First Nat. Bank of Indianola, Iowa v. Malone

• Decision Date: 09 March 1935
• Docket Number: No. 10056,10076.,10056
• Citation: 76 F.2d 251
• Parties: FIRST NAT. BANK OF INDIANOLA, IOWA, et al. v. MALONE et al. MALONE v. LANE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

76 F.2d 251 (1935)

FIRST NAT. BANK OF INDIANOLA, IOWA, et al. v. MALONE et al.

MALONE v. LANE et al.

Nos. 10056, 10076.

Circuit Court of Appeals, Eighth Circuit.

March 9, 1935.

Howard L. Bump, of Des Moines, Iowa (George W. Graeser, of Des Moines, Iowa, on the brief), for Ina Malone.

J. O. Watson, Jr., of Indianola, Iowa (J. O. Watson and R. D. Watson, both of Indianola, Iowa, on the brief), for First Nat. Bank and others.

W. Z. Proctor, of Des Moines, Iowa (Rex H. Fowler, Howard Steele, Charles S. Bradshaw, and Casper Schenk, all of Des Moines, Iowa, and F. P. Henderson, of Indianola, Iowa, on the brief), for Carl H. Lane, administrator, etc.

Before GARDNER, SANBORN, and VAN VALKENBURGH, Circuit Judges.

VAN VALKENBURGH, Circuit Judge.

These two cases are appeals from the action of the District Court for the Southern District of Iowa in allowing offset in favor of Carl H. Lane, administrator, appellee in cause No. 10056, against a note held by the appellant bank and its receiver, and in denying offset to Ina Malone, appellant in cause No. 10076. The facts in the case are somewhat complex and involved, but the following are deemed sufficient for the purposes of this determination:

October 31, 1931, the decedent, Daniel Malone, and Ina Malone, his wife, executed to the First National Bank of Indianola, Iowa, a note in the sum of $5,000 to become due November 1, 1936. This was secured by a mortgage on about one hundred and fifty acres of land, the property of said decedent. Daniel Malone died testate November 15, 1931. In his will he left to his wife all his personal property and a life estate with power of sale in all his real estate. In case of sale one-half the proceeds to be hers absolutely; the balance to belong to his son, Joseph Malone. In case his wife did not exercise the power of sale during her life, the remainder passed to his said son. November 30, 1931, Carl H. Lane, president of the First National Bank of Indianola, was appointed administrator with the will of Daniel Malone annexed. On the date of his death Daniel Malone had on deposit in said bank $1,073.35. December 16, 1931, this was transferred to the account of the administrator. Subsequently, proceeds of the sale of personal property of the estate increased the deposit to the credit of the administrator to $2,896.13. The remaining asset of the estate was the land securing the bank's note, which is conceded to be worth about $15,000, or three times the amount of the bank's mortgage lien. The Malone estate was found by the court to be insolvent; the claims filed against it, with interest, aggregating about $24,000. The bank filed no claim upon its note against the estate.

August 10, 1932, the First National Bank became insolvent. Melvin Royer was appointed and qualified as its receiver. In December, 1932, Ina Malone gave to Lane, administrator, $3,500, to pay all claims against the estate except her own claim for $15,000, for money loaned to her deceased husband, evidenced by his notes, and referred to in his will. This claim she waived. About the same time she paid some debts of Joseph Malone, son of the deceased, and he conveyed to her his contingent interest in the one hundred and fifty acres of land. In January, 1933, she paid to the bank's receiver, upon the $5,000 note of herself and husband, $1,806.37, principal, and $152.70 interest. She also paid to bank's receiver a Daniel Malone note of $500. The net result of these transactions was that the estate of Daniel Malone had on deposit in the First National Bank of Indianola, as of August 10, 1932, the sum of $2,896.16, and that in December, 1933, the joint and several note, executed by Daniel Malone and Ina Malone to that bank, amounted, less credit of $1,806.37, to $3,193.63. The bank's claim was secured upon land conceded to be worth several times the amount of its said mortgage, and Ina Malone, by virtue of her payments and advances, was the sole beneficiary of the estate and owner of its real and personal property remaining, subject only to this mortgage of the bank. The bank had filed no claim against the Malone estate, and the administrator had brought no suit for an offset against the bank.

In this situation, Ina Malone, December, 1933, brought suit against the bank and its receiver to compel an equitable offset, making the administrator a party. The latter then filed cross-bill, praying that the estate be credited in the amount due it from the defendant bank, that said accounts be decreed to be mutual accounts, and be offset one against the other.

This suit, filed first in a state court, was duly removed to the District Court of the United States and there the offset prayed was decreed to the administrator, and denied to Ina Malone. These appeals followed.

