J;8
... li'EPERA,L
Loum
SNYDERS' SONS CO. '!1. ARMSTRONG.
(Otrcuit Oourt, 8. D. Ohio. October ill, 1888.) BANKS AND BANKING-NATIONAL BANXS-INSOLVENcy-ACTIONS-SET:OFF.
On the failure of a national blmk a depositor was indebted to it on 11 notes to the amount of $5,000. and had on deposit some $2,900. The receiver of the bank agreed that this sum should go asa set-off on the indebtedness, the depositor to pay the notes tirst coming due. and the deposit to be applied on the notes. After paying the tlrst two notes ,it was found that the others were In the hands of third parties, and the depositor was compelled to pay them, and tiled a bill to authorize the receiver to refund the money paid under a mutual mistake. This billwas heard by the districtjudge of theWestern district of Tennessee sitting in the circuit court of the Southern district of Ohio. Held, that the derosit should properly be set-off against the claim of the hank. and the depOSitor should recover the sum paid by him; hut as the district judge of the Southern district of Ohio had held in an action between the same bank and a creditor, the circuit judge concul'l'ing therein. that the ,plea of set-off was not available, in order, that theremiq;ht not be different rules of set-off in the same COllrt, in the case of the same Insolvent, and as the case cannot be appealed. it will be remanded for rl!argument before the reg'ular judges. who may in their discretion provide for a dissent of record, ordo what may to them seem right in the premises.
Jordan &: Jordan, for plaintiff. " W. B. Burnet and J. E. Bruce, for defendl.\nt.
In Equity.
HAMMOND,J. When the, Fidelity National Bank became insolvent, ;on, .the 21st day,of June, 1887, the defendant here, Pavid Armstrong, was appointed its receiver, on the 27th day of June, 1887, and took pos.'session of its assets, as required by law, under the direction of the comptroller of the currency. - Rev. St. U. S. § 5234; Act 1876, c.156; 1 Supp. ,Rev. St. 216; ,19 St. 63. At that time the petitioner had to its credit ,as a depositor the sum of $2,828.29, taking no notice of disputed items ·arising out of protested drafts paid by the company, which were elim· inated from this controversy by rulings made at t4e p.earing. This bal,ance on deposit arose. out of ita daily dealings with the bank,at which · it kept an account, depositing from time to time both money and secu,rities for collection on Its account with the bank. It alao at that date had procured discounts from the bank on 11 promissory notes for $5,000 each, maturing at short dates from July to October next ensuing. The that all these notes were then petitioner and the receiver both held by the bank, but in fact an but the two earliest, matJlring July 23d and July 29th, respectively, had been sent away, andused in the operof the ,ba,nj,{ officials immedillte1ypreceding thefailure, for which some of them are now enduring imprisonment under cl'i,ruinal convictions had in this court. The petitioner and the receiver agreed that the deposit should go as a set-off on this indebtedness, but at his request the petitioner a?;reed to take the credit on the last of the notes, to fall due in October, instead of the first, maturing July 23d, as aforesaid. Hence the company paid to the receiver that note and the next, maturing July
LOUIS SNYDERS' SONS CO. ".' ARMSTRONG.
