#### In re THE MERCHANTS BANK OF DURHAM, NORTH CAROLINA. (MATTER RELATING TO THE APPLICATION OF A DEPOSIT OF ROYCROFT'S WAREHOUSE AND H. T. ROYCROFT WHICH WAS IN THE MERCHANTS BANK OF DURHAM, N. C., WHEN THE SAME CLOSED ON 4 JANUARY, 1932, AND WAS TAKEN OVER BY GURNEY P. HOOD, NORTH CAROLINA COMMISSIONER OF BANKS.)

(Filed 5 April, 1933.)

1. Banks and Banking' H e—

A depositor in a bank later becoming insolvent may direct the receiver to apply his deposit to certain of his notes to relieve the endorsers thereon of liability, rather than to his note secured by collateral.

*4732. Judgments *L*b — Order directing receiver to ap)>ly deposit to certain notes held not to bar subsequent action to compel such application.

Where in an action against the receiver of a bank the main question decided is that the plaintiff individually owned a deposit in the bank, and an order is entered to that effect and directing the receiver to apply the deposit to certain notes of the depositor, upon the receiver’s refusal to apply the deposit as directed, the order in the action will not bar the depositor from bringing a subsequent action to compel the application of the deposit to the notes as directed.

Appeal by respondent Gurney P. Hood, North Carolina Commissioner of Banks, ex rel. The Merchants Bank of Durham, N. C., from *Barnhill,*Jat Chambers, at Fall Term, 1932, of Durham.

Affirmed.

The order of Judge Barnhill, is as follows: “This cause coming on to be heard before the undersigned judge presiding in the Tenth Judicial District, upon the petition of H. T. Boycroft filed herein, and answer filed by the liquidating agent of the Merchants Bank of Durham, N. 0., and it appearing to the court that at the time of the closing of said bank H. T. Boycroft, who was trading and doing business under the style and firm name of ‘Boycroft 'Warehouse/ had on deposit in said bank approximately $2,300, and that subsequent to the closing of said bank an order was made by the judge then presiding in the Tenth Judicial District, directing that the money on deposit to the credit of ‘Boycroft Warehouse’ be applied in payment of notes of IT. T. Boycroft held by the Merchants Bank of Durham, N. C.; and it appearing to the court that prior to the signing of said order, the petitioner had requested D. E. Siler, liquidating agent of said bank, to apply the amount on deposit to the said ‘Boycroft Warehouse’ as a credit on the two notes which the petitioner had in said The Merchants Bank of Durham, N. 0., in the sum of $1,100, one of which said notes was signed by W. A. Hinton, and the other of said notes signed by K. 0. Yeasey; andit further appearing to the court that said liquidating agent refused to credit the deposit on said notes of $1,100 as requested, but credited said deposit on a note of $15,000 which the said H. T. Boycroft had in said bank, which was secured by a deed of trust on the home of the said IT. T. Boycroft and a farm in Granville County. It is now, therefore, ordered, adjudged and decreed, that the present liquidating agent of the said bank be and he is hereby authorized and directed to reverse the credit so made on said note of $15,000, and that the amount on deposit to the credit of ‘Boycroft Warehouse’ at the date of the closing of said bank be first credited on the note of H. T. Boycroft for $1,100 signed by W. A. Hinton, and the note of H. T. Boycroft for $1,100 signed by K. O. Yeasey, and that after so crediting the said notes, that if any balance remains to the credit of the said ‘Boycroft Warehouse,’ that said *474amount be credited to tbe note of $15,000 hereinbefore referred to. It is further ordered that the costs of this petition be paid by the liquidating agent.”

The respondent excepted and assigned error to the judgment as signed and appealed to the Supreme Court.

*Brawley & Gantt for respondent, appellant.*

*Fuller, Reade & Fuller for petitioner, appellee.*

ClaRKSON, I.

The petitioner H. T. Roycroft had on deposit in the Merchants Bank of Durham, N. 0., when it closed its doors and was taken over by the liquidating agent of the Commissioner of Banks, the sum of $2,136.64. It was in the name of *Roycroft Warehouse.*The evidence, undisputed, is that the deposit belonged to H. T. Roycroft individually. Roycroft also owed notes to the bank as follows: (1) -$1,100 endorsed by W. *A.*Hinton, (2) $1,100 endorsed by K. O. Yeasey. The endorsers had no security. (3) Note for $15,000 which is secured by a deed of trust on Roycroft’s home in the city of Durham, N. C., and a farm of 179 acres in Granville County, N. O., which Roycroft in his affidavit stated “in the opinion of your petitioner said note is adequately secured.”

