#### JUNIUS DAVIS, Receiver of Bank of New Hanover, v. THE INDUSTRIAL MANUFACTURING COMPANY et al.

*Banks*— Receivers—Insolvent *('orporation*— Action *in Receiver’s Name-*— Creditors *and Debtors— Set-offs*— Deposits *in Insolvent Bank.*

1. One, to whom an insolvent hank made an assignment of its assets and who on the same day and at the suit of creditors was appointed "receiver, held the assets after sncli adjudication, not by virtue of the deed of assignment but as an officer of the Court appointed to settle and wind up the affairs of such insolvent bank.

2. Under section 0(58 of *The Code*a receiver of an insolvent corporation may .sue either in his own name or in the name of the corporation, and in such suit all the rights of the parties, both legal and equitable, pertaining to the matters set out in the pleadings, may he adjudicated.

,‘5. While in the statutes relating to the winding- up of the affairs of an insolvent corporation no specific directions are given as to mutual debts and credits, yet under sections (569 and 670 of *The Code,*which provide that the Court shall make such orders as justice and equity shall require and direct how claims shall be approved, the claims: of an insolvent bank and its debtor, who is also a depositor, may be adjusted.

4. Debtors to an insolvent bank are those who, at the appointment of a receiver, are liable to the bank for the payment of money, whether as principal or surety or whether the liability be matured or not; and creditors are those to whom the bank is indebted at the date of the appointment of the receiver, whether the debts are due. or not.

*3225. After the appointment of a receiver a creditor may assign his claim, but such assignment is subject to the receiver's right to set-off claims the bank may have against the creditor, and if the assignee, of the claim is himself a debtpr of the bank he cannot use the assigned claim as a set-off.

G. The effect of the insolvency of a bank closing its doors and stopping its business is to make all its deposit accounts and certificates of deposits at once become due without demand or notice, and in settling its affairs equity and justice require that the receiver shall deduct from the amount due a creditor all sums for which he is a debtor and shall allow a debtor credit for all sums for which he is creditor.

7. Where one of several indorsers of a note of an insolvent debtor lo an insolvent bank is also a creditor of such bank he is entitled to avail himself of his claim in settlement of his proportionate part of his liability on such note, which will be less or greater according to the solvency or insolvency of the other indorsers.

This was a civil actiox, tried at January Term, Í.893, of New HaNOVER Superior Court, before *Brown, J.*

It was agreed that the Court find the facts, a jury trial being waived and entered of record. The Court found the following facts:

“The plaintiff is the assignee of the Bank of New Hanover, a hanking corporation which did business in the city of Wilmington. Said assignment was made June 19, 1893. On same day the plaintiff was appointed receiver of said bank and of the assets of said bank so assigned to him. The plaintiff was also appointed receiver again July 12, 1892, in suit of Tate, Treasurer. Among other assets assigned to plaintiff for the purpose of paying the debts of said bank is the note sued on, a copy of which is as follows:

“$.6,000, WiumiNutoNj.N C., May 23, 1892.

“Two months after date, without grace, for value received, I promise to pay to the order of the Bank of New Ilanover six thousand dollars, negotiable and payable at the Bank *323of New Hanover; and upon default in making .snob payment promise to pay interest on such sum at the rate of eight per cent, per annum during the continuance of said default.

“(Signed) Tilií Industrial Manukauturixu (Jo.

“Said note is indorsed by said J. I). Bellamy, Jr., and each of said defendants on its back.

“The defendants J. 1). Bellamy, .Jr., and Henry R. West plead set-off as follows, and the following facts arc found:

“At date of said assignment the bank was indebted to John 1). Bellamy, Jr., for legal services in the sum of ten dollars. Also $112.10 on deposit in said hank to sight check. Also a certificate of deposit as follows:'

“$1,150. Ba.\K on Nkyv Hanovior,

“ Wilminutox, N. C., January 16, 1893.

“John I). Bellamy, Jr., has deposited in this bank $1,150, payable to the order of himself after thirty days’ notice on the return of the certificate properly indorsed, with interest at the rate of five per cent, per annum if left for three months. . (Signed) W. *L.*Sjiitji,

“ *Cashier.*

*“*Notice was given on this certificate June 6, 189,3.

“Said Bellamy holds a certificate entirely similar to aboye for $1,000, indorsed to him by Mrs. M. A. Doshor, May 22, 1893. Notice was given, and said certificate was due and payable June 23, 1893. This certificate bears on its face four per cent, interest, and dated April 29, 189,3.

