Lees v. Hayden — 60 N.Y. St. Rep. 723

Majority

p. 723

David J. Lees, as Receiver, etc., et al., Resp’ts, v. Eldin B. Hayden et al., App’lts.

(Supreme Court, General Term, First Department,

Filed May 18, 1894.)

Headnote

Pleading—Countebcl aim—Insolvency.

A claim against an assignor for creditors, which was not due when the assignment was made, cannot be set off against a claim in favor of such assignor, though, after the former claim matured, the assignment was set aside as in fraud of creditors.

Appeal" from a judgment entered on a verdict directed by the court in favor of plaintiff.

Geo. D. Beattys, for app’lts; W. J. Toiunsend, for resp’ts.

On the 27th of October, 1890, the firm of D. H. Wickham & Co. made an assignment for the benefit of creditors to one Hewwitter. At that time the defendant Eldin B. Hayden was indebted to the firm of D.

p. 724

the promissory note in suit, for the amount of such indebtedness, payable on demand, which note, when delivered, was indorsed by the defendant Anna K. Hayden. On the 25th of May, 1892, in an action brought by a judgment creditor of D. H. Wickham & Go., the assignment to Newwitter was adjudged to be fraudulent and void, and set aside, and Newwitter was appointed receiver of tiie assets of the insolvent firm, and, as sucii receiver, became possessed of the note in suit. In September, 1892, the receiver made demand for the payment of the note, which was refused ; and the note was protested for nonpayment, of which the indorser had due notice. This suit was originally commenced in the name of New-witter, as receiver. During the pendency of the"action, one Lees was substituted in his place. In the answer the defendants pleaded a set-off, based upon a draft made upon D. H. Wickham & Co., dated October 6, 1890, payable seven months after date, which draft did not mature till long after the assignment, and there is no proof as to when the draft came into the possession of the defendants ; and the question involved is whether the defendants are entitled to set off the draft in question against the claim of the plaintiffs.

It is perfectly clear, under the decision in the case of Fera v. Wickham, 135 N. Y. 223 ; 47 St. Rep. 866 , that if this action had been brought by the assignee of Wickham, no right of set off would have existed, because the draft in question was not due until after the assignment had been made. But it is urged upon the part of the defendants that their right to set off has accrued, because such draft became due prior to the time of the commencement of the action for the setting aside of the assignment and the appointment of the receiver. The question as to the rights of the parties, resulting from the failure of proof as to the time when the draft came into the possession of the defendants, does not seem to have been raised by the objection to the admissibility of the draft. The case of Clark v. Brockway, 3 Keyes, 13, is an authority for the proposition that, had this draft become due subsequent to the time of the commencement of the action, it could not have been the subject" of a set-off, because the filing of the bill in equity seeking to set aside the assignment, and asking that all the assigned property, as far as might be needed, should be applied to the satisfaction of the debt of the judgment creditors, created a lien oh all the assigned property in the form of choses in action. And it is there intimated that, the law having transferred the title of the notes from the assignee to the receiver, there was no gap intervening, during which the right to offset could attach. But no such question was involved in that case, and therefore the statement was a mere dictum. That the right to offset depends upon the condition of affairs existing at the time of the assignment seems to be evident, when we consider that a decree entered at the suit of a creditor does not set aside the assignment absolutely, but only so far as it prevents the suing creditor from realizing his debt out of the estate, and that, as between the assignor and the assignee and the creditors not attacking the assignment, it still remains in full force and effect. The result, then, of allowing an

p. 725

offset where the claim had matured between the date of the assignment and the filing of a bill by a creditor would be to take certain of the assets which were properly applicable to the payment of the suing creditor, and compel him to seek satisfaction of his judgment from other assets belonging to the assigned estate. The result, then, would be that, by the allowance of such offset, funds which might otherwise be applied to the payment of the claims of creditors who did not attack the assignment would be diverted; and hence the offset would be virtually allowed against them, notwithstanding the fact of its having matured subsequent to the assignment. It seems to us that no such rule can obtain. Where the debtor of an assigned estate has no right of set-off, as against the assignee, how can he have a right of set-off as against any other creditor of the estate who has acquired a lien upon the assigned property, when the result of such set-off is to compel the creditors of the assigned estate to pay the same ? It would be, perhaps, entirely different, if, by a proceeding of one or two or three creditors against a assignment, such assignment was absolutely wiped out. But it is not. It is only set aside as to the creditors suing. It remains existent and valid as to all others. In this view, it would appear that the right of set-off depends upon the state of facts ^existing at the time the assignment is made, the making of which assignment is the fact which gives the creditor the right to his preference. The judgment should be affirmed, with costs.

Parker, J., concurs; Follett, J., concurs in result.

Cases cited

Fera v. Wickham 135 N. Y. 223 N.Y. 1892-10-04 p. 724