Case Name: Gordon & Gomila vs. F. Müchler; The Louisiana National Bank vs. The Union National Bank. Consolidated
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1882-04
Citations: 34 La. 604
Docket Number: No. 9758
Parties: Gordon & Gomila vs. F. Müchler. The Louisiana National Bank vs. The Union National Bank. Consolidated.
Judges: 
Reporter: Louisiana Annual Reports
Volume: 34
Pages: 604–610

Head Matter:
No. 9758.
Gordon & Gomila vs. F. Müchler. The Louisiana National Bank vs. The Union National Bank. Consolidated.
By-laws of a corporation to be valid must be consistent with the general law, and cannot affect tho rights of third parties without their consent, or depositors not privy to thorn.
A bank cannot apply funds on deposit to the payment of a debt due it by tlio depositor; compensation never takes place in such a case without the special assent of the depositor.
Our law differs from the common law doctrine, that where a check has beon presented to, and acceptance refused by a bank, there being no privity, the holder of the chock cannot sue tlio bank.
A check duly notified to the hank constitutes an equitable assignment of the fund against which it is drawn. Case vs. Henderson, 23 An. 49, overruled. Obiter. There is no dis* tinction to be made between the irregular deposit of the customer with his factor and that of a depositor with a bank.
APPEAL from the Third District Court for the Parish of Orleans. Monroe, J.
J. Ward Gurley, for Gordon & Gomila, Appellants :
1. A bank cannot apply deposits held by it to the payment of an indebtedness due it by the depositor. C. C. 2210, 2956 ; 12 An. 257; 7 An. 53; 2 An. 25; 11 An. 73 ; 23 An. 116 ; 32 An. 590.
Neither custom, nor the by-laws of tbe bank can authorize such compensation or set off, when prohibited by law. 23 An. 113; Sec. 5136, R. S. IT. S.; 5 N. S. 344; 9 An. 44; Angelí and Ames on Corporations, §§ 333, 335 ; C. C. 433, 445; 25 An. 413.
2. A check is not an assignment of tbe stated amount of the fund upon which it is drawn, .before it is accepted by the drawee. Nor has the holder any action against the bank in case of refusal to pay. 23 An. 49 j 10 ‘Wallace, 152; 13 La. 98; 94 U. S. 343.
A check docs not differ in this respect from a sight draft.
3. The payee of the check knew, when it received the check for the entire balance duo the drawer, that tho drawer had failed, owing many creditors, and could not meet his obligations, and tho facts of tho case are such as entitle Gordon &. Gomila, tho attaching creditors. to said balance of deposit.
Arts. 2642 to 2654, C. 0 , do not apply to checks on banks. The requirements of those Articles are not fulfilled if the assignment be in the foim of a negotiable instrument.
Checks being negotiable paper, they are governed by the lex mercatoria, and do not operate as an assignment, unless accepted by the drawee. 23 An. 49 and 60; 10 Wallace, 152; 13 La. 98; 94 U. S. 343 ; 49 Barb. (X. X.) 22; Law Rep., 6 E. and J. Appeal, 352; Law Rep., 19 Eq. Cases, p. 74; 12 M. 498, and cases there cited; 2 X. S. 123; 2 Rob. 122; 5 L 405; 4 An. 206.
Miller, Finney cC* Miller, for Louisiana National Bank, Appellee:
The check holder has a right of action against the bank on which it is drawn, the depositor having in the bank, on deposit, tho funds to meet the check. Yan Bibber vs. Bank of Louisiana, 14th An. 486, and other authorities cited in brief.
The bank cannot compensate the debt it owes to the depositor, by the debt due to it by the deposition. Civil Codo, Art. 2210; 2d An. 25; 23d An. 116; 32d An. 590.
The compensation being prohibited by law, the by-law of the bank which undertakes to allow that compensation cannot prevail. By-laws cannot override the law. They must be framed in accordance with, and not agaiust the law, or, as the statute expresses it, ‘‘not inconsistent with law.”, R. S. U. S., § 5136, paragraph 6; Angelí & Ames on Corporations, § 333.
Nor do by-laws bind depositors not privy to them. 22d An. 98.
The check by the drawer, on funds in the bank, passes to payee of the check, the fund paid the date of presentment of the check. Hence, no subsequent attachment against the drawer of the check can reach the fund, which has ceased to be his property.
Oarleton Hunt, for Defendant and Appellant:
Where one having money on deposit in a bank, becomes indebted to it by the maturity of a note executed by him, and held by the bank, compensation will take place, and the debts extinguish each other to the extent of the smaller of tho two. 10 Rob. 197; Morse on Banks, Ed. 1879, pp. 28, 29, 31, 42.