“Henry P. West holds a certificate similar to the above, bearing date, four per cent, interest, payable to himself, for $1,020.26, dated May .13, 1892. No notice was given by West to the bank or to assignee Davis until thirty days *324before suit commenced. This notice was given after assignment.

“ Henry P. West had also deposit, in said hank at date of its assignment of $1,100, subject to cheek. II. P. AUest does business under the firm name and stylo, and is solo member of the concern.

“ J. I). Bellamy, Jr., testified as follows (the facts stated by him are found truc and so adjudged):

“‘I owned T5737 of defendant manufacturing company property. Bates, president of bank, stated to me the note sued .on must be paid. 1 stated that we would arrange it. I also stated that I did not like to have money on deposit in the bank at four per cent, interest, and be paying eight per cent. lie then agreed to allow me five, per cent, on the certificate dated January 16,1893, and changed the word ‘four’ to ‘five.’ There was no agreement that the money I had on deposit was to be applied to payment of note sued on and no such dedication of it. There is a thirty days’ clause in the four per cent, and five per cent, certificates, but the bank never enforced the notice for many years up to May 23, 1893. it was enforced after that. On June 6, 1893, the cashier paid me a $1,000 certificate without exacting notice. At the same time he declined to pay the $1,150 certificate without notice. 1 requested payment of the $1,150 certificate that day. The cashier said he could not pay it without the notice.’

“W. L. Bnxith, cashier of said bank, testified (the facts testified to by him are adjudged to be true):

‘“The Bank of New Hanover issued four per cent, certificates of deposit (similar to one copied). The thirty days’ notice was not required, and was generally waived up to May 23, 1893. After that it was exacted almost invariably, except as to certificates in sums of $100 and less. I paid a $1,000 certificate to J. I). Bellamy, -Jr., waiving notice after *325that date, but did not pay the $1,150. I don’t recollect that it. was presented.’

“ It is admitted that all of*.said certificates were due at date this action was brought.

“In the argument defendant’s counsel admits that the matters pleaded do not constitute a counter-claim, as no judgment can be rendered thereon against the plaintiff Davis.

“ It is claimed that the obligations of the bank to the defendants Bellamy and West constitute a set-off against the note sued on. No defence or set-off is pleaded by the other defendants. They join in the plea of their co-defendants.”

From the above facts the Court concluded, as a matter of law:

“1. That the certificates of deposit were not due on June 19, 1898, when note sued on was assigned to plaintiff Davis, and do not constitute a set-off against said note.

“2. That J. D. Bellamy, Jr., and Henry B. West cannot plead their individual demands against the bank as set-offs against the note sued on.

'“3. That the other defendants cannot plead the set-off claimed only by their co-defendants Bellamy and West. Let judgment bo entered for plaintiff.”

From this judgment the defendant appealed.

Mr. *({corye Rountree,*for plaintiff.

*Mr. J. D.*Bellamy, *Jr.,*for defendant (appellant).

Bukwell, J.:

The plaintiff is the receiver of a banking corporation, the insolvency of which is alleged. Immediately before his appointment as such receiver the bank made to him a general assignment of all its property for the benefit of its creditors. -In the proceedings instituted *326to effect a winding up of. its affairs, in which, as stated above, the plaintiff was appointed receiver, it was adjudged that that assignment was' “in contravention of the laws of North Carolina in such cases made and provided.” By that adjudication, as seems conceded, his title to the assets as assignee was destroyed and thereafter he held them merely in his capacity as receiver. These proceedings were instituted and this appointment was made on -June 19, 1893, in the Superior Court of New Hanover County. It appears from the record that on July 11,1893, the plaintiff' was again appointed receiver of the bank in a proceeding instituted in the Superior Court of Wake County by the Public Treasurer under the provision of chapter 1-55 of the Laws of 1891, which in certain contingencies directs him to take such action “for the purpose of winding up and settling the affairs” of a hank incorporated by the laws of this State.

In our consideration of the questions presented by this appeal we will assume that ilie latter proceedings are in aid of the proceedings instituted by the creditors in the Court of New Hanover County, and that the plaintiff has been continuously and uninterruptedly the receiver of the Bank of New Hanover from June 19, 1893, the date of his first appointment.

