Oyster v. Short

• Decision Date: 05 October 1896
• Docket Number: 55
• Citation: 35 A. 686,177 Pa. 589
• Parties: D. C. Oyster v. Alfred Short and C. R. Earley. Appeal of Perry R. Smith
• Court: Pennsylvania Supreme Court

35 A. 686

177 Pa. 589

D. C. Oyster v. Alfred Short and C. R. Earley. Appeal of Perry R. Smith

No. 55

Supreme Court of Pennsylvania

October 5, 1896

Argued May 4, 1896

Appeal, No. 55, July T., 1895, by Perry R. Smith, from decree of C.P. Elk Co., Sept. T., 1893, No. 3, distributing funds of an insolvent bank. Affirmed.

Exceptions to report of E. P. GEARY, Esq., master, distributing funds of an insolvent bank.

The facts appear by the opinion of the Supreme Court.

Error assigned was in overruling exceptions to master's report.

Decree affirmed and appeal dismissed at the cost of the appellant.

W. S Hamblen, with him Geo. A. Jenks, for appellant. -- The appellant was entitled to set off the certificates against his notes: Farmers D.N. Bank v. Penn Bank, 123 Pa 283; Brown v. Clark, 14 Pa. 469; Ward v. Tyler, 52 Pa. 393; McGowan v. Budlong, 79 Pa. 470; 20 Am. & Eng. Ency. of Law, 130; Daniels' Negotiable Instruments, sec. 781; Beach on Receivers, sec. 192; 20 Am. & Eng. Ency. of Law, 132, 135; Artisans' Bank v. Treadwell, 34 Barb. 553; Beach on Receivers, 1744; Colt v. Brown, 12 Gray (Mass.), 233; Hade v. McVay, 31 Ohio 231; Cox v. Volkert, 86 Mo. 505; Clarke v. Hawkins, 5 R.I. 219; Davis v. Stover, 58 N.Y. 473; Cook v. Cole, 55 Iowa 70; Van Wagoner v. Paterson Gas Light Co., 23 N.J. 283; State Bank v. Bank of New Brunswick, 3 N.J. Eq. 266; Berry v. Bret, 6 Bosw. (N.Y.) 627; Jordan v. Sharlock, 84 Pa. 366; Ellmaker v. Franklin F. Ins. Co., 6 W. & S. 439; Speers v. Sterrett, 29 Pa. 192; Halfpenny v. Bell, 82 Pa. 128; Act of 1705, Sm. Laws, 49; Scammon v. Kimball, 92 U.S. 362; Schuler v. Israel, 120 U.S. 506; Carr v. Hamilton, 129 U.S. 252; Scott v. Armstrong, 146 U.S. 499; North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., 152 U.S. 596; Lindley on Partnership, 655; Rose v. Hart, 2 Smith's Leading Cases, 308; Mann v. Dungan, 11 S. & R. 75; Stewart v. Nat. Security Bank, 6 W.N.C. 399; Chipman & Holt v. Ninth N. Bank, 120 Pa. 86; Long v. Penn. Ins. Co., 6 Pa. 421; Beaver v. Beaver, 23 Pa. 167.

Geo. R. Dixon, with him S.W. Smith and L. Rosenzweig, with them Geo. A. Rathbun and C. B. Earley, for appellee. -- The appellant had no right of set-off: Chipman & Holt v. Ninth Nat. Bank, 120 Pa. 86; 22 Am. & Eng. Ency. of Law, 283, 301; Burrill on Assignments, sec. 403; Beaver v. Beaver, 23 Pa. 167; Bosler v. Exchange Bank, 4 Pa. 32; Farmers' & Mechanics' Bank's App., 48 Pa. 57; Roig v. Tim, 103 Pa. 115; Fera v. Wickham, 31 N.E. 1028; Richards v. LaTourette, 23 N.E. 531. Long v. Penn. Ins. Co., 6 Pa. 421; Smith v. Hill, 8 Gray (Mass.) 572; Kensington Bank v. Shoemaker, 11 W.N.C. 215; Thomas v. Winpenny, 13 W.N.C. 93; Tinley v. Martin, 80 Ky. 463; McGowan v. Budlong, 79 Pa. 472; Kessler v. L.L. Angle, 2 W.N.C. 23; Sprigg v. Granneman, 36 Ill.App. 102.

