Piscataway Twp. v. First Nat. Bank of Dunellen , 111 N.J.L. 412 ( 1933 )

I am unable to concur in the view expressed by my brethren of the majority.

In the case of Lyon v. City of Elizabeth, 43 N.J.L. 158, cited in the majority opinion, the sheriff levied upon several lots of land owned by the city, by virtue of a writ of fierifacias issued upon a judgment recovered against the city. Mr. Justice Van Syckel pointed out that a writ of fieri facias against the public property of a municipal corporation is unknown to the common law; that municipal corporations are mere instrumentalities through which the legislature administers the civil policy of the state; that their control of property is intended only for corporate purposes, and is to be applied only to promote the objects for which they are erected into governments; and that the municipality cannot, in the absence ofexpress legislation, be deprived of the means indispensible to the exercise of the functions with which it is charged. This is obviously not an analogous case.

Here there was no attempt to seize and sell property necessary for governmental purposes. The relation between a bank and its depositors is that of debtor and creditor. Between persons occupying that relation to each other, set-off at law, under the statute, applies and a bank may set off against a general deposit a debt due to it from the depositor. Roseville TrustCo. v. Barney, 89 N.J.L. 550; Marmon Fanning Co. v. People's National Bank of Elizabeth, 106 N.J. Eq. 170,173; Tufts v. Peoples Bank and Trust Co., 59 N.J.L. 380. It is the general rule that, unless there is something to the contrary in the statute law, the right of a bank to set off the deposit of an individual against his debt to the bank would apply equally where the depositor is a municipal corporation. 2Paton's Digest, 2291.

There is express statutory authority for the course taken by the bank in the instant case, and the principle enunciated in the case of Lyon v. City of Elizabeth, supra, cannot be applied without emasculating this enactment. Chapter 243 of the laws of 1927 (Pamph. L. 1927, p. 459) provides that "whenever an action has been or hereafter may be commenced, by any municipality, in any court of law of this state, against any person, persons or corporation, it shall be lawful for such person, persons or corporation having any claim or demand against the plaintiff to set up such claim or demand by way of set-offor counter-claim, subject to rules, and the same shall be considered upon the trial of any such action." Rule 67 of the Supreme Court provides that "if the amount found due on the counter-claim to the defendant exceeds the amount found due to the plaintiff, the defendant shall have judgment for the excess." This seems to be the only applicable rule, adopted by the Supreme Court, touching the procedure in the event that the counter-claim is sustaind.

In the court below judgment was entered in favor of the municipality on its complaint, and for the bank on its counter-claim, and this was declared to be a compliance with the statute. It is said in justification of this course, that the bank "did set up its demand by counter-claim, and the counter-claim was not only considered, but has been allowed as a substantive cause of action upon which the judgment should be entered." This construction, it sems to me, renders the statute nugatory. It stresses and unduly narrows the meaning of the word "considered," and utterly ignores the phrase "set up such claim or demand by way of set-off or counter-claim." Mere consideration of defendant's counter-claim, without giving effect thereto in the accustomed way, would be a futile thing, and it is clear the legislature did not intend such a result. The legislative purpose manifestly was to grant the right of set-off in actions brought by municipal corporations. It expressly so provided. The term "set-off," as employed in the statute, must be given its technical significance. It is a demand which a defendant makes against the plaintiff in the suit for the purpose of liquidating the whole or a part of his claim. Set-off, both at law and in equity, is that right which exists between two parties, each of whom, under an independent contract, owes an ascertained amount to the other, to set off their respective debts by way of mutual deductions, so that, in any action brought for the larger debt, the residue only, after such deductions, shall be recovered. 24 R.C.L. 792. Technical words or phrases in a statute are presumed to have been used by the legislature in a technical sense. United States v.Paterson, 150 U.S. 65; 14 Sup. Ct. 20; 37 L.Ed. 999. One of the established rules of construction is that statutes should have a rational, sensible construction, if their meaning is at all doubtful. Significance and effect shall, if possible, be accorded to every sentence, clause, word or part of the act.Bogert v. Hackensack Water Co., 101 N.J.L. 518;129 Atl. Rep. 138; Shack v. Dickenhorst, 99 N.J.L. 120;122 Atl. Rep. 436; D. Ginsberg Sons, Inc., v. Popkin,285 U.S. 204; 52 Sup. Ct. 322; 76 L.Ed. 704. That construction is favored which will render every provision operative, rather than one which would make some of its provisions idle or nugatory.Jones v. York County, Nebraska, 47 Fed. Rep. (2d) 837. When a statute is plain and unambiguous in its terms, and not susceptible of more than one construction, courts are not concerned with the consequences that may result therefrom, but must enforce the law as they find it. 25 R.C.L. 1017. Entering judgments in favor of the plaintiff and counter-claimant upon their respective claims, and awarding execution to the former, while staying the hand of the latter, constitute, manifestly, a denial of the right of set off. This course, in the instant case, deprives the bank of a substantial right conferred by the statute.

