February 21, 1934. The opinion of the Court was delivered by Some time during the year 1919, Francis F. Carroll executed his bond and mortgage to the Bank of Dorchester for the sum of $2,700.00, which bond was to become due February 1, 1920. The 1st day of December, 1931, the Bank of Dorchester assigned the bond and mortgage to Peoples State Bank of South Carolina. About August 5, 1922, Francis F. Carroll conveyed the mortgaged premises to J. Waties Waring in trust for Frances Eloise Carroll and Julia Reynolds Carroll (the children of Francis F. Carroll), in fee-simple absolute. Peoples State Bank became insolvent and closed its doors December 31, 1931. The plaintiffs are the duly appointed receivers thereof, and bring this action to foreclose the Carroll mortgage. His daughters and J. Waties Waring are made parties because they have, or claim, some interest in the mortgaged premises.
For answer Francis F. Carroll set up, first, the conveyance of the premises to J. Waties Waring, as trustee for Frances Eloise and Julia Reynolds Carroll, who now own the property; second, that in January, 1919, he was appointed by the Probate Court the general guardian of his daughter Julia, who is a minor; that as such guardian he *Page 278 received certain moneys of his ward, and on December 31, 1931, had the sum of $1,169.29 of her money on deposit in the savings department of Peoples State Bank of South Carolina; that the bank knew that this defendant was obligated to take care of the funds of his ward, and that a default by the bank to return this money to him would render him personally liable to his ward for such loss, nevertheless, the bank permitted itself to become insolvent, and refused, and refuses to pay the defendant the amount of said deposit with interest; that the bank personally agreed with him to return this money on demand and had violated its contract; that he is entitled to a set-off against the note and mortgage to the amount of such deposit; that his ward owns a half interest in the mortgaged premises, and any reduction in the mortgage debt will redound to her benefit.
Frances Eloise Carroll answered, denying knowledge or information of certain allegations of the complaint, that by reason of the deed of Francis F. Carroll to J. Waties Waring as trustee, she owns an interest of one-half in fee simple in the mortgaged premises; that, when the Peoples State Bank closed its doors, she had in one of its branch banks the sum of $503.00 as a deposit in the savings department. She claims the right to offset said deposit, pro tanto, against the mortgage debt.
J. Waties Waring answered that his trust is a passive one, and he has no interest in, title to, or possession of, the mortgaged premises in trust or otherwise.
Plaintiffs demurred to the answer of Francis F. Carroll, for that it appeared on the face thereof that the offset claimed is a deposit of money belonging entirely to the ward of the defendant Francis F. Carroll; that such funds are not within his unlimited control, nor can they be subjected to the individual debts or obligations of this defendant; that there is no mutuality between the debt due by the defendant Francis F. Carroll, individually, and the debt due by plaintiffs to him, as guardian; that the personal responsibility *Page 279 of the guardian to his ward, alleged in the amended answer, is a mere conclusion without proper allegations of fact to support it.
They demurred to the answer of Frances Eloise Carroll, for that it appears on the face of it that the complaint alleges no debt due by her to plaintiffs, nor is any judgment or affirmative relief demanded of her; hence the matter of offset does not arise; that it appears by the pleadings that whatever interest this defendant has in the mortgaged premises, herein involved, is subject to the lien of plaintiff's mortgage, which fact is not controverted by the answer; therefore the offset or counterclaim, which she alleges, cannot be set up in this action for foreclosure.
The demurrers were considered by his Honor, Judge Mann, who sustained them in a short order in which he assigned no grounds for his decision. The appeal is from that order.
Francis F. Carroll bases his appeal upon grounds stated in four exceptions. The first of these alleges error for sustaining the first ground of demurrer and in holding that the offset claimed by defendant was the property entirely of his ward, Julia Reynolds Carroll, and was held by him as guardian, was not within his unlimited control, nor subject to the payment of his individual debts; whereas he should have held that defendants' claim of offset was for damages for breach of contract by the bank for failing to pay him on demand the amount of said deposit.