It is to be borne in mind, then, that he is not the assignee of an insolvent, empowered to collect and distribute the assets of his assignor according to the terms of the deed of assignment, so far as its provisions are not inconsistent with the law. He is an officer of the Court, appointed to “settle and wind up ” the affairs of the insolvent hank, and to that end is invested *sub modo*with the title to the hank’s assets, and is authorized by statute *(The Code.,*§668) to bring suits to collect debts due to it, either in his own name or in the name of the corporation. Prior to the enactment *327oí thus statute and the merging of the courts of law and the courts of equity into one tribunal having jurisdiction of both legal and equitable rights, a receiver, appointed by a court of equity and holding the relation that plaintiff holds to the corporation, its assets and its debtors and creditors, could not maintain in his own name a suit on a note due to the bank and in his hands as receiver. *Battle*v. *Davis,*66 N. C., 252. In *Gray*v. *Lewis,*94 N. C., 392, it was decided that, as well because of the change in the system of our courts as because of the statute, the receiver might sue either in his own name or that of the insolvent corporation. In whichever name he may elect to bring the action it is essentially a suit by the corporation, prosecuted by order of the Court for the collection of the assets, and the rights of the defendant cannot be altered or destroyed by his choice to sue in his own name rather than in that of the bank. In it may be adjudicated all the rights of the bank, its creditors and the defendant debtor, both legal and equitable, pertaining to the matters set out in the pleadings, and such a judgment may be entered' as will enforce the rights of the general creditors and also protect any equities that the defendants, jointly or severally, may be entitled to by reason of their being depositors in the bank as well as debtors thereto.

In the statutes of this State which relate to the winding-up of the affairs of insolvent corporations there is no specific direction as to mutual debts and credits. It is said, however, that in the proceedings there shall be made such “orders, injunctions and decrees as justice and equity shall require'’ *(The Code,*and that the Court shall direct the. manner in which debts against the corporation shall be proved. *The Code,*§570. In the settlement of the estates of insolvents it is necessary that there should be some general rule by which it mav be determined what is the prova-*328blc debt in cases where the creditor is also a debtor to it. either as principal or surety. That rule must be such as equity and justice require, and, when made, must control the demands of the receiver in such cases as that which we now have under consideration; for, if from the claims of an insolvent creditor of the bank ho shall bo allowed to demand a deduction, before proof, of whatever the claiming creditor owes the bank, no matter whether as principal, or partner, or surety, or guarantor, and to allow a dividend only on the net amount after such deduction, equity and justice will require that the same principle shall be applied when, as here, the receiver seeks not to avoid the payment of an excessive dividend, hut to collect a debt due to the insolvent bank, and the debtor asks that the Court’s officer (the receiver) will require him to pay, not the gross sum that he owes as principal, or partner, or surety, or guarantor, but the net amount after deducting from all the demands against him of whatever nature the sum due to him from the bank.

It may be well here to note precisely who are meant by debtors and creditors of the insolvent bank, as the terms are used in this discussion or the rules of equity that should control the settlement of its affairs. By debtors to the bank are meant all those who, at the appointment of the receiver, were liable to the bank for the payment of money, whether their liability had matured or not, and without any regard to the exact nature of the liability, whether as principal or surety. The word, as here used, does not include those who become indebted to the receiver, for the same reason that a person who has become indebted to an administrator of an insolvent estate is not considered' a debtor to the intestate, and allowed to set up against that-debt a debt due from the deceased to him. _ He owes the *administrator,*while the *estate*owes’ him. *Pate*v. *Oliver,*104 N. C., 458; *Roun-*
      *329
      *tree*v. *Britt,*94 N. C., 104; *Mauney*v. *Ingram, 78 N.*C.,*96.*Nor is it intended to include stockholders or officers of the corporation against whom the receiver may be directed to bring actions to recover sums due for subscriptions for stock, or other like claims. Ln all matters pertaining to set-off such indebtedness or liability as that last named is considered as due strictly to the receiver and not to the corporation.

By creditors of the bank arc meant those to whom the bank was indebted at the date of the appointment’ of the receiver, whether the debts were then due or not. The creditor may thereafter assign his claim, but the assignee will hold it subject to the receiver’s right to set-off against it claims he holds against the creditor, as- stated heretofore. If the assignee of the claim is himself a debtor to the bank, he will not be allowed to use the assigned claim as a set-off. *Brown*v. *Brittain,*84 N. C., 552.

