,E!lIw nrIJ N· ·
, iJ Mt oftt *lMIlBt thenbte,tl!r.ll annount of 'lliS'.deposits in ,the' bank at the ,time of ita
:' t '. J
8utiihett8'v.SQh'lichmann;82' Mo. App. aas;, dilla:ppro'Veo·.
i ' .'.: ".
$pott, I;l6 Fed. Rep. 68, anO
( iO UnHed states for the Eastetri ,', ".,', : ' .... . . 'Robert' 1\1:; YiitcUey, ,receivl3r of the ational Bank, the promissortnotes. it.& ofe1d., ill.at" . 'In the banke.,n. tI.the tunes.e.t.. its faIlure, and .. . till.d. :t?,.. .Off e hil:lllevosits at of entete(f'Jlfidgfrient for as provided' the' caSe Fed. error., , .· " ' Rep. slVliUr..·'PtUitjo(johnR:'.Read and H; on the brIef,) for plain-
" , ' ',. '
.' 'BefOte1)4LtAS, Cifcnif5iiU'ge, and W;.iLl!:S'IUld GREJl:N,District Judges.
;t:J " :,+ 1, : , : 1 .
:for' dElf\fudlint ineiTor:: ,,'
actions Bank, as the ,9f three of' ,t1)e ltIIlOunto' by the bank tor the de(endant before date of Its Insolvency, not mature . and' :0911nd before the b.r the, examiner' it was indebted'to the' oti' hi$ account' 'depositor; ,of $1;127. w remains unpaid, and the deUmdallt claimed the right to set off so much of this deposit as would be sufficient for the payment of the notes. It is wsigned for error that the court below rendered judgment for the defendant in each case. It is not strenuously denied that if the notes in suit had matured before the date of the bank's insolvency the right to set off a portion of the deposit equal to their amount would have been perfect; but it is contended that, the rights of the parties having become fixed at the date of the insolvency, to now allow the set-off' of subsequently maturing notes in the hands of the receiver would effect a preference to the defendent over other creditors, and thereby violate certain provisions of the national banking act. 'l'he provision chiefly relied on is that contained in section 5242 of the United States Revised Statutes, which provides-
J udge.',;i'The case sta
"That all transfers of the notes, bills of exchange, or other evidence of debt owing to any national banking association, or of deposits to its credit; all assignments of mortgages, sureties [securities] on real estate, or of jUdgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its shareholders or Cr81iltol'S, and aU
payments of money to either, :made after the oommissionof an act of insol" veney, or in contemplation thereof, made with to prevent the application of its assets in tM manner prescribed by this chapter, or with a the pl'eferellce of one creditbr. to another, except in 'the payment of its circulating Ilotes,-shall be uttefly Dull arid void." The rule of set-off is well understood to be that in all cases of mutual credit only the balance that shall appear to be due upon an adjudication of the mutual accounts should be paid, and it is that balance only which is the debt and is recoverable;. that mutual dbligations for the payment of money cancel each other; and. that the death or insolvency of either party will make no difference in the adjustment of their mutual accounts. This rule may be modified by exceptional circumstances, or by statute, but is getierally applied ashere stated. haS)een frequently objected to in the distribution of insolvents' assets and in the settlement of decedents'estates for the reason that it would create preferences among creditors, but the controlling weight of authorityhlis established·the doctrine that, in the absence of expreSS statutory prohibition, a set-off of it debt owing to the defendant will be allowed if it was due when the creditor's rights attached, whether the debt 8ue.d on was due at the same time or matured subsequently. In Skiles v. Houston, 110 Pa. St. 254,2 Atl. Rep. 30, the defendant was sued by Skiles, as the administrator of Henderson, on a promissory note which Hendersonhad discOUJ:lted for the defendant before his death, and which matured subsequently. Henderson had been a banker, at whose banking house the defendant kept a running account, Ilnd had on deposit there at the time of Henderson's death an amount nearly equal to that of the note, against which he claimed to set off the depol'it pro tanto. . Henderson's estate at his death WIIS utterly insolvent. The objection was made that to allow the set-oft' would be, in effect, to prefer a creditor, and interfere with the due administration of the estate; but the court said: "When the plaintiff's intt-state died he was already indebted by a complete and perft.'ct obligation to the dl'fendant Houston. Suit could have been brought immediately by Houston, and recovery had for the wbole amount, notwithstanding the note held