Dougherty Bros. & Co. v. Central National Bank , 93 Pa. 227 ( 1880 )

Mr. Justice Trunkey

delivered the opinion of the court, May 3d 1880.

Whatever may be the rights of a party whose debt is due and payable, to compel an insolvent debtor to set off’ a claim against him not due, a party whose debt is not duo, has no equitable claim to have it set off against a debt of his own already due, in the hands of a party who is insolvent: Spaulding v. Backus, 122 Mass. 553; Bradley v. Angel, 3 N. Y. 475; In re Commercial Bank Corporation of India and the East, Law Rep., 1 Ch. App. 538. In the latter case it was said that where there is on one side a debt presently due, and on the other a liability which will accrue due at a future day, the debt cannot be set off at law against the liability, nor can it be so set off in equity. This is at variance with Lindsay v. Jackson, 2 Paige 581, where the defendants, who held notes of the plaintiffs not due, wore restrained from negotiating them, to the end that they might be applied as a set off against a debt then due by the defendants to the plaintiffs. But it is ruled in Bradley v. Angel, supra, that one whose debt is not due has no equitable right to set off against a debt due to him from an insolvent estate, and the decision in Lindsay v. Jackson is confined in its operation to such facts as constituted its base.

A bank - has no lien on money standing to the credit of one of its depositors for the amount of a note of such depositor discounted by the bank but which has not matured. The purpose is that the customer may draw out at his pleasure the avails of his discount. A debtor in one sum has no lien upon money in his hands for the payment of an unmatured debt owing to him, and a bank is debtor for the discount which is placed to its depositor’s credit. If it could retain the money against the note, the discount would be useless to the borrower: Jordan v. Shoe & Leather Bank, 74 N. Y. 467 ; Fourth National Bank of Chicago v. City National Bank of Grand Rapids, 68 Ill. 398.

The owner of a debt may assign it for value, and give title as against the debtor, though he holds liabilities of the creditor not yet matured at the time he received notice of the assignment: Jeffryes v. Agra & Masterman’s Bank, Law Rep., 2 Eq. 673.

On the foregoing principles, the plaintiffs claim that the judgment must be reversed, and so it must if they apply to the facts of this case. The facts conceded and established by the verdict are as follows : The plaintiffs were bankers at Harrisburg, and had an account with defendant, a bank in Philadelphia. On April 2d 1877, the balance due plaintiffs on that account was $14,399.63, and they owed to defendant $15,000 on anote, the proceeds of which had gone into the-account. Prior to said date, the parties had agreed to a renewal of the note, and the plaintiffs sent a new one for same sum, payable May 5th 1877, which defendant received, and on the 2d of April sent the original note by mail to the plaintiffs. April 3d the plaintiffs did not open their bank for business and were insolvent. The defendant hearing of this, immediately charged the plaintiffs with the original note, credited them with $85, the discount on the new one, resulting in a balance due defendant, and tendered to the plaintiffs the new note, discount and collaterals. April 2d the plaintiffs gave to Weir and Hunter three checks amounting to $13,300, which were presented to defendant and payment refused; but it does not appear they were presented or that defendant had notice of them, till after the said tender and withdrawal of the credit.

The question is, shall the defendant, having discounted the plaintiffs’ note and extended their credit for its amount, and, upon learning of their insolvency before payment to or notice of any checks or assignments by them, having withdrawn the credit and tendered back the consideration, be compelled to pay the money ? If so, it would be against everybody’s sense of right. The point is not merely one of set off, whether legal or equitable.

Justice and equity forbid that one man’s money shall be applied to the payment of another man’s debts. On this is based the right of a vendor to stoppage in transitu, which arises solely upon the insolvency of the buyer. Where a vendor has delivered goods out of his possession into the hands of a carrier for delivery to the buyer, if ho discovers that the buyer is insolvent, he may retake the goods, if he can, before they reach the buyer’s possession, and thus avoid having his property applied to paying debts due by the buyer to other people. It was long a mooted question whether the effect of this remedy of the vendor is a rescission of the sale, or a restoration of possession of the goods with the rights of an unpaid vendor ; but now it seems the better opinion that the contract is not rescinded. Although this remedy of a vendor which exists only before actual delivery of the goods into the buyer’s possession, cannot bo exercised in precisely the same mode by a lender of money or credit, yet, for similar cause, the lender ought to have as efficient remedy until the money is paid to or the credit is used by the borrower. The lender’s remedy may have the effect of a rescission of the bargain. Goods can be held subject to a lien for the price agreed upon, and, if disposed of for more or less than that, the buyer may have the gain or suffer the loss ; hut when a borrower has as little right to the money as a buyer has to the goods, it is impracticable to hold and dispose of the money with like result. Nor is there reason for so holding — the value of the goods may increase or diminish, whereby the buyer may be gainer or loser by his contract — -the value of money i's fixed. Insolvency takes the pith out of the borrower’s promise to pay, and if he has not yet received the money, he should not take it. He did not get the credit in view of his bankruptcy.

The consideration so failed that the defendant was warranted in tendering it hack, and an equity arises against the legal plaintiffs which prevents their enforcement of the contract. To permit them to recover after their note, the foundation of their claim, is proved worthless, would be the grossest injustice. The defendants agreement to take the renewal note was not wittingly made for an empty promise.

Plaintiffs contend that Hunter and Weir are innocent purchasers for value. In what sense? They asked no information before taking the checks. No paper of any kind was given by defendant showing that the plaintiff's had right to draw or assign. Before presentment or notice of the checks, the plaintiffs’ insolvency was shown by a notorious act, and their right to draw was immediately denied by defendant. A vendor’s right of stoppage in transitu is defeasible in one way only, and that is where the goods are represented by a bill of lading, which is in the vendee’s possession with the vendor’s assent, and is transferred to a third person who in good faith gives value for it. Here, the defendant did nothing to mislead third persons, arid the plaintiffs had no writing to assign. The facts reveal no superior equity in the persons for whose use the action is brought.

We are impelled to the conclusion, 1. That the defendant had right to tender back the discounted note and refuse payment to the legal plaintiffs, and 2. That the assignees have no equities superior to the defendant, and there cannot be a recovery for their use.

Judgment affirmed..

Justices Mercur and Sterrett dissented.