1. In Pennsylvania, deposits to the credit of individual members
of a partnership in an insolvent bank may be set off against an
obligation of the partnership to the bank. P.
302 U. S.
274.
2. Nothing in the National Banking Act or in any other federal
statute conflicts with the application of this rule in the
liquidation of an insolvent national bank in Pennsylvania. P.
302 U. S.
276.
3. A federal court will lean towards agreement with the courts
of the state when the question seems balanced with doubt. P.
302 U. S.
275.
4. A depositor in an insolvent national bank is not entitled to
set off his deposit against a secondary liability as indorser of a
note the maker of which is solvent. P.
302 U. S.
276.
5. Where the facts disclosed by the record are insufficient to
enable this Court to dispose of a substantial question, the case
may be remanded to the district court for further consideration of
the question, with authority, in its discretion, to take further
evidence to that end. P.
302 U. S. 277.
88 F.2d 474 affirmed in part, reversed in part.
Certiorari, 301 U.S. 678, to review a decree affirming a decree,
18 F. Supp. 262, in favor of the claimants in a suit against the
receiver of a national bank.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
This is a suit brought by respondents in a federal district
court in Pennsylvania seeking to have allowed as a setoff against
the indebtedness of the partnership firm
Page 302 U. S. 273
of Swinger and Binenstock to the Commercial National Bank the
amount of a deposit in the bank by Swinger, now deceased, and so
much of a deposit by Binenstock as might be necessary to cancel the
indebtedness. The bank was organized under the National Bank Act of
the United States, and, as such, was engaged in business in
Pennsylvania. On January 9, 1933, the partnership executed and
delivered its promissory note to the bank in the sum of $10,000,
and on February 28, 1933, executed and delivered to the bank its
further promissory note in the same amount. Under date of January
25, 1933, one Luciano Cammarota executed and delivered to the
partnership his promissory note for $300, which note was endorsed
and discounted at the bank.
At the close of business on February 28, Swinger had on deposit
in the bank the sum of $1,546.58, and Binenstock the sum of
$32,323.76. At the same time, the partnership had on deposit the
sum of $5,822.52. On that date, the bank became insolvent, and was
taken over by the Comptroller of Currency, who appointed
petitioner, Willing, receiver. Petitioner, when the suit was
brought, had reduced the indebtedness of the partnership by
allowing a setoff of the amount of the partnership deposit, but had
failed and refused to allow as a setoff the amounts here in
controversy.
Upon these facts, the district court sustained the claim of
respondents, 18 F. Supp. 262, and entered a decree allowing the
setoff of the individual deposits against the joint indebtedness of
the partnership, ordering a cancellation and return of the
partnership promissory notes, and allowing a claim of Binenstock
against the assets of the bank for the amount of his deposit, after
making provision for the setoff. The decree also directed
petitioner to endorse, without recourse, and deliver to Binenstock,
the note of Cammarota for $300. Upon appeal, the court below
affirmed. 88 F.2d 474. The decrees in both
Page 302 U. S. 274
courts were based upon what was understood and declared by them
to be the Pennsylvania rule upon the subject.
The case has been elaborately argued upon both sides, but, in
respect of the partnership notes, we find it unnecessary to do more
than consider and determine the question whether the courts below
correctly stated the Pennsylvania law on the subject. and were
right in following it as the controlling rule of decision.
First. In
Miller v. Reed, 27 Pa. 244, the
Supreme Court of Pennsylvania held that, whatever distinctions
otherwise would exist between joint contracts and contracts joint
and several, these distinctions, under the statutes of the state,
had been obliterated. These statutes, it was said (p. 249),
"have taken away distinctions that were always embarrassing, and
sometimes insuperable obstacles to the course of justice. There was
no difference in the duty before, and none in the remedy now. The
moral obligation is not affected by the words joint and several,
and in Pennsylvania at least, the legal liability is not."
It therefore makes no difference here whether the Swinger and
Binenstock notes were joint or joint and several.
In the opinion of the federal district court in this case, Judge
Kirkpatrick said:
"The law of the State of Pennsylvania, if applicable, would
clearly sustain the bill. The decisions of that State allow
individual claims to be set off in equity against a joint liability
even though the party asserting the joint liability is solvent.
Stewart v. Courter, 12 Serg. & R. 252;
Cochran v.
Cutter, 18 Pa.Super. 282.
See also Mintz v. Tri-County
Natural Gas Co., 259 Pa. 477, 103 A. 285."
He held the law applicable and entered the decree accordingly.
The court below affirmed on the authority of the opinion of the
district judge.
