Court Opinion

ID: 6738957
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:34.216923+00
Date Added: 2024-06-11T16:01:53.788546
License: Public Domain

Grace, J.
(concurring in part and dissenting in part). I concur in the opinion of Justice Birdzell in the holding that the release by plaintiff of certain chattel security, to M. A. Maher’s notes, without the knowledge or consent of the defendant, constitutes a defense or counterclaim to that part of the cause of action wherein it is sought to recover on the defendant’s guaranty on the Maher notes, thus reaffirming the principle in this regard, announced by this court in the ■case of Scandinavian American Bank v. Westby, 172 N. W. 665.
I further concur that the bank was not required to deliver the notes in question in this case to the defendant’s collector for the purpose of collection. From the remainder of the opinion, I dissent. The defendant sold the plaintiff the notes in question and guaranteed payment of the same at the maturity thereof. His guaranty was not placed upon the notes, but was contained in a separate contract. It is immaterial, however, whether the guaranty is on the note or in a separate contract, the legal effect is the same.
The liability of the defendant, under his contract of guaranty, was a secondary one. The principal debtors were those who owed the notes which defendant guaranteed, and they were the primary debtors.
After the defendant had guaranteed the notes and turned them over to the plaintiff, it became the owner of the notes, and the debtors were primarily liable to the bank. After the maturity of the notes some of the makers of the notes had money on deposit in the plaintiff’s bank which, if applied to the discharge of such notes by the bank, which notes were in the bank at the time when such debtors had deposits therein, as above indicated, would have been sufficient to discharge or partially discharge those notes.
The defendant claims it was the duty of the bank towards him as guarantor to apply the deposits thus in its bank, belonging to any of the debtors, to the discharge of their notes then past maturity. The plaintiff claims it had no duty in this regard. It is only fair to say there is, among the decided cases, a minority and majority rule in this regard. Pennsylvania, Maryland, Kentucky, Wisconsin, and some other states recognize the minority rule, holding that it is the duty of the bank to apply the deposits to the discharge of the note or obligation upon'which the surety or guarantor is liable if the debt is directly *453due to the bank by the maker of the note upon which the guaranty or surety contract obtains.
The majority rule, it may be conceded, is the reverse. It must be remembered, however, that the reasoning in both the majority and minority rule is not based upon a statutory lien by the bank upon the deposits, but, in either case, is based upon no actual or statutory lien whatever, but upon the right usually claimed by banks to offset any debts which the bank owned and held against the depositor against money or debts which it owed the depositor. In other words, the relation between the depositor and the bank is considered one of debtor and creditor, in which the bank is the debtor, thus owing the depositor the money which is deposited in the bank, and possessing or having obligations of the depositor in the form, for instance, of a promissory note, which is past due and which is owing to the bank. Banks have generally claimed the right to charge such notes, etc., against the deposits of the depositor in the way of an offset; but the majority rule holds that while the bank has this right, it is not required to charge up to the depositor a nóte owing by him to the bank upon which there is a surety or guarantor on penalty of releasing the surety or guarantor. The rule is a harsh one and is devoid of equity or justice. The minority rule is much the better rule and is based upon justice and equity. It impairs no right of the bank; it compels the debtor to pay a just debt which he alone actually and primarily owed, and thus relieves those whose liability is a secondary one.
It will be seen, from what has above been said, that the majority and minority rule are each based upon the right or duty of the bank to apply the deposits in the manner above indicated, or not to apply it, as the case may be. In other words the rule, either majority or minority, is not based upon a statutory lien.
In this state banks by statute are given a general lien, dependent on possession. Section 6868, C. L. 1913, reads thus: “A bank has a general lien, dependent on possession upon all property in its hands, belonging to a customer for the balance due to him from such customer in the course of the business.” Hence, the majority rule above referred to does not apply in this case where there is a statutory lien.
In those cases, there was no statutory lien, nor any lien at all but the mere right claimed by reason of the relation of debtor and credi*454tor of the bank to offset the debt owing from the depositor to it, against the debt owing by the bank to the depositor on account of the debtor’s deposit, then in the bank.
The majority rule is also that the creditor shall present the note to the maker at maturity, and, if dishonored, to use due diligence in giving notice to surety; that there shall be no extension of time given without the consent of the surety; that the creditor will apply, in payment of the debt or hold in trust for the benefit of the surety, all securities which he may procure for that purpose by contract or operation of law, and use due care in the protection and care of such securities, so that if compelled to discharge the debt the surety may be subrogated to them.
The majority rule also recognizes that a mortgage, pledge, or lien constitutes security. In this case, the bank had a lien upon the deposits of its depositors by operation of law.
In the case at bar, the plaintiff had security by reason of such lien. It could have charged up against several of the makers of the notes which were guaranteed by the defendant, the amount due upon such notes, having in its banks deposits sufficient for that purpose belonging to them.
Equity and justice required that it should have done so. It was the absolute owner of the notes. The makers of the notes were primarily liable; the defendant was secondarily liable. The plaintiff had a legal right, having the notes in its bank, in its possession, and the deposits by the makers thereof, in its bank in its possession, and the statutory lien thereupon, to charge such notes against the respective deposits, and it was its duty to do so, and defendant should be released from his obligation as guarantor to the extent that the .respective deposits were not so applied by the plaintiff, when any of the debtors herein had a deposit in the bank after the maturity of his note, it appearing that plaintiff, at all times in question, was the owner of the notes and had possession thereof.
In view of the statutory lien afforded banks in this state, such lien must be considered a security, and,' as such, the defendant was entitled to the benefit of a mortgage or other security of any of the notes which he sold the bank, the payment of which he guaranteed. In this regard, the reasoning and rule applied in the cases which hold to the majority *455rule above mentioned sustains this position. The statutory lien of the bank on the deposits of the primary debtors, in the circumstances of this case, amounts to an actual security and enforceable lien. It is made so by operation of law, and is just as much a lien as if it were created by the contract of the parties in pursuance of law. It thus became the duty of the plaintiff to protect such security. This, under the principle laid down in the majority rale above stated. The bank should be held to the same degree of care in the protection of this class of security as any other.
The majority opinion, in part, excuses the negligence-of the plaintiff in this regard on the theory that the bank might impair the good will of its patrons if it were required, in the circumstances of this case, to charge, against the deposits, any notes owing by the depositors. Such contention has no merit whatever. The question in this case is not whether the plaintiff’s business may or may not be benefited. The main question in this case is: What are the legal rights of the parties as defined by the statutes of this state or principles of law which are based upon justice and equity? The question presented is not one of policy, but of law. It should be decided in accordance with law, justice, and equity.
An extended discussion of the entire subject is contained in a note to 8 L.R.A. New Series, p. 945.