Thomas v. Nat'l Bank of N.J.

• Citation: 198 A. 539
• Parties: THOMAS v. NATIONAL BANK OF NEW JERSEY.
• Decision Date: 07 April 1938
• Court: New Jersey Supreme Court

198 A. 539

THOMAS

v. NATIONAL BANK OF NEW JERSEY.

District Court of New Jersey. New Brunswick.

April 7, 1938.

Suit by Robert L. Thomas, administrator of the estate of Ida Chandler Brown, deceased, against the National Bank of New Jersey, arising out of the refusal of the bank to honor the order of the plaintiff-administrator in drawing against a checking account in the bank in the name of the deceased.

Judgment for defendant.

Walter S. Greacen, of New Brunswick, for plaintiff. Paul W. Ewing, of New Brunswick, for defendant.

MORRISON, Judge.

This suit arises out of the refusal of the defendant bank to honor the order of the plaintiff-administrator in drawing against $442.44 which was on deposit in a checking account in the said bank in the name of Ida Chandler Brown, deceased. The essential facts have been stipulated by counsel and disclose that Ida Chandler Brown, deceased, was a maker on a note payable to and held by the bank in the sum of $680, which note matured on May 11, 1935. On April 1, 1935, Mrs. Brown died, and at the time of her death she had a checking account with the bank, the balance of which was $442.44. On May 10th, one day before the note fell due, the bank applied the balance in the checking account to the amount due on the note. Plaintiff, as administrator of Mrs. Brown's estate, thereafter sought to draw by checks against the said checking account, but payment thereof was refused. In the stipulation of counsel, the assets and liabilities of the estate are set forth, showing that the latter exceeded the former by $779.81. The bank defends this suit, alleging that the insolvency of Mrs. Brown's estate permitted it to set off the amount of her note against the balance of her deposit, although the note was not then due. The administrator, in answer thereto, concedes the bank's right to set off his intestate's unmatured note, where the estate is insolvent, but urges that before the estate can be considered insolvent a decree of insolvency must be made by the orphans' court, and that no such decree has been made.

That a bank may, on the insolvency of a depositor before the maturity of his indebtedness to the bank, apply his general deposit to the payment of such indebtedness is settled law in this state. Receivers of President, etc., of People's Bank v. Paterson Gas Light Co., 23 N.J.L. 283; Camden National Bank v. Green, 45 N.J.Eq. 546, 17 A. 689, affirmed Green v. Camden National Bank, 46 N.J.Eq. 607, 22 A. 56; Crisp v. Dunn, 56 N.J.L. 355, 29 A. 166; Feick v. Hill Bread Co., N.J.Ch., 99 A. 851, affirmed 89 N.J.Eq. 189, 104 A. 96; Roseville Trust Co. v. Barney, 89 N.J.L. 550, 99 A. 343; Leech v. Campbell & Duncan, Inc., 103 N.J.Eq. 119, 142 A. 364; Kanter v. Security Trust Co. of Paterson, 110 N.J.L. 361, 165 A. 430, 7 Corpus Juris 656. And this rule has been applied where the depositor dies and his estate is insolvent. Camden National Bank v. Green; Crisp v. Dunn; Feick v. Hill Bread Co.; Leech v. Campbell & Duncan, Inc., Id. Unlike Kanter v. Security Trust Co. of Paterson, the deposit in this case was made by deceased, while there the deposit was made by the executrix, and, therefore, lacked the necessary identity prerequisite to the allowance of a set-off. See, also, Laighton v. Brookline, 225 Mass. 458, 114 N.E. 671, L.R.A. 1917C, 129.

It is urged that this doctrine should be strictly confined to cases where insolvency has been adjudicated on the ground that if a set-off is allowed, a preference is thereby created to the detriment of the insolvent's creditors. In this case, the result of the allowance of the set-off would, after payment of administration expenses and preferred debts, be insufficient to pay the general creditors of the estate. However, this contended injustice to the general creditors of the insolvent is not peculiar to the case at bar, but applies with equal force to any case where a set-off has been allowed against an insolvent debtor. In those cases, as here, the allowance of the set-off would diminish the assets of the insolvent and the distributive shares therein of his general creditors. This contention has been advanced by those jurisdictions that do not permit a set-off in like circumstances, claiming that the allowance of the set-off does injustice to the creditors of the insolvent, who are entitled to an equal share of all his estate, which gives them an equity superior to the equity of the creditor to the set-off. Fera v. Wickham, 135 N.Y. 223, 31 N.E. 1028, 17 L.R.A. 456.

The theory for according a set-off of unmatured debts when insolvency exists rests upon the fact that both debts are subsisting, and only by allowing a set-off can they be treated upon even basis, and the owner of the debt not yet due escape an unjust loss. By allowing the debt due to the creditor only a distributive share, while allowing the debt of the insolvent to be paid in full, would exalt the latter in derogation of the former, and hence be inequitable. The equity of the general creditors is in the balance remaining after the set-off. It does not begin until the set-off has taken place. The equity of the creditor to the set-off is not only superior in time but superior in merit to that of general creditors. Receivers of President, etc., of People's Bank v. Paterson Gaslight Co., 23 N.J.L. 283; Sullivan v. Merchants' National Bank, 108 Conn. 497, 144 A. 34.

