Natl. Bank v. Miners Farmers Bank, 259 Mo. 551. (11) Although the proceeds of the Lulu Hill notes went to the credit of E.C. Hill, yet, the loan was made to Lulu Hill on the strength of her credit for the reason that the bank could not loan more to E.C. Hill without violating the banking laws, and the courts will not give aid and force upon the parties a relationship which would be a violation of the law, when it is clear that the parties intentionally took precautions and established another relationship so as not to commit a violation of the law. Gate City Natl. Bank v. Miners Farmers Bank, 259 Mo. 551; Union Natl. Bank v. Lyons, 220 Mo. 538. (12) The defendant is estopped to set up the indebtedness evidenced by the Lulu Hill notes and the P.J. Hill note is the debt of E.C. Hill, and that the notes were taken in the names of Lulu Hill and P.J. Hill in order to cover up a violation of the law on the part of defendant bank in making excessive loans to E.C. Hill. No person can take advantage of his own wrong. Third Natl. Bank v. St. Charles Savings Bank, 244 Mo. 585; Bank v. Trust Co., 187 Mo. 494. To hold that defendant can now take advantage of its own unlawful act and recover from E.C. Hill on the Lulu Hill notes would be to set aside and nullify the statute prohibiting excessive loans. Seaman v. Cap Au Gris Levee District, 219 Mo. 1. (13) The defendant's answer sets up that E.C. Hill had borrowed from the bank up to his limit allowed by law. Any loan in excess of that would constitute a violation of the law and the debt thereby created would be void and uncollectible. Sec. 11740, R.S. 1919.
Charles L. Henson for respondents.
(1) The right of the bank and the commissioner in charge to collect from E.C. Hill his notes now in controversy came into existence as and when said notes became due, and all of them were due at the time of Hill's bankruptcy. Hill's bankruptcy and the taking over of his property by plaintiff trustees did not change said rights of the defendant bank since Hill's notes to defendant were then past due. At and after Hill's bankruptcy, there existed mutual debts, both then due, between Hill's estate and the bank's estate, each subject to set-off against the other. Sec. 1292, R.S. 1919. (2) At the time plaintiff commenced this suit and at the time he first presented his claim to the Commissioner of Finance for allowance, the defendant was indebted to plaintiff for the amount of his bank deposit and plaintiff was indebted to defendant on these notes, that is, they were mutually indebted. Both the reciprocal debts were then due and either party could have sued the other and the other would have the right of set-off. In such a case the statute clearly applies and gives the defendant the right of set-off. Sec. 1292, R.S. 1919; Homer v. Bank, 140 Mo. 235; Reppy v. Reppy, 46 Mo. 571. (3) The fact that the notes of E.C. Hill were not due at the time the Commissioner of Finance took charge of the bank, in no way impaired his right to collect the same when they matured. Plaintiffs represent E.C. Hill and have the same rights, but no more. E.C. Hill says that the notes of Lulu and P.J. Hill represent his debt; that he used their names to borrow money from the bank for himself and that he, by this means, lawful or unlawful, got the bank's money, and he cannot now say that the means he used were unlawful. The bank need not and does not say anything about the indebtedness, being unlawful because an excess loan. The defendant merely maintains and has proven that this indebtedness is in reality E.C. Hill's debt. As to what, if any, unlawful means he used to create the debt — now a past transaction — is no way essential to defendant's claim of set-off. Once admit the fact that the debt represented by these notes signed by Lulu Hill and P.J. Hill is in reality the debt of E.C. Hill, and this case ends. Why E.C. Hill got someone else to sign the evidence of the debt instead of signing himself is not involved unless allowed as a defense by E.C. Hill, and to do that allows him to profit by his own wrong. Montgomery v. Trust Co., 10 S.W.2d 971; Peoples Bank v. Yager, 6 S.W.2d 683; Bank v. Lyon, 220 Mo. 566. The case of Bank v. Bank, 244 Mo. 583, is decisive of the point that the court will not regard mere form but will treat the notes signed by Lulu Hill and P.J. Hill as the notes of E.C. Hill, whose debt they represented.