The decisions of the Supreme Court of Louisiana in the following cases, to-wit: Bloodworth vs. Jacobs, 2 An. 23; Breed vs. Purvis, 7 An. 53; Morgan vs. Lathrop, 12 An. 257; Bogert vs. Egerton, 11 An. 73 ; Murdock vs. Bank, 23 An. 116 ; Hancock vs. Citizens’ Bank of La. 32 An. 582, are inapplicable in the instant suit. But the decision of the Court in Eowler vs. The Bank of Louisiana, 10 Robinson’s Reports, p. 200. as shown already in the first brief for the Union National Bank, is of direct application in the instant case, and there must be judgment in accordance with this decision in favor of the Bank, as prayed for.
The relation of banker and depositor is the ordinary relation between debtor and creditor, and compensation will take place between them.
Apart from argument as to the applicability, in this suit, of the decisions first cited, the doctrine they maintain, that compensation does not take place in the irregular deposit, so called, or contract of Mutuum of the Civil Law, is incorrect doctrine, and ought to be recalled.
Inasmuch as no rule of property is established by the decisions here referred to, it is clearly ' competent for the Court to overrule them now. 12 How's Reports, 443.

Opinion:
' The opinion of the Court was delivered by
Eenner, J.
This case presents a triangular contest between three creditors of F. Müchler, over a balance standing to the credit of the lattor's deposit account with the Union National Bank.
1. The Union National Bank claims that the credit was extinguished by compensation, because it (the Bank) was holder of a dishonored draft of Müehler, and has applied the credit to the extinguishment of said debt.
2. The Louisiana National Bank claims it as holder of a check of Müehler on the Union National Bank for the exact amount of the credit, which check had been presented to the Union National Bank and payment thereof demanded, and, on refusal, had been protested, and written notice given to the Union Bank that this was claimed to operate an assignment of the credit.
3. Gordon & Gomila claim.the fund by virtue of an attachment thereof, executed after the above proceedings.
I.
So far as the Union National Bank is concerned, it is not pretended that it had any express authority or consent from Müehler to apply the balance due him as depositor to the extinguishment of the debt due by him to the Bank. It attempts to imply such consent from the fact that one of its own by-laws provided : "All notes discounted by the Bank, which are not taken up before the closing of the Bank, on the last day of grace, shall be charged to the account of the parties to the same, provided.there are funds in the Bank to the credit of such person or persons."
No evidence is adduced to establish that this by-law was ever assented to by Müehler, or that he was ever even notified of its existence.
Nothing is better settled than that by-laws of a corporation, in order to be valid, must be consistent with the general law, and that they cannot have effect to interfere with the rights and privileges of third parties or strangers, not members of the corporation, or be made binding on them, without their consent. Potter on Corp. § § 75, 76 ; Field on Corp. § § 295, 296: Grant on Corp. pp. 76, et seq.; Angell and Ames, § § 333, 335.
Unless the Bank had the right, under the law of the State, to attribute Miichler's credit in compensation of the debt due by him, this by-law could not create such right.
In the case of Hancock vs. Citizens' Bank, we said: " Repeated adjudications in the jurisprudence of this State have placed beyond the domain of further controversy the principle that compensation does not take place in the confidential contracts arising from irregular deposits, such as the deposit of money with a banker, and the depositary is not authorized to apply the funds on deposit in his hands to the payment of the debts of the depositor, except there is a special mandate from him." 33 A. 592, quoting 12 A. 257; 7 A. 53; 2 A. 25; 11 A. 73; 23 A. 116.
The vehemence of the assault now made upon the correctness of this doctrine is not, in our judgment, sustained by a corresponding force in the arguments advanced against it, with whatever learning and power they are enforced. The distinction sought to be drawn between the irregular deposit of the customer with his factor and that of the depositor with the bank, has no existence ; or, if there were any, it would be in favor of the latter, so far as the prohibition of compensation is concerned, because, while the factor usually allows his customer interest 011 sums left in his hands, the bank has the gratuitous use thereof. Those decisions, therefore, which forbid compensation in the relation of the factor and customer, may be said to apply, a fortiori, to the relation of bank and depositary. Moreover, in the earliest case of Bloodworth vs. Jacobs, 2 A. 25, Chief Justice Eustis repeatedly refers to the relation of banker and depositary, in illustration of liis views as there expressed. In that case and in Breed vs. Purvis, 7 A. 35, the very arguments now urged were stated in the opinion of the Court and overruled.
The extensive references to common law authorities, establishing that the relation of banker and depositor, like all other irregular deposits, created the relation of debtor and creditor between the parties, seem superfluous, in view of the learned and exhaustive decision of this Court to the same effect, in Matthews vs. Creditors, 10 A. 342, the correctness of which has never, to our knowledge, been questioned.
