150 N.Y.S. 305 | N.Y. App. Div. | 1914
The complaint alleges that on April 16, 1913, the Atlantic National Bank was found to be insolvent and plaintiff appointed receiver of the same; that among its assets at the time of such appointment were nineteen promissory notes aggregating $2,600.61 which had been discounted by the bank and upon which the defendant was indorser; that none of the notes matured prior to the insolvency; that at maturity they were not paid, were duly protested and notice thereof given to the defendant. The answer does not deny the material allegations of the complaint but alleges by way of set-off that at the time the bank became insolvent and the plaintiff appointed receiver the defendant had a deposit therein amounting to $641.66, and he asks that the judgment demanded by plaintiff be reduced to that extent. After issue had been joined the plaintiff moved under section 541 of the Code of Civil Procedure for judgment on the pleadings. The motion was denied and he appeals.
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 makers’ 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
Matter of Middle District Bank (1 Paige, 585), upon which the appellant chiefly relies, has not escaped my attention. That was not an action where an indorser sought to set off his balance, but simply an application for instructions by the receiver of an insolvent bank to the chancellor. The instructions given cannot be said to have defined the rights of an indorser in an action by the receiver in which the indorser is made sole defendant.
The bank of which plaintiff is receiver was organized under the National Banking Act, and in determining whether this would be a proper set-off under that act the rule prevailing in the Federal courts should be followed. (Frank v. Mercantile National Bank, 182 N. Y. 264.) The right of a depositor in an insolvent national bank to set off his deposit against the amount of a note upon which he was sued as indorser was settled in Yardley v. Clothier (49 Fed. Rep. 337). In that case Butler, J., said: “We do not consider it important that the defendant’s obligation is that of an indorser simply. His undertaking was complete and his obligation absolute when he placed his name on the note. Nothing remained for him to do. * * "x" The fact that he might be discharged by act of the maker or failure to protest and give notice, is unimportant. * *. Whatever character, however, may be ascribed to the defendant’s obligation the receiver took it, such as it was, subject to the right of set-off which the defendant then had.” This decision was subsequently affirmed by the Circuit Court of Appeals (51 Fed. Rep. 506) and approved by the Supreme Court of the United States in Scott v. Armstrong (supra). The same rule was applied in Matter of Shults (132 Fed. Rep. 573.) (See, also, Arnold v. Niess, 1 Walker [Penn.], 115.)
Ingraham,.?. J., Laughlin, Clarke and Scott, JJ., concurred.
Order affirmed, with ten dollars costs and disbursements.