The Saint Paul globe., 1897-06-06
RIGHT OF OFFSET
NOT LOST BY THE BANK or MN
NESOTA DEPOSfTORS, SAYS
JUDGE OTIS.
DEP0SITORS GET CREDITS
TO THE AMOUNT or THEIR DE-
POSITS ON NOTES HELD IN
BANK.
POWERS OF THE RECEIVERS
In No Sense Greater Than the Pow
ers Possessed by the Bank Be
fore 1t Failed.

All depositors of the Bank of Mime
sofa whose notes are now in the hands
Of the receivers of that bank are en-
titled to be credited on such notes to
the amount of their deposits. Such is
the effect of a decision filed by Judge
Otis yesterday, in the matter of the
petition of A. & w. McGuigan and
other depositors for an order directing
the receivers to allow offsets of their
deposits on their respective notes. The
decision allows offsets to the extent of
$4,000 or $4,000, the notes of depositors
aggregating something between these
amounts. Judge Otis states the grounds
or his decision in the following men,
orandum:
For several months prior to Dec. o. 1896,
when the Bank of Minnesota went into the
hands Of receivers, it had been a large bor-
rover from certain other banks of the city.
ana 10 secure loans from time to time made
70 70 II; 1t had indorsed and delivered to one
+. II. Bailey, as trustee, an amount of its
customers paper, largely in excess of the
sum SO borrowed. Bailey collected this paper
as II matured and applied the proceeds in
payment OF the loans. At the time the bank
closed its doors he held of these notes an
amount, face value, of about three to one of
the indebtedness they were so given to secure
A considerable portion Of the paper, aggragat-
Ing from $35 600 to $4G0 000 had been made
by regular customers and depositors of the
lnso-vent bank the petitioners and others to
Whom the bank at the time of its failure
was indebted on deposit account in divers
! sums of money.
| In due course of time Bailey collected suf1-
clent drcm the collateral so held by him to
! ray OF" tnls secured Indebtedness ard this
nav ng been dom. on April 23 1897 he
| turned back to the receis ers all the residue
| tf he collateral, including he notes OF the
/ petitioners and Of others similarly situated
receivers ha
and absolute ownership or their notes, peti-
tioners ask that the sums so due them on
deposit, deposit account when the bank closed be
cfedlted to them on their respective notes.
! The receivers insist that this gives the
petitioners greater rights than they enjoyed
when the bank was adjudged insolvent; that
as Ba1:ey then held petitioners notes there
could nave been no offsets as against him.
and to give these petitioners this privilege
now would operate as a reward for failing to
meet their paper promptly while it was in
Baley's hands; that to allow the offset now
simply because Bailey did not resort to them
Tor payment, would operate as a construC
e elon OF the relation Of the parties, the effec.
or which would give the PLEDGE power to s
manipulate the collateral as to prejudice or
to benefit this class Of creditors according
! to his own will and pleasure; that as petit
TONERS did not have the right of Offset at
the time the receivers were appointed they
cannot have acquired that right by anything
which may have subsequently occurred.
The error, as it seems to me, in this DO
sttion taken by the receivers is in assum-
ing that these petitioners were ever at any
time without the right Of offset. The notes
were transferred to Bailey by way of pledge
only, the general ownership remaining in the
bank and the receivers, it's successors in
interest. Against this general ownership
tfis right of set-off always existed, and as
| Bailey and the beneffeiaries whom he. repre-
sented simply had a lien on the coIlaterals
| as security. for their, debt the. payment of
| the debt discharged the lien, leaving the
| right of set-off uninpaired. 1t is urged how
a tIioit rooo osyy
| were used in clearing off this lien, and
that by such use these petitioners would
thereby secure a preference. This would be
| true were it not for the fact that this was
right at all times belonging to these peti-
tfoners-a right which a court of equity will
protect, and which was always paramount to
the title Of the receivers.
In this state the right of equitable set-off
has been recognized to the fullest extent,
and If its protection required the marshaling
OF these securities, there would seem to be
no difficulty IN requiring this to be done.
Suppose this collateral had consisted of the
note of one of these petitioners in three
| times the amount Of the Indebtedness 1t
was given to secure, would ii. not follow that
since the general ownership Of the note had
been at all times in the bank and the re-
| ceivers, the right of set-off would exist upon
the note to the extent Of the deposit condi-
| toned only that the debt secured by the note
| must be paid in full. In other words the
| maker would unquestionably be permitted to
| plead and prove insolvency and consequent
! pledgee must first be satisfied and if the
| Pledge had other security not affected by a
! like equity. the Pledge could be compelled
| to first resort to such other security This
| certainly is analogous to the holding of
| our courts (other courts have held likewise)
| that VI equity a. debt. to mature in the
| future, may, in case of insolvency be set
| OF against present Indebtedness due to the
! 1Esolvent, or to an assignee of such in
solvent. To allow the set-of IN that case,
| as in this, may be to the prejudice of other
creditors of the insolvent not so fayorablv
| eircumstanced but this fact cannot deprive
| the party Of the privilege which attaches the
| moment the relation of debtor and creditor
| is created and thereafter continues. So here
| ii Bailey had brought suit on these notes.
i as to which an equitable set-off existed the
| court would have compelled a nlarshaling of
securities in order to preserve as far as
| possible this right. It must be remembered
| that the receivers stand in the shoes Of the
| lnSolvent bank and have no greater rights
| than the bank would have had had there
| been no receivership. Their appointment in
| no manner affected the right of offset; these
creditors otherwise would have had against
| the insolvent 1t may be that payment with
| out asserting this right would operate as
a waiver, but such not the cases now be-
! fore the court
1t follows that petitioners are entitled to
| be credited on their notes in the hands of
! the receivers to the amount of their de-
posits, and orders may be prepared and pre-
| sented to the court for signature IN con-
| situated, including holders of certificates of
deposit. are entitled to like credit, and the
! receivers may act accordingly. -;
| The Lake Route East. .