We recognized in Hale that if a bank knows that a deposit is owned by a third party and not by the depositor, the bank may not apply the funds as payment for the depositor's debts. The same is true if the bank knows of circumstances that give it a duty to inquire about ownership. The majority rule, however, is that a bank that has neither actual nor constructive knowledge of a third party's interest in a deposit is entitled to set off the funds against a debt owed it by the depositor. Applying this rule, we conclude that the Bank was entitled to set off the money invested in the CDs against TCC's indebtedness. In this case, all of the information known to the Bank pointed to TCC as the owner of the CDs.
Businesses commonly protect their funds by requiring multiple signatures for disbursement.
The Bank disputes this, but for purposes of the Bank's motion for summary judgment we accept the statement as true. It does not, however, affect our conclusion. Indeed, plaintiff admitted in the same deposition that no reference was ever made to the investors having a security interest in the CDs. Plaintiff also argues that the Bank breached its contract with the depositors by permitting withdrawal of the funds without the required three signatures. A bank, however, is free to exercise its right of setoff without seeking the permission of the depositor.