sideration obtained.39o But, in New York, the notes of a bank cannot be set up in an action by the receiver upon a note falling que after his appointment.391 So, in Rhode Island, if the bank notes were purchased after the bank became insolvent, at a considerable discount, and by one who is a director of the bank.392

Bank Deposits-Set-Off.

§ 1854. A bank has a banker's lien on deposits for general balances, notwithstanding the insolvency of the depositor.393 Thus, a judgment in its favor on a note made by the depositor may be set off in an action brought to recover the deposit.394 But the indorser of a check, in a suit brought by his indorsee, cannot have the insolvent drawer's deposit with the indorsee set off in his favor.395 Where a bank discounts a draft for the drawer, it has a lien on the proceeds in its hands as a deposit, even against an assignee of the fund.39 396 But it has been held that it cannot apply the maker's deposit to the payment of a note which became due after his insolvency; nor to an overdue note not charged up until after a check of the maker had been presented and refused payment."

397

398

If the bank becomes insolvent, the maker's deposit at the time of such insolvency forms a good set-off against a note then held by it 399 or its pledgee.00 But a general deposit in an insolvent sav

390 Moise v. Chapman, 24 Ga. 249.

391 Haxtun v. Bishop, 3 Wend. (N. Y.) 13.

392 Clarke v. Hawkins, 5 R. I. 219.

393 Davis v. Bowsher, 5 Term R. 488.

And see § 1404, supra.

394 Marsh v. Bank, 34 Barb. (N. Y.) 298. So, the note of a maker who dies insolvent may be set off against his deposit with the holder. Ford's Adm'r v. Thornton, 3 Leigh (Va.) 695.

395 Union Nat. Bank v. Cannonburgh Iron Co. (Pa. Sup.) 6 Atl. 577, 23 Cent. Law J. 526. But see People's Bank of Wilkesbarre v. Legrand, 103 Pa. St. 309.

396 Robinson v. Howes, 20 N. Y. 84.

397 Homer v. Bank, 140 Mo. 225, 41 S. W. 790; Beckwith v. Bank, 9 N. Y. 211. But see, contra, Clute v. Warner, 8 App. Div. 40, 40 N. Y. Supp. 392; O'Connor v. Brandt, 12 App. Div. 596, 42 N. Y. Supp. 1079; Stolze v. Bank, 67 Minn. 172, 69 N. W. 813; Sweetser v. Bank (Minn.) 71 N. W. 934.

398 Niblack v. Bank, 169 Ill. 517, 48 N. E. 438.

399 Whether it became due before the insolvency, Finnell v. Nesbit, 16 B. 400 In re Bank of Minnesota (Minn.) 73 N. W. 1096.

ings bank is not available, in New Hampshire, as a set-off against a debt due by the depositor to the bank.401

402

If the note is transferred by the bank after it has become insolvent, it is still subject to the set-off of the maker's account.* But, in the hands of the bank, the note is only subject to the set-off of an account acquired by the defendant, by assignment or otherwise, before the insolvency of the bank.403

Set-Off Acquired after Suit.

§ 1855. To constitute a good set-off, it must appear that the note or other instrument was held by the defendant before the plaintiff's suit was begun.404 And it is not enough if he acquired it on the day the suit was begun, although before actual service of the writ. 405 If, however, it was acquired before notice of the commencement of the action, and before the insolvency proceedings against the plaintiff, it has been held to be sufficient, in an action by his assignee in insolvency.406 On the other hand, a sealed note which was ob tained before, but not transferred by assignment until after, suit brought, has been held inadmissible, although the assignment was dated back prior to the commencement of suit.407 And, even as Mon. (Ky.) 351; Penn Bank v. Farmers' Deposit Nat. Bank, 130 Pa. St. 209. 20 Atl. 150; or afterwards, Jones v. Robinson, 26 Barb. (N. Y.) 310; McCagg v. Woodman, 28 Ill. 84; Smith V. Spengler, 83 Mo. 408; Skiles v. Houston, 110 Pa. St. 254, 2 Atl. 30. But the set-off may be excluded by special agreement with the bank. Clark v. Bank, 160 Mass. 26, 35 N. E. 108.

401 Cogswell v. Bank, 59 N. H. 43.

402 Merchants' Exch. Bank v. Fuldner, 92 Wis. 415, 66 N. W. 691. 403 Higgins v. Worthington, 90 Hun, 436, 35 N. Y. Supp. 815.

