
    S. Moseby v. J. M. Williamson.
    1. Insolvent Cobpobaiion. Set-off. A certificate of deposit of the Gayoso Savings Institution ivas assigned by J, the holder, to W, a debtor of the Savings Institution, after the suspension and closing of that Institution, but before the filing of the bill for winding up its affairs as an insolvent corporation.. Held, that the certificate of deposit so taken was a valid off-set in favor of W against the debt owing by him to the Savings Institution, when sued by the Receiver thereof.
    2. Holder of Certificate oe Deposit. Legal Status of. The holder of a certificate of deposit is not placed by law on the same footing as the bolder of the notes of the Bank. The holder of certificates is only a creditor of the Bank entitled to pro rata distribution.
    FROM SHELBY.
    Appeal in error from the Municipal Court of Memphis. G. P. Eoute, J.
    Archibald Wright for Moseby,
    the Receiver, insisted, an insolvent corporation is like an insolvent estate. Its assets must be divided pro rata among its creditors. After the corporation suspends and becomes insolvent, one of its debtors can not buy in claims and off-set them so as to disturb the pro rata principle: Root, Adm’r, v. Taylor, 20 Johns. Pep., 137; 2 Johns. 274; 6 Term Rep., 57; 4 Johns. Ch., Rep. 13; Marr v. The Bank of West Tennessee, et als., 4 Col., 471, 487; Edward’s on Receivers, 250, 251, 277, 278. The case of Richardson, Adm’r, v. Parker, 2 Sneed, 529, is in perfect harmony with these views. The right of set-off there existed when Dr. Rowles died. And if Williamson had owned his set-off at the time when the Gayoso Savings Institution failed, i. e., when it became insolvent, the cases would have been parallel in principle.
    McDowell & MartiN, also for Moseby, contended:
    1. The certificate of deposit can not be set-off in this case. “A certificate of deposit stands upon the same footing as a negotiable promissory note:” 1 Parson’s on Bills and Notes, p. 26, and note T; Miller v. Austin, 13 How., 218; Bank of Orleans v. Merrill, 2 Hill, 295; Abbott’s N. Y. Dig., v. 1, p. 293, s. 215.
    2. Set-off can not be allowed if the creditor purchased the debt after having a knowledge of the insolvency; 2 Parson’s on Bills and Notes, 613, 614, and note.
    In order to enable the holder of a bankrupt’s acceptances to avail himself of them in an action by the assignee against himself, on his acceptances, by way of set-off, he must most distinctly prove that the obligation to pay the bill subsisted before the act of bankruptcy, or that there was a mutual credit in the origin of the bills. A bill or note indorsed to claimant after the act of bankruptcy might be proved but can not be set-off: Chitty on Bills, p. 745; 1 Paige, 112, 585.
    And it is incumbent' on the indorsee to show that the indorsement was made before the bankruptcy. Yet it may not be to the same party, and the creditor will not be allowed to vary the relation in which he stood at the time of bankruptcy, and thereby put himself in a better relation than other creditors: Chitty on Bills, 746; 1 Swan, 92; Ex parte Hale, 3 Vesey, 304. The same principles govern in this case as in cases of bankruptcy: 2 Swan, 529.
    The 2 Swan case decides that an account existing against the insolvent estate of an intestate during his life might be set-off. Not one purchased after his death. It required a special act of the Legislature to enable holders of the issues • of an issue bank to plead tbem in set-off; See acts 1860, cb. 27, s. 30. The decision in 3 Coldwell is upon that particular point. But we maintain that the issues of a bank of issue and certificates of deposit are not of the same, nor of a similar nature, as we have shown above. The case of Miller v. Andreios, 3 Col., 380, decides the act referred to was necessary to enable holders of bank issues to plead them in set-off The receiver of an insolvent bank represents the creditors and not the bank: 3 Wend., 13.
    The assets in the hands of the receiver of an insolvent bank constitute a trust fund for benefit of all the creditors, and no diligence on the part of any one of the creditors can defeat the rights of the others to a pro rata distribution of the fund: Marr v. Bank of West Tennessee, 4 Col., 471.
    Taylor owed the bank $35,000. Bynd had in the bank a deposit of $44,000. The bank being insolvent, stopped payment. The next day Bynd assigned his deposit to Taylor. Held, that Taylor could not set off the deposit against his indebtedness to the bank, as it would give a preference to one creditor of the bank after the act of insolvency: Venango National Bank v. Taylor, 56 Penn. St. B., 14.
    A debtor to an insolvent bank in an action by its receiver, has a right to set off only such demands as he owned against the bank at the time of its stoppage of payment. In the matter of the receiver of the Middle District Bank: 1 Paige Ch. B., 585; Haxton & Brace v. Bishop, 3 Wend., 13; The Venango National Bank v. Taylor, 56 Penn., 14; 2 Edwards, 625; 
      MeClean v. Pennington, et ais., 1 Paige, Ch. R., 102; 9 Cowen, 409; Waterman on Set Off, p. 190, and authorities cited; Butterworth v. Peek, 5 Bosw., 341, Jefferson Cou/nty Bank v. Chapman, 19 John., 322; Owen v. Phelps, 34 Barb., 224; U. 8. Trust Co., v. Harris, 2 Bosw., 75; 21 N. Y. Rep., 406; 40 Penn. St. Rep., 190; 5 Rhode-Island Rep., 219; 13 Mass., 235.
    The suspension of the bank was an assignment in equity of its assets for the benefit of its creditors. All rights must be left as said assignment found them. The set-off of defendant in error can not be allowed. He must file his claim in the chancery canse and get his pro rata.
    
