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RECONSTRUCTION FIN. CORP. v. KRAUSS

August 9, 1935

RECONSTRUCTION FINANCE CORPORATION
v.
KRAUSS et al.



The opinion of the court was delivered by: AVIS

The complaint in this cause alleges that on October 18, 1932, the defendants made and delivered their promissory note for $800 to the First National Bank of Ocean City, N.J., which note was payable to defendant Daniel Krauss three months after date; that before delivery to the plaintiff, it was indorsed by defendant Daniel Krauss; that prior to maturity it was delivered by the bank to the plaintiff for a valuable consideration; and that on November 18, 1932, said note fell due and, although demand was made on the defendants for its payment, with the exception of $119 paid at sundry times, the same has never been paid. For this reason the present suit was instituted, for the recovery of the balance, or $681, together with interest.

An answer was filed by defendants, in which they admit the making and delivery of the note, but deny that it was delivered to the plaintiff before maturity by the First National Bank of Ocean City, N.J., for a valuable consideration; deny that when the note fell due demand was made upon the defendants; deny that certain payments were made on account thereof as set out in the complaint; and deny the allegation of plaintiff that the note has not been paid. The answer also denies that defendants are indebted to the plaintiff in any sum of money.

 Attached to the answer and forming a part thereof the defendants set up seven separate defenses. The effect of these defenses is to allege as a fact that the defendants had on deposit with the First National Bank of Ocean City, N.J., at the time the note was given, and at the time of the closing of the bank, the sum of $707.38, and that defendants are entitled to an offset as against the bank, and that by reason of the circumstances, including the insolvency of the bank at the time the note was transferred to plaintiff, of which insolvency it is alleged the plaintiff had notice, and further allegations that the right of offset was known to plaintiff at the time it took over the note; that the plaintiff is not a holder of the note in due course; and that the transfer was therefore void as against the rights of defendants.

 It is also alleged that the transfer of the note, because of the information that the plaintiff had at the time, created a preference in violation of the statute (12 USCA § 91), and that the transfer of the note is therefore void.

 An additional defense is set up in the nature of a counterclaim, in which defendants contend they have a right of set-off to the amount of the deposit which they have in the First National Bank of Ocean City, N.J.

 With the pleadings in this condition, on October 15, 1934, the attorney for plaintiff served on the attorney for defendants a notice to strike the answer and defenses, based upon the ground that the denials in the answer are sham, and that the separate defenses, together with the counterclaim of set-off, are sham and interposed solely for the purpose of delaying the action. While this motion was pending, Harlan Besson, United States attorney, filed a petition praying that the United States of America be admitted as a party plaintiff, and served on the attorney for the defendants a notice that on March 8, 1935, he would make application to the court for an order in accordance with the prayer of the petition. The notice of this motion was forwarded to the attorney for defendants on March 4, 1935.

 Subsequent thereto, on March 9, 1935, the attorney for defendants served upon Robert K. Bell, attorney for Reconstruction Finance Corporation, plaintiff, a notice that on March 15, 1935, he would make application to the court for an order to dismiss the cause, upon the claim that the court does not have jurisdiction by reason of the fact that the amount involved is under $3,000, and that there are no other jurisdictional grounds.

 All three of these motions were heard together, and counsel have filed briefs covering all of the questions involved in the respective motions.

 The court should first dispose of the jurisdictional question. If the United States is not entitled to intervene and become a party plaintiff, the court has no jurisdiction. The jurisdictional statute provides that the United States District Courts shall be empowered to hear and determine all cases arising under the Constitution and laws of the United States, where the amount in dispute is in excess of $3,000. A suit such as the present one, where a corporation organized under federal law is a party, is a suit arising under the laws of the United States, but in the instant case the amount involved is much less than $3,000. If the United States is entitled to be admitted as a party plaintiff, the court has jurisdiction and the motion to dismiss on that ground will not be available to defendants.

 The act of Congress creating the Reconstruction Finance Corporation (15 USCA § 602) provides that the United States shall own all of its stock.

 By section 24 (1) of the Judicial Code (28 USCA § 41 (1) it is provided:

 "The district courts shall have original jurisdiction as follows:

 "First. Of all suits of a civil nature, at common law or in eqity, brought by ...


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