St. Paul & M. Trust Co. v. Leck

• Decision Date: 20 April 1894
• Docket Number: No. 8628.,8628.
• Citation: 57 Minn. 87
• Parties: ST. PAUL & M. TRUST CO. <I>vs.</I> JAMES LECK <I>et al.</I>
• Court: Minnesota Supreme Court

Page 87

57 Minn. 87

ST. PAUL & M. TRUST CO.vs.

JAMES LECK et al.

No. 8628.

Supreme Court of Minnesota.

Argued April 10, 1894.

Reversed April 20, 1894.

Appeal by defendants, James Leck and Angus McLeod, from an order of the District Court of Hennepin County, Robert D. Russell, J., made August 31, 1893, sustaining a demurrer to their answer.

On February 9, 1893, one George McLeod deposited with the Farmers and Merchants State Bank of Minneapolis $530 and took therefor its certificate in and by which the bank agreed to repay the money to his order twelve months thereafter with six per cent interest. Prior to April 1, 1893, George McLeod sold and indorsed this certificate to the defendant Angus McLeod. On April 29, 1893, Angus McLeod made his promissory note to Leck & McLeod for $600 and interest at ten per cent a year due sixty days thereafter. It was indorsed by that firm and on that day discounted by this bank.

On June 20, 1893, the bank being insolvent, made an assignment of its property to the plaintiff, the St. Paul and Minneapolis Trust Company, in trust for its creditors under Laws 1881, ch. 148, as amended by Laws 1889, ch. 30. On July 25, 1893, the plaintiff brought this action upon the note against the maker and Leck the indorsers. They answered stating that defendant Angus McLeod held and owned the certificate of deposit, that the bank was utterly insolvent and that its assets were not sufficient to pay five per cent. of its debts. They prayed judgment that the certificate for $530 and accrued interest although not due be setoff against the note, and for such other and further relief as should be just and equitable. The plaintiff demurred to this answer on the ground that it did not state facts sufficient to constitute a counterclaim or defense. On argument the trial court sustained the demurrer with $10 costs, saying:

If the only parties interested were the bank and the defendant McLeod it might be proper to depart from the legal and apply the equitable principle and allow the setoff, but here the rights of other creditors have intervened. If on the day before its assignment the bank had said to McLeod, "We are insolvent and are about to make an assignment, bring in and surrender your certificate not yet due and we will credit the amount on your note," and he had assented and credit had been made, the transaction could have been set aside as a preference. Tripp v. Northwestern Nat. Bank, 45 Minn. 383. If this would have been a preference surely a court of equity cannot interpose and by maturing a certificate by its terms not due, permit a preference to the debtor holding the certificate, by suffering it to be applied on his note held by the bank. By so doing the court would create a preference after the assignment which under the terms of the statute could not stand if made before the assignment. Balch v. Wilson, 25 Minn. 299; Fera v. Wickham, 135 N. Y. 223; Laybourn v. Seymour, 53 Minn. 105. There are decisions under the National Bankrupt Law which appear to hold a contrary doctrine to this, but they are governed by a provision of that statute, "that in all cases of mutual debts or mutual credits between the parties, the account between them shall be stated and one debt setoff against the other and the balance only shall be allowed or paid." There is no such provision in the assignment law of this state. The case of Nashville Trust Company v. Fourth Nat. Bank, 91 Tenn. 336, is not in harmony with this doctrine, but the reasoning upon which that decision rests is inconsistent with the reasoning in the cases cited above, and is not as logical as that in Fera v. Wickham, supra. For these reasons the demurrer is sustained.

Gilfillan, Belden & Willard, for appellants.

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H. D. Stocker, for respondent.

COLLINS, J.

An examination of the adjudicated cases on the question now before us will disclose that the positions assumed by the counsel for the respective parties to this controversy are well supported by the authorities, and that any attempt to reconcile the squarely-conflicting views found in the many opinions would prove futile. Evidently it has been regarded as an open question in this state, although the principle involved has received some attention in Balch v. Wilson, 25 Minn. 299; Tripp v. Northwestern Nat. Bank, 45 Minn. 383, (48 N. W. 4;) and recently in Laybourn v. Seymour, 53 Minn. 105, (54 N. W. 941.)

That the insolvency of a party against whom a set-off is claimed is a sufficient ground for the exercise of the jurisdiction of a court of equity in allowing a set-off in cases not provided for by law, or, in other words, that insolvency has long been recognized as a distinct equitable ground for set-off, cannot well be disputed. Some of the cases supporting this doctrine are cited in Waterman, Set-Off, §§ 431, 432. See, also, Kentucky Flour Co.'s Assignee v. Merchants' Nat. Bank, 90 Ky. 225, (13 S. W. 910,) and cases hereinafter mentioned. From these authorities there can be little or no controversy over the proposition that had the bank itself while insolvent, and prior to an assignment, brought an action upon the note in question, defendant McLeod could have invoked the power of the court in his behalf, and could have been allowed to interpose his equitable set-off arising out of the certificate of deposit,...