152 N.Y.S. 240 | N.Y. App. Term. | 1915
This is an action against the Florida Tie and Lumber Company, as maker, and Milton S. Kistler, as indorser, of a four months’ promissory note for $3,750 dated November 14, 1910. The note was negotiated and delivered to the plaintiff, Carnegie Trust Company. Two thousand nine hundred and twenty-five dollars were paid or credited thereon, leav
Section 501, subdivision 2, of the Code of Civil Procedure, defines legal set-off as follows: “Any other cause of action on contract, existing at the commencement of the action.” When the note was protested and due notice given to the indorser Kistler, he became liable to the plaintiff and his liability was not that of a surety but was absolute and independent of the lia
But the plaintiff insists that to allow an indorser who can obtain indemnity to set-off constitutes a preference, in violation of the State Banking Law, and that the burden is upon the indorser, before a set-off will be allowed, to prove that he cannot obtain indemnity. It is admitted that the point raised by the plaintiff is now presented for the first time in this state, although it is claimed that the principle contended for by the plaintiff was applied at Special Term in Borough Bank of Brooklyn v. Mulqueen, 70 Misc. Rep. 137. An
It is stated that the question has been directly decided by the Supreme Court of the state of Tennessee, in favor of plaintiff’s contention, in Knaffle v. Knoxville, etc., Trust Co., 128 Tenn. 181. That was a petition by a co-maker on a note, who was in fact an accommodation party, to offset a deposit with the holder, an insolvent banking institution, although it appeared that the real maker was not insolvent. The question was stated by the court as follows: ‘ ‘ The question here presented for determination, therefore, recurs: Is the surety on a note held by the receiver of an an insolvent bank entitled to have set off against the same the amount of an individual deposit, due the surety by the bank, when the bank is not suing, and the maker and primary obligor is solvent! ” Obviously, the answer to that question did not decide directly or indirectly the question here presented, where the bank is suing, and it does not appear that the maker is solvent.
In fact, all of the cases relied upon as supporting in principle plaintiff’s contention are cases involving equitable set-off and attempts initiated by the depositor to procure the allowance of an equitable set-off. It is one thing to resort to equity to procure a set-off in proceedings against the receiver of an insolvent bank and quite another, when attacked by the bank, to defend one’s self by interposing a legal set-off. In the former case, the applicant for equity must show that he is entitled to equity, and this makes it incumbent upon him to show that he has no adequate remedy at law against a primary obligor. In the latter case, being attacked by the bank or its receiver, the party claiming the right of set-off merely interposes as a
Furthermore, the ordinary rule as to the burden of proof shows that in the latter case the burden of proving the financial condition of the primary obligor should be upon the party resisting the set-off. The burden of proof is upon the party having the affirmative of any given proposition. Here the statute allows the set-off, but the plaintiff seeks to overcome the statutory defense because of the financial condition of the primary obligor. In other words, the plaintiff has the affirmative in attempting to resist or overthrow the statutory defense, and the burden of proof on this issue naturally and properly goes with the affirmative.
As to whether such a set-off as was allowed below constitutes an illegal preference, the case of Curtis v. Davidson, 164 App. Div. 597, is pertinent and very persuasive.
The court passing directly upon this point says:
‘ ‘ The appellant admits that if the action were against the makers of the notes they would be entitled to set off their deposit balances in reduction pro tanto of the claims asserted against them, but he claims the allowance of such set-off to an indorser, in the absence of an allegation of the maker’s insolvency, would result in an unlawful preference in favor of the indorser; in other words, that an indorser should not be allowed to set off his deposit balance against his liability on a note without alleging and proving the inability of the maker to pay. I have, however, been unable to find any authority, which holds that when the indorser alone is sued, his right to set off a balance standing to his credit when the bank became insolvent is dependent upon his alleging and proving the insolvency of the maker, 'and I can see no good reason why such set-off should not be allowed. The receiver acquired
The fact that in that case the action was against the indorser alone, while in the case at bar the action was against both, the maker and an indorser, can furnish no ground for distinguishing the two cases for claiming that the principle of law applied in the Curtis case is not applicable to the defendant indorser here. The contract of the maker of a note and the contract of an indorser are separate and distinct causes of action admitting of separate, distinct and dissimilar defenses. The cause of action against the maker of a note and the cause of action against an indorser of the same instrument may at the election of the holder of the note be proceeded upon in separate actions or joined in one action. This is not because they constitute but one cause of action, but because they are causes of action arising out of the same transaction. If, as held in the Curtis case, an indorser in an action against him alone may avail himself of such set-off, it cannot be true that the holder of a note by electing to join the maker as a party defendant, in order to pursue a distinct and separate cause of action against the maker upon a separate and distinct contract, may defeat the indorser’s right of set-off. The rights and remedies of the holder of the note and the rights and defenses of an indorser arising out of a contract of indorsement cannot be affected by the joinder or non-joinder as a party defendant of the maker of the note, who is not a party to the contract of indorsement.
It is true that in the Curtis case the National Banking Act was under consideration, but there is no force in the contention of the plaintiff that, the National Banking Act was designed to prevent fraudulent trans
The rule in question laid down by the federal courts in construing the National Banking Act has therefore been followed by the courts of this state in construing the National Banking Act and in construing the New York State Banking Law.
Guy and Pendleton, JJ., concur.
Judgment affirmed, with costs.