It is not possible to suppose that Chief Justices Eustis, Slidell and Merrick, with all their learned associates, were oblivious of this principle or of the elementary distinction between the kinds of loan known as depositum, commodatum and mutuum. On the contrary, their decisions show that, while admitting the irregular deposit to be neither depositum, nor commodatum, but distinctly mutuum, and, therefore, giving rise to the ordinary relation of debtor and creditor, they yet deliberately held that, from the nature of the contracts, and under the provisions of our Code, as construed by them in connection with the fundamental principles of the Roman Civil Law, such irregular deposits were not subject to compensation. Their view is sustained by the construction placed on Articles of the Code Napoleon, identical with ours, by such jurists as Toullier, Marcadé, Mourlon, and others, who hold that the words, " restitution of a deposit," as used in Art. 2210 of our Code (Nap. C. 1293) although not scientifically applicable thereto, were, nevertheless, intended to include irregular deposits.
The arguments of these jurists, which it is not necessary to state here, convince our judgment, and we approye their conclusion. Even were we in doubt, such has been the settled construction of our Code for 35 years, and no legislative change thereof has ever been made.
II.
As to the claim of the Louisiana National Ba-nlc.
It will not be disputed that a written order by a creditor, addressed to his debtor, directing him to pay to a third person a debt due to the former, accompanied by due notice to the debtor, would comply with all the requirements imposed by our Civil Code, Arts. 2642 to 2654, for the .valid giving of title, delivery, and complete assignment of the' credit or incorporeal right referred to in the order.
On general principles, the check, its presentation, x>rotest, and the written notice herein given, unequivocally fulfil all these requirements.
The question presents itself: on what x>rincix>le shall we refuse to give to such a transaction the effect which is given to it under the textual provisions of our Code ?
In the slightly considered case of Case vs. Henderson, 23 A. 49, it was held that the check-holder did not acquire a right of action against the bank, upon the authority of the Supreme Court of the United States, in Bank vs. Millard, 10 Wallace, 152. That was a case at law, in error to the Sux>reme Court of the District of Columbia, where the common law x>revails, and the able and x>erfectly accurate opinion of the Court is based upon the common law principles: 1st, that there was no privity of contract between the bank and the check-: holder, at the time the check was given, and 2d, that no such privity was created by the mere presentation of the check, without acceptance of the bank, because the depositor's right was a mere chose in, action, not assignable without the consent of the debtor.
Olioses in action correspond substantially to, or, at least, are included within the civil law definition of incorporeal rights.
Our law, differing therein from the common law, distinctly recognizes the assignability of that class of incorporeal lights known at common law as dioses in aetion, and xn'ovides for the perfectibility of such assignments by notice to the debtor and entirely independent of his consent, and, from the moment of such notice, creates a privity between the debtor and the assignee, amounting to a x>erfect legal tie.
It follows that the reasons underlying the common law decisions quoted, have no apx>lication or existence under our law, and the decisions, therefore, have no ax>plication as authority here.
In a very recent case, decided by Mr. Justice Miller on Circuit, it was held that a check, duly notified to the bank, constitutes an assignment of the fund drawn against, which a court of equity will enforce in favor of the check-holder, although a court of law will not. Bank vs. Coates, 12 Reporter, 514.
Even had the check, in the instant case been drawn in a common law State upon a bank in such State, so that the rights of the check-, holder would have been regulated by the lex loci contractus, yet if the action thereon had, by any means, been brought in our forum, our courts would have looked to, and would have enforced, the equitable right of the check-holder, and would have maintained the assignment. Jackson vs. Tiernan, 15 La. 485.
Here the cheek and notice operate, not merely an equitable but, equally, a perfect legal assignment.
The same case just quoted equally disposes of the objection that the debtor cannot be required to permit his debt to be cut up into fractions and thus to have several creditors substituted for one.
We are not required here to consider the correctness of the decision in Poydras vs. Delamere, 13 La. 98, cited in support of the last object tion, because it does not apply to the case of bank and depositor, the nature of whose contract is, that the bank shall pay out the depositor's funds, in sums, and to persons designated in the depositor's checks; and this implies the assent of the bank to the divisibility of its obligation.
In the interests of sound jurisprudence we are compelled to overrule Case vs. Henderson, and to hold, with the District Court, that the Louisiana National Bank acquired a perfect title to the fund in controversy.
This disposes of the claim of the attaching creditor.
Questions of illegal preference in favor of the bank cannot be agitated in this controversy, but must be raised in a different proceeding.
Judgment affirmed, at appellant's cost.