Opinion
March 18, 1974.
December 11, 1974.
Uniform Commercial Code — Maker of promissory note — Cause of action — Accrual of cause of action against maker — Garnishment — Writ of execution — Set-off.
1. In this case, the plaintiff obtained a judgment against the defendant. On April 14, 1971, a writ of execution was served on a bank as garnishee. On the same date, a promissory note executed by the defendant and payable to the bank matured. The bank applied two checking accounts of the defendant as a set-off towards satisfaction of its note rather than holding them for the benefit of plaintiff. The court below entered summary judgment in favor of the plaintiff and against the bank as garnishee, and it was Held that the action of the lower court was proper.
2. The Uniform Commercial Code, Section 3-122, provides that "[a] cause of action against a maker . . . accrues (a) in the case of a time instrument on the day after maturity; . . . ."
3. It was Held in this case that the garnishee's cause of action against the defendant did not accrue until April 15, 1971, and the garnishee exercised its right of set-off one day too soon.
4. The Uniform Commercial Code, Section 1-201, provides that "`action' in the sense of a judicial proceeding includes recoupment, counterclaim, set-off, suit in equity and any other proceeding in which rights are determined."
5. In providing when a "cause of action" accrues, Section 3-122 provides when a right to "set-off" accrues.
6. The intention of Section 3-122, when read in the light of Section 1-201, was to make all remedies on a time instrument fall due at the beginning of the business day after maturity.
7. Goldstein v. Jefferson Title Trust Co., 95 Pa. Super. 167 (1928), reversed.
Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN DER VOORT, and SPAETH, JJ.
Appeal, No. 86, Oct. T., 1974, from judgment of Court of Common Pleas of Bucks County, May T., 1970, No. 1626, in case of Bethlehem Acceptance Corporation v. Ed Newman Motor Co., and Provident National Bank, Garnishee. Judgment affirmed.
Attachment execution.
Order entered granting motion by plaintiff for summary judgment against garnishee, opinion by WALSH, JR., J. Garnishee appealed.
Randolph A. Scott, with him Donald B. Smith, for appellant.
Allan B. Goodman, with him Maloney and Goodman, for appellee.
HOFFMAN, J., did not participate in the consideration or decision of this case.
Argued March 18, 1974.
This is an appeal from a summary judgment entered in favor of Bethlehem Acceptance Corporation and against the Provident National Bank.
Bethlehem held a judgment for $11,180 against Ed Newman Motor Co. A writ of execution issued and on April 14, 1971, was served on Provident as garnishee. As it happened, also on April 14 a thirty-day promissory note executed by Newman and payable to Provident in the amount of $10,000 matured. At the close of business on April 13, Newman had two checking accounts at Provident totalling $5,241.42. Instead of holding these accounts for the benefit of Bethlehem, Provident applied them to the extent of $5,240.00 as a set-off towards the satisfaction of its note.
Section 3-122 of the Uniform Commercial Code, Act of April 6, 1953, P.L. 3, § 3-122, as reenacted and amended, 12A P. S. § 3-122, provides that "[a] cause of action against a maker . . . accrues (a) in the case of a time instrument on the day after maturity; . . . ." Accordingly, if this provision is applicable here, Provident's cause of action against Newman did not accrue until April 15, which is to say that Provident exercised its right of set-off one day too soon, wrongly cutting Bethlehem off. This is what the court below held.
Provident contends, however, that a bank's right of set-off is not a "cause of action." While it is true that the phrase "cause of action" is not defined in the Uniform Commercial Code, the first "definitional cross reference" in the Comment to § 3-122 is to "`Action.' Section 1-201," which provides: "`Action' in the sense of a judicial proceeding includes recoupment, counterclaim, set-off, suit in equity and any other proceedings in which rights are determined." Id., 12A P. S. § 1-201 (1). It is therefore clear that in providing when a "cause of action" accrues, § 3-122 provides when a right to "set-off" accrues.
Provident suggests that a distinction should be drawn between a set-off "in the sense of a judicial proceeding," § 1-201, and the sort of set-off it exercised, which is characterized as a form of self-help. Although it may be granted that § 1-201 is not entirely unambiguous, we see no sense in such a distinction, and we doubt that the draftsmen of the Code intended to draw it. To the contrary, it appears to us that the intention of § 3-122, when read in the light of § 1-201, was to make all remedies on a time instrument fall due at the beginning of the business day after maturity.
Provident correctly cites Goldstein v. Jefferson Title Trust Co., 95 Pa. Super. 167 (1928), as supporting its position. There this court said: "While the plaintiff had all of [the due date] to pay his note, that privilege did not prevent the bank at any moment on that day from exercising its right to set-off its matured claim. . . ." Id. at 168. However, in the view we have taken of §§ 1-201 and 3-122, that case must be regarded as no longer stating the law.
Aarons v. Public Service Building Loan Ass'n, 318 Pa. 113, 178 A. 141 (1935), also cited by Provident, is not on point and thus not affected by this decision. There the negotiable instrument in dispute was a demand note, not a time instrument, and thus was collectible whenever the holder so chose.
The judgment is affirmed.
HOFFMAN, J., did not participate in the consideration or decision of this case.