v. (1936)

The plaintiff sued to recover from the defendant the amount of an alleged deposit in the defendant bank, which was claimed to have been attached by the plaintiff in an action brought by her against Republic Securities Corporation and in which she recovered judgment. There remained unpaid on that judgment an amount in excess of the claimed amount of the deposit. After receiving evidence on the facts in issue, the trial court directed a verdict for the plaintiff in the amount appearing as the balance in the commercial account of Republic Securities Corporation in the defendant bank on the day of the service of the writ of attachment. From a judgment entered on the directed verdict the defendant has appealed.

The writ of attachment was served on the defendant bank on May 10, 1930. At that time the balance in the commercial account of Republic Securities Corporation was the sum of $8,086.16. The bank was the owner and holder of the secured note of the Republic Securities Corporation, on which, at the date of the attachment, there was due a sum in excess of $50,000. The bank filed its answer in the attachment proceeding to the effect that upon the date of service the defendant in that action was indebted to the bank, and that there was nothing due from the bank. Upon the plaintiff's recovery of a judgment against the Republic Securities Corporation, she brought the present action against the bank. Upon the trial it further appeared that after the writ of attachment was served, but on the same day, the bank made a bookkeeping entry charging the commercial account of the Republic Securities Corporation in the amount of the deposit for the purpose of crediting that amount as a payment on the note held by it. The bank, however, continued to honor the checks of the Republic corporation, without further substantial deposits by it, until the full amount of the previous credit was withdrawn. On May 27, 1930, there appeared in the bank's records a reversal entry showing a deposit of $8,086.16, although no such actual deposit was made at that time. The question presented by the above-stated facts appears to be: Assuming the right of the bank at the date of the levy of the writ of attachment to apply the amount credited in the depositor's account to an indebtedness of the depositor to it, has the bank waived such right, or has it failed to exercise such right, by virtue of the subsequent transactions? Or we may put it thus: Has the bank under the facts stated proceeded at its peril by honoring subsequent checks of the depositor?

Were the property attached specific funds belonging to the Republic corporation, the answer to both statements of the question would undoubtedly be in the affirmative. But the special nature of the relationship between a bank and its depositor appears to demand a different conclusion.

First we find the general principal supported by the case of Marble Company v. Merchants National Bank, 15 Cal.App. 347, 115 P. 59, and similar cases (28 Cor.Jur. 279, § 8 and cases cited), that an attaching creditor stands in the shoes of the debtor and is clothed with no greater rights than the debtor himself has. Consequently upon service of garnishment process a bank would be entitled to offset against any amount due by it to the depositor the amount of any matured indebtedness due it by the depositor. Section 438, Code of Civil Procedure. That case, however, and cases such as McKean v. German-American Savings Bank, 118 Cal. 334, 50 P. 656, and Gnarini v. Swiss American Bank, 162 Cal. 181, 121 P. 726, are relied upon by the plaintiff in support of her contention that a set-off or deduction is not available to the bank where the indebtedness of the depositor is secured by mortgage, because section 726 of the Code of Civil Procedure prescribes that there shall be but one action, viz., an action of foreclosure, for the recovery of a debt secured by mortgage. We may assume that the note of the depositor was so secured. Section 438 of the Code of Civil Procedure now provides (St.1927, p. 1620) that the right to maintain a counterclaim shall not be affected by the fact that either the plaintiff's or the defendant's claim is secured by mortgage or otherwise. Cohen v. Bonnell (Cal.App.) 57 P.(2d) 1326. The only present prescription as to the nature of a counterclaim is that it tend to diminish or defeat the plaintiff's recovery and that it exist in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action. Terry Trading Corp. v. Barsky, 210 Cal. 428, 435, 292 P. 474. The rule of the cases relied upon must therefore be deemed to have been altered by the amendment to said section 438. See Article, McBaine, Recent Pleading Reforms in California, 16 Cal.Law Rev., 363, 367.