Petitioner challenges this view of the district judge, albeit
faintly. The judges of both courts below have had
Page 302 U. S. 275
wide experience in the field of Pennsylvania law, and even if
the question were doubtful, as we think it is not, we should have
little hesitation in accepting their determination as to the state
law on the point here under consideration. We have, however,
examined the decisions of the Pennsylvania courts, and fully agree
with the courts below as to their interpretation.
Second. We have no occasion to consider whether § 721
of the Revised Statutes (28 U.S.C. § 725) is applicable.
* Under
Swift v. Tyson,
16 Pet. 1, it would not be. That case has been much criticized, and
the tendency of our decisions which have followed has been to limit
it somewhat strictly. And one of the practical restrictions upon
the principle of that case which we have many times announced is
that, even where it applies,
"for the sake of harmony and to avoid confusion, the federal
courts will lean towards an agreement of views with the state
courts if the question seems to them balanced with doubt."
Burgess v. Seligman, 107 U. S. 20,
107 U. S. 33-34;
Sim v. Edenborn, 242 U. S. 131,
242 U. S. 135,
and authorities cited;
Trainor Co. v. Aetna Casualty Co.,
290 U. S. 47,
290 U. S. 54-55;
Mutual Life Co. v. Johnson, 293 U.
S. 335,
293 U. S. 340;
Community Bldg. Co. v. Maryland Casualty Co., 8 F.2d 678,
680. Even if there were a conflict between the decisions of the
state and those of the lower federal courts, we should be free to
apply the "harmony" rule, and follow the state decisions. We are,
however, unable to find any such conflict.
The case which seems most nearly in point is
Roelker v.
Bromley-Shepard Co., 73 F.2d 618, and that case, so far as it
goes, is in harmony with the Pennsylvania rule. There, the company
was indebted to the Middlesex
Page 302 U. S. 276
National Bank in the sum of $5,000 on a joint note signed by the
company and Sarah Bromley Shepard. On the day the bank closed, the
company had on deposit in the bank $5,611.10, and Sarah Bromley
Shepard had on deposit the sum of $6,275.13. The court ordered that
$5,000 of the $5,611.10 due from the bank to the company be set off
against the $5,000 due from the company to the bank on the joint
note, holding that, where justice requires and there is no adequate
remedy at law, as was the case there, a court of equity will order
a setoff.
There is nothing in the National Banking Act or in any other
federal statute which conflicts with the Pennsylvania rule. In the
case of an insolvent bank, the National Banking Act, 12 U.S.C. §
194, simply provides for a "ratable dividend" on all proved or
adjudicated claims. This Court held, in
Scott v.
Armstrong, 146 U. S. 499,
146 U. S. 510,
that the allowance of a valid setoff cannot be considered a
preference, and that only the balance, after deduction of the
setoff, constitutes part of the assets of the insolvent. "The
requirement," the court said,
"as to ratable dividends, is to make them from what belongs to
the bank, and that which at the time of the insolvency belongs of
right to the debtor does not belong to the bank."
Third. The reason for the order of the district court
requiring the surrender of the Cammarota note for $300 is not
clear, but the requirement seems to be erroneous. It does not
appear from the record whether Cammarota was solvent or insolvent.
If he was solvent, the partnership was not entitled to set off its
deposits against its secondary liability as endorser of the
Cammarota note.
See Williams v. Rose, 218 F. 898, 900;
Bank of United States v. Braverman, 259 N.Y. 65, 68,
et seq., 181 N.E. 50, and authorities cited. "To allow an
indorser," the
Page 302 U. S. 277
New York court said, 259 N.Y. 65 at 70, 71, 181 N.E. 50, 52,
"to set off his deposit when the maker is solvent and able to
indemnify the indorser, as in this case, would enable the indorser
to collect the full amount unpaid on the note from the maker and at
the same time receive a larger amount of his deposit than other
depositors. Such a result would be inequitable."
An excellent statement in support of the foregoing view, and the
reasons for it, will be found in the opinion delivered by Judge
Parker in
Shannon v. Sutherland, 74 F.2d 530, 531,
532.
The facts are not sufficiently disclosed by the record to enable
us to dispose of this item. The opinion of neither court deals with
the subject, and respondents neither in their brief nor oral
argument have had anything to say about it. In these circumstances,
the case must be remanded to the district court for further
consideration of the question, with authority, in its discretion,
to take further evidence to that end. With that exception, the
decree below is approved.
Reversed and remanded for further proceedings in conformity with
this opinion.
Reversed.
* Sec. 721.
"The laws of the several States, except where the Constitution,
treaties, or statutes of the United States otherwise require or
provide, shall be regarded as rules of decision in trials at common
law, in the courts of the United States, in cases where they
apply."