Commissioner of Banks Ex Rel. Citizens Bank v. White

The facts, as set out in the judgment, are as follows:

1. The defendant, E. C. White, is indebted to the plaintiff in the sum of $1,000, with interest from 30 April, 1931.

2. The defendant, at the request and solicitation of the plaintiff, Citizens Bank, signed an indemnity bond on or about 19 March, 1930, in which the defendant, with 9 other directors of said bank, guaranteed to protect and save harmless the Bonding Company which had issued a depository bond to the county commissioners of Chowan County.

3. The Citizens Bank closed its doors, on account of insolvency, on 27 December, 1930, and soon thereafter the bonding company was compelled to pay to the county the sum of $10,000, on account of the depository bond issued by the said Maryland Casualty Company which had issued such bond, and soon thereafter the said Bonding Company called upon the directors, including this defendant, to make good to it under their indemnifying bond, and the said directors were compelled to pay on account of signing said bond for the benefit of said bank the said $10,000.

4. At the time the said Citizens Bank closed its doors the county had on deposit to the credit of George Hoskins, treasurer of said county, the sum of $18,541.61. When the Bonding Company paid to the county its $10,000 the county assigned to the said Bonding Company $10,000 of its deposit in the said bank. When the directors, including this defendant, paid to the Bonding Company the $10,000 which they were required to pay under their indemnifying bond the said Bonding Company then assigned to the said directors the said $10,000 assigned to it by said county.

The liquidating agent of said Citizens Bank then assigned to each of the 9 paying directors one-ninth of the $10,000, to wit: $1,111.11, and this defendant is the owner of a certificate of proof of claim, No. 172-B, issued to him by said liquidating agent in said amount of $1,111.11.

The court further finds as a fact that at the time the said Citizens Bank closed its doors there was on deposit to the credit of George Hoskins, Treasurer of Chowan County, the sum of $18,541.61, and for the receipt by the county commissioners on their demand of the $10,000 of said amount, the Maryland Casualty Company was liable to said commissioners, and the ten directors, including this defendant, were, at that time, liable to the Bonding Company for the said amount, and the court, applying the broad principles of equity and justice to the facts in this particular case holds, as a matter of law, that the defendant is entitled to use his deposit of $1,111.11, as a set-off against plaintiff's claim of $1,000.

Upon these facts the court adjudged that the plaintiff recover of the defendant $1,000 with interest from 30 April, 1931, and that the defendant have the right of set-off against said judgment together with a claim against the bank or the liquidating agent thereof for the balance of his certificate or proof of claim. The plaintiff excepted and appealed. When the Citizens Bank closed its doors it held the defendant's promissory note on which the remainder due was one thousand dollars. The defendant admits this indebtedness and therefore has the burden of showing payment or other matters in avoidance. Bank v. Wilson, 124 N.C. 561. He undertakes to avoid liability by proof of the alleged counterclaim set out in the statement of facts. We are unable to see how this defense can avail him.

The county treasurer deposited in the bank $18,541.61; the Maryland Casualty Company issued its depository bond in the sum of $10,000 to indemnify the county; the defendant and other directors executed a bond to save the bonding company from loss. After the bank had failed the Casualty Company paid the county $10,000. It is said that the county then assigned to this company $10,000 of its deposit in the bank, that some of the directors reimbursed the company, and that the company assigned to the directors "the $10,000 assigned to it by the county." Afterwards, the liquidating agent of the bank issued to the nine paying directors certificates showing proof of their claims, each in the sum of $1,111.11. The defendant sets up his certificate against the indebtedness of the bank.

There are several barriers in his way. In the first place, his counterclaim did not exist at the time the bank failed. He then owed the bank $1,000 and the bank owed him nothing. Between them there was no mutuality of demand.

On account of insolvency the bank went out of business on 27 December, 1930. On that day was the defendant its creditor? In Davis v. Mfg. Co.,114 N.C. 321, 329, it is said that creditors of an insolvent bank are those to whom the bank is indebted at the time of its failure, and that if one who is then indebted to the bank afterwards takes the assignment of a claim against it he will not be allowed to use the assigned claim, as a set-off. The defendant derives his claim from the assignment of the bonding company. If the bonding company had presented its claim to the plaintiff it would not have been entitled to more than a pro rata part in the distribution of the bank's assets. Brown v. Brittain, 84 N.C. 552. The defendant succeeds to no greater rights than his assignor had. The right of set-off against the commissioner of banks is to be governed by conditions existing at the time of insolvency; and as against the commissioner a debtor cannot set up a claim which is assigned to him after the bank becomes insolvent and the commissioner or a liquidating agent takes charge of its assets. Williams v.Williams, 192 N.C. 405.

In the second place, there is no proof that the county's claim has been fully paid. It is credited with the payment of $10,000 only. Until the whole amount is paid the county is entitled as against the bank to dividends on $18,541.61, the sum of its deposits. Brown v. Merchants' Bank,79 N.C. 244; Winston v. Biggs, 117 N.C. 206; Bank v. Flippen, 158 N.C. 334;Milling Co. v. Stevenson Co., 161 N.C. 510. If the defendant's counterclaim is allowed the dividends paid the county will be reduced protanto.

It will be observed by applying this principle that the Maryland Casualty Company could not share in the assets of the bank until the amount due the county had been fully paid. In Jenkins v. National Surety Co.,277 U.S. 258, 72 L.Ed., 874, it is said: "If the principal is insolvent, any dividends paid the surety on its claim for indemnity before the creditor's whole claim has been satisfied would decrease the creditor's dividends by his proportionate share of the payments to the surety. They would also result in a species of double proof, detrimental to the principal's other creditors, for the secured creditors would, under the applicable `chancery rule,' still be entitled to dividends on his entire original claim." The opinion is in recognition of the doctrine that the surety may not claim subrogation against an insolvent debtor until the creditor is paid in full.

The plaintiff is entitled to recover the amount due on his note without any set-off or counterclaim in favor of the defendant.

Error.