Case Name: Finnell, &c., vs. Nesbit, &c.
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1855-12-11
Citations: 16 B. Mon 351
Docket Number: 
Parties: Finnell, &c., vs. Nesbit, &c.
Judges: 
Reporter: Kentucky Reports
Volume: 55
Pages: 351–355

Head Matter:
Finnell, &c., vs. Nesbit, &c.
APPEAL FROM ICENTON CIRCUIT.
One who is a debtor to a bank, the funds of which are placed in the hands of commissioners for liquidation, may properly claim a set-off for anything due to him from the bank at the date of the assignment. (3 Dana, 398.)
This suit was brought by the commissioners of the Trust Company Bank, on a bill of exchange which the bank held upon Nesbit as drawer, Scott as acceptor, and Goodson as indorser.
The petition sets forth the bill in the usual form.
The failure of the bank in October, 1854, and the appointment of the commissioners by the chancellor on bill filed, and asks judgment for the amount of the bill.
Nesbit answered admitting the execution of the bill, but says that previously to the failure of the bank he deposited in its office $258 75 as a fund out of which he proposed to pay off and discharge the said bill; that pre\ iously to the failure of the bank, and before any bill filed to compel a liquidation of the affairs of the bank, he presented his check for the amount of said bill and in payment thereof, but the bank refused his check, all which was before the bill was due; that said sum of $258 75 has never been paid to him and is yet due, and claims to set-off that sum against the bill sued on, and judgment over for the remainder after satisfying the bill.
To this answer there was a demurrer, which is presumed to have been overruled, though the record does not show it in terms.
The plaintiff filed a reply, denying that Nesbit made his deposit with the intention of paying the bill, but that the deposit was made with the intention and under an agreement that it should draw interest at six per cent., and averring that it was made before the bill was drawn. To this reply there was a demurrer which the court sustained, and gave judgment for the defendant. The plaintiff excepted, and has appealed to this court.
W. B. Kinkead for appellant—
The amount in contest is small, though the principle involved is an important one for the guidance of the commissioners in settling the affairs of the company.
The circuit judge was not authorized to conclude that the deposit was made by the appellee with the intent to pay the bill sued on, as it was made before the bill was drawn, and the appellee does not say so; his allegation is that out of his deposit he proposed to pay the bill.
This is not a case of mutual credit between parties. The debt did not arise out of the same transaction; no connection between the demands, nor agreement for a set-off, but a case of separate and distinct demand for which each party has his separate right of action. (See Barbour on Set-Off, 17; Parsons on Con., 240; Jacobs’ Law Die., vol. Q,p. 66.)
The common law, differing from the civil law, drove each party to his separate suit. It is by statute alone that it is allowed, which gave the party a discretion to rely upon the set-off or resort to his separate suit; but if relied upon as set-off it must be plead with notice, otherwise it could not be given in evidence. The balance of the account was then considered as the true debt between the parties.
By sec. 128 of the Code of Practice “a set-off must be a cause of action arising on contract, or ascertained by the decision of a court.” But it is insisted this case is to be tested by the charter of the bank. By that charter it is provided, in substance, that upon the refusal of the bank to pay its notes or deposits, the circuit court of Kenton county, upon petition being filed by a citizen of this state, shall appoint commissioners who shall take possession of its as seis, collect the same, and apply them by a pro rata distribution among the creditors of the bank according to their respective demands. These provisions are thought to be in conflict with the general law of set-off, and must prevail.
Was the bill sued on a part of the assets of the bank? It is insisted that it was.
But the circuit judge supposed that the right of set-off existed; that courts of equity would grant relief in cases where a court of law would, and that the chancellor in this case would allow a set-off, the bank charter notwithstanding. If the charter of the bank would not admit the defense here set up at law, it could not be applied in equity. {Jackson, fyc. vs. Robinson, <\-c.. 3 Mason, 183.)
Story says {Story's Eq., sec. 1434,) “Equity generally follows the law as to set-off, but it is with restrictions and limitations. If there is no connection between the demands, then the rule is as it is at law.”
In Jlowc v. Shepherd, 2 Summer, 412, Judge Story said in regard to set-off, “The known rule in equity in regard to set-off is, that they follow the law unless there is some intervening natural equity going beyond the statute of set-off, which constitutes the general basis of set-off at law;” also, 2 Sumner, 634, “To justify a court of equity in allowing a set off, there must be some original intervening equity between the parties besides the mere fact of mutual debts.” (5 Mason, 201.)
Before the statute of bankruptcy in England (5 Geo 2) a creditor was compelled to prove his debt before the commissioner, and take his pro rata dividend of perhaps 2s and 6d in the pound, and at the same time pay the full amount of his indebtedness to the bankrupt’s estate. {Exparte, Prescot's case, 1 Atk. R., 231, per Hardwicke.)
Such it is insisted is the effect of the charter in this case. The appellee, as a depositor, is not entitled to any preference over other creditors, and the commissioners should be allowed to collect the amount of the billas assets for a pro rata distribution according to the provisions of the law.
One who is a debtor to a bank the funda of which are placed in the hands of com’rs tor liquidation, may properly claim ■a set-off for anything due to him from the bank at the date of the assignment. (5 Dana, 398.)
Menúes Spilman for appellee — no brief found..
December 11.

Opinion:
Judge SnarsoN
delivered the opinion of the Court.
If this action had been brought in the name of the Trust Company Bank, the right of the defendant to a set-off would be clear and undoubted. The only question then that arises in the case is, whether the provisions of the charter, and the transfer of the effects of the corporation into the hands of commissioners in pursuance thereof, operates to divest this right, or whether it still continues notwithstanding this transfer, inasmuch as the demand on which it is founded was due to the defendant during the legal existence of the corporation. If it had been acquired by him after that period, it is very clear that no right of set-off would arise in his favor, as such a right in that state of case would be wholly incompatible with the provisions of the charter in reference to the liquidation of the affairs of the corporation.
The language of the act, under which the commissioners are acting in winding up the affairs of the bank, is not materially different from that contained in the act of 1839 regulating the administration and settlement of estates, and under that act the right of set-off, where the debtor held a debt or demand against the testator or intestate at his death, has never been questioned; but such a debt is allowed to attach, and to operate as an extinguishment of that amount of the debt due the testator or intestate, on the principle that the balance which remains after the set-off is deducted, is all that is actually due to the estate, and which can be rightfully and justly applied in the course of administration. (Ely, &c. vs. Horine, 5 Dana, 398.)
We think that the same doctrine should he applied in this case. The defendant did not actually owe -the bank anything at the time its cox-porate existence terminated. His demand against it had previously accrued, and there was nothing due from him to it, to be regarded as assets or effects belonging to it, to be administered by the commissioners.
Wherefore the judgment is affirmed.