Case Name: Chickerneo, Appellant, v. Society National Bank of Cleveland, Appellee
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1979-06-13
Citations: 58 Ohio St. 2d 315
Docket Number: No. 78-697
Parties: Chickerneo, Appellant, v. Society National Bank of Cleveland, Appellee.
Judges: Herbert, W. Brows, Sweeetey and Holmes, JJ., concur.
Reporter: Ohio State Reports, Second Series
Volume: 58
Pages: 315–325

Head Matter:
Chickerneo, Appellant, v. Society National Bank of Cleveland, Appellee.
(No. 78-697
Decided June 13, 1979.)
Dworhin é Bernstein Co., L. P. A., Mr. Mélvyn E. Bes-nick and Mr. Michael Ooren, for appellant.
Messrs. Thompson, Hiñe é Flory, Mr. 8. Stuart Filers and Ms. Barbara J. Arison, for appellee.

Opinion:
Paul W. Bkown, J.
The nature of a bank's right to setoff was described by this court in Bank v. Brewing Co. (1893), 50 Ohio St. 151, at pages 158-159, as follows:
"It is said to be a well settled rule of the law merchant, that a bank has a general lien on all the funds of a depositor in its possession, for any balance due on general account, or other indebtedness contracted in the course of their dealings, and may appropriate the funds to the payment of such indebtedness. The right to make such appropriation, it is held, grows out of the relation of the parties as debtor and creditor, and rests upon the principle, that 'as the depositor is indebted to the bank upon a demand which is due, the 'funds in its possession may properly and justly be applied in payment of such debt, and it has therefore a right to retain such funds until payment is actually made.' Falkland v. Bank, 84 N. Y. 145. Though this right is called a lien, strictly it is not, when applied to a general deposit; for, a person cannot have a lien upon his own property, but only on that of another; and as we have seen, the funds on general deposit in a bank, are the property of the bank. Properly speaking, the right, in such case, is that of set-off, arising from the existence of mutual demands. The practical effect, however, is the same. The cross demands arc satisfied so far as they, are equal, leaving whatever bal- anee that may be due on either, as the true amount of the indebtedness from the one party to the other."
In Witham v. South Side Building & Loan Assn. (1938), 133 Ohio St. 560, at page 562, the right to setoff was defined as "that right which exists between two parties, each of whom under an independent contract owes a definite amount to the other, to set off their respective debts by way of mutual deduction."
Essential, then, to the validity of a setoff is that there be mutuality of obligation. Thus, in Nichols v. Metropolitan Life Ins. Co. (1941), 137 Ohio St. 542, this court stated in the syllabus that:
'•'A joint and survivorship account in a closed bant, in the absence of some special equity, may not be set off against an indebtedness to the bank owed by one only of the payees of the joint account."
Only one of the payees (depositors) to the joint and survivorship account in Nichols was indebted to the bank, the same payee who sought the setoff. The account money had been furnished not by the indebted payee, but by the co-payee. Mutuality of obligation was therefore lacking and a setoff would have been improper.
Appellant contends that Nichols is dispositive of this action. His contention is essentially that the realities of ownership were such that appellant owned all the funds in the account ; that the only obligations owed the bank were those of John A. Chickerneo, not of appellant; and that therefore mutual obligations between the bank and appellant or the bank and John A. Chickerneo necessary to justify a setoff; were non-existent.
We would be inclined to agree with appellant, were it not for the fact that at the time the account was created, and at the time of the setoff, the bank had rides and regulations in effect governing accounts like appellant's. These rules and regulations must be considered in conjunction with the case law.
Appellee's rules and regulations relevant to this action provide, as follows:
"1. As used herein, the term 'bank' shall mean Society National Bank of Cleveland; the term 'depositor' shall mean the person or persons in whose name the account is carried on the boohs of the bank and shall include.the masculine, feminine and neuter genders and. the plural as well as the singular wherever the context so admits.
"15. Any indebtedness now or hereafter owing to the bank by a depositor, either individually or jointly, may be charged to any deposit account in the name of such depositor or in the name of such depositor and another or others." (Emphasis added.)