by Henderson against Houston, because the latter was not yet due. !tis evident, then, that when upon Henderson's death the note against HOllston passed to his administrator, it did so clogged With the whole of Henderson's debt to HOllston, for the very reasoll that it was a perfected debt at the time of Henderson's death. Nor, in such case, is Henderson's insolvency at all m.aterial." In Bosler's Adm'r v. Bank, 4 Pa. St. 32, in which the facts were the reverse of those in Skiles v. Houston, the court decided that the set-off was not allowable for the simple reason that it would disturb the course to the bank by Bosler did not of administration, because the d.ebt mature until after the death of the intestate, who had died insolvent, while the debt of the bank to Bosler was due at the time of the latter's death, and in the mean time the right of creditors of his estate had intervened. The decision in this last case has been commented on and explained by the same court on several occasions. In liight v. Leininger, 8 P a. St. 403, it was held that a debtor may set off a debt due him by
his.creditCit at the time of the latter's death, though the estate of the anil the cOijrt there said: Bosle1'" Adm''/' v. Bank, upon which the plaintiff hung his hopes', is not'in point. The decision in that case went on the grollnd that the character of the claims was fixed at the time of the decedent's death; and, the l10te of the defendant in that case was not due, his representative was entitle(Hodemand and receive from the bank the amount of the deposit of the
InJorda1iv. Sha1'l,ock, 84 Pat St. 366, the court said: "When l30sler died, the bank had no debt for which it could sue, while Bosler'sJ!ight of action was perfect before his death. But at the moment of his dea,:th the law took poseession of his estate for the benefit of his creditors, he .. It was, nqt the case ofa mere voluntary transfer, but new riKhts sprung into being on the instant of his death." v.Houston, sUErfL, the court makes the following comment: "In, present case. the right pf set-off already existed at tho time of .the plaintiff's [intestate's] death. But if it already existed it would be an anomaly that it is taken away by the nOllmaturity, at that same time, of the decedent's claim against . Plaintiff's counsel admit, and it is undOUbtedly true, that iNhe intestate's claim against the defendant was mature at the intestate's death, the right of set.off was complete. Why was it not equallyc()mplete in caseot tlle immaturity of the intestate's claim? Certainly notbecau$e of anything decided in Bosler'S Adm''/' v. Bank, because that ,decision denied the right only because it did not exist at the death of the as other intervened at the moment of the death, they could not be impaired by R'right which odly came into existence sUbseq uently. Here the right of set-off existed prior to the death of the intestate, anll therefore prior to the rights of tbeother creditors to, equal distribution. The distinction is very plain, anddQes not require.fQrther elaboration." rln & Middle Di8t. Bank, 1 Paige, 584, the chancellor decided that any equitable offset whicbrthe debtor had at the time the bank stopped payment was not altered by the appointment of a receiver, and that it made Bo:difference whether the debt of the bank was then payable or ha:d become due since; and also that if,the real debtor was unable to Pill, and the receiver \vu'scompelled to to the indorser, who was eyentuallytO be the loser,be had the sawe equitable right to set off bills which he had at the time tl:Je bank stopped payment. To the like effect isVamWaggoner v. Gaslight Co., 23 N.J. Law, 283, where it was held that "the assignees take a bankrupt's pr0perty in the same condition, and subject to the same burtheus, as the bankrupt himself held it." In that case the chief justice s l j . i d : , r "I am of the opinion; both .upon principle and authority, that the debtor ot8.n ins,olvent corporation ']osesnone of hisrights by the /;lct of insolvency; has the same equitable right of set-off against the receivers that he h. I against the corporation at. the time of its insolvency; and consequently, th··" a debtor of the bank, whether his indebtedness has actually occurred or not stthetime of the insolvency, may In equity set off against his debt either a deposit in ·the bank or bills of the bank, bona flde received by him before the failure ofthe bank." In Hade v. Me Vay, 31 Ohio St. 231, which Was an action by the receiver of aninsolvetlt national bank againstothe·defendants as drawers and ae-
YARDLEY II. CLOTHIER.
