3 L. Ed. 440; Tucker v. Oxley, 5 Cranch, 34, 37, 3 L. Ed. 29; Beauregard v. Case, 91 U.S. 134, 141, 23 L. Ed. 263.
In Western Tie & Timber Co. v. Brown, 196 U.S. 502, 25 S. Ct. 339, 49 L. Ed. 571, a bankrupt was indebted to the timber company. The timber company was indebted to the bankrupt as trustee. It was held the timber company could not set off the trustee debt against the individual debt.
In United States v. Butterworth-Judson Corp'n et al., 267 U.S. 387, 395, 45 S. Ct. 338, 340, 69 L. Ed. 672, it is stated: "A bank having notice that a deposit is held by one for the use of or as security for another has only such right of set-off as is not inconsistent with the rights of the latter."
The foregoing cases in principle rule that defendant cannot set off its deposit in the Bank of Pittsburgh, N.A., as trustee against the deposit of the Bank of Pittsburgh, N.A., with defendant in its own right.
The principle laid down in the foregoing cases is the law of Pennsylvania. On June 27, 1932, the Supreme Court of Pennsylvania, in William D. Gordon v. Union Trust Company, 308 Pa. 493, 162 A. 293, 294, a case identical in principle and almost parallel in facts, speaking by Mr. Justice Kephart, said:
"The Commercial Trust Company deposited $6,429.50 with the Union Trust Company, the account being styled 'Commercial Trust Company Trust Funds.' The Union Trust Company had $6,808.45 on deposit with the Commercial Trust Company, this account being styled 'Union Trust Company Trust Funds.' It is conceded that both deposits represented trust funds of the respective institutions, and, as such, were the property of various cestuis que trust or beneficiaries of each bank.
"Union Trust Company was, and still is, a solvent going concern. Commercial passed into the hands of the secretary of banking because of impairment of capital. The secretary drew on Union for the trust funds of Commercial which it held. Payment of his draft was refused since Union claimed a setoff against it because of the trust fund deposit it had in Commercial. The court below refused to permit the set-off for the reason that it did not appear that there was mutuality of demand both as regards the quality of the right and the identity of the parties.
"The statutes and orders of the banking department have resulted in a general practice among trust companies of depositing trust funds exactly as was done in this case. The beneficial owners of Commercial's trust account are A, B, and C; their money is in the Union bank. The beneficial owners of Union's trust account are X, Y, and Z, and their money is in the Commercial Bank. Strike the trust companies out of the picture, as they are only trustees holding legal title, and the matter is reduced to its simplest form. What is then asked in the set-off is that the money of A, B, and C, be used in part to pay the debts to X, Y, and Z. This we held in Hunter v. Henning, 259 Pa. 347, 103 A. 61, could not be done. Appellant attempts to limit that decision to its facts inasmuch as the trust accounts were there plainly earmarked, but as we said in Trestrail v. Johnson, 298 Pa. 388, 148 A. 493, 494: 'Generally speaking, in all cases where the ownership of the fund itself has been in dispute, and not the right to administer it, the court has been particular to do nothing which would disturb in the slightest the fund reaching its destined lawful end, without unnecessary risks that might come if a more liberal policy was adopted; it being conceded the fund was a trust or one that can be called such.'
"The question here then is one of ownership, not one of determining the status of a deposit between the bank and the depositor. The underlying equitable principle set forth in Trestrail v. Johnson, supra, controls. The names in which suit could be brought and defended furnish an indication, but are not the only criterion, of the right of set-off. To whom do the funds really belong? Mutuality of right in a set-off is not circumscribed by the 'right to bring an action,' but the broader question may be, and generally is, of importance. Whose money or claim is proposed to be used as a set-off? This is the true equitable principle which governs such questions. * * *
"The court below did not err in entering judgment for the secretary of banking for the amount which the Commercial Trust Company had on deposit with the Union Trust Company."
If the deposit of the Potter Title & Trust Company in the Bank of Pittsburgh, N.A., had been of its own money, it would have been entitled, under the law, to set off the same against the deposit of the Bank of Pittsburgh, N.A., of its money in the Potter Title & Trust Company, although the result might be that the Potter Title & Trust Company would receive its entire deposit while other depositors of the Bank of Pittsburgh, N.A., might receive only a portion of their deposits. But the deposit of the Potter Title & Trust Company in the Bank of Pittsburgh, N.A., was not of its own money, but it was of the money of other persons in which it had no interest other than as trustee or agent. Why should the deposit of such persons be paid in full when such payment may work a preference as against other depositors and creditors of the Bank of Pittsburgh, N.A.? Such a result would be unjust, and is contrary to the decisions of the United States and Pennsylvania courts.
It is directed that judgment be entered in favor of the plaintiff and against the defendant in the sum of $46,897.39, with interest thereon from September 21, 1931, to which ruling an exception is granted to defendant.
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