404 Jefferson Co. Bank v. Chapman, 19 Johns. (N. Y.) 322; Hadley v. Wray, 76 Ind. 476;. Northern Trust Co. v. Hiltgen, 62 Minn. 361, 64 N. W. 909; Speers v. Sterrett, 29 Pa. St. 192. Although it was a note payable to A. or bearer. Godley v. Barnes, 13 Rich. (S. C.) 161. But see, contra, Gaines v. Salmon, 16 Tex. 311. As to set-offs arising before and after transfer of note, see § 1881. infra.

405 Hardy v. Corlis, 21 N. H. 356.

406 Aldrich v. Campbell, 4 Gray (Mass.) 284. And the burden is on the defendant to show that he held the set-off before the plaintiff's insolvency. Smith v. Mosby, 9 Heisk. (Tenn.) 501; Lanier v. Institution, 9 Heisk. (Tenn.) 506.

407 Bishop v. Tucker, 4 Rich. (S. C.) 178.

against the purchaser of a note after its dishonor, a set-off cannot be used which arose after the suit began.408 In equity, however, it has been held that the individual note of one partner, transferred to the firm after suit was begun, might be used as a set-off against the firm.409

Set-Off against Bankrupts.

§ 1856. Set-offs are now allowed by statute, both in England and the United States, against the estates of bankrupts.10 So, the maker of a note may set off, against an insolvent holder, debts due to him from such holder.411 And where a note is transferred by the payee after he becomes bankrupt, a debt of the payee to one surety may be set off in an action brought by the indorsee against both sureties.412 So, the surety may set off a note protested before, and paid by him after, the principal debtor's assignment as an insolvent.413 So, bills may be set off, although purchased after the drawer's insolvency. But a note, purchased after maturity and after the maker's insolvency, cannot be set off against his assignee.415 And, in a suit by the receiver of an insolvent bank against several makers, they cannot set up notes made by the bank and another party, which were held by one of the makers, and had not become due at the time the receiver was appointed."

414

408 Wood v. Brush, 72 Cal. 224, 13 Pac. 627.

409 Hall v. Kimball, 77 Ill. 162.

416

410 Byles, Bills, 366; Green v. Farmer, 1 W. Bl. 651, 4 Burrows, 2214. And see 4 Anne, c. 17. So, under the former bankruptcy act in the United States, except as to claims acquired after petition filed (14 Stat. 526, § 20). So, Bankruptcy Act U. S. 1898, § 68.

411 Bernstein v. Coburn, 49 Neb. 734, 68 N. W. 1021. 412 Bank of Mobile v. Poelnitz, 61 Ala. 147.

413 Morrow v. Bright, 20 Mo. 298. Rich. Law (S. C.) 273.

But see, contra, Nettles v. Huggins, 8

414 McKinnon v. Armstrong, 2 App. Cas. 531; Colyer v. Craig, 11 B. Mon. (Ky.) 73. But see Oyster v. Short, 177 Pa. St. 589, 35 Atl. 686.

415 Johnson v. Bloodgood, 1 Johns. Cas. (N. Y.) 51, 2 Caines, 303; Anderson v. Van Alen, 12 Johns. (N. Y.) 343; Northern Trust Co. v. Hiltgen, 62 Minn. 361, 64 N. W. 909.

416 Balch v. Wilson, 25 Minn. 299.

(2597)

Set-Off-Not Matured.

417

§ 1857. A bill or note cannot be set off until it is due; nor unless it is due before the commencement of the action.118 But where suit is brought in equity by the payee of a note, before it be comes due, upon an alleged fraudulent conspiracy between the maker and the indorsee, if the charge of fraud fails, and the note becomes due before answer is filed by the indorsee, it may be allowed as a setoff in the decree.*19 The burden is on the plaintiff to show that the payee's debt offered as a set-off was not due at the time the note was transferred to the plaintiff.420

Set-Off against Other Party.

