
    Mrs. M. S. MOORE v. GREENVILLE BANKING AND TRUST COMPANY.
    (Filed 21 March, 1917.)
    1. Judgments — Pleading's—Evidence.
    When judgment is rendered against a litigant upon the pleadings, the averments in his favor will he taken as true and interpreted in a light most favorable to his claim.
    2. Banks and Banking — Deposits—Set-offs—Equity—Fraud—Insolvency.
    While ordinarily the requirements at common law, or under statutes applicable, forbid a debt due by a partnership to a bank, or by a principal on a note, to be set off by the bank against a deposit of one of the partners, or of a surety, this doctrine is modified in equity when toy reason of the insolvency of the parties the question is reduced, as a matter of fact, to one of mutual indebtedness between the bank and its depositor, and it is necessary to allow the set-off to the bank, in whole or in part, to prevent a palpable miscarriage of justice.
    8. Same — Partnership—Husband and Wife.
    Where a husband has deposited his own money in a bank in his wife’s name, and accepted by the latter without knowledge of the fact, and he and another, as partners, have become indebted to the bank on a partnership note, signed by each as sureties, and the partnership and the individual members are insolvent, in an action brought against the bank to recover the deposit, it is Held, that the defendant may off-set the indebtedness due to it on the note; and were the same not strictly permitted as a set-off, such defense will be considered as a bill in the nature of an equitable fi. fa. as property not available to creditors under ordinary legal process.
    1. Banks and Banking — Deposits—Fraudulent Gifts — Husband and Wife— Statutes.
    Where the wife participates in her husband’s depositing his money in her name at a bank for the purpose of defrauding his creditors, the attempted appropriation is void by our statute to prevent fraudulent gifts, Revisal, secs. 960-962; and in an appropriate action the deposit will be considered and dealt with as if it stood in the name of the husband.
    Civil actioN, beard before Lyon, J., and a jury, at November Term, 1916, of Pitt.
    Issues were submitted, and the jury having failed to agree upon a verdict, they were discharged from further consideration of the case, and thereupon, on motion, his Honor gave judgment for plaintiff on facts as admitted in the pleadings, and defendant, the bank, excepted and appealed.
    
      W. F. Evans and F. G. J ames & Son for plaintiff.
    
    
      Albion Dunn and Skinner & Cooper for defendant.
    
   Hoxe, J.

Tbe action was instituted by plaintiff against tbe Banking and Trust Company, to recover tbe balance of a deposit standing in ber name on tbe books of defendant bank. On facts set fortb in tbe answer defendant prayed tbat it might offset against tbis claim, or a portion of it, an indebtedness due tbe bank from plaintiff’s bus-band, W. M. Moore, and tbe partnership of Hall & Moore, of which be was a member. On motion, said W. M. Moore has been duly made a party and filed an answer in denial of tbe right claimed by tbe defendant bank.

On issues submitted tbe jury failed to agree, and, having been dulv discharged, as stated, from further consideration of tbe case, judgment was entered for plaintiff on tbe facts .admitted in tbe pleadings.

From these facts, taken from tbe admissions and averments of defendant bank more directly relevant to tbe question presented, it appears tbat in tbe fall of 1915 tbe husband made a deposit in tbe bank in bis wife’s name to tbe amount of $6,000, and tbis deposit was recognized by tbe bank and plaintiff allowed to check thereon, reducing tbe same, on 2 February, 1916, to $3,744.38; tbat during tbis year, 1915, after 2 February, 1916, tbe firm of Hall & Moore, composed of W. M. Moore, now a defendant, and W. L. Hall, carrying on a mercantile and insurance business, in tbe course of said business, bad continued dealing with defendant bank, and, to secure any indebtedness which might be due to defendant, executed tbe demand note of tbe firm to tbe bank in tbe sum of $2,000, said note being also executed by said W. L. Hall and W. M. Moore, tbe individual members of tbe firm; tbat in tbe fall of 1915, tbe firm being indebted for as much or more than tbe amount of said note, demand was made for payment of same and was told by Moore tbat be would never pay tbe debt, and “to get it out of him if they could”; tbat thereupon defendant began an investigation into tbe affairs of tbe firm and its members, and ascertained tbat said firm was insolvent; tbat Hall was also insolvent, and tbat defendant W. M. Moore bad no property whatever available to creditors except bis interest in tbe deposit in question, now standing in tbe name of bis wife, tbe feme plaintiff. Averment is made, further, tbat tbis deposit and claim is in fact and in truth tbe property of said W. M. Moore, tbe bank’s debt- or, and was made by him in bis wife’s name, without valuable consideration moving from ber, with intent to withdraw bis property from tbe reach of bis creditors and to avoid payment of bis debt due to plaintiffs and others; tbat tbe plaintiff was knowingly a participant in tbe fraudulent act and purpose of ber husband, and if defendant is not allowed to appropriate tbe indebtedness as prayed, be will be without relief in tbe premises and lose entirely tbe value of bis debt and claim against said W. M. Moore.

These allegations of ownership on the part of the husband and of unlawful and fraudulent act or intent on his part are all fully denied by plaintiff and by her husband, but, assuming the averments of defendant bank to be true, and giving them the interpretation most favorable to its claim, the rule which should prevail when a judgment is entered against a litigant on the pleadings, we are of opinion that the defendant is entitled to have the cause submitted to the jury on appropriate issues.

