American Cattle Services, Inc. v. Security National Bank & Trust Co.

Citations: 620 P.2d 906; 1980 OK CIV APP 21; 1980 Okla. Civ. App. LEXIS 99Docket: No. 52324

Court: Court of Civil Appeals of Oklahoma; April 21, 1980; Oklahoma; State Appellate Court

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An appeal has been filed by Security National Bank of Norman, Oklahoma (Appellant) against a judgment in favor of American Cattle Services, Inc. (Appellee) regarding a dispute involving Mike Vanzant, who is not part of the appeal. Vanzant owed the Appellant for loans related to his cattle operations and was allowed to sell part of his stock to address his overdue payments. Vanzant engaged Appellee to conduct the sale, with the understanding that the proceeds would be used to pay off his debt to the Appellant. 

A check for the net sale proceeds, however, was issued to Vanzant for an amount exceeding his due balance by $7,770 due to an accounting error by Appellee. Unaware of the error, Vanzant endorsed the check to the Appellant for deposit. The Appellant, believing the check was valid, utilized the funds to settle Vanzant's debts. Appellee later discovered the mistake and sought the return of the $7,770 from the Appellant, which was refused, leading to litigation based on conversion.

The trial court ruled that there was no wrongdoing by any party but determined that the Appellant's claim to the funds under a "banker's lien" or right of set-off only applied to the extent of Vanzant's ownership, which did not include the disputed $7,770. Consequently, the court awarded judgment to the Appellee against both Vanzant and the Appellant for that amount, with a judgment in favor of the Appellant against Vanzant for any payments made to the Appellee. The Appellant's appeal is based on the assertion that the trial court did not find that the Appellant was unaware of Appellee’s accounting error prior to exercising its right of set-off.

The Court was incorrect in ruling that the appellant Bank's rights limited to the ownership stake of defendant Vanzant in the funds. The appellant argues that its actions were justified regardless of fund ownership, as long as it had no prior knowledge of any claims by parties other than its customer. This argument is based on the "Banker's lien" statute (42 O.S. 1971, § 32) and the common law right of set-off, supported by the case Gillette v. Liberty National Bank of Tulsa. The statute grants banks a general lien on all property in their possession belonging to a customer for debts owed by that customer.

A distinction exists between a bank's lien on a customer's property in its possession and the right to set-off against a general deposit, which is considered the bank's property, creating a debtor-creditor relationship. For the defendant to apply a deposit to his debts, either the funds must be Vanzant’s or the deposit must establish a debtor-creditor relationship between Vanzant and the bank. Since all parties confirm that the $7,770 does not belong to Vanzant, the appellant cannot succeed on the lien theory. Therefore, the focus shifts to determining whether Vanzant's deposit with the appellant constituted a general deposit.

A general deposit is defined by Oklahoma law as money given to a bank without the requirement to keep it separate from other funds, which creates a debtor-creditor relationship between the bank and the depositor. In Shull v. Town of Avant, the court clarified that a deposit becomes a general deposit when it is not subject to withdrawal restrictions. In this case, the check in question was not credited to Vanzant’s account, and testimony indicated that the funds were intended to be applied to a note, not deposited. Therefore, it was not a general deposit and did not allow for the bank's right to set-off against it. The court affirmed the trial court's decision, noting that the absence of notice is only relevant for general deposits, which this was not. As such, the Appellant's actions were unauthorized, and all costs, including those for the appeal, were assigned to the Appellant. The decision was affirmed with concurrence from Justice Romang.