Scott v. Armstrong
Annotate this Case
146 U.S. 499 (1892)
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U.S. Supreme Court
Scott v. Armstrong, 146 U.S. 499 (1892)
Scott v. Armstrong
Nos. 53, 1025
Argued November 18, 21, 1892
Decided December 12, 1892
146 U.S. 499
The closing of a national bank by order of the examiner, the appointment of a receiver, and its dissolution by decree of a Circuit Court necessarily transfer the assets of the bank to the receiver.
The receiver in such case takes the assets in trust for creditors, and, in the absence of a statute to the contrary, subject to all claims and defenses that might have been interposed against the insolvent corporation.
The ordinary equity rule of setoff in case of insolvency is that, where the mutual obligations have grown out of the same transaction, insolvency, on the one hand, justifies the setoff of the debt due, on the other, and there is nothing in the statutes relating to national banks which prevents the application of that rule to the receiver of an insolvent national bank under circumstances like those in this case.
A customer of a national bank who in good faith borrows money of the bank, gives his note therefor due at a future day, and deposits the amount borrowed to be drawn against, any balance to be applied to the payment of the note when due, has an equitable (but not a legal) right, in case of the insolvency and dissolution of the bank and the appointment of a receiver before the maturity of the note, to have the balance to his credit at the time of the insolvency applied to the payment of his indebtedness on the note.
In this case, this Court reverses the judgment of the court below, declining to sustain it upon a jurisdictional ground not passed upon by that court.
No. 53 was an action brought by David Armstrong, receiver of the Fidelity National Bank of Cincinnati, Ohio, against Levi Scott and the Farmers' and Merchants' State Bank, in the Circuit Court of the United States for the Southern District of Ohio, upon a promissory note for $10,000, dated at Cincinnati on June 6, 1887, payable ninety days after date at said Fidelity Bank, with interest after maturity at the rate of eight percent per annum, signed by Scott and endorsed by the Farmers' Bank to the order of the Fidelity Bank.
The defendant Scott was the cashier of his codefendant, and pleaded that he signed the note for the accommodation of the banks under an agreement that he should not be looked to for its payment. The Farmers' Bank made the same averments as to Scott, and pleaded a setoff to the amount of $8,809.94 as arising on certain facts, in substance as follows: that the Fidelity Bank lent the Farmers' Bank the $10,000 at a discount at the rate of seven percent per annum, for ninety days, under an agreement that the money so borrowed, less the discount, should be placed to the credit of the Farmers' Bank on the books of the Fidelity Bank; that the note in suit was executed accordingly, dated and discounted on June 6, 1887, and the proceeds, $9,819.17, were placed to the credit of the Farmers' Bank upon the books of the Fidelity Bank, to meet any checks or drafts of the Farmers' Bank and to pay the note when it became due; that afterwards, and before June 20, the Farmers' Bank drew against the deposit the sum of $1,009.23, and the balance, $8,809.94, remained to the credit of the defendant to meet the note, and was so to its credit at the time the receiver was appointed; that upon the maturity of the note, and before suit was brought, defendant tendered to the receiver the sum of $1,190.06, the balance due on the note, and that the tender had since that time been kept good, and the money was now brought into court.
Demurrers to the pleas were sustained, and judgment was entered for the plaintiff for $10,833.33, with interest and costs. The judgment, as provided by section 5419 of the Revised Statutes of Ohio, contained a certificate that the Farmers' Bank was liable as principal and Scott as surety.
The opinion of the circuit court, by the district judge, will be found in 36 F. 63, and states that the circuit judge concurred in its conclusions as being in accord with his opinion in Bung Company v. Armstrong, reported in 34 F. 94. The case being brought here by writ of error, it was assigned for error that the court erred in sustaining the demurrers and in rendering judgment against the defendants below.
While the writ of error was pending, a bill in equity was filed in the circuit court in behalf of the Farmers' Bank and Scott against Armstrong, as receiver, praying for an injunction against the judgment and for the enforcement of the setoff. Armstrong demurred, his demurrer was sustained, the bill dismissed, and an appeal taken to the Circuit Court of Appeals for the Sixth Circuit. That court certified to this Court for instructions as to the proper decision seven questions, accompanied by a brief statement of the contents of the bill and proceedings thereon.
The bill, as summarized by the court, rehearsed the facts set forth in the answers in the suit at law somewhat more in detail, and, among other things, stated that "on the 20th day of June, 1887, said Fidelity Bank was closed by order of the Bank Examiner of the United States, and thereafter remained closed;" that
"on June 27, 1887, the Comptroller of the Currency of the United States, having become satisfied that said Fidelity Bank was insolvent, appointed the appellee, David Armstrong, receiver of said bank to wind up its affairs, as provided under the authority given by the laws of the United States in such case made and provided, and said receiver qualified and entered upon the performance of his duties as such. On July 12, 1887, the charter of said Fidelity Bank was forfeited and said banking association dissolved by decree of the Circuit Court of the United States for the Southern District of Ohio;"
"said Fidelity Bank was in good credit at the time said discount was made, and was then thought by said Scott and said State Bank, with good reason for so thinking, to be solvent, but was in fact insolvent, and known so to be by said Harper,"
its managing officer, with whom the transaction had been had.
The recovery of the judgment and pendency of the writ of error were also set forth, and it was averred
"that said Scott and said State Bank were advised said circuit court sitting as a court of law had not jurisdiction to entertain and adjudge upon the setoff pleaded as aforesaid, and that relief should be sought in a court of equity."
The tender was reiterated, and it was prayed, among other things, "that the collection of the judgment at law might be enjoined, and that the setoff might be established and allowed." The grounds of demurrer were:
"1. That it appeared from the bill that the complainants were not entitled to the relief sought."
"2. That the complainants had an adequate remedy at law for the relief sought, which had been already adjudicated."
The case on certificate is No. 1,025. The first, second, and fourth questions are as follows:
"1. Where a national bank becomes insolvent, and its assets pass into the hands of a receiver appointed by the Comptroller of the Currency, can a debtor of the bank set off against his indebtedness the amount of a claim he holds against the bank, supposing the debt due from the bank to have been payable at the time of its suspension, but that due to it to have been payable at a time subsequent thereto?"
"2. Has a circuit court of the United States sitting in Ohio as a court of law jurisdiction to entertain a defense of setoff as against an action brought by a receiver appointed by the Comptroller of the Currency to wind up the affairs of a national bank doing business in Ohio because of its insolvency, upon a note held by said bank, which note matured and became payable after the appointment of such receiver?"
"4. Where a national bank doing business in Ohio in 1887 discounts a promissory note with the understanding that the proceeds of the discount are to remain on deposit with it subject to the checks of the borrower, and any balance of such deposit remaining undrawn at the maturity of the note is to be applied as a credit thereon, and where at the time such discount was made said bank was in fact insolvent, and known so to be by the officer through whom it acted in making such
discount and agreement, but such bank was then in good credit, and thought by the borrower to be solvent, with good reason for so thinking, and where afterwards, the insolvency of said bank becoming known to the Comptroller of the Currency, that officer assumed charge of said bank, and afterwards, in June, 1887, but before the maturity of the note so discounted, appointed a receiver to close up the affairs of said bank, can such borrower, by suit in equity against such receiver, compel a setoff of the balance of said deposit account at the time of the suspension of said bank against the amount due upon such note at its maturity?"
The third, fifth, sixth, and seventh related to the effect of the judgment at law as a bar to the bill in equity.