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statute, for in the absence of legislation there is no rule of the common law which enables a debtor to a bank to discharge himself by an offer of the amount in the bills of the bank.

Set-off. If a bank sues a debtor, the debtor may set off, subject to certain restrictions, the amount of bills of the bank held by him. Though in Massachusetts in the case cited supra, Hallowell and Augusta Bank v. Howard, it was held that the defendant could not be in a position to avail himself of the set-off until he had recovered a judgment on his bills. The right of set-off is for the nominal or face value of the bills, for it is this amount which the bank in fact owes to the holder of them. The credit of the bank may be so poor that its bills are depreciated, but this is not a matter of which the bank itself can be permitted to take advantage as against the holder. Bank-bills may still be legally circulated although they pass for less than their par value, and their legal character remains unaltered as the promise of the bank to pay a certain sum, upon the faith of which promise, at one time or another in the past, the bank has actually received that sum, and to the holder of which promise the bank still remains liable to refund that sum. If its affairs have since been so badly managed that the holder has been able, or has been obliged, to receive the bill as a representative of a less amount or value, this is not a matter which the bank can set up to diminish its indebtedness, which has long since accrued in consideration of full value received.2

1 Suffolk Bank v. Lincoln Bank, 3 Mason, 1 ; Hallowell and Augusta Bank v. Howard, 13 Mass. 235. In the absence of any statutory provision on the subject in Massachusetts the rule of the common law necessarily governed in this


2 Robinson v. Bealle, 26 Geo. 17; Taylor v. Cook, 14 Iowa, 501. Two cases in Georgia, Griffin v. Central Bank, 3 Kelly, 371, and Collins v. Central Bank, 1 id. 435, in allotting the assets of an insolvent bank declared that the claims of the bill-holders should be estimated only at the amount actually paid by them respectively for the bills, on the ground that it would be grossly inequitable for the

But though the measure of value is thus rigidly in favor of the holder of the bills, yet the right of set-off will accrue at all only under certain circumstances. If the bank is solvent the holder must have come into possession of the bills at some time prior to the institution of the suit by the bank. The date of the bills is a wholly irrelevant matter. The defendant's right of action is an original one accruing to him directly and primarily at the moment when he becomes the bearer of the bills. He does not take the contract as assignee of the former holder who pays over the bills to him. No holder has any thing to do with the possession or rights of any predecessor in possession. No connection or relationship of a legal character arises between them by reason of the naked act of transmission. The promise of the bank is to pay to the bearer. Whoever is, for the time being, the bearer, is the direct contractor with the bank, and may maintain his suit against it upon the original promise running to himself. He is no more affected with the legal rights or liabilities of an assignee than he would have been had the issue of the bill by the bank been made directly to him in the first place. He does not therefore succeed to a pre-existing right of action against the bank which he can use as a set-off in a pre-existing suit of the bank against himself. But he comes into possession of an original right of action which he cannot set off in a suit already pending at the time when he acquires it. Also it has been questioned whether if the claim is only nominally that of the bank, and is in fact prosecuted for the benefit of an independent third party, the set-off of bank-bills would be allowed.1

bill-holders, who had paid only ten cents on the dollar for their bills, to be allowed to exhaust the entire fund which was coming to the creditors to the exclusion of persons who had given cent per cent in labor or property. Bill-holders of course could only " exhaust the fund to the exclusion of others” when they were entitled to priority of payment. In such cases the effect seems certainly grossly inequitable, as the court thought it. But it is obviously a matter to be dealt with by the legislature. The judge cited no authority in his opinion, and the law is certainly as laid down in the text.

1 Jefferson County Bank v. Chapman, 19 Johns. 322; Carpenter v. Butterfield, 3 Johns. Ca. 145; Dickson v. Evans, 6 Term, 57.