A reference to the allegations of the second paragraph of the second defense interposed by this defendant disposes of this exception: "Second: That this defendant after his appointment as such General Guardian, received certain sums of money belonging to the estate of his ward, Julia Reynolds Carroll, and from the moneys so received by him for his said ward he had on the 31st day of December, 1931, the sum of One Thousand One Hundred and Sixty-nine Dollars and Twenty-nine cents on deposit in the savings *Page 280 department of Peoples State Bank of South Carolina, the said deposit being payable and demandable at its branch bank located at 544 King Street in the City of Charleston, S.C. which deposit said Peoples State Bank of South Carolina, a corporation duly organized under the laws of the State of South Carolina and doing a general banking business, agreed personally with this defendant to take good care of, and to pay and return and to hold itself at all times able and in readiness to pay and return same to this defendant, theGeneral Guardian of said Julia Reynolds Carroll, at any time that he might demand same or any part thereof."
It is difficult to comprehend how defendant can offset an unliquidated demand for damages for the failure to pay to defendant his ward's money, without some showing in fact that the failure to do so would make him personally liable to the ward.
And this brings us to consider here the third exception, which alleges error for sustaining the third ground of the demurrer, to wit: That the personal responsibility of the guardian to his ward, alleged in the complaint, is a mere conclusion not sustained by proper allegations of fact. Under certain conditions, the guardian would unquestionably be responsible for losses of bank deposits belonging to his ward, and other conditions might arise where no responsibility would exist. For instance, if the guardian made his bank deposit without complying with the provisions of Section 9050 of the Code, which requires the approval of the Probate Judge, he would be personally liable for the loss; whereas, with such approval, he would be held blameless. See Oakes' Estate v. Oakes, 170 S.C. 167, 169 S.E., 890.
But, even though there should exist a personal liability of the guardian to his ward based upon his failure to obtain the approval of the Probate Judge as to this bank deposit, of which there is no allegation, we do not see how this fact can aid the guardian in his contention that he is entitled to an offset against his personal debt to the bank of the amount *Page 281 which he himself is due his ward. If he had complied with the statute, no personal liability would have existed, and hence no basis for an offset. Surely he cannot be rewarded with an offset for failing to comply with the statute.
If he deposit the funds in his own name and loss occurs, he is generally held responsible to the ward. In the case here present the funds are shown by the answer of Francis F. Carroll to have been known to the bank as the funds of the ward. No presumption of his responsibility to his ward arose by the mere failure of the bank, and no facts are alleged in his answer to show that such responsibility would attach to him individually. This likewise disposes of the fourth exception. There was no error in sustaining this ground of the demurrer.
The serious issue is made by the remaining exception of Francis F. Carroll. Appellant seems to seek to differentiate the claim he makes for the payment to him of the deposit fund as a payment to him individually for breach of contract to repay to him the deposit fund on demand, from a claim for payment in his representative capacity as guardian. The only fund he deposited was that of his ward; it was deposited to his credit as guardian; and he has shown no facts which ipso facto by the failure of the bank would entail liability on him. If he can offset this fund against the bank's debt against him, it must be because of some right accruing to him in his representative capacity.
The modern trend is toward more liberality in the application of the rule of offset. Some states have enacted statutes on the subject, and some Courts have construed existing rules in a broader spirit of abstract justice and equity. A review of such of these decisions as are within reach discloses that the old established rule of offset is relaxed only where some statute applies or where some special equity or responsibility requires it. For instance, where a fiduciary seeks to offset the debt which he owes with the debt owed by his creditor to the fiduciary's cestui que trust, it will be *Page 282 allowed only when it is made to appear that the fiduciary is individually responsible to the cestui que trust.
In the case of Coburn v. Carstarphen, 194 N.C. 368,139 S.E., 596, 597, 55 A.L.R., 819, it appears that the defendant, as county treasurer of Martin County, had on deposit in an insolvent bank which closed its doors certain funds of the county, and that he was indebted to the bank individually. He sought the application of the rule of setoff.
The Supreme Court, quoting from Dameron v. Carpenter,190 N.C. 595, 130 S.E., 328, said: "A set-off is in the nature of a payment or credit when the debts are mutual. * * * Set-off exists in mutual debts, independent of the statute of set-off. Its flexible character is used in equity to prevent injustice."