19
and that of the reCeiver, the subsequently maturing notes, :nine in number, were found afterwards to be in the hands of outside holders, and the petitioner was compelled to pay them accordingly. The agreement as to the set-off could not therefore be perfected according to the'intention of the parties, and ,this petition was filed to compel, or rather to authorize, the receiver to reinstate the petitioner by refunding to it the money paid under this mutual mistake of fact. That the petitioner is entitled to this relief, if it be entitled to a set-off at all, there Can be no kind of doubt. It is obvious, however, that the receiver, being a fiduciary agent, and a mere instrumentality. for the administration oftheassets,under the provisions of the law in th3t behalf cannot by his agreement add anything to the rights of petitioner in the matter of the set-off, which must be determined solely upon the legal right of the parties in the premises, and as if the receiver were suing at law upon the first of the note!!, and the petitioner had pleaded the "balance due it by way of set-off. If that plea would have availed, then well may the compariy claim here that tbe receiver shall be directed to refund to it the money and interest by a judgment to that effect, thereby correcting the mutual mistake of fact; or, if it has any standing ina court of equity, then according to the principles governing that court. At the argument I had a very decided conviction that the claim of setoff should prevail, but being informed that another case involving the assets of tbis same insolvent bank was pending before the regular dis-trict judge, and wishing to be further advised. I have held this case, until now there has been filed the opinion of that learned judge, concurred in by the circuit judge; that the plea of set-off was not available, under the circumstances· of that case. Armstrong v. SeoU, 36 Fed. Rep_ 63. The opinion cites also the earlier decision of the learned circuit judge in the case of Bung 00. v. Armstrong, 34 Fed. Rep. 94. The latter case, as reported, does not· disclose the nature of the cross-demands which were asked toOO'set off in that case, and they were presumably not deposits, since as it. seems to me that that. class of debts due from the bank would not be of the character described in the opinion as wanting in that qual. ity of mutuality which promotes the operation of the equitable doctrine of set-off, as contradistinguished from the" right of set-ofl' as atlaw, under the force of the statutes made in that behalf; for I can imagine no class of counter-olaims where, to use the language of the learned circuit judge, "there has been mutual trust or understanding that an existing debt should be discharged by a credit given upon the ground of such debt," or "a knowledge on both sides of an existing debt due toone party. and a credit· by' the other party founded on and trusting to such debt as a means Of' discharging it," more clearly exhibited than in that class aris-ing out ofthe dealings between a banker and his depositor. The peti. tioner here, who deposited the notes, bills, and other securitiE's f9l' collection on itaaooount in this bank, surely expected to discharge whatever discountR it received by· drawing upon that account; and all that mutual knowledge, "trust, or understllnding described hy the· circuit judge certainly exists: in such a case, if itevt)r exists at all. The creditOrs in that
20
FEDERAL
REPORTER.
(lase were not entitled to their set-off as at law, because they had waived it by voluntary payment, which is not the case here, the payment )}aving been made under a mutual mistake of fact, as before stated. Hence, standing alone, I should regard that case in f'lvor of the equitable right of set-off in this case, w.hich this court might allow by reason of its jurisdiction to correct the mistake of fact upon which the parties proceeded, and which of itself would be a sufficient foundation for the j urisdiction of a court of equity in granting any relief, either statutory or equitable, to which the petitioner would be entitled. But in his letter concurring jn the opinion of Mr. District Judge SAGE, and in that opinion itself anriouncing such concurrence, there seems to be some reliance on a similarity between the two cases those learned judges have decided respectively. The district judge in Armstrongv. Scott, supra, concedes, as I understand that the insolvency of a debtor, under the general doctrine of equitable set-off, admits to the privilege of set-off debts. that were not matured at the date of insolvenoy, and such is unquestionably the law, as shown by the citations: in the opinion, and. numerous other authorities oited in the briefs of counsel now before me. Ordinarily, of course, a debt not due cannot be set off against one. already ,due and immediately payable, for the obvious reason that this would be to ,change the contract, and advance the day of payment. Thus, if the petitioner here had demanded payment by the bank of its deposit, payable on call, the bank could not have said, "We have your notes which ,will mature in the Ilear future, and we will apply this deposit to their payment;" but if the petitioner became insolvent the bank could clearly daimthat privilege as against other creditors, in any court of equity, :unless I greatly misunderstand the authorities; and most certainly when the cop.ditions mentioned by Mr. Circuit Judge JACKSON, in Bung Co. v. ,Armstrong,supra, would exist. Wat. Set-Off, p. 149, § 128, and numerOUs cases cited in the briefs here, and in the Scott Case. On the other hand, also, if one has a demand against another presently payable, and that other has debts against him not yet due, and becomes insolvent, the ;party presently indebted may equitably claim the set-off upon the paper 110t yet due in the hands of his insolvent creditor, or his assignee in. in,solvency. Id. p. 151, § 131, and cas,es cited in the briefs.. This prin;,ciple arisesolit of the fact of insolvency, ipso facto, and finds the highest ,development in all of oui' insolvency and bankruptcy statutes,particu'lllrly the late hankruptcy act of the United. States, where the very best legislative thought npon tbis subject finds expression ,in ita ;provisions and the decisions concerning the 8ubjectof set-off, express .provision being: madefof a just abatement of the amount incases of debts not due. And,it should be noted here that nolegislatiQn anywhere ·upon· tbesubject of insolvency has so .scrnpulously preseJ'\:,ed a1ld. in'sistedupon the most exact and perfect equality among crl";lditors.. was thought that the factJhat hy that act the United :States,and the States. respectively, and certain other preferred creditors, had given to them ,the: privileges of prefer:ence for their debts against the inaolvent, in any
LOUIS
SONS CO. fl. AR,MSTRONG.