2 Bullard v. Bell, 1 Mason, 243.

If the bank is insolvent, the bill-holder can set off the amount of bills held by him for their full nominal or face value, provided he had come into possession of them prior to the insolvency.” It has been said that if any legislation exists providing for equality in the payment of bill-holders, this right of set-off is in derogation of it. But nevertheless the right is not taken away or diminished by reason of this clashing or inconsistency, which only furnishes an additional reason for the stringent enforcement of the rule requiring the possession to have been acquired prior to the insolvency.3

Some questions may arise as to when the taker or purchaser of the bills is to be affected by knowledge of the bank's insolvency. No precise and definite rule has been laid down concerning this matter. The relationship existing between the individual and the bank might not unreasonably have some bearing and effect in the determination of the point in any particular case. Thus a director obtaining bills of the bank at a discount, at a time when he himself is indebted to the bank, and also when by reason of his office he knows or ought to know that the bank is thoroughly insolvent, might well be refused the privilege of using these bills in set-off against such indebtedness; though an outsider having no such knowledge, and obtaining bills at the same time, also at a discount, but in due course of business, might be allowed to do so. The director could hardly be fairly deemed a bona fide holder, for this purpose. In an early case in New York it was declared that the mere refusal of the bank to pay specie, and the consequent stoppage of its bills, were not alone sufficient proof of insolvency to deprive a subsequent bona fide holder of its bills of his right to set them off. The court based their decision upon the view that these facts did not alone indicate a suspension of the banking business and an absolute deficiency of assets to meet the liabilities of the corporation, but might very probably be the result of mere temporary embarrassment and want of available funds growing out of the financial condition of the country. In a later case in the same State, where it appeared that the bank had closed its doors, and had for all practical purposes suspended business altogether, it was held that the taker of its bills after these occurrences could not use them in set-off. There seems to be that degree of sound argument in both of these cases that it is hard to say that either of them is wrongly decided. At the same time they are open to the objection that it is difficult to draw from them any general principle which shall be of universal and satisfactory operation. Many instances must arise in which it will be very hard to say whether or not the suspension of the bank is sufficiently complete to amount to notice of insolvency in fact. Farther, the person who takes the bills may not know precisely what is the extent, or what are the circumstances, of the suspension. In short, the test which, if any, can alone be drawn from these rulings, is one which is open to many practical objections. We shall therefore take the liberty to suggest what seems to us a better one. Though it has not been supported by judicial adoption, yet it has never been passed upon by way of rejection in any cause, so far as we have discovered. It is therefore to be fairly considered as open in the future either to acceptance or rejection. It is simply this, that so long as the bills continue to be taken and paid away by the community in general, like the bills of other banks, that is to say, so long as they continue in actual circulation as money, so long any person taking them as money should retain the right to set them off against the bank. When they no longer circulate as money, having a fixed value, but can only be passed by way of barter or exchange, becoming the sub

1 Hallowell and Augusta Bank v. Howard, 13 Mass. 235.

2 Bruyn v. Receiver, 9 Cow. 413, n. ; Haxtun v. Bishop, 3 Wend. 13; Diven v. Phelps, 34 Barb. 224. 8 Clarke v. Hawkins, 5 R. I. 219.

4 Ibid.

1 Jefferson County Bank v. Chapman, 19 Johns. 322. 2 Diven v. Phelps, 34 Barb. 224.

ject in each case of a special bargain as concerns the valuation at which they shall be received, then it is time to say that the taker can no longer set them off for their full face value. The manner in which they are treated by people generally, and the manner in which any individual actually comes by them, are the two elements of determination. As a matter of fact, in cases which apparently resemble that in 19 Johnson (supra), we continually see bills circulating actively at a moderate discount, the taker always having a claim upon them against the bank for the full amount, and the bank doing a business as large and as brisk as usual. Such bills are always recognized by the courts as money to their nominal value. If taken on deposit, the bank customarily gives credit for so many dollars, and the debt is for so many dollars. The case is precisely that of the first of the two New York cases. The bank is so situated that it cannot conveniently, or perhaps safely, redeem at once upon presentment in specie or legal tender; but its substantial and ultimate solvency is by no means therefore despaired of. Even its present positive insolvency is by no means proved. The public all take its promises to pay with only a slight discount to represent the value of the delay, and of course also of the possible doubt attendant upon any delay, which must precede payment by the promisor. Any person taking one of these promises under these circumstances ought to be able to use it in set-off, as well as to sue upon it, in both cases for the full nominal value. But when the bank has come to that degree of embarrassment that it has to suspend business; or when the public become aware of what they deem a hopeless degree of insufficiency in its assets and desperation in its affairs, whether indicated by the actual shutting of doors or by other facts and symptoms which the people at large consider equally conclusive; then the bills will naturally fall out of circulation as money, at any fixed value, and will be taken as a matter of bargain, and more or less of speculation. They lose their traits as money; usage no longer makes it unusual or apparently dis

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