Opinion ID: 1778532
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Heading: UMB's Common Law Right of Set-off

Text: ¶ 17. As to the bank's common law right of set-off, it is well settled that a bank, under a `set off' principle, has the right to apply a debtor's deposit to payment of his debt then due aside from any security agreement specifically authorizing it to do so. Deposit Guar. Nat'l Bank v. B.N. Simrall & Son, Inc., 524 So.2d 295, 299-300 (Miss.1987). The relationship existing between a bank and a depositor is one of debtor and creditor, and a bank may apply whatever amount the maker of the note has on deposit with it to a payment on the note. Id. at 300 (quoting Moreland v. Peoples Bank of Waynesboro, 114 Miss. 203, 211-12, 74 So. 828, 829-30 (1917)). Simrall further explains that the right of the bank to set off the deposit of its debtor applies to the depositor's matured debts, upon the theory 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.... Id. (quoting Marmon Fanning Co. v. People's Nat'l Bank, 106 N.J. Eq. 170, 150 A. 402, 404 (1930)). ¶ 18. The right of the bank exists only where with respect to both debt and deposit the bank and the depositor are in debtor-creditor relationship, and there must be mutuality of demands. The debts must be between the same parties and in the same right or capacity. Central Bank of Mississippi v. Butler, 517 So.2d 507, 511 (Miss. 1987) (quoting Kaufman v. First Nat'l Bank of Opp, Alabama, 493 F.2d 1070 (5th Cir. 1974)). Other states have agreed that the principle of mutuality applies to joint accounts. See, e.g., Selby v. DuQuoin State Bank, 223 Ill.App.3d 104, 165 Ill.Dec. 621, 584 N.E.2d 1055, 1057 (1991) (under common law, bank has power to apply deposit to payment of such depositor's indebtedness only when there are mutual demands and debts between the parties and right of setoff arises at time depositor's indebtedness to bank has matured); Greenwood v. Bank of Illmo, 782 S.W.2d 783, 786 (Mo.Ct.App.1989) ([i]t is a general rule of practically universal application at law that, to warrant a set-off, the demands must be mutual and subsisting between the same parties and must be due in the same capacity or right.); City Nat'l Bank of Beaumont v. American Sur. Co. of New York, 52 S.W.2d 259, 262 (Tex.Comm. App.1932) (... it is familiar law that mutuality is essential to the validity of a set off, and that, in order that one demand may be set off against another, both must mutually exist between the same parties.). ¶ 19. In the present case, all of the loans to Jerry Wallace became in default, and thus matured, on the date of his death. The bank's right of set-off therefore came into being at the moment Jerry Wallace died. At the same time, however, Texie Rae Wallace became the sole owner of the CDs, since under § 81-5-63 they became vested in her at the death of Jerry Wallace. See Stamper, 607 So.2d at 1152. Thus, the issue is whether a bank's right of setoff which commences at the death of a debtor co-tenant prevails over the right of the surviving joint tenant who would otherwise assume full ownership of the property at the same time. ¶ 20. This is a case of first impression in Mississippi. In other states, however, the general rule is that in the absence of statutory authority or a contract to the contrary the right to set off a debt of a deceased joint tenant against the interest of a surviving joint tenant does not exist. Selby, 165 Ill. Dec. 621, 584 N.E.2d at 1057; Donnelly v. First Mut. Sav. Ass'n of Florida, 509 So.2d 1273, 1274 (Fla.Dist.Ct.App.1987). In Guilds v. Monroe County Bank, 41 Mich.App. 616, 200 N.W.2d 769 (1972), the plaintiff brought suit against the defendant bank to recover funds on deposit in a joint savings account with survivorship rights which she had owned with her deceased husband. Id. at 770. The bank claimed a right of set-off even though it took no action during the lifetime of the deceased to secure the indebtedness by obligating the joint account. Id. at 771. The court found that the effect of the state's survivorship statute is to create a joint tenancy and unless a contrary intention is shown the survivor is entitled to the proceeds of the account. [4] Id. The court ruled that here there is no proof to overcome the statutory presumption and as of the date of death the funds on deposit became solely those of the surviving wife ... Id. at 772. ¶ 21. As in Guilds, our statute, § 81-5-63, creates a presumption of joint tenancy. We find, therefore, that in Mississippi the general rule appliesnamely, that in the absence of countervailing statutory authority or a contract to the contrary, the bank has no right to set off a debt of a deceased joint tenant against the interest of a surviving joint tenant. Texie Rae Wallace was presumed to be the sole owner of the CDs at the time the debt to the bank matured, yet was not a party to the note agreements held by the bank. Unless the bank can rebut this presumption of sole ownership there was no apparent mutuality between the parties holding the offsetting debts. Butler, 517 So.2d at 511; Selby, 165 Ill.Dec. 621, 584 N.E.2d at 1057; Sandler v. United Indus. Bank, 23 A.D.2d 567, 256 N.Y.S.2d 442, 444 (1965). Thus, the common law right of set-off does not provide an independent basis for the bank's actions in the present situation, and this Court must look to whether the bank had a contractual right of set-off pursuant to any agreement by the parties.