21
way militated the equitable doctrine of set-ofl', there recognized and established. It was only out of the assets remaining after these just and equitable set-ofl's were allowed that the preferred and other creditors were to be paid. There the bankrupt was discharged, but here, in these bank insolvent systems, provision is made for a remedy against shareholders to make good any deficiency of assets, whether to pay preferred creditors or other claimants. To deny this right of set-off in cases like this is to exonerate the shareholders, or at least to force the depositor to a bill under section 2 of the P,ct of June 30, 1876, (1 Supp. Rev. St. U. S. 217; 19 St. 63,) instead of leaving the receiver to proceed against them under section 1 of ,that act,or section 5234 of the Revised Statutes. This is adding to the injustice of the denial the and delay of litigation, which it is one of the objects of the statutes and law of setavoid. off to As stated in Aldrich v. Campbell, 4 Gray, 284, 285, cases like this are "not. to determined upon technical rules of set-off, but upon principles regulating the settlement of insolvent estates, whether of persons liv,. , ing ,or, deceased." And, as said by the chancellor, in Lindsay v. Jackson, 2 Paige 581,581) : "Although equality aUlong creditors is equity ,here is a a paramount equitywhichmustbeprovidedfor;an equity which , is,distinctlY recognized by, the.insolvent acts of this state,which: have, also dec,lared the other principle, and enforced it to acettain extent." 'Fbe case 9f Bank v. 'Paylor, 56Pa. St. 14, or others like it, cited in Arm-, stroiJ,g; y Scott, supra, does not affect this equity, because in that case the, debt prop<?sed to be set off was, assigned to the debtor of the ,bank after; the ac,t of illsolvency, which makes all the difference imaWnable,. for it is well settled that the rights of, the parties become fixed at the moment and by the act of insolvency, and any subsequent change of the then sitUatiQn, by assignment or other transfer, cuts off this el]uity of" insolvency set-off," if I may call it so. It is against this kind of transfer or assignment, and in declaration of this principle, that section 5242 of the United States Revised Statutes, prohibiting ,such transfers, is aimed. And it seems to me plain that that section is no more in the way of allowing a set-off where the ):lote passed into the hands of the rece.iver before' maturi,ty, than where it passed to him after it becdme due. If it excludes one, both, for either would as much as the other disturbc that equality of among cregjtors, or thatpreferenfJe of: certain claims, upon which the opinion insists. I take it, therefore, to be plp,inlYIUanifest that the opinion in AT1l'!8trongv. Scott,81J,pra. must be confined inthe application ofthe fa(jt, so mu,Gh insisted upon, of the non-, D;laturity of the note sought to beset off at the tirp,l;l it catne to the.posSession of r,e\leiver, to ,the: ruling that the of .do n9tapply, or,allow a set-off,except:when the debt was due; and;, that. under the depositor .cannot. the right of equitable set-, off as a statutory right or, remedy, ,if one pleases to rely on thatdistinc- . for not seem tq rp.eto be, the intention orthe opinion to, Qeny the equita;bledoctrine <>,f oehqfj' which I have endeavored, to lilt.e as to tpis wasthe intentiono1"not"
FEDERAL Ml'ORTER.