The Court said further: "In the instant case, although the deposit in the sum of $2,801.91 was made by defendant with moneys belonging to Martin county and stands on the books of the bank in his name as treasurer, he is personally liable to the county for the moneys received by him as treasurer. He is solvent, and must account to the county for the amount of the deposit. As between the bank and the defendant,the bank is liable primarily to the defendant, and not tothe county. * * *"
The Court continues thus: "In Funk v. Young, Trustee,138 Ark. 38, 210 S.W. 143, 5 A.L.R., 79, it was held that the maker of a note to a bank, which thereafter became insolvent, may offset his indebtedness to the bank upon said note, by a deposit in his name as trustee, where he was personallyliable to his cestui que trust for the amount of thedeposit." (Italics added.)
The case of People v. California Safe Deposit Company,168 Cal., 241, 141 P., 1181, L.R.A., 1915-A, 299, is cited.
A number of cases are cited in the annotation to the case of Funk v. Young, Trustee, in 5 A.L.R., 79, but all of *Page 283 them seem to rest upon the proposition that the depositor was personally liable to the cestui que trust, and the depositwas not earmarked as the property of the cestui que trust.
In the case of Hanson v. Bank of Lagrange,39 Ga. App., 380, 147 S.E., 124, the syllabus is in these words: "Where a person deposits in a bank money which does not belong to him, but which in fact he holds in a fiduciary capacity for another, and the deposit is made in his own name with a mere descriptio personae following it, as a deposit by C.W. Hanson, pastor First Christian Church, Lagrange, Georgia,' the depositor may, after the bank has afterwards become insolvent and is in process of liquidation, set off the fund so deposited against his own pre-existing personal obligation due by him to the bank."
In the discussion of the case the Court said: "The bank, without any knowledge of the fiduciary character of the fund, would have been protected, as against the beneficiary, in accepting the fund from the depositor in payment of the depositor's debt to the bank. This is supported in principle by Ruan v. Gunn, 77 Ga. 53. The bank, however, even withthe consent of the trustee who deposited the money, couldnot, as against the right of the true owner or beneficiary, appropriatethe fund, with knowledge of its fiduciary character,to the payment of the pre-existing debt of the depositor.American Trust Company v. Boone, 102 Ga. 202,29 S.E., 182, 40 L.R.A., 250, 66 Am. St. Rep., 167." (Italics added.)
A decision handed down by the United States Supreme Court November 23, 1933 (290 U.S. 143, 54 S.Ct., 113,114, 78 L.Ed. — ), in the case of Dakin v. Bayly, holds that: "The conclusion is that, while the Clearwater bank individually owed the receiver of the St. Petersburg bank, the latter did not owe the former, but at best the claim was made as an agent. If this be true, set-off may not be allowed, for a defendant sued upon his individual debt may not avail himself for this purpose of a demand against the plaintiff *Page 284 held in a fiduciary capacity." Citing Central Nat. Bank v.Connecticut Mutual Life Insurance Co., 104 U.S. 54,26 L.Ed., 693; Libby v. Hopkins, 104 U.S. 303,26 L.Ed., 769; Western Tie Timber Co. v. Brown, 196 U.S. 502,25 S.Ct., 339, 49 L.Ed., 571; United States v. Butterwith-JudsonCorp., 267 U.S. 387, 45 S.Ct., 338,69 L.Ed., 672; Thomas v. Potter Title Trust Co. (D.C.),2 F. Supp. 12."
This late utterance of the highest Court in the land is convincing that the old rule of offset holds good in spite of modern relaxations in the application of it.
It is not difficult to discern the line of distinction between the cases above discussed and the case now before this Court.
The pleadings do not show that this appellant has become individually liable to his ward by the failure of the bank. It does appear that the bank had full knowledge of the fiduciary character of the deposit; it is patent that, if the bank had, before its insolvency, applied the deposit to an individual debt owed to it by appellant, it would have been liable to the ward for such misapplication. With what degree of consistency, then, can it be argued that the appellant may compel the receivers of the bank to apply the deposit to his individual debt?