The plaintiffs, as trustees of the estate of Edward C. Hill, a bankrupt, seek recovery of $27,216.80 which Edward C. Hill had on demand deposit with the defendant bank when it was closed and turned over to the Commissioner of Finance for liquidation. There is no dispute as to the amount or character of the deposit, but the defendants claim, and the plaintiffs deny, that the bank is entitled to certain set-offs in the total sum of $12,950. The trial court, sitting without a jury, found for the defendants on this issue, and adjudged that the plaintiffs have and recover the balance, $14,266.80, and that their claim, in that amount, be allowed and paid, pro rata, as a general claim against the bank. The case is here on the plaintiffs' appeal.
The bank was closed on November 30, 1928. Edward C. Hill was adjudged a bankrupt on January 29, 1929. This suit was filed on August 19, 1929, the plaintiffs' claim to Edward C. Hill's deposit with the bank having been previously filed with the Commissioner of Finance and rejected.
The set-offs in question are pleaded, in the separate answer of the Commissioner of Finance, substantially as follows:
1. A promissory note in the sum of $6,700, signed by Edward C. Hill and payable to the Stotts City Bank, or order, on December 15, 1928.
2. A promissory note in the sum of $300, signed by Edward C. Hill and payable to the Stotts City Bank, or order, on January 25, 1929.
3. A promissory note in the sum of $3,000, signed by Lulu Hill and payable to the Stotts City Bank, or order, on December 8, 1928, but, in fact, given to and held by said bank as evidence of a loan of $3,000 to Edward C. Hill, of which Edward C. Hill had the full benefit.
4. A promissory note in the sum of $2,700, signed by Lulu Hill and payable to the Stotts City Bank, or order, on January 1, 1929, but, in fact, given to and held by said bank as evidence of a loan of $2,700 to Edward C. Hill, of which Edward C. Hill had the full benefit.
5. A promissory note in the sum of $250, signed by P.J. Hill and payable to the Stotts City Bank, on demand, but, in fact, given to and held by said bank as evidence of a loan of $250 to Edward C. Hill, of which Edward C. Hill had the full benefit.
Edward C. Hill, P.J. Hill and Alvia Hill were called as witnesses on behalf of the defendants.
Edward C. Hill testified: He was engaged in farming and in raising cattle, and was president of the bank. He bought the bank, and "nobody had a thing to say around there (the bank) but Ed Hill. Whatever Ed Hill said went." Defendants' Exhibits A and B, two promissory notes for $300 and $6,700, respectively, were signed by him. Defendants' Exhibits C and D, two promissory notes for $3,000 and $2,700, respectively, were signed by Lulu Hill, his wife. Defendants' Exhibit G, a promissory note for $250 was signed by P.J. Hill, his son. All of these notes were unpaid at the time the bank was closed. The two notes signed by Lulu Hill and the note signed by P.J. Hill were signed by them at his instance and request and for his sole use and benefit; and said notes were given to and held by the bank as evidence of loans of money by the bank to him; and all of said money was credited to his account with the bank and used by him. He obtained the two loans on his wife's notes and the loan on his son's note because, at the times these loans were negotiated, he needed money to carry on his farming and cattle business and could not borrow any more money from the bank in his own name without exceeding the limit authorized by law.
P.J. Hill testified: He lived on his father's farm and assisted his father in the management of the farm and other business affairs. He signed the note for $250, Defendants' Exhibit G, but the money loaned by the bank on said note was credited to his father's account with the bank and his father got the use of it. On other occasions, money was borrowed from the bank on his notes for his father's use.
