Stephens v. Schuchmann.

culars of the bank which stated that the capital stock had been ncreased, and it appeared affirmatively that the Comptroller of the Currency took no action touching the actual increase and never issued any certificate approving it, but in his last official report preceding the suspension of the bank stated its capital stock to be $300,000 only.

It will be thus seen that the judgment of the trial court herein was warranted regardless even of the fact whether the affirmative defense was sufficient in law, since the affirmative defense was not substantiated by the evidence.

Judgment affirmed. All concur.

In an action by the receiver of an insolvent National bank against the indorser of a promissory note maturing after his appointment, the defendant cannot set off a deposit in the bank,

PPEAL from St. Louis City Circuit Court.

[PPEA

Draffen & Williams and D. W. Shackleford, for appellant.

Klein & Fisse, for respondent.

PEERS, J. The plaintiff instituted this action to recover upon certain notes held by him as receiver of the Fifth National Bank of St. Louis, amounting together to the sum of $1,500, executed by the defendant Schuchmann, and indorsed by the defendant Soderer. The facts of the execution and indorsement of the notes were admitted; but the defendant Soderer in his separate answer pleaded a set-off against the plaintiff's claim as follows: "And for a further and additional defense to the several causes of action set forth in the plaintiff's petition, and as a set-off and counter-claim to the same, this defendant says that on the 7th day of Novem

Stephens v. Schuchmann.

ber, 1887, this defendant had on deposit in the said Fifth National Bank of St. Louis, the sum of $1,236.58, which amount was on said 7th day of November, 1887, due and payable from the said Fifth National Bank of St. Louis, to this defendant. The defendant further says that the said sum of money is still due him from the said Fifth National Bank of St. Louis, and that on or about the 13th day of January, 1888, this defendant notified the said plaintiff Lon V. Stephens, receiver of the Fifth National Bank, that he stood ready and consented that the said receiver should apply the balance that was due to this defendant from the said Fifth National Bank, and so standing to his credit in said bank, namely, the said sum of $1,236.58, in satisfaction and payment pro tanto of the two notes mentioned and described in the first and second causes of action of the plaintiff's petition herein, and on said day this defendant did then and there tender in cash to the said Lon V. Stephens, receiver as aforesaid, the difference between the amounts of said notes and the protestfee thereon, and interest accrued to said date, amounting in all to $1,509.60, on the day of said tender amounted to the sum of $273.02, which last-named sum was on said day tendered to the said plaintiff by the defendant in satisfaction and discharge of all liability on the part of this defendant upon said notes; but the said plaintiff, receiver as aforesaid, refused and declined to accept said sum of $273.02 in satisfaction and discharge, and refused to allow this defendant the said set-off or counter-claim of $1,236.58, so due him from the said bank. And this defendant now here offers and pays into court for the benefit of said plaintiff the said sum of $273.02, and consents that judgment may be rendered against him for said amount with costs. Wherefore, having fully answered, this defendant now prays judgment accordingly, that the said plaintiff may be required to deliver and surrender to him the said two promissory notes upon payment of said $273.02, the balance due thereon, as aforesaid, from this defendant, and for such other and further relief as the defendant may be entitled to under the circumstances of this case.

The notes sued on having been introduced, the defendants were proceeding to offer testimony in support of the set-off pleaded when plaintiff's counsel admitted the truth of the matters

Stephens v. Schuchmann.

pleaded in the answer. Thereupon the court rendered judgment in favor of plaintiff as follows: Upon the first count of the peti tion for the sum of $1,004.77, and upon the second count for the sum of $504.33, amounting in all to the sum of $1,509.60; and the court rendered judgment upon the counter-claim in favor of the defendants for the sum of $1,236.58, and awarded an execution in favor of the plaintiff for the amount of the difference be tween the two findings, to-wit, the sum of $273.02, and for the costs of the suit. From this judgment the plaintiff appeals.

It will be seen that there is but one question presented in this record, viz. Whether the set-off pleaded was properly allowed against the plaintiff's claim. There can be no question, under the statutes of this State, that one of two defendants jointly sued may plead as a set-off a separate demand due him from the plaintiff. The Supreme Court of this State has so held in a line of decisions beginning with the case of Austin v. Feland, 8 Mo. 309, and continuing up to the case of Mortland v. Holton, 44 id. 58, and we know of no contrary authority in any of the later decisions. It seems however that the question as here presented is not governed by the statute of this State nor the decisions upon that statute, but must be determined by the act of Congress under which the plaintiff bank was authorized to transact its business, and the decisions of the court as bearing upon that act.

