Scott v. Armstrong Farmers Merchants State Bank v. Armstrong

• Citation: 13 S.Ct. 148,146 U.S. 499,36 L.Ed. 1059
• Decision Date: 12 December 1892
• Docket Number: Nos. 53,1,025,s. 53
• Parties: SCOTT et al. v. ARMSTRONG. FARMERS' & MERCHANTS' STATE BANK et al. v. ARMSTRONG
• Court: United States Supreme Court

146 U.S. 499

13 S.Ct. 148

36 L.Ed. 1059

SCOTT et al.

v ARMSTRONG.

FARMERS' & MERCHANTS' STATE BANK et al.

v. ARMSTRONG.

Nos. 53, 1,025.

Dec. 12, 1892.

Statement by Mr. Chief Justice FULLER No. 53 was an action brought by David Armstrong, receiver of the Fidelity National Bank of Cincinnati, Ohio, against Levi Scott and the Farmers' & Merchants' State Bank, in the circuit court of the United States for she southern district of Ohio, upon a promissory note for $10,000, dated at Cincinnati on June 6, 1887, payable 90 days after date, at said Fidelity Bank, with interest after maturity at the rate of 8 per cent. per annum, signed by Scott and indorsed by the Farmers' Bank to the order of the Fidelity Bank.

The defendant Scott was the cashier of his codefendant, and pleaded that he signed the note for the accommodation of the banks under an agreement that he should not be looked to for its payment. The Farmers' Bank made the same averments as to Scott, and pleaded a set-off to the amount of $8,809.94 as arising on certain facts, in substance as follows: That the Fidelity Bank lent the Farmers' Bank the $10,000 at a discount at the rate of 7 per cent. per annum, for 90 days, under an agreement that the money so borrowed, less the discount, should be placed to the credit of the Farmers' Bank on the books of the Fidelity Bank; that the note in suit was executed accordingly, dated and discounted on June 6, 1887, and the proceeds, $9,819.17, were placed to the credit of the Farmers' Bank upon the books of the Fidelity Bank, to meet any checks or drafts of the Farmers' Bank, and to pay the note when it became due; that afterwards, and before June 20th, the Farmers' Bank drew against the deposit the sum of $1,009.23, and the balance, $8,809.94, remained to the credit of the defendant to meet the note, and was so to its credit at the time the receiver was appointed; that upon the maturity of the note, and before suit was brought, defendant tendered to the receiver the sum of $1,190.06, the balance due on the note; and that the tender had since that time been kept good, and the money was now brought into court.

Demurrers to the pleas were sustained, and judgment was entered for the plaintiff for $10,833.33, with interest and costs. The judgment, as provided by section 5419 of the Revised Statutes of Ohio, contained a certificate that the Farmers' Bank was liable as principal and Scott as surety. The opinion of the circuit court, by the district judge, will be found in 36 Fed. Rep. 63, and states that the circuit judge concurred in its conclusions as being in accord with his opinion in Bung Co. v. Armstrong, reported in 34 Fed. Rep. 94. The case being brought here by writ of error, it was assigned for error that the court erred in sustaining the demurrers and in rendering judgment against the defendants below.

While the writ of error was pending a bill in equity was filed in the circuit court in behalf of the Farmers' Bank and Scott against Armstrong, as receiver, praying for an injunction against the judgment and for the enforcement of the set-off. Armstrong demurred, his demurrer was sustained, the bill dismissed, and an appeal taken to the circuit court of appeals for the sixth circuit. That court certified to this court for instructions as to the proper decision seven questions, accompanied by a brief statement of the contents of the bill and proceedings thereon.

The bill, as summarized by the court, rehearsed the facts set forth in the answers in the suit at law somewhat more in detail, and among other things stated that 'on the 20th day of June, 1887, said Fidelity Bank was closed by order of the bank examiner of the United States, and thereafter remained closed;' that 'on June 27, 1887, the comptroller of the currency of the United States, having become satisfied that said Fidelity Bank was insolvent, appointed the appellee, David Armstrong, receiver of said bank to wind up its affairs, as provided under the authority given by the laws of the United States in such case made and provided, and said receiver qualified and entered upon the performance of his duties as such. On July 12, 1887, the charter of said Fidelity Bank was forfeited and said banking association dissolved by decree of the circuit court of the United States for the southern district of Ohio;' and that 'said Fidelity Bank was in good credit at the time said discount was made, and was then thought by said Scott and said State Bank, with good reason for so thinking, to be solvent, but was in fact insolvent, and known so to be by said Harper,' its managing officer, with whom the transaction had been had.