Counsel have pointed out many cases in other jurisdictions which represent divergent views on whether the insolvency permitting the set-off of unmatured indebtedness must be decreed or proven in fact. From my examination, it seems that the majority view is in accord with the latter rule. For illustrative decisions that the relief given is not made dependent on a formal adjudication: Fords Administrator v. Thornton, 3 Leigh, Va., 695, 698; Lindsay v. Jackson, 2 Paige, N.Y., 581; American Bank v. Wall, 56 Me. 167; Gay v. Gay, 10 Paige, N.Y., 369, 376; Levy v. Steinbach, 43 Md. 212; Twigg v. Hopkins, 85 Md. 301, 37 A. 24; Goodwin v. Keney, 49 Conn. 563, 569; Stewart v. Coulter, 12 Serg. & R., Pa., 252, 14 Am.Dec. 680; Smith v. Felton, 43 N.Y. 419, 423; Nashville Trust Co. v. Fourth National Bank of Nashville, 91 Tenn. 336, 18 S.W. 822, 15 L.R.A. 710; Schuler v. Israel, 120 U.S. 506, 7 S.Ct. 648, 30 L.Ed. 707; Carr v. Hamilton, 129 U.S. 252, 255, 9 S.Ct. 295, 32 L.Ed. 669; Scott v. Armstrong, 146 U.S. 499, 13 S.Ct. 148, 36 LEd. 1059; North Chicago Rolling Mill v. St. Louis Ore & Steel Co., 152 U.S. 596, 14 S.Ct. 710, 38 L.Ed. 565; Scammon v. Kimball, 92 U.S. 362, 23 L.Ed. 483. Ex parte Stephens, 11 Ves. 24; Williams v. Davies and Sim, 461; Agra Bank v. Hoffman, 34 L.J.,N.S., Ch. 285; In the matter of Hatch, 155 N.Y. 401, 50 N.E. 49, 40 L. R.A. 664; Parker v. First National Bank, 96 Okl. 70, 220 P. 39; Reed v. Central National Bank of Wilmington, Del.Super., 184 A. 772. Contra: Jump v. Leon, 192 Mass. 511, 78 N.E. 532, 116 Am.St.Rep. 265; Kurtz v. County National Bank, 288 Pa. 472, 136 A. 789, 51 A.L.R. 1475; Sullivan v. Merchants' National Bank, 108 Conn. 497, 144 A. 34; Wiley v. Bunker Hill National Bank, 183 Mass. 495, 67 N.E. 655; Note, 43 A.L.R. 1325; Spaulding v. Backus, 122 Mass. 553, 556, 23 Am.Rep. 391; Meinhart v. Farmers' State Bank, 124 Kan. 333, 259 P. 698.

In New Jersey, the case of Polkowitz v. Goldberger, 156 A. 1, 2, 9 N.J.Misc. 880, has been cited by plaintiff as authority for the limitation of the application of the doctrine to cases where insolvency was decreed. There the court held that: "Insolvency in fact, not confessed, or not legally established by bankruptcy or otherwise, will not warrant set-off of an unmatured debt." I construe the confession of insolvency referred to in this case as meaning a formal petition in the orphans' court by the administrative officer of the estate declaring the estate insolvent.

Regardless of my own opinion as to the correctness of this decision, I would be constrained to follow it under the rule of stare decisis if the issues upon which it is founded are coextensive with the issues at bar. In that case, the issue of insolvency was not raised by the defendant bank claiming a set-off, hence the adjudication that if it was raised it would have to be decreed or confessed to justify a set-off was obiter dicta. Dictum, while entitled to respectful consideration as expressing the view of the judge by whom it is uttered, is not binding as authority within the stare decisis rule. New York Central & H. R. R. Co. v. Hudson County, 80 N.J.L. 305, 74 A. 954; Lister v. Lister, 86 N.J.Eq. 30, 97 A. 170; 15 Corpus Juris 950.

The other New Jersey cases I have examined touching on the right of set-off in instances as here did not raise or discuss the specific problem at bar. It is my view, nevertheless, that these cases are fairly interpreted to support the allowance of set-off upon a showing of insolvency in fact.

In considering these cases, we must be mindful that it is the insolvency of the debtor that gives his creditor the right to set off his unmatured debt. Since this right emanates from insolvency, it follows that insolvency must exist before the set-off or concomitant therewith, before it can properly be exercised. Stating this proposition conversely, a set-off of an unmatured debt exercised prior to insolvency cannot be validated by a later finding of insolvency.

In the light of the foregoing, I consider that Camden National Bank v. Green, 45 N. J.Eq. 546, 17 A. 689; Crisp v. Dunn, 56 N.J.L. 355, 29 A. 166; Feick v. Hill Bread Co., N.J.Ch., 99 A. 851, should be construed to support the insolvency in fact view. In Camden National Bank v. Green, the court treated the estate as insolvent upon the filing of a petition by the executrix, declaring the estate insolvent and asking the aid of the court in the premises. A set-off by the bank, made prior to the time of the insolvency petition, was allowed and injunctive relief granted to prevent the...