or whether the ruling as to the Ohio statute be correct or not, I shall no\ here undertake to determine, because, comparatively with those learned judges, I am a stranger to the local laws of Ohio, and they can best decidethem. I may properly say, however, and the parties are entitled to this expression of my opinion, that the petitioner is, in my judgment, entitled upon the general equity law to this set-off, unless the principle of that opinion has deprived it of it. That principle I understand to be this: that, notwithstanding ihis general equitable doctrine of set-off in insolvent estates, the actf: of congress in relation to insolvent national of Ohio not providing for it, banks have abrogated it, and, the but only providing for set-off where both debts are due, the set-off cannot be allowed. But I do not understand it to be decided that the general equitable doctrine does not prevail in Ohio; and, on the contrary. I understand that it does, and would be enforced but for the acts of congress in relation to natio:t:lal hanks. ' I regret exceedingly that I have been unable to reach the same conc1usionas to the effect of the acts of congress, and that I cannot dispose of this case by giving judgment in accordance with the opinion of my learned brethren, for whose opinions I have unqualified respect. It seems to me that congress has the same power in providing a system of insolvency for the national banks to abrogate the statute of Ohio permitting a,set-off where the two debts are duo as it has to abrogate the general equitable law of set-off and insolvency where one of them is not yet mature, and tliatby the Same implications the one is abrogated, if the other has been; 'Wherefore, inasmuch as to allow a set-off under the statute between debts both of which' are due would disturb that equality among creditors established by the act, and which belongs to all systems of insolvency, quite &s effectually as to allow it in the case of a debt not due, both must go if the implication be well founded, and surely congressdid not intend that effect. Hit be said that the statutory right of setoff' is protected, and its benefits sp.cured, I can only ask by what words of this act of congress has it been done, or by what other act, any more than the general equitable right or remedy has been so secured? The national banking acts do, not Hay anything specifically concerning the right or ' remedy of set-off anywhere, and congress has not, as in the bankruptcy acts, legislated upon the subject in these acts relating to national banks. Neither are they a complete and perfect system of insolvency like the bankruptcy act, or like our state systems of insolvency, respectively, legislatively declaring and defining the principles of insolvency that shall prevail in winding up the banks. Certain peculiar machinery is provided for winding them up, and some leading provisions are made, such as that note holders and deficiencies due the government shall be preferred claims, and transfers or assignments after theacf of insolvency, or in contemplation thereof; shall be prohibited and avoided. Rev. St. §§ 5236, 5242. But it does seem to mea straining of these' provisions to from them an intention to ahrogate all the laws of set-off, legal' and equitable, or any parl of them. It does not seem to me a necessary implication from the language ueed; and without express legislative comI
LOUIS BNYDEBS' BONS CO. ". AlUISTROSG.
23
mand! should hesitate to give to these provisions so formidable an effect as to nullify all the equities, and all statutory rights or remedies pertaining to jJjsolvency prevailing in the states merely to exaggerate the equity ofettuality among creditors, which is, as I have shown,held elsewhere and generally to be subordinate to and not paramountto the equity.of set-off in insolvency. It is my judgment that congress intends to lea.ve this subject of set-off in insolvency administration to be regulated by the law of each state, statutory and general, so that the rules of insolvency should be as far as possible uniform in these cases with like in that state, and that both the statutory and general law of set-off prevails in each state, unless it may be that in analogy to our general equity system the law of equitable set-off should be held to be uniform in all the states, and the law oflegal set-off be regulated under the practice conformity act according to the procedure in each state; for it seems to be rather a matter of remedy than prQpertyright, though it is very close to the line, I should think; of that cla.ss of rights which are protected as property because they are in the natu,re of a trust that attaches by insolvency to the assets for a just distribution of them according to the recognize<! principles of the law of insolveucy,every.where.prevailing; like; for exa'llple, the trusts relating to decedent's estates. At ,all events not hold our act of