The relationship between a bank and its depositor is not that of bailor and bailee, but of debtor and creditor. National Mahaiwe Bank v. Peck, 127 Mass. 298, 34 Am.Rep. 368; cases cited in Note 23 Am.Rep. p. 50; 4 Cal.Jur. p. 187 and cases cited. If, therefore, the debt owed by the depositor to the bank exceeds in amount that owed by the bank to the depositor, there exists no credit or chose in action which is subject to execution or garnishment. Aarons v. Public Service Building & Loan Ass'n, 318 Pa. 113, 178 A. 141, 142; Adolph Bergman Building & Loan Ass'n v. Blaul, 318 Pa. 126, 178 A. 140; Schuler v. Israel, 120 U.S. 506, 7 S.Ct. 648, 30 L.Ed. 707; United States v. Bank of United States (D.C.) 5 F.Supp. 942. Garnishment process reaches only the excess after deduction of the amount owed by the depositor from the amount of the bank's indebtedness to him. Holloway v. First National Bank of Pocatello, 45 Idaho, 746, 265 P. 699.

The foregoing cited cases indicate that the condition of the account between the bank and the depositor at the time process is served determines whether there is a credit balance or excess which may be reached in the garnishment or execution proceeding. In such a proceeding it is a sufficient manifestation of the bank's disposition to apply any credit of the depositor to the indebtedness owing by him to the bank by pleading the state of the account between them. Wallace v. Estill County Deposit Bank (Ky.) 116 S.W. 351. That was done in the garnishment proceeding here involved. The following statement in the case of Aarons v. Public Service Building & Loan Ass'n, supra, illustrates the determinative factor concisely: ‘The bank was not required first to make book entries charging one account and crediting the other before asserting its right to priority. * * * If subsequently challenged, as here, the bank was only required to show that it had a ‘lawful claim’ when the writ was served; unless allowed to show and rest on that, it would be deprived of the benefit of the statute and the plaintiff would get more than the statute granted.' See, also, 1 Paton's Digest, 1926, p. 70, § 62. If the bank may rest on such showing, and there can be no question that it may, and inasmuch as garnishment process reaches only debts due at the time of service (section 544, Code of Civ.Proc.; Gardner v. Pioneer-Pacific Worsted Co., 106 Cal.App. 17, 20, 288 P. 818), it is of no moment or concern to the attaching creditor what debts or credits may subsequently be created between the bank and its depositor. See Gardner v. Pioneer-Pacific Worsted Co., supra; Steiner v. First National Bank of Birmingham, 127 Ala. 595, 29 So. 65; Smith v. Davis, 1 Wis. 447, 60 Am.Dec. 390. As stated in Victor v. Hartford Fire Ins. Co., 33 Iowa, 210: ‘The service of the garnishment process does not constitute a prohibition of all commercial or business transactions between the garnishee and the judgment or attachment defendant. Its effect is to stop the payment of any debt then owing.’ In the case before us there was nothing due from the bank to the depositor; there was no ‘debt then owing.’ On the contrary, the depositor was indebted to the bank. Statements seemingly to the contrary effect in such cases as Luthersville Banking Co. v. Hopkins, 12 Ga.App. 488, 77 S.E. 589; Desha Bank & Trust Co. v. Quilling, 118 Ark. 114, 176 S.W. 132, L.R.A.1915E, 794; People's Bank of Wilkes-Barre v. Legrand, 103 Pa. 309, 49 Am.Rep. 126; National Mahaiwe Bank v. Peck, supra; and National Bank of Newburgh v. Smith, 66 N.Y. 271, 23 Am.Rep. 48, are made in connection with special situations involving a widow's right to family allowance, the statute of limitations, or the rights of indorsers and sureties to have the bank apply credits in discharge of their obligations. They are not controlling in the situation before us. We are not presently concerned with how successive credits by the bank under repeated garnishments may affect the balance of the indebtedness of the depositor to the bank or the collateral deposited as security therefor.

The plaintiff nevertheless contends that the evidence introduced to prove a previous agreement on the part of the bank with the depositor not to apply the amount credited in the commercial account as payment on the note held by the bank supports only the conclusion that the defendant had waived its right of set-off. On the other hand, it is claimed by the defendant that the evidence on the questions whether there was a waiver by the bank of the benefit of the set-off statute, whether the writ was served on an officer of the bank, and whether the account was in fact the property of the Republic Securities Corporation, was in substantial conflict, and that the motion for a directed verdict was therefore improperly granted. The condition of the record discloses that the position of the defendant must be sustained.

