The opinion of the court was delivered by: SNYDER
General Electric Credit Corporation (GEC) seeks a determination of its right to funds deposited with Garnishee, Equibank, by GEC's debtor, Richard Tarr. Equibank claims the right to set off the total amount against a demand obligation owed by Tarr to Equibank. The underlying facts are not in dispute.
Richard Tarr was President and the chief executive officer of Metropolitan International, Inc. (MII), a Pennsylvania corporation engaged in the strip mining of coal. MII sought to borrow certain sums of money from Equibank as part of its normal business operations guaranteed by Tarr in consideration of a commitment to grant various future loans to MII. Sums well in excess of the amount in the account in question were subsequently loaned and remain unpaid.
On February 3, 1977, MII filed a voluntary petition in bankruptcy in the United States District Court before Equibank took any action.
On May 2, 1977, GEC filed suit against Tarr alleging he had perpetrated a fraud in financing the purchase of a 1972 Caterpillar Model D-9 Crawler Tractor. A default judgment was entered against Tarr in the amount of $ 31,526.00. GEC then commenced garnishment proceedings, and a writ of execution and interrogatories were directed to Equibank on June 15, 1977. On June 17, 1977, Equibank set off the sum of $ 9,956.85 from Account No. 513-292-805, maintained by Tarr, against the debt owed to it by MII.
It is well established under Pennsylvania law that a bank which has been garnished for a deposit belonging to a depositor may set off a matured obligation of the depositor. Aarons v. Public Service Building and Loan Assoc., 318 Pa. 113, 178 A. 141 (1935); Duffy v. Fifty Eighth and Chester Ave. Bldg. and Loan Assoc., 325 Pa. 127, 189 A. 307 (1936); Atkins v. Canadian SKF Inc., 353 Pa. 312, 45 A.2d 28 (1946). The right of defalcation is conferred by the Act of 1705, 1 Sm.L. 49, Section 1, 12 P.S. § 601,
and the statutory right to execute against bank deposits specifically conditions that right subject to all lawful claims existing upon the deposit at the time of attachment. 12 P.S. § 2113.
Nor is the bank's right to set off overridden by an attachment execution. Aarons v. Public Service Building and Loan Assoc., supra, 318 Pa. at 118, 178 A. 141, and that the right need not be asserted until someone shall commence an attachment execution. Id., at 118, 178 A. 141.
Plaintiff has cited the case of Schiff v. Schindler, 98 Pa.Super. 207 (1929), contending that it stands for the proposition that a bank may not effect a set off after attachment execution has commenced. A close reading of the case reveals that Schiff is apposite to the Aarons doctrine, for it merely restates the holding in Roig v. Tim, 103 Pa. 115 (1883), that the debt in question must be mature at the commencement of the action in which it is interposed in order to effect a valid set off.
"(3) upon death, dissolution, termination of existence, insolvency, assignment for the benefit of creditors or the commencement of any bankruptcy, reorganization, receivership or insolvency proceedings of, by or against any of the undersigned or any endorser or guarantor hereof . . . ." (Exhibit 1 of Stipulation of Facts)
Filing a petition, then, was a default which caused the note to mature.
Tarr signed the Guaranty and Suretyship Agreement, which provides in material part:
". . . the Undersigned (Tarr) hereby guarantees the prompt payment to Bank (Equibank) at maturity of every note, check, bill of exchange, draft, trade acceptance, loan, advance, discount, and order for the payment of money, and all other obligations, in connection with which, either as maker, drawer, guarantor, endorser or otherwise, whether directly or contingently, Borrower (MII) is or shall hereafter become liable to Bank ...