It seems clear that this case falls directly within the long established rule governing offset, to wit: "In the absence of statutory provisions to the contrary, and subject to exceptions hereinafter to be considered, it is a broad general rule of practically universal application that to warrant a set-off the demands must be mutual and subsisting between the same parties, and, furthermore, must be due in the samecapacity or right, and there must be mutuality as to thequality of the right." (Italics added.) 57 C.J., 444, 445.
"To be mutual the cross-demand here set up must be shown to belong individually to the defendant with corresponding right to sue for the same in his individual name." *Page 285 Hunter v. Henning, 259 Pa., 347, 103 A., 61, 62; Note A, 57 C.J., 445.
"It is held as a general rule that in equity, as at law, the right of set-off is reciprocal, and only mutual claims and such as are in the same right can be set off." 57 C.J., 446, § 96.
"Agreement between a trustee and the bank, which had a deposit of his individual funds and the funds of his beneficiaries, that a claim of the trustee as such be set off against a claim against him in his individual capacity would be unlawful, in the absence of consent by the cestuis que trustent."Sanford v. Pike, 87 Or., 614, 170 P., 729, 171 P., 394.
The case of Smith v. Bath Loan Bldg. Ass'n, decided by the Supreme Judicial Court of Maine, reported in126 Me., 59, 136 A., 284, 288, 50 A.L.R., 526, holds as follows: "It is well settled that the equitable right of set-off is not dependent upon the express provisions of statute, but is derived from the rules of the civil law, and founded upon principles of natural equity and justice (Crummett v. Littlefield,98 Me., 317, 56 A., 1053), but it is equally well settledthat the general rule in equity, as well as at law, is thatdemands, to be set off, must be mutual, and that debts accruingin different rights cannot be set off against eachother [Italics added]" — citing Rodick v. Pineo,120 Me., 160, 113 A., 45; Merrill v. Cape Ann Granite Co.,161 Mass. 212, 36 N.E., 797, 23 L.R.A., 313.
The case at bar is controlled by this well-established rule of equity, and it is manifest that Francis F. Carroll cannot offset the deposit funds in the bank in his name as guardian of Julia Reynolds Carroll against his individual debt to the bank.
The defendant Francis F. Carroll is the general guardian of Julia Reynolds Carroll, and appears for her as guardianad litem in this action. He seeks to set off against his personal debt to the bank the funds of his ward. His interests and hers are antagonistic. If the set-off claimed be allowed, *Page 286 the bank will still be liable to the ward. Her guardian adlitem has interposed for her a merely formal answer. Under the authority of the case of Simpson v. Doggett, 159 S.C. 294,156 S.E., 771, she could hold the bank liable to her for the funds thus misapplied.
The exceptions of Frances Eloise Carroll are two in number, and stand upon the proposition that, because she is a half owner of the mortgaged premises, and therefore interested in reducing the mortgage debt, she is entitled to offset against the mortgage debt of Francis F. Carroll to the bank the deposit of $503.00 which she, Frances Eloise Carroll, had in the bank when it failed.
The interest of this appellant in the mortgaged premises arose by the conveyance to her and her sister after the lien of the mortgage had attached to the property. They took it subject to the lien of the mortgage, and their equity lies in the excess of the value of the land over the mortgage debt. There is no mutuality of debts between the bank and this appellant, and hence there can be no set-off.
The exceptions in her behalf are without merit.
To allow the offsets claimed by these appellants would be to give them a preference over other simple depositors, which would run counter to the canon of the law laid down in Livingstain v. Banking Co., 77 S.C. 310, 57 S.E., 182,184, 22 L.R.A. (N.S.), 442, 122 Am. St. Rep., 568, to wit: "No rule of equity appeals more to the judicial conscience than that which requires the assets of an insolvent corporation to be distributed ratably among creditors."
The exceptions in behalf of both appellants are overruled, and the order appealed from is affirmed.
MR. JUSTICE STABLER concurs.
MR. CHIEF JUSTICE BLEASE did not participate.