Having thus stated what we here mean by debtors and creditors of the bank, we declare that in our opinion equity and justice require that the receiver, when he comes to make a settlement with one who is a creditor of the bank, shall deduct from his credit all those sums for which he is debtor, and when he settles with a debtor to the bank he shall allow him credit for all sums for which lie is a creditor of the bank.

Applying this rule to the case now before us, we find that the defendant Henry P. West is a creditor of the bank in two accounts: First, by a deposit subject to check, and second, by a certificate of deposit bearing interest at four per cent, dated May 18, 1892, “payable to the order of himself after thirty days’ notice on return of this certificate properly indorsed.” To the extent of these two deposits he is a creditor. In a certain sense he may be said to be a debtor to the bank for the whole amount of the note on *330which he is one of the eight, indorsers. Tf it is true that the principal debtor, The Industrial Manufacturing Co., is wholly insolvent, and that the receiver will not be able to collect anything on this note from it, then the true debt of the defendant West to the bank is one-eighth part of the whole amount- and also his proper proportion of what his co-sureties fail to pay and cannot be made by execution to pay; and we hold that the receiver should be directed to adjust and settle the said true indebtedness of the defendant West by setting off the same against his aforesaid claims against the bank.

It is to be assumed that the receiver, when an execution is issued in his favor, will direct the Sheriff in such cases as this one to seize and sell the property of the principal debtor, and not direct steps to be taken against the sureties unless necessary, and against the sureties only as is equitable and just.

In Morse on Ranks and Banking, section 348, it is said: “Where the bank itself stops payment and becomes insolvent the customer may avail himself in set-off against his indebtedness to the bank of any indebtedness of the bank to himself; as, for example, the balance due him on his deposit account. So, also, even though the debt to him has not matured at the time of the insolvency. The maker or indorser *of*a note falling duo after insolvency may set. off'his deposit, or a debt due him at the time of the assignment, but nota claim coming to him after the assignment.” By the expression “coming to him after assignment” is meant purchased or otherwise acquired after the assignment, the principle announced being that decided by this Court in *Brown*v. *Brittain, supra.*

In the settlement of the affairs of an insolvent national bank the indorser of a note in the hands of the receiver was allowed to set off against his liability on this note his *331deposits in the bank. *Yardley v. Clothier,*51 Federal Rep., 506, overruling *Armstrong*v. *Scott,*36 Fed. Rep., 63. If an indorser has this right of set-off any one or more of several indorsers must certainly have the same right. The National Banking Act contains no express provision as to set-off in cases of insolvency of a bank. Tn the matter of the Middle District Bank, 9 Cow., 414, Chancellor Wal-worth said: “If the real debtor is unable to pay, and the receiver is compelled to resort to the indorser, who is eventually to be the loser, he has the same equitable claim to set off bills which he had at the time the bank stopped payment. But no such effect should be allowed to an indorser when' ho is indemnified by the real debtor, or where the latter can be compelled to pay.” The rule thus stated by the learned Chancellor seems to us eminently just and equitable. It was applied by him to the settlement of the affairs of a bank of issue. The Bank of New Hanover was not a bank of ’issue, but of deposit and discount. But we know of no reason why it should not effect an equitable result as well where the indebtedness of the insolvent bank consists of accounts and certificates of deposit as where its liabilities were represented by bills. If it be said that no action would lie on the deposit which was subject to check until after demand and refusal it is to be replied that the same is true of an action on bills of a bank of issue. But we think that the effect of the insolvency of the bank and its closing of its doors and stoppage of business, and attempting to assign all its property to the plaintiff, was to make all its deposit accounts and all its certfi-eates of deposit at once due without any demand or notice. *Seymour*v. *Durham,*31 Hun., 93, was an action bjT the assignee of an insolvent bank against the maker of a note, who asked that he be allowed to set off a certificate of deposit, payable to his order “on return of the certificate *332properly indorsed, with interest at the rate of five per cent., if left four mouths.” We adopt as pertinent here what was said there: “The argument of the plaintiff is that such a deposit is not due until demand ; that, as.no demand has been made before the assignment, the deposit was not then due; while the note was due, and therefore that the deposit is net a set-off. There is no doubt of the general principle that an action cannot be maintained for money thus deposited until after demand. And the reason for that is that a right of action does not arise until there has been a breach of contract. And in cases of such a deposit a breach of contract does not take place until a refusal of payment. But the plaintiffs, as I think, err in arguing that, because a demand is necessary before an action can be brought, therefore the indebtedness is not presently payable. The depositar}' may lawfully pay the debt at any time. He could not do this if it were a debt payable in the future. The depositor may lawfully demand the debt at any time. He could not do this if it were a debt payable in the future. A debt payable in the future is one which neither the debtor has a right to pay nor the creditor has a right to demand *instantly.*That is not the case with such a deposit. There is no future day till which the respective rights of the parties are postponed. The creditor may demand payment at any .time, and therefore the deposit is a debt payable *in presentí.*Let us suppose that Pratt (the banker) instead of making an assignment had sued Dunham (the debtor) on the past due note. Can it bo be doubted that Dunham might have set off in such action the deposit, producing and surrendering the certificate? Could Pratt (the banker) have objected in opposition to such a set-off that Dunham had not made a demand for the deposited money before the day when Pratt commenced his action? The reply to such an objection would *333have been that a demand was only for the depositary’s protection, when called upon to pay, but that no demand was needed when the deposit was to be used only as a set-off or defence.”

