Frank v. Mercantile Nat. Bank of City of New York

• Decision Date: 13 June 1905
• Citation: 182 N.Y. 264,74 N.E. 841
• Parties: FRANK v. MERCANTILE NAT. BANK OF CITY OF NEW YORK.
• Court: New York Court of Appeals Court of Appeals

182 N.Y. 264

74 N.E. 841

FRANK

v.MERCANTILE NAT. BANK OF CITY OF NEW YORK.

Court of Appeals of New York.

June 13, 1905.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Leo Frank, trustee in bankruptcy of Solomon Ullman, against the Mercantile National Bank of the City of New York. From an order of the Appellate Division (91 N. Y. Supp. 488,100 App. Div. 449) reversing a judgment sustaining a demurrer to the answer, and overruling such demurrer, plaintiff appeals. Affirmed.

The following questions were certified: ‘(1) Do the first, second, third, fourth, fifth, sixth, or seventh counterclaims set forth in the answer of the defendant herein state facts sufficient to constitute a cause of action against the plaintiff? (2) Are the second, third, fourth, fifth, sixth, and seventh set-offs set forth in the answer of the defendant herein insufficient in law upon the face thereof?’ The nature of the action and the facts, so far as material, are stated in the opinion.

Charles Grossman and Morris J. Hirsch, for appellant.

William V. Rowe and E. H. Sykes, for respondent.

CULLEN, C. J.

The action is brought by an assignee in bankruptcy to recover the amount of a deposit made by the bankrupt in the National Broadway Bank. It is alleged in the complaint ‘that prior to the commencement of the action, and in or about the month of May, 1903, the National Broadway Bank duly assigned, transferred, and set over to the defendant all the property, assets, and effects of said bank, and the defendant agreed to assume the payment of and to pay all the liabilities of said bank.’ The answer of the defendant admitted the plaintiff's claim, and pleaded as a set-off and counterclaim seven promissory notes made by the bankrupt to the National Broadway Bank, and assigned to it by that bank in April, 1903. Of these notes, only one had matured before the adjudication in bankruptcy. That note is conceded to be a proper set-off. The question presented is whether the defendant has the right to set off the six other notes. The Special Term held that they were not a good set-off, because they had not matured at the time the title passed from the bankrupt to his assignee. The learned Appellate Division has held to the contrary.

If the defendant's rights depended on the equitable rule of set-off as it obtains in this state, it is clear that the notes held by it which had not matured at the time of the transfer of the title from the bankrupt to his assignee could not be set off against the plaintiff's claim. Fera v. Wickham, 135 N. Y. 223, 31 N. E. 1028,17 L. R. A. 456, is a conclusive authority to that effect, and so the respondent's counsel concedes. The defendant's claim to a set-off, however, is not based upon the rule in equity which prevails with us, but on the provisions of the bankrupt law. Section 68 of that law (Act July 1, 1898, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3450]) provides that ‘in all cases of mutual debts or mutual credits between the estate of the bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.’ Section 63 (30 Stat. 562 [U. S. Comp. St. 1901, p. 3447]) provides: ‘Debts of the bankrupt may be proved and allowed against his estate which are (1) a fixed liability as evidence by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, * * * with a rebate of interest upon such as were not then payable and did not bear interest.’ The argument is that, as unmatured claims against the bankrupt are provable against his estate, they necessarily are the subject of set-off under the provisions of section 68. We think that this position is well taken, but we shall refrain from entering into any discussion of the question, as the proposition seemed to be settled by decisions of the federal courts. The uniform current of authority in the District and Circuit Courts of the United States is to that effect, and the law is so stated in the textbooks on bankruptcy. Re City Bank of Savings, Fed. Cas. No. 2,742; Ex parte Howard Nat. Bank, Fed. Cas. No. 6,764; Re Kalter, 2 Nat. Bankr. N. 264; Re Little, 6 Am. Bankr. Rep. 681, 110 Fed. 621; Re Meyer & Dickinson, 5 Am. Bankr. Rep. 595, 107 Fed. 86;Union Nat. Bank v. McKey, 2 Nat. Bankr. N. 913, 102 Fed. 662, 42 C. C. A. 583; Re Phillip Semmer Glass Co., 11 Am. Bankr. Rep. 665; Collier on Bankruptcy (4th Ed.) p. 498; Brandenburg on Bankruptcy, § 1131.

Moreover, the very point seems to have been decided by the Supreme Court of the United States in Scammon v. Kimball, 92 U. S. 362, 23 L. Ed. 483, which arose under the bankrupt law of 1867, the provisions of which, so far as they deal with the questions involved in this case, are substantially the same as the present law. N. Y. County Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48 L. Ed. 380. That was an action against the assignee in bankruptcy of a fire insurance company. The complainant was allowed to set off the sums owing him on certain policies as against a claim of the assignee for money on deposit with the complainant as a banker. The report of the case does not show when the claim on the insurance policies matured, but that fact appears from the opinions in two...