ceptors, respectively, of a bill of exchange, the same general. principle was recognized to this extent: That "the receiver holds to the bank and its creditors the relation, substantially, of a statutory assignee. A right of set-off, perfect and available against the bank at the time of his appointment as receiver, is not affected by the bank's .insolvency. He succeeds only to the rights of the bank at the time it goes into liquidation." See, also, Clarke v. Hawkins, 5 R. 1. 224. Most precisely in point is Bal· bach v. Frelinghuysen, 15 Fed. Rep. 685, where Judge NIXON says: "I have much less difficulty with regard to the other question raised by the pleading and the evidence, to wit, the right of the complainants to offset the amount of their credits on the books of the bank at the time of the failure against the two promissory notes for $1,500 each, which the bank had received from them for discount in the months of July and August preceding the failure. It is unquestionably true that if the Newark National Bank held these notes at the time of the failure, and was entitled to receive the amounts due thereon when they matured, such offset might be made." In Snyder's Sons Co. v. Annstrong, 37 F.ed. Rep. 18, Judge HAMMOND pertinently remarks, referring to section 5242: "I sbol,lld not hold our act of congress to have abrogated so important a principle of the administration of insolvent estates as the right of set-off. except upon the most-explicit declaration to that effect, or the most imperative implication arising out of the necessities of construction. * * * Tbe receiver is, in my judgment, under the act of congress, only an insolvency assignee, representing in his relation to the depositors, on the subject of set-off, the bank Itself. * * * And it seems to me plain that that section is no more in the way of ll110wing a set-off where the note passed into the hands of t1;le receiver before maturity than where it passed to him after it became due." These authorities fully sustain the defendant's plea of set-off, but the plaintiff's counsel has cited a few decisions which require notice. In Armstrong v. Scott, 36 Fed. Rep. 63, the court decided that"The unmistakable force and meaning of the law is to place aU unsecured creditors upon the same footing of equality. When the plaintiff was appointed relleiver, the defendant was in the list of unsecured depositors, to .whom paYment-the bank being insolvent-was prphibited. The defendant had then no right of set-off; nor anY equity against its note, not then matured, whIch passed to the receiver; 'fo allow the set-off, now that the note has matured, and thereby make payment in full to the defendant in part discharge of its ohligation to the bank, would be contrary not only to the policy of the law, but also the plain meaning of its prOVisions." So far as this question has been passed upon by the federal courts, the decision in Armstrong v. Scott stands alone, and it derives no support from the cases referred to in the opinion of the court by which it was rendered. Thus in Hade v. McVay, supra, as already noticed, it was held that a right of set-off, perfect and available against the bank at the time of the appointment of a receiver, was not impaired by the bank's insolvency. In Bank v. Taylor, 56 Pa. St. 14, the court refused to allow the set-off of a claim against the bank, which had been acquired by the defendant after the bank's insolvency. Bung ManuJ'g Co. v. Armstrong, 34 Fed. Rep. 94, has no relevancy to the present questiono
'REPQRfl'ER, vol. 51.