    This case is analogous to and is governed by the same principles governing set-offs in bankrupt cases.
    In. all cases where a set-off is allowed against a bankrupts estate, the claim offered to be set off must have been held and owned by the debtor to the bankrupts estate before the act of bankruptcy: Chitty on Bills, p. 745, and notes.
    Now, had the Gayoso Savings Institution been wound up as a bankrupt estate, in a Bankrupt Court, would not the suspension and closing of its doors on the 5th of February been considered the act of bankruptcy, and the time at which the law worked the assignment for' the benefit of the creditors? The assignment would have been effective from the act of bankruptcy.
    A banker may suspend for fourteen days without committing an act of bankruptcy — unless he fraudulently suspends. He may resume business, and if he resumes payment he can not under that clause of the bankrupt act be forced into bankruptcy. But if he goes into bankruptcy after five days of suspension — if on the fifth day of his continued suspension and closing of doors he files his petition in bankruptcy, and proves to have been an insolvent and bankrupt at the first day of suspension, ■will not the stoppage of payment and closing of doors the first day of the suspension be considered the act of bankruptcy; and in deciding all questions of set-off against his assignee, will not the first day of the suspension be considered the time prior to which the claims offered in set-off must have been held by the party offering them as off-sets? "Would a party be allowed to use as' a set-off a claim purchased after the suspension — in view of and contemplation of insolvency? Would not this be a fraud on the bankrupt law?
    In the case at bar, Williamson bought the certificate of deposit in contemplation of the insolvency of the Gayoso Savings Institution — with a knowledge that it had suspended.
    In the case at bar, the filing of the bill to wind up the bank as an insolvent institution, was like the filing of a petition in bankruptcy would have been, and worked the same results. The filing of the petition and going through bankruptcy establishes the bankruptcy or insolvency, and it retroacts to the act of bankruptcy committed by suspending and closing,, doors.
    According to the principles decided in the case of Marr v. Bank of West Tennessee, 4 Col., 471, all the assets of the bank constitute a trust fund for equal and ratable distribution among its creditors. And it matters not •whether said assets are in the hands of a receiver or remain in the custody of the officers of the bank. Whenever the bank closed doors and ceased to do business this trust attached, the law worked an assignment for the benefit of the creditors, and if subsequent events proved that the bank was insolvent at the time of suspension, and the bank did not open doors and resume business thereafter, if the bank never after resumed business, and steps were taken to wind it up as an insolvent bank, its funds would be ratably distributed among all its creditors.
    Calvin Jones, for Williamson,
    said: The argument that the institution was insolvent, and a bill filed to wind it up as an insolvent corporation, can have no force to defeat the defendant, or deprive him of his set-off as allowed by the verdict. The debtor of an insolvent estate can not be deprived of his rights of set-off when they have lawfully attached. To illustrate: A is indebted to B by note or account $500, but A holds B’s note for $800. Upon the insolvency of A, B can not be deprived of his right of set-off by any act of A or his creditors, and upon death of A, his administrator suggesting the insolvency of his estate, and asking that the assets of his estate be distributed pro rata among the creditors, B’s right of set-off still continues, and can not be defeated. It must be kept in mind that the right of the defendant to the set-off accrued before the bill was filed, before any suit was brought against him, and that he held tbe certificate of deposit as an existing debt or demand against the Gayoso Sayings Institution before suit. Vide 2 Head, 194. But this case is determined and settled by the case of Miller v. Andrews et als., 3 Cold., 380. In that case the note was made by John Marshall for ¡§630, payable four months after date to M. L. Andrews, and indorsed by Andrews & Cummins, and discounted by the Planters Bank at Franklin. Not being paid at maturity, it was regularly protested for non-payment, and the indorsers duly notified. The note was afterward sold by the bank to the plaintiff who paid for it in the issues or notes of the bank when they were at a discount. The purchaser of the note brought suit against the in-’ dorsers, and claims payment in current funds. The defendants tendered and -deposited the amount and interest of the note in the issues or bills of the Planters Bank. The plaintiff refused to receive in payment the uncurrent issues. The Court held that in all cases of insolvency of any bank, or banking institution, the bill holders thereof shall be entitled to preference in payment to all other creditors of such bank or association, and no transfer or assignment of any note, bill of exchange, or other evidence of debt by the bank shall prevent the debtor from paying the same in the hands of the assignee in the currency of the bank, as provided by Act of 1860, c. 27, s. 30. The certificate of deposit issued by the Gayoso Savings Institution is in legal effect the same as a bill or bank note. Vide Miller v. Andrews, 3 Cold., 380, and the opinion of the Court upon the case and authorities. The right of the defendant to the set-off is manifest and supported by authority, and the' ease in 3 Head, 380, is decisive of this question:'1 Swan, 258; 8 Hum., 46.
   NicholsoN, C. J.,