The act of Congress prescribes the conditions upon which National banks shall be created, the powers they possess and conse quences of their failure to meet their obligations. In our judg ment persons dealing with these institutions can only acquire and enforce rights against them under the limitations designated in the act above referred to.

Section 5234 of this act provides for the appointment of a receiver of an insolvent bank, who, under the directions of the Comptroller of the Currency, shall take possession of the books, records and assets of every description of such association, collect all debts, dues and claims belonging to it, sell its real and personal property and pay over the money to the Treasurer of the United States, subject to the order of the Comptroller of the Currency. Provision is then made for a ratable dividend of the money so paid over to him by such receiver on all such claims as

Stephens v. Schuchmann.

may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, and shall make further dividends as the proceeds of the assets are paid over to him, and the remainder of the proceeds, if any, shall be paid to the shareholders. In order to further secure an equal distribution of the assets of the bank, section 5242 declares all transfers of the notes, bonds, bills of exchange owing to any National banking association, or of deposit to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money or other valuable thing for its use or for the use of any of its shareholders or creditors, and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void.

It is perfectly clear from this that the act of Congress establishing these banks intended: "1. To secure the government for the payment of the notes; and 2. To secure equality among the creditors of the bank in the division of the property and proceeds thereof; that there should be no preference of one creditor above another; all should share ratably in the proceeds of the association. The provisions are just and equitable and commend themselves to the mind of every lover of equal and exact justice." Mr. Justice FIELD, in National Bank v. Colby, 21 Wall. 609; 1 Nat. Bank Cas. 109, says: "This design would be defeated if a preference in the application of the assets could be obtained by adversary proceedings. The priority of the United States and the ratable distribution among the general creditors, so studiously provided for in the act, would in that case be lost."

If the theory of the lower court is correct, then its judgment has the very opposite effect of that clearly intended by the National Bank Act, i. e., in giving the indorser of the note in question credit for the entire amount of his deposit while the other creditors must be satisfied with just what the assets of the bank will pay, whether it be ten, twenty or fifty per cent. To illustrate: A. has $1,000 to his credit on the books of the bank; B. has $2,000; C. has no deposit, but owes the bank a note of $2,500 on which B. is indorser; the bank fails and is put in the hands of a

Stephens v. Schuchmann.

receiver; A. must be satisfied with what the dividends of the bank will pay on his $1,000 deposit; while B. on account of his indorsement for C. tenders $500 more, which with the credit of his deposit pays off the note of C. and saves to himself the full amount of his deposit; C. then protects his paper by repayment to B. and the result is clear. Such a proposition is the one before us. It defeats the very object of the law and cannot be upheld by any rule of fairness and justice.

At the time of the failure of this bank the liability of the indorser on this note had not become fixed His was a contingent liability. The indorser owed the bank nothing at the time it went into the hands of the receiver; the note was not due. The right of action against him first accrued to the receiver. He did not stand at the time of the collapse of the bank, in the attitude of a debtor, owing an immature demand, but at the time his liability was contingent. One cannot set off a demand due him from an insolvent bank against a liability that has become fixed since the appointment of a receiver. Jordan v. Bank, 74 N. Y. 467; 30 Am. Rep. 319. The receiver succeeds to the rights of the bank existing at the time it goes into liquidation. Bank v. Wall, 56 Me. 167; Miller v. Bank, 1 Paige, 444; Colt v. Brown, 12 Gray, 233. The right of the set-off must be perfect and available at the time of the appointment of the receiver in order not to be affected by the bank's insolvency. Hade v. McVay, 31 Ohio St. 231; 1 Nat. Bank Cas. 353. The same principle is enunciated by NELSON, J., in Fry v. Evans, 8 Wend. 530; also in Merritt V. Seamen, 6 N. Y. 168.

When a banking association, organized under the Banking Laws of Congress, becomes insolvent and passes into the hands of a receiver under the provisions of that law, the respective rights and liabilities then existing between it and its creditors and debtors becomes fixed, and all its property and assets thereupon subject, after satisfying the prior claims, if any, of the government on account of its notes, to disposal and ratable distribution among all its general creditors upon its principle of equality. No subsequent lien can be created, or right of preference obtained in respect to any such assets or property after the appointment of a receiver. Balch v. Wilson, 25 Minn. 299..