congress to have abrogated so im..portarlta pnn,ciple of the administration of insolvent estates as the right of set-aft', except upon the most explicit declaration to that etfect,or the ·D:!0st implication arising out of the necessities of CQustruction that were equal to explicit enactment. I have not overlooked the posi·tiontaken by counsel for the defendant, and the cases cited for it that the transa<;tion as if it were an assignment of the undue notes to a stranger for value. The receiver is, in my judgment, under the acts of congress, onlY,an insolvency assignee, representing in his relation to the depositors, on the subject of set-off, the bank itself. But what should be done with this case, entertaining such a difference of opinion as that indicated? Unless the judges are very careful, we should,under tne very absurd judicial system which we have, be led into many perplexities and frequent injustice by such differences. Clearly, we fire not technically bound to follow each other in a line of 'precedenw as authority, and yet just as clearly we must be careful not to confuse our judicial administration by unnecessary departure in judgment; and the statutory provision for certifying dissents has afforded relief against said departures in many instances, but this is not always available, as it is not here, in the present attitude of this case. But it 'Y0uld. be intplerable to have differing rules of .set-otf in the same court, 'and iri the same insolvent p..state or bank; so if I were compelled to de· cide this case one way or the other, I should unquestionably yield my judgment to that of my brethren, and rule as they have ruled, for conformity's sake. But that caSe may go to the supreme court, while this cannot, arid: manifestly that would be unjust to this petitioner. Applica.tion has made to me. by letter to withhold judgment, if I feel bound to rule as my brethren had ruled, and to permit petitioner to
24
FEDERAL REPORTER.
dismiss voluntarily! SO that it could seek the state courts, and through that avenue a proper construction of the acts of congress by the supreme court of the United States; but that is unnecessary, if not improper, and I shall dispose of the case by remanding it to the rules for rehearing and reargument before the regular judges, who may, in their discretion, either provide for a dissent of record permitting this case to go to .the supreme court by that process, if the party desires, or they might hold up judgment here until the other Gase has been there decided on appeal, or in the premises. Let do whatever to them may seem just and them decide it. So ordered.
YAZoo & M. V. R. Co. (Oircuit Oourt, 8. D.
11. BOARD
OF
LEVEE ,
COM'RS. ,
'November 12,1888.)
1.
CONSTITUTIONAL LAW-'-OBLIGATION OF CONTRACT-TAXATION-EXEMPTION.
Const. Miss. art. 12, §§ 13.20, which provide that the property of all corporations for pecuniary profits shall be subject to taxation the same as the prOperty of individuals, aud that shall be equal' and uniform, apply to. corporatioIls wholly private, and db nbl prevent the of an exemption to. a corporation of a qua8i pUblic character, which shall be irrepealable. , The preamble of an act of tlie legislature creating a corporation declared the construction of a railroad through a certain part of the state to be a work of great public importance, and recited that the difficulties of construction had been such that no private company had been enabled to es.tablish it. The act then created th'e corporation for thtl construction of' the road, and "to make certain in of such investment. and as an inducement therefor, the taxes and burdenS which" the state would impose thereon, granted an exemption from all taxes for a certain term of years. Held, that the exemption was, irrepealable. The charter having exempted the road from all taxation by cities and towns, a levee tax, assessed by a levee district under authority of the legislature, is void. as the obligation of the contract. The levee tax is not an ex, ercise of the pohce power of the state.' The charte): providing that the company" shall be exempt from taxation for a term of twenty years from the completion of said .road to the Mississippi river, but not to extend beyond twenty-five years from the date of the approval of this act, " the tlxemption does not begin until the road is completed to the river. · ,. '
2.
SAME.
8.
SAME-POLICE POWER-LEVEE T.AXES.
4:.
TAXATION-EXE)lPTION-COMMENCEMENT OF PERIOD.
,
In Equity. :Bill for injunction. Bill for injunction by the Yazoo & Mississippi Valley Railroad Company against the board of levee commissioners, to restrain the collection of certain taxes on plaintiff's property. W. P. & J. B. Harris, for complainant. Mr. Calhoun, Mr. Green. and The Attorney Gerurral, for defendants.. HILL,J. The questions now to be decided arise upon defendant's demurrer to complainant's bill. The biIl, in SUbstance, alleges that the