It appeared in evidence that the Merchants National Trust & Savings Bank originally held the note here involved. There was evidence tending to prove an oral agreement or understanding between the president of the Republic Corporation and a vice president of the defendant bank that if there was to be any liquidation of the assets of Merchants National Trust & Savings Bank then being acquired by the defendant, the credit in the commercial account of the company with the defendant bank would not be applied by the defendant as payment on the note. It is contended by the defendant that the evidence in this respect does not establish an agreement that the bank at all events or under any circumstances would not apply the credit in the account as an offset, or that by such an understanding it intended to waive its right to the benefit of the offset statute should it be sued for the amount of the deposit. From the testimony as a whole it cannot be said that it does not legitimately and reasonably support the inference that the bank did not intend to waive the benefit of the statute in any proper case arising where such statute might be invoked by it. Under the appropriate rule the court by its directed verdict may not preclude the jury from passing upon this issue on the testimony before it. Newson v. Hawley, 205 Cal. 188, 270 P. 364; In re Estate of Lances, 216 Cal. 397, 400, 14 P.(2d) 768; In re Estate of Flood, 217 Cal. 763, 21 P.(2d) 579.

Likewise the evidence is not conclusive on the question whether the service of the writ was on an officer of the corporation. When the sheriff entered the bank to serve the writ of attachment he was referred to one Elliott, an assistant cashier, with whom he left the process. The return of the sheriff specifies that the writ was levied on the bank by leaving it with Elliott, ‘assistant cashier of said bank,’ without any further designation. At the time the writ was levied section 542 of the Code of Civil Procedure, as amended by St.1927, p. 852, provided that a debt due from a bank ‘must be attached by leaving a copy of the writ and the notice with the manager or any other officer’ of the bank. There does not appear to be any testimony, much less an exclusive legitimate inference from the evidence favorable to the bank, that Elliott, as an assistant cashier, was an ‘officer’ of the bank within the meaning of the statute. It has been held that ordinarily an assistant cashier of a bank is not an officer thereof in the sense that he exercises any control over the disposition of the bank's property, and that he has no power to turn over money in the custody of the bank to a plaintiff in an action without a special showing that he had such power. Liberty Bank v. Superior Court, 195 Cal. 766, 235 P. 995. The rule invoked and which is stated in such cases as Roehl v. Texas Co., 107 Cal.App. 691, 291 P. 255, and Milbank v. Standard Motor Const. Co., 132 Cal.App. 67, 22 P.(2d) 271, cannot be considered as the guiding principle under a statute providing the procedure to be followed in obtaining jurisdiction of a res. In the cited cases the service of summons upon domestic corporations pursuant to section 411, Code of Civil Procedure, was involved. The plaintiff here was required to show that the writ was served on an officer of the defendant bank. On that phase of the case it cannot be said, in view of the established rule that evidence in conflict with the showing on which the party against whom the motion is made relies must be disregarded, that the court properly directed a verdict on the ground that the evidence in the defendant's favor would support only the conclusion that Elliott, as an assistant cashier, was such ‘officer.’ When such conflicting evidence is disregarded for the purposes of the motion the remaining evidence is sufficient to support the conclusion that his position in the bank was that of an employee, without any official status as such term is generally understood in connection with officers of a corporation. Whether he was an officer of the bank or whether the bank was estopped from claiming that he was not an officer were therefore questions of fact to be determined by the jury under proper instructions from the court.

We do not consider it necessary to discuss the question whether the evidence supports a conclusion that the funds were in fact the property of Sparr Realty Corporation and that the Republic corporation in depositing the moneys in the defendant bank in its own name was in fact but the fiduciary agent of the Sparr corporation. The Sparr corporation did not make any claim to the fund either in the attachment proceeding or in this action.

We conclude that the trial court erred in granting the plaintiff's motion for a directed verdict.

The judgment is reversed.

PER CURIAM.