Diven v. Phelps

By the Court, Johnson, J. The bank suspended business, closed its doors and was insolvent on the 21st September, 1857. It then held the defendant’s note, which was over due. On the 1st of November, 1857, the defendant had in his possession $513 of the bills of the bank, which he had procured, and which he offered on the 21st of that month, to the receiver^ in payment of his note. The receiver was appointed on the 9th of November, in pursuance of proceedings instituted on the 9th of October previous, and' upon which the bank was declared insolvent. The bills, having been obtained by the defendant after the bank had suspended and [229] become insolvent in fact, could not, I think, be used as a set-off or counter-claim, against the note in this action, brought by the receiver. After the defendant had procured these notes, he held them as a demand against the bank, and it is quite obvious, I think, that the bank could not then have paid this demand in any way. It was absolutely prohibited by statute from doing so. (1 R. S. 591, § 9.) This prohibition extends to all conveyances, assignments, transfers, payments, judgments suffered, liens created, or securities given by a bank when insolvent, or in contemplation of insolvency, with the intent of giving a preference to any particular creditor. If the bank, before the appointment of the receiver, had given up the defendant's note, in satisfaction of his claim as holder of the bills, the transaction would have been void, and the note thus given up might have been recovered of the defendant, as part of the assets belonging to such bank, or the creditors thereof. A recovery; as has been held, may be had, whether the party receiving the payment knew of the insolvency or not. (Brouwer v. Harbeck, 5 Seld. 589. Robinson v. The Bank of Attica, 21 N. Y. Rep. 406.) Before the defendant procured his bills, the bank held the note against him, and the latter being insolvent, the note belonged equally to all the creditors of such bank. If the defendant could be allowed to purchase, or receive, the bills of the insolvent bank, and with them satisfy, and thus take from the assets, this amount, or any other, the policy of the statute, which is to secure perfect equality among all the creditors of insolvent corporations of this description, would be entirely defeated. The statute expressly provides, that every person receiving by means of assignment, or payment, any of the effects of such corporation, shall be bound to account therefor, to its creditors, or stockholders, or their trustees. If the defendant could not lawfully receive his note, in satisfaction of his claim, as holder of the bills, thus procured, [230] but would have been liable had he taken it, to account to the receiver therefor, it must follow, I think, that the bills were not the subject of a set-off or counter-claim in this action. The chancellor so held and instructed the receiver in the Matter of the Receiver of Middle District Bank, (1 Paige, 585.) The chancellor, in that matter, says, that it had been so decided by the supreme court, in one of the suits brought by the receiver of the Greene County Bank. But the chancellor was either mistaken in regard to what the supreme court had decided, or the case referred to has not been reported. The point certainly was not decided in the reported case of Haxtun v. Bishop, (3 Wend. 13,) nor does it appear to have been decided in the four cases previously decided, which are referred to in the note to that case. In the reported case, the defendant’s note was not due at the time of the failure of the bank, nor at the time the receiver was appointed. And although the defendant obtained the bills of the bank after its failure, they were held not to be a set-off, because the note was transferred to the receiver before it fell due, who took it as trustee for all the creditors. In the head note to the case of Niagara Bank v. Rosevelt, (9 Cowen, 409,) the same rule is asserted, that “ bills obtained by the solvent debtors of a bank, after it has stopped payment, though before a receiver be appointed, are not admissible as a set-off against the bank.” The question, however, did not arise in the case, and that part of the head note is taken from the note at the foot of the case, which contains the case, before cited as reported in 1 Paige, 585. I infer that this was one of the questions upon which the receiver desired instructions in that case, but as it was an ex parte matter, perhaps the decision ought not to be' regárded as conclusive authority upon the question. But I regard the principle as sound, and as necessarily flowing from the provisions of the statute, and from the decisions of the court of. appeals, in the two cases before cited. There is undoubtedly some difficulty in reconciling this rule [231] with the provisions of the statute, on the subject of set-offs, or those relating to counter-claims under the code. It was held, however, in Haxtun v. Bishop, (supra,) that the receiver is not a trustee for the bank, but for the creditors, and represents the latter only. If this be so, then the right to set off the bills in the action clearly did not exist, unless they constituted a claim against the creditors, or might have been set off as against them, had they brought the action, within sub. 10 of § 18 of 2 R. S. 354. The true principle I conceive to be this, that under the statute, the moment a moneyed corporation becomes insolvent, the rights of all its creditors attach equally, to all its assets, and whoever takes its bills afterwards, being indebted to such corporation, takes them subject to this right of all the creditors to share equally in its assets. His claim is upon the assets, for his proportionate share. The statute which forbids a corporation, under such circumstances, to pay, or secure, one creditor in preference to another, and makes' the creditor thus paid, or secured, liable to account to the other creditors or their trustees, virtually secures to the creditors collectively the entire and exclusive right to all the assets the moment the insolvency takes place. The debtor must pay his debt and take his dividend, for his claim, arising from his ownership of the bills acquired under such circumstances. A bank, as long as it is solvent, is bound to take its own bills in payment of debts owing to it; but when it becomes insolvent, and after the rights of all its creditors have attached, a debtor then takes the bills of the bank subject to the rights of other creditors to enforce his obligation against him, for the equal benefit of all. It is possible that a defendant, in such a case, at the suit of the receiver, might set off, or have allowed by way of counter-claim, the amount or proportion to which he would be entitled as a bill holder, on the final winding up and distribution among the several creditors, if that amount could be ascertained and determined at the time of the trial. But it is unnecessary to decide that question, as it is not pre [232] sented by the case. The nominal amount of the bills was set up in the answer, as a set-off, or counter-claim¿ against the note, and that was the purpose for which the evidence was offered. [Monroe General Term, September 2, 1861. There is nothing in the case to show what amount would be realized from the assets, or what the defendant’s share would be ultimately, and probably it could not have been ascertained at the time of the trial. The claim was, therefore, in my opinion, properly rejected, as a set-off or counterclaim, by the learned judge at special term. I do not perceive that the defendant could possibly have been prejudiced by the introduction of the record in the other action, in evidence. The regular appointment and title of the plaintiff, as receiver, is admitted by the answer, in effect, and the admission of that record, although wholly irrelevant to the issue, could have worked no possible injury to the defendant, and is therefore no ground for a reversal. The judgment must therefore be affirmed Smith, Knoz and Johnson, Justices,]