The fact that in one case the certificate of deposit was payable “after thirty days’ notice” and not immediately after demand cannot make the language above quoted inapplicable here. But besides all, this it must be considered that when a bank of deposit closes its doors and abdicates its functions, as the Bank of New Hanover did, all its deposits, whether evidenced by hook accounts, or certificates such as the defendant West holds, became *eo instanti*duo. Why demand that which it had thus emphatically declared it could not and would not pay? Why notify the insolvent bank that after thirty days a demand would be made? On whom should the demand be made? To whom should the notice be given? The law does not require the doing of “vain things.” The failure to do them is not allowed to prevent the enforcement of just rights!

We do not think that the principle announced in *Adams*v. *Bank,*113 N. C., 332, cited by plaintiff’s counsel, has application here. We are not considering the lien of a bank upon the deposit of its customer, but the rights of a depositor in an insolvent bank that has stopped business to treat liis deposit as duo and to demand that there shall be an accounting, and that the difference between all the debits and all the credits shall be considered by the receiver, the officer of a court of equity, as the true debt due from him to the bank.

It is not necessary here to discuss the legal rules which are adopted by the Courts when the defendants in an action seek to enforce a claim which they or some of them have against the plaintiffs, or some of them, further than to say that if the Bank of New Hanover, not being insolvent and *334in the hands of a receiver, had itself brought this action, we can see no reason why each one of the defendant depositors should not be allowed to set up against the claim of the bank what the bank owed him either on account or by certificate. The objection of the bank to such an allowance of credit would seem most unreasonable and to indicate a purpose not to conduct its business as solvent banks do. Such an objection would not be raised by a solvent banking institution. No objection would be likely tó come from the principal debtor or the other sureties. If it did come from either the reply would be: Pay all the debt then yourselves if you do not wish to account with your co-defendant after he has paid it by surrendering his own individual bank deposit. There would be no such multiplicity of issues raised as would make it inconvenient or impracticable to try all of them in one action. Thedendency of *The Code*practice is towards the enlargement of the number of rights tliat may be adjusted in one action. *Sloan*v. McD*owell,*71 N. C., 356. The Court, being a court of equity as well as of law, adjusts its judgment or decree to enforce 'and protect all the rights of all the parties, and each right of each party, as far as they can be declared upon the pleadings, issues and verdict, *Clark*v. *Williams,*70 N. C., 679; *McNeill*v. *Hodges,*105 N. C., 52.

What is said above applies also to the deposit account and the certificates -of deposit set up by the defendant Bellamy. His claim for services was due from the bank to him before its insolvency, and must be counted as a part of the set-off available to him in settlement of the claim of the bank against him.

We hold, therefore, as we have heretofore stated, that while the judgment against all the defendants for the amount of the note and costs was proper it should have been so framed as to contain a direction to the receiver to *335allow the defendants West and Bellamy to avail themselves of their respective claims against the bank, set out in the answer, in settlement of what each of them is required to pay to satisfy this judgment-. If the principal debtor is wholly insolvent and the receiver can get nothing by his execution against it, and all the co-sureties are solvent, then, as has been said, each of these defendants will be allowed to pay one-eighth part of the judgment in that way. If any one or more of the sureties are insolvent the proportion of the judgment to be adjusted *in this way by these two depositors, AVest and Bellamy, will be increased. The receiver should be directed to proceed in the collection of his judgment in accordance with the principle herein announced, and to allow the set-off of the defendants West and Bellamy to the extent indicated above.

Modified and Affirmed.