§ 1858. A set-off between maker and indorser is no ground for arrest of judgment against them in favor of an indorsee.421 On the other hand, a set-off established by the maker inures to his indorser, in a suit against them both.422

In an action by an indorsee against the acceptor, the latter cannot set off a debt from the indorsee to the drawer. 423 But it is otherwise where the drawer is dead, and the bill was accepted for his

417 Citizens' Sav. Bank v. Vaughan (Mich.) 73 N. W. 143.

418 Byles, Bills, 368; Chit. Bills, 451; 2 Pars. Notes & B. 617; Evans v. Prosser, 3 Term R. 186; Braithwaite v. Coleman, 4 Nev. & M. 654; Richards v. James, 2 Exch. 471; Gledstane's Case, 1 Ch. App. 538; Spaulding v. Backus, 122 Mass. 553; McAlpin v. Wingard, 2 Rich. Law (S. C.) 547. Although the holder of the note, and acceptor of the bill offered in set-off to it, was insolvent. Lockwood v. Beckwith, 6 Mich. 168; United States Trust Co. v. Harris, 2 Bosw. (N. Y.) 75. And although the note became due before plea filed. Deale v. Krofft, 4 Cranch, C. C. 448, Fed. Cas. No. 3,698. As to maturity of set-off before insolvency, see § 1854, supra.

419 Griffin v. Chubb, 16 Tex. 219.

420 Jervey v. Strauss, 11 Rich. Law (S. C.) 376.

421 Carriger v. Sicks, 73 Ind. 76.

422 Wolf v. Michael, 21 Misc. Rep. 86, 46 N. Y. Supp. 991; Queen City Bank v. Brown, 75 Hun, 259, 26 N. Y. Supp. 1016.

423 Smith v. Adams, 14 La. Ann. 409. It has even been held that a bank certifying a check cannot set up against the holder a debt due from him to it, on the ground that he brings suit practically as the drawer's agent. Brown v. Leckie, 43 Ill. 497.

accommodation.424 And, in general, the drawer and indorser are sureties for the acceptor, and can set off, as such, another acceptance of the plaintiff held by their acceptor (as the acceptor himself might do), 425 So, the surety on a note may set up a counterclaim of his principal. 426 And this is true of one joint and several maker, who is known to the payee to be only a surety for the other. 427

The availability, as against a later indorsee or holder, of a set-off which existed against an earlier holder or indorser, will be considered in the next chapter.

Set-Off against Agent.

§ 1859. Where a note payable to A. or bearer is sued by the bearer, although he is the general agent of A., a set-off against A. will not be allowed.428 So, where a draft is indorsed for collection, and forwarded by a collecting bank (which afterwards failed), the balance against the bank cannot be set off by the collecting agent against the draft. 429 But where a bill is indorsed in' blank to a bank, and by it to another bank "for collection and credit," it may be held by the latter, and applied to balances against the first bank, allowed on the faith of an express agreement between the banks for such credits. 430 But the balance due to the collecting bank from an in

424 Bowman v. Wright, 7 Bush (Ky.) 375.

425 Allen v. Kemble, 6 Moore, P. C. 314.

426 Slayback v. Jones, 9 Ind. 470; Lynch v. Bragg, 13 Ala. 773; Loring v. Morrison, 15 App. Div. 498, 44 N. Y. Supp. 526; Wyman v. Robbins, 51 Ohio St. 98, 37 N. E. 264. But not where he is sued alone without the principal. Phoenix Iron-Works Co. v. Rhea (Tenn. Ch. App.) 38 S. W. 1079. And see Stockton Savings & Loan Soc. v. Giddings, 96 Cal. 84, 30 Pac. 1016, where he was allowed to set up breach of warranty of goods sold to the principal, but as a failure of consideration, and not as a set-off. Mahurin v. Pearson, 8 N. H. 539. And see § 923, supra.

427 Bechervaise v. Lewis, L. R. 7 C. P. 372. And see Sefton v. Hargett, 113 Ind. 592, 15 N. E. 513.

428 Pettee v. Prout, 3 Gray (Mass.) 502. But see, contra, as against a collecting agent of a note payable to bearer, Royce v. Barnes, 11 Metc. (Mass.) 276.

429 Cecil Bank v. Farmers' Bank, 22 Md. 148; Central Railroad & Banking Co. v. First Nat. Bank, 73 Ga. 383. And see § 726, supra.

430 Bank of Metropolis v. Bank of New England, 1 How. (U. S.) 236; Vickrey v. Association, 21 Fed. 773. And see Wood v. Bank, 129 Mass. 358.