On appeal from the New Jersey Supreme Court, Passaic county.
For the appellants, J. Chester Massinger.
For the respondent, John Milton.
The opinion of the court was delivered by
BROGAN, CHIEF JUSTICE. On November 9th, 1931, the commissioner of banking and insurance of this state took over the Singac Trust Company, a banking corporation of New Jersey, and proceeded to liquidate same for the benefit of its creditors. Among the assets of this institution, the commissioner found a note of the defendants, then in default, and on April 11th, 1932, suit was started for its collection.
The defendants filed an answer and counter-claim. Both were stricken out by the trial court and judgment entered in favor of the plaintiff.
The defendants appeal from the judgment entered on the ground that it was error to have stricken the counter-claim. The counter-claim amounts to this: The defendants, between March 14th and April 2d, 1932, procured the assignment to them of some twenty accounts of other depositors of the Singac Trust Company, totaling $3,481, exclusive of interest, and set them off in the counter-claim against the amount they owed the bank on their note, which was about $3,800.
Such counter-claim was properly stricken. The assignment of the accounts in question was acquired after the bank had been taken over by the commissioner of banking and insurance. On the date that the bank was taken over, namely, November 9th, 1931, these depositors, who later assigned their accounts to the defendants, were merely creditors of the bank and were entitled, under the statute (Cf. Pamph. L. 1931, ch. 255), to pro rata participation in the amount realized through the liquidation of the bank's assets. Natural justice would seem to require that such assignment be not recognized for, obviously, such recognition would create a preference in favor of the accounts so assigned. These assignors being nothing more or less than common creditors of the institution, their status, as such, cannot be changed by the mechanics of assignment which would, as here, create a preference.
"The general rule is that the right of set-off against an insolvent bank is governed by the state of facts existing at the time of insolvency and not by conditions created afterwards. Therefore, a debtor of the bank will not be permitted to set-off against his debt a claim to a deposit assigned to him after its insolvency. * * *. And the receiver has no power to allow a set-off against a debt owing to the bank when the demand sought to be set-off was assigned to the debtor for that purpose after his appointment." Cf. 5 Michie, tit. "Banks and Banking," ch. 9, p. 314, § 163.
The exposition of this principle is found in Scott v. Armstrong, 146 U.S. 499, 511, as follows:
"The state of case where the claim sought to be offset is acquired after the act of insolvency is far otherwise, for the rights of the parties become fixed as of that time, and to sustain such a transfer would defeat the object of these provisions. The transaction must necessarily be held to have been entered into with the intention to produce its natural result, the preventing of the application of the insolvent's assets in the manner prescribed. Venango National Bank v. Taylor, 56 Pa. St. 14; Colt v. Brown, 12 ...