The fund charged with the balance due on the note was deposited in the township treasurer's general account. The municipality contends that this account contained moneys received to meet the township's appropriations for 1932, to pay county, state, local school and fire taxes, and could not be taken for any purpose other than that for which it was appropriated. The majority opinion holds that the moneys deposited in this account constitute, in reality, a trust fund into which the current revenues are placed for disposition in accordance with the appropriations previously made. But the proofs do not disclose this to be the fact. In any event, the fund was not earmarked. It was a general deposit to the credit of the treasurer. They were not allocated to any special use or purpose. There is no presumption of a prior appropriation of the fund, in whole or in part. If the presumption be indulged that this fund was set apart to meet current obligations of the township, the unpaid indebtedness to the bank could not reasonably be excluded from that classification. The moneys were borrowed for a specified period of time. The municipality unconditionally promised to repay these moneys at the time indicated, and payment would ordinarily be made from its general fund not specifically appropriated to particular uses. And a failure to pay at the appointed time would impair its credit.

In Georges Township v. Union Trust Co., 293 Pa. 364;143 Atl. Rep. 10, a case presenting this precise question, the Pennsylvania Supreme Court rejected a like claim of the municipality. It was held that if the money so deposited "was intended to be an earmarked fund for a designated township use, the bank should be notified," and that the mere fact that the statute individuated "the purposes for which taxes are collected (road, lighting, building, townhouse, and lockup) would not charge the bank with notice, nor earmark a fund deposited with it, as other sections indicate that the deposit might have been to meet debts that were due, including the notes in question." Continuing Mr. Justice Kephart said: "While expenditures for purposes within the taxing section should not exceed the gross sum produced from the millage laid for that purpose, this fact would not be sufficient to charge the bank with notice, unless there had been a specific separation or appropriation of deposits in the bank. Municipal money from all sources is usually deposited in a general account, and is used indiscriminately by the treasurer to apply to orders or demands for all purposes. The responsibility for the proper distribution and disbursement under any budget system must rest on the authorities who control and pay it out. These officers or their bondsmen must answer for any misapplication of funds, unless there is knowledge in the one receiving them as to an illegal appropriation. Tradesmen, workmen, or employes dealing with township authorities for matters ordinarily within current expenses are not charged with the duty of ascertaining whether there is an appropriation to cover the service or whether they are being paid from the proper appropriation." He laid down the rule that funds so deposited are not appropriated in the hands of the bank, and that the bank takes them without responsibility as to appropriations made by the taxing authorities, and "may treat this fund as any other fund, and charge it with a municipal order in its possession for collection in the same manner as it may charge an individual or corporation." He concluded thus: "Considering the thousands of orders that are so issued, it would impose too much burden on the banks and destroy the flexibility of this character of exchange if they were required to hunt up the treasurer and secure a check or authority from him to honor each one, depending on the accounts as they may or may not be shown by his books. If there should be any doubt as to the propriety of any charge, or the rule here laid down, the treasurer may guard against it by restricting the deposit in the bank to certain appropriations made by the supervisors."

In The United States v. Bank of the Metropolis, 15 Peters 377; 10 L.Ed. 774, the Federal Supreme Court held that the United States, when it becomes a party to negotiable paper, has all the rights and incurs all the responsibilities of individual parties to such instruments. The principle there applied governs with equal force here. I quote from the opinion:

"When the United States, by its authorized officer, become a party to negotiable paper, they have all the rights and incur all the responsibility of individuals who are parties to such instrument. We know of no difference, except that the United States cannot be sued. But if the United States sue, and a defendant holds its negotiable paper, the amount of it may be claimed as a credit, if, after being presented, it has been disallowed by the accounting officers of the treasury, and if the liability of the United States upon it be not discharged by some of those causes which discharge a party to commercial paper, it should be allowed by a jury as a credit against the debt claimed by the United States. * * * It [the Supreme Court] said, in the case of The United States v. Dunn, 6 Peters 51, `the liability of parties to a bill of exchange, or promissory note, has been fixed on certain principles which are essential to the credit and circulation of such paper. These principles originated in the convenience of commercial transactions, and cannot now be departed from.' From the daily and unavoidable use of commercial paper by the United States, they are as much interested as the community at large can be in maintaining these principles."

I do not agree that this rule runs counter to sound public policy. On the contrary, it seems to me public policy is served by compelling borrowers from banks to meet their obligations. There is no reason on principle why the bank should not be given the right of set-off as to funds not appropriated to a specified use or purpose. If moneys are so appropriated, or held by the municipality in trust, they may be earmarked. They do not then partake of the character of general funds against which the usual right of set-off exists. I am strongly of the opinion that the practical effect of the rule laid down in the majority opinion will be to impair the credit of municipalities, for banks will not, under such conditions, advance money to municipalities in times of need. If a municipality is to be so favored as a debtor, and is not held to the same degree of responsibility, in discharging its contractual obligations, as an individual, its credit will be seriously impaired, if not destroyed. It is, of course, important that our municipalities function, but it is also essential that banks be maintained in a state of liquidity commensurate with the requirements of safety. The municipality has the taxing power, and its officers are charged with the responsibility of raising by taxation the moneys necessary to defray the cost of government.

Judge Van Buskirk and Judge Hetfield have authorized me to express their concurrence in the views herein stated.

For affirmance — THE CHANCELLOR, CHIEF JUSTICE, TRENCHARD, PARKER, BODINE, DONGES, KAYS, DEAR, WELLS, JJ. 9.

For reversal — HEHER, VAN BUSKIRK, HETFIELD, JJ. 3.