This right of a bank to appropriate a debt in payment of a deposit is referable to the principle of set-off, dependent, in a court of law, on the construction of the different statutes applicable, but existent, also, as an equitable principle independent of positive statute when necessary to prevent a miscarriage of right. In 3 Ruling Case Law, p. 591, title “Banks,” and sec. 219, it is said to obtain “between persons occupying the relation of debtor and creditor and between whom there exist mutual demands, and it is familiar law that mutuality is essential to the validity of a set-off, and, in order that one demand may be set off against another, both must mutually exist between the same parties.”

It is held here and in other jurisdictions that this requirement of mutuality ordinarily forbids that the debt of a partnership may be set up against the claim of an individual partner who is a depositor. Hodgin v. Bank, 124 N. C., 540; Adams v. Bank, 113 N. C., 332. And the same principle usually prevails in a suit by a surety for his individual deposit. The bank may not apply, in satisfaction of such a claim, the amount of a note in which he is only a surety. Lamb v. Morris, 118 Ind., 179; Morse on Banking, sec. 326. But these strict applications of the principle of set-off, as it prevails at law, may be and are properly modified when by reason of the insolvency of the parties the question has been reduced as a matter of fact to one of mutual indebtedness between the bank and the claimant and it is necessary to allow an appropriation of the debt to prevent a palpable miscarriage of justice. Sloan v. McDowell, 71 N. C., 356; March v. Thomas, 63 N. C., 87; Rolling Mill Co. v. Ore and Steel Co., 152 U. S., pp. 596-615; Barnes v. McMullins, 78 Mo., pp. 260-271; 2 Story’s Eq. Jur., sec. 1437a; 3 Ruling Case Law, pp. 591-592.

In the citation to Story the position is stated as follows: “The authorities upon this question are considerably examined, and the following results arrived at, in a late case. The general rule, in equity as well as at law, is that joint and separate debts cannot be set off against each other. But while -at law the rule admits of no 'exceptions, and the parties to the record only will be regarded, a court of equity will, in a case of insolvency, regard the real parties — those ultimatey to be affected by the decree — and allow a set-off of demands in reality mutual, although prosecuted iu the name of others nominally interested. Courts of equity exercised a jurisdiction over the subject of set-off previous to the enactment of the statutes upon the subject; and their jurisdiction does not in any manner depend upon these statutes.”

And in Rolling Mill v. Ore and Steel Co., supra, Associate Justice Jackson, delivering the opinion, said: “The adjustment of demands by counterclaim or set-off, rather than by independent suit, is favored and encouraged by the law to avoid circuity of action and injustice (citing Ry. Co. v. Smith, 21 Wall., 255). By the decided weight of 'authority it is settled that the insolvency of the parties against whom the set-off is claimed is a sufficient ground for equitable interference,” citing numerous authorities, and further: “In Schuler v. Israel, 120 U. S., 506, 510, it was said by Mr. Justice Miller, speaking for the Court, that “While it may be true that in a suit brought by Israel against the bank it could in an ordinary action at law only make plea of set-off of so much of Israel’s debt to the bank as was then due, it could, by filing a bill in chancery in such ease, alleging Israel’s insolvency, and that if it was compelled to pay its own debt to Israel the debt which Israel owed it but which was not due would be lost, be relieved by a proper decree in equity; and as a garnishee is only compelled to be responsible for that which, both in law and equity, ought to have .gone to pay the principal defendant in the main suit, he can set up all the defenses in this proceeding which he would have in either a court of law or a court of equity.”

In the present instance, as we have seen, the claim of the defendant bank is against both the partnership and the individual members who indorsed its note as sureties, and, under the doctrine recognized and approved by these and like authorities on the subject, if the facts should be established as alleged and contended for by defendant bank, the right of appropriation, to the extent required to satisfy the claim, would arise to the bank, and the defendant is therefore entitled, as stated, to have the questions determined on proper issues. And the principle’ is in no way affected by the fact that the deposit now stands in the name of the plaintiff, the bank having taken it in ignorance of the true conditions affecting its rights. If, as defendant avers, it was in fact and truth the husband’s property, and placed in the wife’s name with intent to defraud creditors and the husband being insolvent, she was a volunteer, or if she participated in the fraudulent purpose, in such case the attempted appropriation is avoided by our statute to prevent fraudulent gifts and conveyances, Revisal, secs. 960-962, and the question can, for the purposes of this defense, be considered and dealt with as if the deposit stood in the name of the husband, a course pursued with approval in Citizens Bank v. Garnett, 21 Kan., 354, an apt authority for the disposition we make of the present appeal.

Even if the doctrine of equitable set-off did not, in strictness, apply on the facts alleged in the answer, the defendant would be entitled to have its defense considered as a bill in the nature of an equitable fi. fa., the property in question not being available to creditors under ordinary legal process. Mebane v. Layton, 86 N. C., 572; Bank v. Harris, 84 N. C., 206; Tabb v. Williams, 57 N. C., 352; Harrison v. Battle, 16 N. C., 541. We have disposed of the present appeal on the issuable facts alleged by the defendant, that this deposit was the property of the husband placed in the name of the wife with intent to defraud the husband’s creditors, and have purposely refrained from discussing the evidential facts also appearing in the pleadings, that the deposit in question was part of the proceeds from the sale of a piece of property held by the husband and the wife as an estate by entireties. What may have been the nature of the original investment in this property, and what the effect of the subsequent sale and any agreement that may have been made by the parties concerning it or the proceeds from it can best be determined when the evidence has been more fully disclosed on the trial of the issue.

There is error, and this will be certified that the cause may be submitted to the jury.

Eeversed.  