Before STERRETT, C.J., GREEN, WILLIAMS, MITCHELL and DEAN, JJ.

OPINION

MR. JUSTICE GREEN:

The Ridgway Bank closed its doors on June 22, 1893, and by notice posted on its windows, gave public information of its suspension. Four days later, on June 26, 1893, the court of common pleas of Elk county appointed receivers to take possession of and administer the assets of the bank. In the meantime the appellant who was indebted to the bank upon several notes amounting to $2,400, which had been discounted by the bank, obtained from one W. S. Hamblen two certificates of deposit, one for $1,500, and one for $1,000, issued by the bank to him for money deposited with the bank. These certificates were obtained by a written agreement made between Smith and Hamblen on June 24, 1893, which recites the ownership by Hamblen of the certificates and also as follows, "And whereas the said Perry R. Smith has certain notes payable at the Ridgway Bank to the order of W. W. Mattison, and whereas it is contemplated that an assignment will be made by said Ridgway Bank," and then provides, "Now therefore it is agreed by the parties hereto that if the said Perry R. Smith may be able to apply the said certificates of deposit in payment of said notes, that at the time of said payment the said Perry R. Smith will pay to the said W. S. Hamblen the value of said certificates, but if said certificates cannot be applied in payment of said notes, but that a pro rata of the assets of the said bank are applied in payment of said certificates that then the said Perry R. Smith will pay to the said W. S. Hamblen the amount of said payment made on said certificates."

The purpose of this agreement is so absolutely transparent that there is no possibility of misunderstanding it. It does not purport to be a sale of the certificates at any price. Smith is merely to use the certificates in payment of the notes he owes to the bank, and if he can do so, he is to pay the value of them thus received to Hamblen. If he cannot use them to pay the notes in full, but only to the extent of a pro rata share of the assets of the bank, then he is to pay to Hamblen the amount of the payment he thus receives. If he cannot do either of these things there is nothing for him to pay by way of an equivalent for the certificates. He is not required to pay any money for them, and under the terms of the agreement he is only required to pay to Hamblen the amount of the credit he obtains on his notes, by reason of his use of the certificates. The paper does not contain any assignment of the certificates but recites at the commencement that one has been made. It follows, therefore, that the only use that was to be made of the certificates was that Smith was to pay off his notes with them if he could, and if not he was to pay nothing to Hamblen. That such a transaction cannot confer any right of set-off upon the debtor to the bank has been so often and so positively decided that there can be no question about it.

In 22 Am. & Eng. Ency. of Law, 283, the rule is thus stated: "The claim sought to be set off must be owned absolutely by the defendant; a person holding a chose in action assigned to him conditionally has no right to set it off. A claim which the defendant has borrowed for the occasion cannot be set off. So where the defendant has obtained possession of the demand from a third person upon the understanding that it shall be his property, or that he shall be liable to the owner, only in the event of his being able to set it off, it cannot be so employed by the defendant." Many cases are cited in the notes.

In McGowan v. Budlong, 79 Pa. 470, PAXSON, J., said in the opinion, "It is true if the defendant had obtained the note as a mere experiment, with an agreement to return it in case he failed to get it in as a set-off, its rejection would have been proper."

In Shryock v. Basehore, 82 Pa. 159, the action was brought by the assignees of an insolvent bank against the defendant who was a maker of a note for $2,500 held by the bank. Before suit brought the defendant obtained a dishonored draft drawn by the insolvent bank for $2,620.94, in favor of the cashier of another bank, for which he, the defendant, gave his own note, upon which a memorandum was written that it was given for the dishonored draft and was only good for so much as the defendant should realize either by collection payment, or credit obtained upon the obligation. Any excess received was to be paid to the bank holding the dishonored draft: We held...