The recovery of the judgment and pendency of the writ of error were also set forth, and it was averred 'that said Scott and said State Bank were advised said circuit court sitting as a court of law had not jurisdiction to entertain and adjudge upon the set-off pleaded as aforesaid, and that relief should be sought in a court of equity.' The tender was reiterated, and it was prayed, among other things, 'that the collection of the judgment at law might be enjoined, and that the set-off might be established and allowed.' The grounds of demurrer were:

'(1) That it appeared from the bill that the complainants were not entitled to the relief sought.

'(2) That the complainants had an adequate remedy at law for the relief sought, which had been already adjudicated.'

The case on certificate is No. 1,025. The first, second, and fourth questions are as follows:

'(1) Where a national bank becomes insolvent, and its assets pass into the hands of a receiver appointed by the comptroller of the currency, can a debtor of the bank set off against his indebtedness the amount of a claim he holds against the bank, supposing the debt due from the bank to have been payable at the time of its suspension, but that due to it to have been payable at a time subsequent thereto?

'(2) Has a circuit court of the United States sitting in Ohio as a court of law jurisdiction to entertain a defense of set-off as against an action brought by a receiver appointed by the comptroller of the currency to wind up the affairs of a national bank doing business in Ohio because of its insolvency, upon a note held by said bank, which note matured and became payable after the appointment of such receiver?'

'(4) Where a national bank doing business in Ohio in 1887 discounts a promissory note with the understanding that the proceeds of the discount are to remain on deposit with it subject to the checks of the borrower, and any balance of such deposit remaining undrawn at the maturity of the note is to be applied as a credit thereon, and where at the time such discount was made said bank was in fact insolvent, and known so to be by the officer through whom it acted in making such discount and agreement, but such bank was then in good credit, and thought by the borrower to be solvent, with good reason for so thinking, and where afterwards, the insolvency of said bank becoming known to the comptroller of the currency, that officer assumed charge of said bank, and afterwards, in June, 1887, but before the maturity of the note so discounted, appointed a receiver to close up the affairs of said bank, can such borrower, by suit in equity against such receiver, compel a set-off of the balance of said deposit account at the time of the suspension of said bank against the amount due upon such note at its maturity?'

The third, fifth, sixth, and seventh related to the effect of the judgment at law as a bar to the bill in equity.

Wm. Worthington and J. W. Warrington, for plaintiffs in error.

John W. Herron, for defendant in error.

[Argument of Counsel from pages 504-506 intentionally omitted] Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.

The Fidelity National Bank was closed by order of the bank examiner June 20th, the receiver was appointed June 27th , and the charter of the bank was forfeited and the bank dissolved by the decree of the circuit court, July 12, 1887. Title to its assets was necessarily thereby transferred to the receiver. Bank v. Colby, 21 Wall. 609.

The note in controversy did not mature until September 7, 1887, but the deposit to the credit of the Farmers' Bank was due for the purposes of suit upon the closing of the Fidelity Bank, as under such circumstances no demand was necessary. The receiver took the assets of the Fidelity Bank as a mere trustee for creditors, and not for value and without notice, and, in the absence of statute to the contrary, subject to all claims and defenses that might have been interposed as against the insolvent corporation before the liens of the United States and of the general creditors attached.

The right to assert set-off at law is of statutory creation, but courts of equity from a very early day were accustomed to grant relief in that regard independently as well as in aid of statutes upon the subject.

In equity, relief was usually accorded, says Mr. Justice Story, (Eq. Jur. § 1435,) 'where, although there are mutual and independent debts, yet there is a mutual credit between the parties, founded at the time upon the existence of some debts due by the crediting party to the other. By 'mutual credit,' in the sense in which the terms are here used, we are to understand a knowledge on both sides of an existing debt due to one party, and a credit by the other party, founded on and trusting to such debt, as a means of discharging it.'

This definition is hardly broad enough...