Kurtz v. County Nat. Bank of Clearfield

• Decision Date: 14 March 1927
• Docket Number: 60
• Parties: Kurtz et al. v. County National Bank, Appellant
• Court: Pennsylvania Supreme Court

136 A. 789

288 Pa. 472

Kurtz et al. v. County National Bank, Appellant

No. 60

Supreme Court of Pennsylvania

March 14, 1927

Argued January 17, 1927

Appeal, No. 60, Jan. T., 1927, by defendant, from order of C.P. Clearfield Co., Dec. T., 1925, No. 106, making absolute rule for judgment for want of sufficient affidavit of defense, in case of Charles T. Kurtz et al., Receivers of Gearhart Knitting Machine Co. v. County National Bank of Clearfield. Affirmed.

Assumpsit to recover funds of insolvent unlawfully appropriated.

Rule for judgment for want of sufficient affidavit of defense. Before CHASE, P.J.

The opinion of the Supreme Court states the facts.

Rule absolute. Defendant appealed.

Error assigned was, inter alia, order, quoting record.

The judgment is affirmed.

Owen J Roberts, with him C. Russell Phillips, W. Wallace Smith and John C. Arnold, for appellant. -- The Pennsylvania rule against set-off after receivership is a rule based on reasons which do not exist prior to receivership: Chipman v Bank, 120 Pa. 86; Blum Bros. v. Bank, 248 Pa. 148.

The bank properly applied the deposits to an unmatured note prior to the receivership: Crall v. Ford, 28 W.N.C. 366; Schuler v. Israel, 120 U.S. 506; Rolling Mill Co. v. Ore & Steel Co., 152 U.S. 596.

Morris Wolf, with him David A. Reed, Alfred M. Liveright and Sidney E. Smith, for appellees. -- Insolvency gives a right to the bank, but it gives just the same right to all other creditors, namely, the right to insist that all creditors be treated alike, and that there be no preference of one over the other: Schuler v. Israel, 120 U.S. 506; Mfrs. Nat. Bank v. Jones, 2 Penny. 377; Dougherty v. Bank, 93 Pa. 227; Nat. Bank v. Gormley, 2 Walker 493.

Before FRAZER, WALLING, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE SADLER:

The Gearhart Knitting Machine Company is a Pennsylvania corporation, engaged in the manufacture of machines for making hosiery which it sells with yarn to be used in connection therewith, and has its principal place of business in Clearfield. Its banking was carried on with the County National Bank, where obligations were discounted and deposits kept. On July 20, 1925, notes to the amount of $100,000, partly in renewal of earlier ones, had been accepted, all of which became due in the following November. It had on the date mentioned $7,195.97 on deposit, and two days later added $837.33. From this total a small outstanding check was paid, making the amount due, on July 22d, $7,962.60. The proper disposition of this sum gives rise to the present controversy.

On July 20th, an officer of the corporation advised the bank that the company was in financial difficulties and insolvent, with the result that bankruptcy proceedings had become inevitable. Thereafter the bank appropriated all of the deposits on hand to the partial payment of the unmatured notes. Thirty days later, receivers for the corporation were appointed by the United States District Court. These officers made demand for the amount of the deposits, already appropriated by the bank to the unmatured obligations, but payment was refused. Leave was given to bring suit, and this action of assumpsit followed. The learned court below held the bank to be without authority to take over the balance due the company as attempted, and entered judgment for want of a sufficient affidavit of defense. The defendant has appealed.

The single legal proposition raised is the right of the bank to set off the deposits held by it against the unmatured obligations, before the appointment of receivers, upon learning of the insolvency of the knitting company. Under the bankrupt law, the federal decisions, and the authorities of a majority of states, the right to apply a deposit as a set-off to a claim against the debtor not presently payable is permissible, evidently on the theory that insolvency renders all debts due. A substantial minority of the jurisdictions hold to the contrary, and Pennsylvania is of the latter class. The decisions showing the respective attitudes toward the disputed question will be found collected in 43 A.L.R. 1325, and no necessity exists for referring to them specifically in this opinion.

In our State a party whose debt is not due has no equitable or implied right to set off a claim immediately payable to the insolvent Dougherty v. Central National Bank, 93 Pa. 227. It has been uniformly...