On appeal from the Supreme Court, Morris County.
For the plaintiff-respondent, King & Vogt.
For the defendant-appellant, Milford Salny.
The opinion of the court was delivered by
BROGAN, CHIEF JUSTICE. This is the defendant's appeal from a judgment entered on verdict directed for the plaintiff bank. This is the second time a final judgment arising out of the controversy between these parties has come to this court for review. In the previous case the present defendant, Wills, Inc., was plaintiff, having brought an action in debt against the bank (Wills, Inc., v. Citizens National Bank, &c., 125 N.J.L. 546; 16 A.2d 804). The facts and the circumstances surrounding them are set forth in adequate detail in our opinion in that case. The sole issue in that
case, supra, was whether the bank had lawfully debited the Wills' account for the amount of certain notes endorsed by Wills, Inc. That corporation, a depositor of the bank, had discounted notes received from its customers in the course of business. The notes had been renewed from time to time. Finally, the bank advised the endorser, Wills, Inc., that the notes would have to be paid on their next due date. They were not paid and the bank charged or debited the Wills' account with the amount due on the dishonored obligations before sending out notice of protest. Notice of protest and dishonor was addressed to the endorser and placed in the mail after the bank had made itself whole by debiting the endorser's account. We held that at the time the bank made the deductions from the endorser's bank balance the right to do so had not matured because notice of protest had not been mailed at the time it was done. The judgment of the trial court -- entered on a directed verdict for the bank -- was reversed and the Wills Company was awarded judgment for the amount which the bank had prematurely transferred out of the Wills' account. That judgment was paid. The bank then brought the instant action against the Wills Company as the endorser of the two promissory notes, one made by Veigel, the other by Alberts.
The complaint in the present case recites the history of each loan: that the notes were discounted and proceeds credited to the Wills Company; the non-payment of each note; the deduction from the endorser's account on the due date; the notice of protest mailed the endorser after the debiting of its account; the judgment of this court in the former case; the payment of the judgment by the bank, the present plaintiff; and then a demand for payment of the amount of the notes on the theory that the liability of the endorser still subsists in these circumstances.
The defendant, Wills, Inc., sets up several separate defenses in its answer, namely, that all of the issues, claims and controversies between the parties were finally settled on the appeal in the first case, supra; that in the case of one of the notes now in suit, the bank, subsequent to the notice of protest, extended the time for payment without the endorser's
consent and received installments in reduction of the debt; and that the plaintiff bank is precluded from bringing the present action by virtue of the provisions of our statute N.J.S.A. 2:26-190 and 191 in that the matters and things pleaded in the present complaint should have been pleaded as a set-off in the previous suit. Thus the legal question is whether the bank has the right to recover in this suit in the face of our doctrine of res judicata. Stated another way: Is the plaintiff bank barred from prosecuting the present action because in the previous suit, when the depositor claimed against it for debt, it omitted to file a set-off based on endorsement, dishonor and protest, but instead framed an answer asserting a matured debt, satisfied out of the endorser's account, when, as a matter of law, a debt on the part of Wills in favor of the bank had not matured at the time the bank reimbursed itself for the notes endorsed by Wills, out of the Wills' account?
The defendant at the trial of the issue asked for a directed verdict in its favor on the ground that the matter was res judicata, i.e., that the bank in the first suit should have pleaded by way of set-off to the plaintiff's action its undoubted right to recover against the endorser after notice of protest had been mailed. The learned trial judge held that the only issue in the first case was whether the bank had the right to debit or charge the Wills' account the amount of the notes at the time such action was taken and thereupon he directed a verdict for the plaintiff bank and judgment was entered. This statement of the issue, raised by the pleading in the first case, was accurate. The bank's answer in that case was rested solely on justification of its action taken. But it was not the only defense to the Wills' suit that could and should have been pleaded. Our statute, N.J.S.A. 2:26-190, provides: "If any two or more persons be indebted to each other, such debts or demands, not being for unliquidated damages, may be set off against each other; and if one ...