The creation of a joint and survivorship account is a contractual arrangement. Fecteau v. Cleveland Trust Co. (1960), 171 Ohio St. 121, 124. Bules and regulations adopted by the bank are, or become a part of, the contract between the bank and its depositors. The question thus pre sented is whether these particular rules and regulations allow the bank to do what it otherwise could not do under prior case authority, i. e., to setoff John A. Chickerneo's obligations with the funds supplied solely by the appellant in the joint and survivorship account.
The rules and regulations are not difficult to understand. "Depositor'' is defined as a person "in whose name an account is carried on the books." Since the joint and survivorship account in issue was carried in the name of appellant and John A. Chickerneo, both were "depositors." The rules and regulations provide further that any indebtedness OAved the bank by a "depositor" "may be charged" to an account "in the name of such depositor and another." Here the bank charged the account of the debtor-depositor, John A. Chickerneo, "and another," the appellant. Accordingly, the bank's actions were in conformity with the adopted rules and regulations, and thus lawful under the terms of the contract unless the rules and regulations were in conflict with the public policy of this state.
Public policy is a legal principle which declares that no one can lavffully do that which has a tendency to be injurious to the public welfare. The principle must be applied with caution and limited to those circumstances patently Avithin the reasons upon which the doctrine rests. Lamont Building v. Court (1946), 147 Ohio St. 183, 185; Gugle v. Loeser (1944), 143 Ohio St. 362, 367.
Appellant has not persuaded this court that the circumstances before us are such that the public welfare will suffer if we allow these regulations to stand. The record shows that the appellant voluntarily opened an account with the bank and voluntarily selected a joint and survivor-ship account Avith John A. Chickerneo as a co-depositor. Other accounts Avere available at the bank which would not have subjected appellant to a right of setoff. Under these circumstances, we will not interfere with the contract freely entered into by the parties.
For the foregoing reasons, this court holds, in agreement with the well-reasoned opinion of the Court of Appeals, that where a bank provides by rule, which rule becomes contractually binding on depositors, for the right to setoff funds in a joint and survivorship account against debts owed the bank by a party to the account, the bank may lawfully setoff such funds without violating the public policy of this state, although the funds in the account are supplied exclusively by a non-debtor depositor.
Accordingly, the judgment of the Court of Appeals is affirmed.
Jtidgment affirmed.
Herbert, W. Brows, Sweeetey and Holmes, JJ., concur.
Celebkezze, C. J., and Lochee, J., dissent.
The fact that Nichols concerns a depositor's reciprocal right to setoff an account against an obligation owed to the bank, does not detract from its applicability to the instant cause. Mutuality of obligation is of equal significance whether a' bank, or a depositor, seeks the setoff.
This court has held that a deposit in a joint and survivorship account creates a presumption of co-ownership of funds in the depositors. Vetter v. Hampton (1978), 54 Ohio St. 2d 227; In re Estate of Duiguid (1970), 24 Ohio St. 2d 137. This presumption is rebuttable, however, where evidence is adduced to show the' realities of ownership. Vetter, supra; In re Estate of Svab (1967), 11 Ohio St. 2d 182, 184. The realities of ownership were stipulated by the parties here, i. e., that the funds were furnished exclusively by appellant.
K. C. 1107.06 provides, in part:
"(C) At the time of opening an account for the making of savings deposits, the depositor shall be issued a statement containing the existing rules and regulations adopted by the bank. Such statement may be set forth upon the depositor's signature card.
"(D) All owners of any interest in each, account, commercial or savings, who. are such on January 1, 1968, shall be bound by the bank's rules and regulations of such date governing accounts. Subsequent amendments to such rules and regulations shall be posted in the bank and shall be binding thereafter' upon the then, owners of any interest in all then existing accounts.
"(E) A passbook shall be issued to each savings depositor . By accepting such passbook the depositor acknowledges the receipt of and assents to the rules and regulations and any amendments thereto, adopted by the bank, governing such deposits."
These provisions effectively incorporate bank rules and regulations into the contract between the bank and the depositor.