First, with respect to the claim of Ina Malone: She is asking an equitable set-off on the ground that the debts of the estate of Daniel Malone are paid and that she is the beneficial owner and sole ultimate distributee of all the assets of that estate in the hands of the administrator. As stated in the brief of her counsel, "She really succeeded in the suit." The relief granted to the administrator will ultimately inure to her. The fatal defect in her individual claim to set-off is that her present equitable title was perfected after the date of the insolvency of the bank, which was August 10, 1932. On that date the title to the deposit in the bank of $2,896.16, was in the administrator as the representative of the estate of Daniel Malone, and subject to debts, undischarged, and in excess of assets available for their payment. Since that time, by the payments and advancements heretofore mentioned, she had acquired title to the real estate of the decedent, and will be the sole distributee of the fund in the hands of the administrator when final distribution is made. But this situation does not entitle her to the set-off she claims. The rights of the parties became fixed at the moment of insolvency of the bank and the consequent suspension of payments by it.

"The right to set off is governed by the state of things existing at the moment of insolvency, not by conditions thereafter arising, * * * or by any subsequent action taken by any party to the transaction." Dakin v. Bayly, 290 U. S. 143, 148, 149, 54 S. Ct. 113, 115, 78 L. Ed. 229, 90 A. L. R. 999; Scott v. Armstrong, 146 U. S. 499, 511, 13 S. Ct. 148, 36 L. Ed. 1059; Davis v. Elmira Savings Bank, 161 U. S. 275, 290, 16 S. Ct. 502, 40 L. Ed. 700; Yardley v. Philler, 167 U. S. 344, 360, 17 S. Ct. 835, 42 L. Ed. 192; Evansville Bank v. German-American Bank, 155 U. S. 556, 15 S. Ct. 221, 39 L. Ed. 259.

Mrs. Malone had no title to the deposit on the date the bank became insolvent. It is true that the decedent devised to her all his personal property, after the payment of his just debts. The law would have imposed the same limitation if the testator had not expressly done so. Subsequent acts by Mrs. Malone could not confer upon her a right of set-off which did not exist at the date of the bank's insolvency.

The position of the receiver of the National Bank of Indianola is that the claims are wanting in mutuality and, therefore, not subject to offset. In the brief the following reasons are assigned for this contention:

(a) The claim by the administrator was a several claim, while the claim by the bank on its note was a joint and several claim.

(b) The claim by the bank was a secured claim against the estate, while the claim of the administrator was based on funds realized from the liquidation of the estate on a deposit of funds.

(c) The only claim ever asserted by the bank was a claim in rem against the security so far as the estate was concerned, while the claim by the administrator is a deposit claim and a direct claim against the bank.

(d) The claim by the bank on its note was not due at the moment of suspension of the bank, while the deposit claim was a demand claim and there was no understanding that the one should be paid by the other.

In our judgment none of these specifications is effective to defeat the set-off in favor of the administrator.

"A demand that is joint and several may be set off or counterclaimed against a separate demand." 57 Corpus Juris, par. 115, p. 461; North Chicago Rolling-Mill Co. v. St. Louis Ore & Steel Co., 152 U. S. 596, 615, 14 S. Ct. 710, 38 L. Ed. 565; Gray v. Rollo, 18 Wall. 629, 21 L. Ed. 927; Hudson Co. v. Thomas (D. C.) 6 F. Supp. 857, 859; Allen v. Maddox, 40 Iowa, 124, 126; Jordison v. Jordison Bros., 215 Iowa, 938, 247 N. W. 491; Dolan v. Buckley, 197 Iowa, 1363, 199 N. W. 302; section 11151, Iowa Code 1931; section 11153, Iowa Code 1931; Wisdom v. Guess Drycleaning Co. (D. C.) 5 F. Supp. 762, 764.

The converse is equally true. The bank's claim against Daniel Malone and Ina Malone was joint and several. It was a subsisting claim against the estate of Daniel Malone. In such case either debtor may set up against the bank's claim, or cause of action, any claim or contract held by it at the time the bank became insolvent. Richmond Ins. Co. v. Litteer (C. C. A. 8) 1 F. (2d) 311.

It is true that the ordinary equity rule of set-off in case of insolvency is that "where the mutual obligations have grown out of the same transaction, insolvency on the one hand justifies the set-off of the debt due upon the other"; but "courts of equity frequently deviate from the strict rule of mutuality when the justice of the particular case requires it." Scott v. Armstrong, 146 U. S. 499, 507, 13 S. Ct. 148, 150, 36 L. Ed. 1059. The statutes of Iowa, as construed by its court of last resort, permit a set-off belonging to one of two joint and several makers of a promissory note, whether the holder elects to sue one or both of the makers thereof. The right to assert a set-off at law is, of course, of statutory creation, and, while a federal court of equity is not restricted in its allowance of a set-off to the...