On appeal from the Supreme Court, Sussex county.
For the plaintiff-appellant, Milford Salny.
For the defendant-respondent, King & Vogt.
The opinion of the court was delivered by
BROGAN, CHIEF JUSTICE. The trial court in this case directed a verdict against the plaintiff on the theory that the defendant bank was entitled to set-off against the plaintiff's funds on deposit in the bank, the amount of two unpaid notes on which the plaintiff was an endorser, without notice to the endorser that the negotiable instruments had been dishonored by their makers. The record discloses that the plaintiff, a corporation of this state, had discounted at the defendant bank two notes which had been given plaintiff by its customers. The notes had been renewed from time to time. The due date of both instruments was July 13th, 1939. A month previous to the due date the cashier of the bank, by letter, informed the plaintiff that the notes (listing them) "held by us and endorsed by you" must be paid in full at maturity.
They were not paid on the date due and at the close of business on that day the bank debited the account of the plaintiff with the bank and later that evening mailed the notes to the plaintiff, writing plaintiff as follows: "We charge your account and return herewith, for reasons stated below. Note of A. Alberts due to-day, endorsed by you." Like notice accompanied the second note. At the trial the defendant bank stated that the note and letter in each instance was put in the mail on that day before four-forty-five in the afternoon, and that the items were charged against plaintiff's account before the notes were put into the mail.
It is entirely settled in this state that as between a bank and a depositor the money deposited by the latter with the former creates the relationship of creditor and debtor between the depositor and the bank. It is also settled that the right of set-off does not exist unless each of the parties owes a stated sum to the other. "Set-off, both at law and in equity, 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 his respective debts by way of mutual deduction so that in any action brought for the larger debt, the residue only, after such deduction, shall be recovered." 24 R.C.L. 792. In this case there were no mutual debts; consequently there was no right to a set-off.
The plaintiff admittedly was an endorser and notice of dishonor of the paper in question was not waived expressly or by conduct. "Except in so far as it is excused, dispensed with, or waived, the rule under the Negotiable Instruments act, as at common law, is that each endorser of a negotiable instrument dishonored by non-acceptance or non-payment must be given notice of dishonor and any endorser to whom such notice is not given is discharged from liability thereon. Such notice is a condition precedent to the endorser's liability; it is for his benefit and is the second essential step which must be taken in order to charge him with liability on the instrument." 10 C.J.S. 898, § 384.
The right to set-off is regulated in this state by statute, R.S. 2:26-190; and the liability of an endorser is likewise regulated by statute, R.S. 7:2-66. An endorser warrants
that if the paper be dishonored and the necessary proceedings on dishonor duly taken, he will pay the amount due to the holder or to any subsequent endorser who might be compelled to pay it. This court, in Corn Exchange National Bank and Trust Co. v. Taubel, 113 N.J.L. 605, speaking through Mr. Justice Heher, had occasion to say that "An endorser without qualification engages that, on due presentment, the negotiable instrument shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it. * * * The contract of an endorser is separate and distinct from the contract contained in the note. It imposes a liability independent of that assumed by the maker. The endorser without qualification of the ordinary promissory note undertakes to pay the holder the amount thereof only if the maker fails to do so upon due presentment to him for payment, and due notice of non-payment is given the endorser. The endorser's liability is therefore contingent on the default of the maker and the taking on dishonor of the requisite statutory proceedings. It is a conditional liability, and substantial compliance with the provisions of the Negotiable Instrument act relating to presentment, demand for payment, and notice in the event of dishonor, is an indispensable requisite to absolute liability."
Adverting to the facts in this case, it is conceded by the bank that the plaintiff's account was debited by the amount of the notes, prior to the time that notice of their non-payment was deposited in the post office. R.S. 7:2-105 provides: "Where notice of dishonor is duly addressed and deposited in the post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails." See Simon v. Peoples Bank and Trust Company of Passaic, 116 N.J.L. 390; 184 A. 793. Obviously a writing giving notice of dishonor is utterly without effect until it has been mailed, i.e., deposited in the post office or in any letter box under the ...