Alvia Hill testified: He was cashier of the bank and one of its directors. The other directors were Edward C. Hill, Lulu Hill, P.J. Hill and Emery Hill. At the time the bank was closed, it held the two notes, Defendants' Exhibits A and B, for $300 and $6,700, respectively, signed by Edward C. Hill; the two notes, Defendants' Exhibits C and D, for $3,000 and $2,700, respectively, signed by Lulu Hill, and the note, Defendants' Exhibit G for $250, signed by P.J. Hill, and all of said notes were unpaid. The two notes signed by Lulu Hill and the note signed by P.J. Hill were given to and held by the bank as evidence of loans by the bank to Edward C. Hill, and all of the money loaned on said notes was credited to the account of Edward C. Hill with the bank. When these loans were made, Edward C. Hill was indebted to the bank on his own notes in the full amount allowed by law. Lulu Hill had no account with the bank, and no collateral security was given to the bank for the payment of the two notes signed by her. He told the state bank examiner that the two notes signed by Lulu Hill were given to and held by the bank as evidence of loans of money by the bank to Edward C. Hill.
Defendants' Exhibits A, B, C, D and G were admitted in evidence in connection with the testimony of these witnesses.
No evidence was offered by the plaintiffs.
I. It is contended that the respective rights and liabilities of Edward C. Hill and the bank became fixed the day the bank was closed (November 30, 1928), before the debts of Edward Set-off. C. Hill to the bank were due, and that, therefore, said debts are not available as set-offs in this case.
The bank was turned over to the Commissioner of Finance for liquidation, and certainly he is not limited to the collection of such debts as were due and payable to the bank at the time the bank was closed. It is not only his right but his duty to collect all debts which have become due and payable to the bank since the bank was closed.
Section 837, Revised Statutes 1929, says:
"If any two or more persons are mutually indebted in any manner whatsoever, and one of them commence an action against the other, one debt may be set off against the other, although said debts are of a different nature."
As a general rule, if the parties are mutually indebted, the defendant may set off any debt against the plaintiff which had become due at the time of the commencement of the suit. [Reppy v. Reppy, 46 Mo. 571.] As to set-offs against assignees of insolvents or trustees in bankruptcy, the rule is different. In such cases, however, any debt against the insolvent or bankrupt which had become due at the time of the assignment or bankruptcy may be set off against the assignee or trustee. [Smith v. Spengler, 83 Mo. 408; Huse v. Ames, 104 Mo. 91, 15 S.W. 965; Homer v. Bank, 140 Mo. 225, 41 S.W. 790; Kortjohn v. Bank, 63 Mo. App. 166; Storts v. Mills, 93 Mo. App. 201.]
True, none of the debts pleaded as set-offs were due at the time the bank was closed (November 30, 1928) except the debt evidenced by the note of P.J. Hill. But, all of said debts were due at the time Edward C. Hill was adjudged a bankrupt (January 29, 1929), and, assuming for the present that, under the pleadings and the proof, the debts evidenced by the notes of Lulu Hill and the note of P.J. Hill may be adjudged the debts of Edward C. Hill, said debts, as well as the debts evidenced by the notes of Edward C. Hill, should be allowed as set-offs against the claim of the plaintiffs to the money which Edward C. Hill had on deposit with the bank at the time it was closed.
II. It is further contended that neither the answer nor the proof is sufficient to support a recovery on the debts evidenced by the notes of Lulu Hill and the note of Accommodation Notes. P.J. Hill as debts of Edward C. Hill.
The Commissioner of Finance does not count on the notes signed by Lulu Hill and the note signed by P.J. Hill as obligations of Edward C. Hill, but alleges, in his answer, that each of said notes was, in fact, given to and held by the bank as evidence of a loan of money to Edward C. Hill; and that all of said money was credited to the account of Edward C. Hill with the bank; and that Edward C. Hill had the full benefit of all of said money; and that Edward C. Hill is indebted to the bank in the amount of and on account of said loans of money; and asks that said debts be set off against the claim of the plaintiffs.