v, Schuchmann, 32Mo;App; 333, adopts the identipallanguage of Ar'I'it8trong v. Scott, and referS" to isomeadditional authorities; which; on iexam,ination, are fl,lUnd to be decided on a dH'erentstate of facts. In; iBan'k v. Rep. 697, the bank had made a payment to a l creditor' after its insolvency" and under circumstaMes which made the pllyiuehtavioJiationof the terms of the statute, as being a transfer of assets with intent to prefer. . The, inteJ!lt to prefer W:lS' a· just inference from the, act of the ballk officials. . In Re Commercial Bank Corp., L. R. lCh. App. 538, there:'Was an appeal by the official liquidator of the decreeiofthe master of the 'tolls, who had made an order p'egotiating ,certajn)ills of The bank to the wn'R ,sought to prevent negotiatiof!, had been accepted by them in order,that they might Bet <dfagainstthem on maturity a debt due from the bank. Lord Justice TURNER, jDreversing the judgment below, said: on the of the complainants, , "There is not, as. I apprehend, offagain,st thrir future liabiJjty upon the bills either at law or equity, to accei>ted by them the presentlillbiHty Of the bank to thetihrpon the bank's disbont>redaceeptances;n6r was theteany ground upon which ,the complainants are entitled to insist lrl>0ll theiral'ceptailces being re1iainal! and held by tlie bank uritil they becamEi due, in order that the set-off which would then arise way be made available to tlle'l11." ThiswG,\lia'seem to the preSElnt defense, fpr here the notes indorsed by Clothier had qlatured in the hands of the receiver, and the deposit ofthE/ !defendaut 'tb us became a valid set-off.· : The, notes could have been indorsed away for value, as had been dorie in Balbach v; Jilrelinghu'!}8en, ifUpra; but as this was not done by the bank or its receiver, the was entitled to his set-off.; The statute was designed ,to prevent fraudulent transfers of assets and payments of money made by thec,bank with a ·view to prevent the application of the assets in the manner prescribed, ,or with a view to the, 'preference of one creditor toatlother; but the allowance of the set-off of the defendant's deposit would not be avidlation ofthestatute under any fair and reaThe application of the rule sonable construction O1.'i\8, that mutual accounts are; to be a,dJus¥lfl;l in such" manner that only the J>alance constitutes the. to is, as has been seen, established by a long line of judicial precedents, and is not Jorbidden by the language or the meaning of the national banking act. It follows that the by the court below in each of these cases l!lhould be and is ,
(Circuit Cawrt, D. South Carol1.na. July 11, 1892.)
1; PI.IIlAnING--AMENDtkNT-NBW CAU81l: OF ACTION.
8. SAtdE--AcTION TO RECOVER
Code S. C. § 194, which governs th6'federal. courts in actions at law in that statl3, no aIQt;lndment proposed at the trial CllIllo bl;! allowed for thl3 purpose of iutroducing a new cause' of a c t i o n . : Wher;e, in an s.ction to recover lands and damages for tlle withholding thereQf, thell9J:l1plainalit avers thllt defendant is in possession of said lands wrongfully withhotding them from plainti1r, a proposed amendment adding an a';armBnt of ilietortuous disseiRin, with intent to conrert thl3 lands to the use of defendant without any legal Claim, dOBS not set up a new cause of action, but is merely an amplification of the old one. The dalllages in sucb an actiQn are properly placed in the prayer for relief, wllich is nO' part'ofthe cause of aetion, since they are merely an incident of the wrong aileged"and ,necellsQ.rily flow.from it; an4, as the amendment to.the cause of aotion heightens and colors the wrong, an amendment Bhould also be allowed increaaing the 'damages i>rayed for. i '
At Law. Action by D: H. Chamberlain against Henry C. Mensing for the; recovery of land, and for the withholding thereof. Onmotion .to amend complaint. 'Allowed. Mitchell de Smith, for plaintiff. NorthrCfJJ, &;, Memminger, .for· defendant. SIMONTON. District Judge. This is an action for the recovery of real property. In South Carolina. the plaintiff can in such an action join claims 10r the recovery .ofthe land,with or without damages for the withholding thereof, and for the rents and profits of the same. Code S. C. § 188,subd. 5. The plaintiff brings his suit for the recovery of the land, and for damages for withholding the same. In his third paragraph he charges that defendant is in the possession of the said lands wrongfully withholding the.same from the plaintiff. He proposes to amend by. adding to; this section the averment of illegal and tortuous diaseisin in the taking and holding possession by thedeJendant, with intent to defeat the wellTknown night of plaintiff, and to convert the same to tbe use of defendant, without any legal claim on his part. In the complaint proper nO damages are demanded. In his prayer forreliefhe.asks Jar $500., He now proposes to amend his prayer, and to insert,$1,5QO,in lieu of. $500. No affidavit is filed with the motion. It is based on facts developed in the trial of a cause in this court by this plaintiff against one Bittersohn. The present defendant was a in that case and testified. On his testimony plaintiff prays the amendments. This is a motion addressed entirely to and absolutely within the discretion of the court. Matheson v. Grant, 2 How. 263. This discretion must be exercised according to law. It is urged that the amendment cannot be granted, because it changes substantially the case of the plaintiff, and introduces a new cause of action. In Tilton v. Cofield, 93 U.S. 163, Mr. Justice SWAYNE, by way of obiter dictum, approves the case of Tiernan v. Woodruff, 5 McLean. 135,