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THOMAS v. POTTER TITLE & TRUST CO.

July 13, 1932

THOMAS
v.
POTTER TITLE & TRUST CO.



The opinion of the court was delivered by: MCVICAR

The Bank of Pittsburgh, National Association, is a corporation existing under the national banking laws (12 USCA § 21 et seq.). It closed its doors September 21, 1931. The plaintiff was duly appointed receiver thereof. The Potter Title & Trust Company, defendant, is a corporation of the state of Pennsylvania. Under its charter it transacts a banking business and acts as trustee. On the date that the Bank of Pittsburgh, N.A., closed, it had on deposit in the Potter Title & Trust Company $135,787.39 of its own funds in its own name. On the same date the Potter Title & Trust Company had on deposit in the Bank of Pittsburgh, N.A., $46,887.49 in an account designated "Potter Title and Trust Company Trust Account," which deposit represented funds of various estates of which the Potter Title & Trust Company was trustee. Since the Bank of Pittsburgh, N.A., closed, plaintiff has withdrawn from its deposit in the Potter Title & Trust Company $88,890, leaving a balance of $46,897.39. Plaintiff demanded of defendant the balance aforesaid, which defendant refused to pay on the ground that defendant had a right to set off against this amount the deposit defendant had in the Bank of Pittsburgh, N.A. Plaintiff then brought this action in assumpsit to recover the balance aforesaid. The parties waived a jury trial and agreed upon a statement of facts and further that, if the court found that defendant did not have the right to set-off, judgment should be entered in favor of plaintiff in the sum of $46,897.39, with interest from September 21, 1931, and, if defendant was entitled to the set-off claimed, that judgment should be entered in favor of defendant.

 In Swift v. Tyson, 16 Pet. 1, 19, 10 L. Ed. 865, a leading case, the Supreme Court in construing the avove act, said: "And we have not now the slightest difficulty in holding, that this section, upon its true intendment and construction, is strictly limited to local statutes and local usages of the character before stated, and does not extend to contracts and other instruments of a commercial nature, the true interpretation and effect whereof are to be sought, not in the decisions of the local tribunals, but in the general principles and doctrines of commercial jurisprudence. Undoubtedly, the decisions of the local tribunals upon such subjects are entitled to, and will receive, the most deliberate attention and respect of this court; but they cannot furnish positive rules, or conclusive authority, by which our own judgments are to be bound up and governed."

 In Gray v. Rollo, 85 U.S. (18 Wall.) 629, 632, 21 L. Ed. 927, the Supreme Court said: "In Pennsylvania, it is true, set-off is allowed in cases where the claims are not mutual, and, in that State, under the decisions there, it is probable that set-off would be allowed in such a case as this. But we do not regard the rule adopted in Pennsylvania as in accord with the general rules of equity which govern cases of set-off. We think the general rule is stated by Justice Story, in his treatise on Equity Jurisprudence, where he says: 'Courts of equity, following the law, will not allow a set-off of a joint debt against a separate debt, or conversely, of a separate debt against a joint debt; or, to state the proposition more generally, they will not allow a set-off of debts accruing in different rights."

 In Pennsylvania, a bank cannot set off a deposit against an unmatured note. Kurtz et al. v. County National Bank of Clearfield, 288 Pa. 472, 136 A. 789, 51 A.L.R. 1475. Such set-offs are allowed in the United States courts. Storing v. First National Bank of Minneapolis, 28 F.2d 587, 589 (C.C.A. 8); North Chicago Rolling-Mill Co. v. St. Louis Ore & Steel Co., 152 U.S. 596, 615, 616, 14 S. Ct. 710, 38 L. Ed. 565; Schuler v. Israel, 120 U.S. 506, 510, 7 S. Ct. 648, 30 L. Ed. 707; Harter Bank v. Inglis, 6 F.2d 841, 843 (C.C.A. 6); Topas v. John MacGregor Grant, Inc., 18 F.2d 724, 725, 52 A.L.R. 807 (C.C.A. 2); Maryland Casualty Co. v. Board of Education, 20 F.2d 799, 801 (C.C.A. 3).

 These rulings implidly recognize that the United States courts exercise an independent judgment on matters of set-off and do not follow the decisions of the state courts.

 If the determination of this question involves an interpretation of the national banking laws, which it seemingly does, then the United States law controls.In McCandless v. Dyar (D.C.) 34 F.2d 989, 991, defendant was indebted to a national bank. He set up as a defense thereto a claim in the nature of a set-off for money paid by him as a guarantor of the bank. The court said:

 "Has this defendant the right of set-off under the circumstances pleaded in this action, brought by the receiver upon his indebtedness to the bank? * * *

 "The right to the allowance of such an offset in the case at bar must be determined in the light of the statutes of the United States controlling suspended national banks in the hands of a receiver appointed by the Comptroller of the Currency, and especially the provisions of the United States statutes prohibiting preferences in the liquidation of national banks."

 See 12 U.S.C. §§ 91, 193, 194 (12 USCA §§ 91, 193, 194).

 In the United States courts there must be mutuality of right before a set-off can be asserted. In Scammon v. Kimball, 92 U.S. 362, 367, 23 L. Ed. 483, the Supreme Court stated:

 "Whether the suit be one at law or in equity, set-off must be understood as 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 deduction, so that, in any action brough for the larger debt, the residue only, after such deduction, shall be recovered. Adams' Eq. (6th Am. Ed.) 447.

 "Courts of equity, following the law, will not allow a set-off of a joint debt against a separate debt, or of a separate debt against a joint debt; nor will such courts allow a set-off of debts accruing in different rights, except under very special circumstances, and where the proofs ...


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