Balbach v. Frelinghuysen

• Decision Date: 01 March 1883
• Citation: 15 F. 675
• Parties: BALBACH and others v. FRELINGHUYSEN, Receiver, etc.
• Court: U.S. District Court — District of New Jersey

15 F. 675

BALBACH and others v. FRELINGHUYSEN, Receiver, etc.

United States Circuit Court, D. New Jersey.

March, 1883

This case has been heard on bill and answer, except so far as they have been explained or qualified by the admission and proofs of the parties, in a stipulation filed at the hearing. It was therein agreed:

(1) That the last day on which the Mechanics' National Bank of Newark carried on the general business of banking was Saturday, October 29, 1881; that on Sunday, October 30th, the cashier disclosed to its board of directors its insolvent condition; that the board then resolved to close the doors of the bank; that it should be put in the hands of a government examiner for the purposes of ascertaining its condition; that accordingly the doors of the bank were closed on Monday October 31st, and no banking business was afterwards transacted, except that relating to items for collection receiving money due the bank and receiving special deposits as for paying notes due at the bank, of which separate accounts were kept, and which special business was done under the charge of the examiner; and that, as the result of an examination, the bank was declared insolvent, and the defendant was appointed receiver on November 4, 1881.

(2) That in a suit in this court, at law, by the defendant, as receiver, against Stephen H. Condict, an affidavit, of which a copy is annexed, marked Schedule A, was made by the defendant; the defendant, on this hearing, being entitled to object to the relevancy and materiality of the affidavit in this cause.

(3) That the letters of which copies are annexed, Schedule No. 2 were written and sent by the complainants to the Mechanics' National Bank of New York, the relevancy and materiality of which may be objected to by the defendant in this cause.

(4) That the schedule annexed, marked No. 3, is the account between the Mechanics' National Bank of New York and the receiver, showing their collateral account and the settlement of the same between them.

The bill of complaint alleges the following facts:

(1) That the complainants have been engaged in business for some years past, in the city of Newark, as smelters and refiners of gold, silver, and other metals; that they kept an account in the Mechanics' National Bank of Newark, depositing therein, from time to time, large sums of money; that on the twenty-ninth of October, 1881, being Saturday, and the last day on which the said bank transacted any business, they left with it, for collection, a check of that date, drawn by Hague & Billings of the city of New York, upon the American Exchange Bank of that city, and payable on demand to the order of complainants, for the sum of $11,781.93, the said check being duly indorsed by complainants; that the bank, instead of receiving and holding the same for collection only, and as a trust for the benefit of the complainants, credited the check on its books as so much cash, and as if it had been indorsed to the bank as its property, and its amount constituting so much indebtedness on the part of the bank to the complainants.

(2) The bill further alleges that at the time of the failure of the bank the complainants were indebted to it in the sum of $30,000, the amount of two promissory notes discounted by the bank for them, and the proceeds of which they had received, to-wit, one note dated July 19, 1881, made by complainants to the order of one H. M. Diffenbach, for $15,000, payable at the bank four months after date, and which was indorsed by Diffenbach for their accommodation, and the other in the like sum, dated August 13, 1881, payable four months after date, also to the order of Diffenbach, and indorsed by complainants; that each of said notes fell due after the failure of the bank; that if the same, or either of them, was held by the bank at the time of its failure, the complainants were entitled to set off against the same any indebtedness due from the bank to them, and thus have the benefit of the full amount of such indebtedness, and not merely a dividend thereon from the assets in the hands of the receiver; that by the books of the bank, and upon the bank-book of complainants, as written up by the clerks of the bank since the failure, it is stated that there was due to complainants from the bank, at the date of its failure, the sum of $18,872.63, but that said sum was made up by the wrongful crediting to complainants, against their will and protest, of the aforementioned check for $11,781.93; that said amount should be deducted therefrom, so that the true indebtedness to complainants, at the date of the failure, was only the sum of $7,090.70; that at the time of the failure of the bank it was the holder of both of said promissory notes, and that complainants are entitled to set off against their payment any balance which really existed in their favor, as depositors, against said bank, whether the same was the smaller sum of $7,090.70, or the larger one of $18,872.63.

The bill further alleges, that the complainants were in its hands at Newark, but had been sent to the Mechanics' National Bank of New York, having been pledged to said bank as collateral security for an indebtedness then existing on the part of the Newark bank to it; that a large amount of promissory notes and other negotiable paper had been pledged at the same time with the said notes, much larger than said indebtedness, and that the other negotiable paper had been paid, and thereby the Mechanics' National Bank of Newark and its receiver became entitled to the notes of the complainants; and that said notes ought to have been returned to the receiver, and the amount of complainants' credit on the books of said bank applied to the discharge thereof; but that neither of said notes were so returned, and the same, when due, were found by the complainants in the hands of the Newark National Banking Company, to which they had been sent for collection, and that complainants were compelled to pay, and did pay, the same at maturity,-- at the same time giving notice to the National Newark Banking Company, and the Mechanics' National Bank of New York, and to the receiver, of their rights in the premises.

The bill claims that the said check, being left for collection on the last day that the doors of the bank were open for the transaction of business, and when the bank was utterly insolvent and was known to be so by the cashier and some of the directors, and being still in the hands of the bank when its doors were closed on the next business day, ought to have been returned to the complainants, and prays:

(1) That the same be now delivered up by the receiver, to be canceled; (2) that the receiver may be restrained from bringing any suit upon the same, either within the limits of New York or New Jersey, or the United States; (3) that an account be taken of the indebtedness which existed at the time of the failure of the bank from it to the complainants, and that it may be decreed that such indebtedness was and is a lawful and equitable set-off in favor of complainants against their indebtedness, by reason of said promissory notes, and that complainants, having paid the same, are entitled to have a return from the receiver of the moneys by them paid, to the amount of such indebtedness, and that he be decreed to make such payment accordingly, without regard to the amount of any dividend declared or to be declared to the general creditors.

The answer of the defendant states that the Mechanics' National Bank of Newark closed its doors on the thirty-first of October, 1881, and, after an examination into its affairs by the comptroller of the currency, was declared insolvent, and that defendant was appointed receiver on the fourth of November, 1881, under the national banking laws, and that, as such receiver, he represents all the creditors of the association, and has no right or authority to prefer any one of the unsecured creditors before another, and that he is bound so to administer and protect the assets in his hands as to distribute the same equally among the persons entitled thereto. It admits that on Saturday, October 29, 1881, the complainants deposited with said bank a check, drawn by Hague & Billings, of New York city, payable to their order, for $11,781.93, and says, in reference to said deposit, that the check was indorsed in blank by complainants and was at once credited to them as cash upon their pass-book and upon the books of the bank; that, according to the usual custom and course of business, between complainants and the bank, the complainants were at once entitled to draw against the same, if they chose so to do, as upon so much cash paid in, and that no special agreement or contract was made in reference to said deposit; that by the receipt of said check the bank was entitled to forward the same for collection and to receive credit for the whole amount thereof, as its assets; that its liability to the complainants was like its liability to any other creditor, and that complainants, after delivering said check for collection, had no right to prevent the collection or stop the payment thereof after the failure of the bank and its assets had become a general fund for its creditors.

It further states that on the thirty-first of October, 1881, and before any demand for the return of said check, the same was forwarded by E. H. Shelley, the government examiner in charge of the bank, to New York for collection, and was by him charged to the account of the National Park of New York, to whom the same was sent; but that it was not collected because the payment thereof had been stopped, although the makers were able to pay the same, and have offered to pay the amount to defendant if complainants would consent, and that said...