delivered the opinion of the Court.

Plaintiff, as receiver of the Gayoso Savings Institution, sued defendant* on a claim for about $781, due by him to- the Savings Institution. The Institution suspended and closed February 5th, 1868. On the 10th February, 1868, a bill was filed in the Chancery Court, for the purpose of winding up its affairs as an insolvent institution, and plaintiff was appointed receiver.

Calvin. Jones held a certificate of deposit of the Institution for $1,000, which was transferred by him to defendant after the Institution suspended and closed, but before the bill was filed to wind it up.

• On the trial of the cause, defendant offered the certificate as a set-off, which was allowed by the Judge, and judgment given for defendant for the excess of his claim over that of plaintiff.

The question in the cause is, whether the certificate of deposit was a proper set-off?

The assets of an insolvent moneyed corporation, under our statutes and decisions, constitute a trust fund in the hands of the officers of the corporation, for “pro rata distribution among all its creditors and stockholders : Marr v. Bank of West Tenn., 4 Col., 471. And by the Act of 1860, c. 27, s. 30, the bill-holders of an insolvent banking institution are entitled to preference in payment over all other creditors.

A certificate of deposit is not placed by tbe statute on the same footing with a note issued by a bank. The holder of such certificate is therefore only a creditor entitled to pro rata distribution.

But, in this case the holder of the certificate was both a debtor and a creditor of the Institution, and upon the general principle applicable to insolvent or bankrupt estates, he has a right to his set-off, if the claims were mutual at the time the death of the intestate occurred or when the bankruptcy occurred: Richardson v. Parker, 2 Swan, 529.

It appears in proof that plaintiff became a creditor of the Savings Institution after it closed and suspended, but before steps were taken to wind it up as an insolvent corporation. It is provided by the bankrupt law, that if a banker stops or suspends fraudulently for a period of fourteen days, he is deemed to have committed an act of bankruptcy; but if the suspension. be not fraudulent it is not an act of bankruptcy: Brightly Bankrupt Law, p. 80, and notes. In analogy to this- rule as to bankruptcy, we can not see upon what ground the insolvency of a bank can be assumed from the simple fact of closing its doors for two or three days, or until some such step as filing a bill to have its insolvency determined has been taken. If a party should become a creditor of one to whom he is a debtor only a few days before his death, this fact could not defeat his right of set-off, even though the death might be deemed probable. So, in the case before us, we bold that defendant was entitled to his set-off) as he was the owner of the certificate before the bill was filed, and affirm the judgment below.  