There can be no doubt that the allegations of the answer are sufficient to support a recovery on said debts as debts of Edward C. Hill, the cause of action pleaded as to each of said debts being an action on the common count, known as indebtitatus assumpsit, for money loaned by the bank to Edward C. Hill. [5 C.J. 1380, 1381.]
As shown above, Edward C. Hill, when called as a witness by the defendants, admitted that the notes signed by Lulu Hill and the note signed by P.J. Hill were signed by them as an accommodation to him and for his sole use and benefit; and that he received, and had the full benefit of, the money loaned on said notes; and that the debts evidenced by said notes were regarded at all times, as his debts both by him and by the cashier of the bank.
In view of these admissions, it seems hardly necessary to say that the debts evidenced by said notes should be adjudged the debts of Edward C. Hill. [Bank v. Bank, 244 Mo. 554, 149 S.W. 495; Merchants' Ice Fuel Co v. Holland Banking Co., 223 Mo. App. 93, 8 S.W.2d 1030; Montgomery v. Trust Co. (Mo. App.), 10 S.W.2d 971.]
III. It is finally contended that there can be no recovery on the debts evidenced by the notes of Lulu Hill and the note of P.J. Hill as debts of Edward C. Hill, because said debts, if debts of Edward C. Hill, arose out of violations of Section 5357 of the Revised Statutes of 1929. The basis of this contention is that, at the times the loans were made on the notes of Lulu Hill and the note of P.J. Hill, Edward C. Hill was indebted to the bank in the full amount authorized by the statute above mentioned.
Counsel have cited no case, and we are aware of none, in which this statute has been construed by this court or by any of our courts of appeal.
Referring to a similar statute (Section 2758, Revised Statutes 1889), Judge BARCLAY said: "The statute does not in terms declare void all contracts of loan to one person in excess of one-fourth of the capital stock. It forbids a loan beyond that amount, but impliedly sanctions one to that limit. The transaction is not intrinsically immoral; and, whatever view may be taken as to such contracts when fully executed, it is obvious that, as the excess of the loan over the prescribed limit is readily severable from the part which is within that limit, the loan is valid at least to the extent defined. . . . It is not necessary in the present action to further examine into the meaning of that statute." [McClintock v. Bank, 120 Mo. l.c. 131, 132, 24 S.W. l.c. 1052.] (Italics ours.)
While the present statute (Section 5357, Revised Statutes 1929), provides that a state bank "shall not directly or indirectly lend to any individual an amount or amounts in the aggregate which will exceed" a certain per centum of the capital stock and surplus fund of the bank, it does not say that contracts to pay excessive loans are void and unenforceable, and the language used does not indicate such a legislative intent. The purpose of this statute is to protect the interests of stockholders and creditors of banks, not the interests of borrowers from banks, and a borrower from a bank cannot escape the payment of a loan on the ground that the bank had no legal right to make the loan.
Similar statutes have been so construed by our Federal courts and by the courts of many of our sister states. [Gold-Mining Co. v. National Bank, 96 U.S. 640; Nelson Co. v. Leiter, 190 Ill. 414; Bank v. Hildebrand, 103 Kan. 705; Bank v. Boddicker, 105 Iowa 548; Bank v. Burchard, 33 Vt. 346; cases cited in 3 A.R.L. 59-61.] "We do not think that public policy requires or that Congress intended that an excess of loans beyond the proportion specified (in the National Banking Act) should enable the borrower to avoid the payment of the money actually received by him. This would be to injure the interests of creditors, stockholders, and all who have an interest in the safety and prosperity of the bank." [Gold-Mining Co. v. National Bank, supra, l.c. 642.] "It will be noticed that the statute (Iowa statute) does not make a loan of money in excess of the per centum named void, and the general rule applicable to loans of that character is that they are not void, the prohibition of the statute being intended as a rule for the government of the bank." [Bank v. Boddiker, supra, l.c. 558.]
It follows, from what has been said in the foregoing discussion, that the judgment of the trial court should be affirmed. It is so ordered. All concur.