To relieve his endorsers on the two notes of $1,100 each, Roycroft requested and directed that the $2,136.64 on deposit in the insolvent bank be applied on these two notes, which was refused by respondent appellant. The court below found the facts and we think there was sufficient competent evidence to sustain the findings and directed the $2,136.64 to be credited, as requested and directed by Roycroft. We do not think the exception and assignment of error made by respondent, appellant, Commissioner of Banks, can be sustained.

The question involved, as set forth by respondent, appellant, is as follows: “Whether or not a person (II. T. Roycroft, petitioner herein) has the right to have his deposit in an insolvent bank applied on a note or notes as he directs; said notes being owned and held by the bank.” We think so.

In *Dameron v. Carpenter,*190 N. C., at p. 598, citing many authorities, the law is thus stated: “A set-off is in the nature of a payment or credit when the debts are mutual. . . . Set-off exists in mutual debts, independent of the statute of set-off. Its flexible character is used in equity to prevent injustice.”

In *Coburn v. Carstarphen,*194 N. C., at p. 370, speaking to the subject, we find: “In *Davis v. Mfg. Co.,*114 N. C., 321, it was held that an endorser on a note held by an insolvent bank against an insolvent principal, upon which the receiver had brought suit is entitled to avail *475bimself of bis claim against tbe bank, upon a-certificate of deposit issued by tbe bank, and beld by bim at tbe date of tbe bank’s insolvency. In *Trust Co. v. Spencer,*193 N. C., 745, it was beld by tbis Court tbat a bank, notwithstanding tbat it bad taken a note signed by tbe directors of a corporation wbicb bad become insolvent, in payment of tbe corporation’s note to it, retaining, however, tbe corporation’s note as collateral security for tbe note of tbe directors, bad a right to apply a deposit to tbe credit of tbe insolvent corporation as a payment on tbe indebtedness for wbicb tbe bank beld tbe directors’ note.”

In tbe *Coburn case, supra,*it was beld: “While ordinarily tbe right of equitable set-off does not exist where there is a want of mutuality or tbe one claiming it has no right of action against tbe other in bis own name, tbis principle is not applicable to county funds officially deposited in a bank since in a receiver’s bands, and for wbicb tbe depositor officially remains liable to tbe county, and be may offset bis personal liability to the bank with tbe amount be may receive as a depositor of tbe county funds.” See *Burns v. Trust*Co., 200 N. C., 260.

Tbis very matter has been decided by tbe Supreme Court of Arkansas, *Hughes v. Garrett,*234 S. W., p. 265: It is there beld: “When a bank failed, and bad made no appropriation of a general deposit to tbe payment of notes of tbe depositor due to tbe bank, tbe depositor may direct tbe receiver to apply tbe deposit on a note chosen by tbe depositor, and tbe remainder on other notes. Upon a bank becoming insolvent, a depositor indebted to tbe bank may set off tbe amount of bis deposit in an action by tbe receiver or assignee to recover tbe indebtedness due tbe bank.”

We think tbe order of tbe former judge was primarily to settle tbe fact tbat “II. T. Roycroft” was tbe owner of tbe deposit in tbe name of “Roycroft Warehouse.” Tbe liquidating agent did not do what tbe order stated and tbe court below on tbe evidence was fully justified in finding: “It appearing to tbe court tbat prior to tbe signing of said order, tbe petitioner bad requested D. F. Siler, liquidating agent of said bank, to apply tbe amount on deposit to tbe said ‘Roycroft Warehouse’ as a credit on tbe two notes wbicb tbe petitioner bad in said Tbe Merchants Bank of Durham, N. C., in tbe sum of $1,100, one of wbicb said notes was signed by W. A. Hinton and tbe other of said notes signed by K. O. Yeasey,” etc.

We can see no estoppel in tbe order of tbe former judge, as argued by counsel for respondent. In fact, tbe question in respondent’s brief does not raise tbis point, as will be seen from tbe question involved as set forth in respondent’s brief wbicb we quote above. For tbe reasons given, tbe judgment of tbe court below is

Affirmed.