First Nat. Bank of Windom v. Consol. Sch. Dist. No. 28 of Jackson Cnty.

• Citation: 184 Minn. 635,240 N.W. 662
• Decision Date: 29 January 1932
• Docket Number: 28580.,Nos. 28579,s. 28579
• Parties: FIRST NAT. BANK OF WINDOM v. CONSOLIDATED SCHOOL DIST. NO. 28 OF JACKSON COUNTY et al.
• Court: Minnesota Supreme Court

184 Minn. 635

240 N.W. 662

FIRST NAT. BANK OF WINDOM

v.CONSOLIDATED SCHOOL DIST. NO. 28 OF JACKSON COUNTY et al.

Nos. 28579, 28580.

Supreme Court of Minnesota.

Jan. 29, 1932.

Appeal from District Court, Jackson County; J. E. Haycraft, Judge.

On reargument.

Former judgment adhered to.

For former opinion, see 238 N. W. 634.

Syllabus by the Court.

1. Under G. S. 1923 (2 Mason's Minn. St. 1927), § 9166, an assignee of a chose in action, not a negotiable instrument, takes it subject to all defendants and equities which the obligor has against the assignor or a prior holder before such obligor has any notice or knowledge of any assignment thereof.

2. A deposit in a bank becomes due so as to be available as a set-off when the bank fails.

3. School district warrants or orders become due when presented to the district treasurer for payment.

4. The fact that the other two members of the school board failed to require the treasurer to present, with his annual reports, warrants claimed to have been paid, as vouchers, held, under the circumstances shown, not to estop the district or prevent it from asserting the right of set-off to such warrants.

5. Such warrants are nonnegotiable instruments. While they have characteristics different from other choses in action, they are subject to defenses and set-off in the hands of an assignee to the same extent.

6. These actions to enjoin the defendant from paying other warrants before paying those held by plaintiffs are but indirect efforts to recover on the warrants, and set-off may properly be shown to defeat the suits.

7. Section 9166, G. S. 1923 (2 Mason, 1927), is not rendered inapplicable by the fact that this kind of warrants is generally dealt in by banks and investors. O. J. Finstad, of Windom, and A. McC. Washburn, of Minneapolis, for appellant.

E. H. Nicholas, of Jackson, and Putnam & Carlson, of Blue Earth, for respondent.

PER CURIAM.

Reargument was granted, and counsel for each side have presented additional oral arguments and briefs.

We refer to the school district as defendant.

1. It is argued that G. S. 1923 (2 Mason, 1927) § 9166, permits set-off of claims against intermediate holders only where such claims arose and matured after the one claiming such set-off had notice or knowledge of the intermediate holder's onwership of the obligation sued upon and before he had notice or knowledge of its subsequent assignment. We do not so construe the statute. The claim against the intermediate holder must have accrued before the one claiming the set-off had notice or knowledge that the intermediate holder had assigned the obligation sued upon to a subsequent holder; but it is not required that the one claiming the set-off shall have notice or knowledge of the intermediate holder's ownership of the obligation sued upon before the right to set-off accrued.

If the Wilder bank had brought suit against the defendant to recover on these warrants while it held them, the defendant would have had the right to counterclaim or set off any matured obligation owing to it by the Wilder bank at that time, whether such obligation arose before or after the Wilder bank became the holder of the warrants, and whether or not the defendant had any prior notice or knowledge of the ownership of the warrants by the Wilder bank. The statute extends this right of set-off.

Under the statute, the assignee of a chose in action, not a negotiable instrument, takes it subject to all defenses and equities which the obligor has against the assignor or a prior holder before such obligor has notice or knowledge of any assignment thereof. We have so construed the statute. Linn v. Rugg, 19 Minn. 181 (Gil. 145); Martin v. Pillsbury, 23 Minn. 175; La Due v. First National Bank, 31 Minn. 33, 16 N. W. 426, 428;Tuttle v. Wilson, 33 Minn. 422, 23 N. W. 864;Way v. Colyer, 54 Minn. 14, 55 N. W. 744;Nordsell v. Neilsen, 150 Minn. 224, 184 N. W. 1023; Solway State Bank v. School District, 170 Minn. 83, 212 N. W. 25; and Id., 179 Minn. 423, 229 N. W. 568.

As said in Martin v. Pillsbury, supra: ‘As respects his right to interpose a set-off or other defence, the effect of the statute is that, until he has notice of the assignment, the defendant occupies the same position as if the thing in action assigned was still held by the assignor.’

In La Due v. First National Bank, supra, it is said: ‘A set-off arising out of an independent transaction against an intermediate holder is thus placed upon the same footing as an equity attaching to the bill or note itself against the original payee.’

In Cardozo v. Fawcett, 158 Minn. 57, 196 N. W. 809, 811: ‘Not being negotiable instruments, they [the warrants] were notice to a purchaser that he took no better title than his vendor possessed.’

2. It is claimed that defendant had only a deposit account in the Wilder bank; that such account did not mature before there was demand for payment; and, as no demand for payment had been made, that such account could not be used as a set-off. There are two answers to this claim:

First, in the prior opinion we held that the Wilder bank converted to its own use $7,918.51 of defendant's money and funds. This was before the Wilder bank acquired the warrants. We have no doubt as to the correctness of that holding. This gave rise to an immediate matured liability of the Wilder bank to this defendant, existing before plaintiffs purchased the warrants.

In the second place, the Wilder bank failed on March 12, 1930, then owing the defendant some $43,000. Upon failure of the bank, its deposit liabilities matured, and no demand was then or thereafter necessary. Notice that plaintiffs had purchased and held these warrants was not given or acquired by defendant until more than a month after March 12, 1930. In that situation, defendant's deposit account in the bank was available as a set-off. Laybourn v. Seymour, 53 Minn. 105, 54 N. W. 941,39 Am. St. Rep. 579;St. Paul & M. Trust Co. v. Leck, 57 Minn. 87, 58 N. W. 826,47 Am. St. Rep. 576;Wunderlich v. Merchants' National Bank, 109 Minn. 468, 124 N. W. 223,27 L. R. A. (N. S.) 811, 134 Am. St. Rep. 788,18 Ann. Cas. 212.

3. It is urged that these warrants were not due at the time they were transferred and have not even yet matured. These so-called warrants are simply orders signed by the president and clerk or secretary of the school board of the district, directing the treasurer to pay to the payee named therein a stated sum of money for teachers' wages or other named indebtedness of the district. They are payable on demand, and are due and payable when presented to the treasurer for payment. All of them were so presented before the Wilder bank acquired them, and were matured and past due when acquired by that bank. The fact that under our statutes the treasurer, if he has no funds of the district on hand wherewith to pay them, shall then mark them not paid for want of funds, and that thereupon they shall become outstanding interest-bearing obligations of the district, does not extend the maturity or due date of the warrants, but makes them pastdue interest-bearing obligations of the district. The fact that the warrants bear the treasurer's indorsement that they have...