Keep v. Lord — 9 N.Y. Super. Ct. 78

Majority

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Henry Keep, Respondent, agt. George P. Lord and Samuel N. Brown, Appellants.

(Before Campbell., Bosworth, and Emmet, J.J.)

December 17, 1852.

March 25, 1853.

Headnote

Where two persons are indebted to each other, on disconnected demands, and one becomes insolvent, the solvent party cannot maintain an action for that canse alone, to compel an equitable set-off before the debt owing by the insolvent party becomes due. If, before it becomes due, he assigns the demand against the solvent party, the assignee may recover the assigned demand, free' from all claims pf set-off on the part of the solvent debtor against the insolvent, where there is no pretence that the assignment of the claim was made with intent to defeat the set-off.

When no other ground exists to support an equitable set-off than the insolvency of one of two parties, severally indebted to each other, the right of set-off does not attach until the debt owing by the insolvent has become due.

This case came before the general term on an appeal from a judgment sustaining a demurrer to the answer to the complaint.

The plaintiff, as assignee of Charles King, brought this action to recover for goods sold and delivered by King to the defendants between the 20th of February and the 1st of July, 1851,

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on a credit which expired on the 25th of December, 1851. King assigned this account to the plaintiff on the 18th of September, 1851.

The defendants were owners of a note made by King on the 2d of June, 1851, payable six months after its date, and which was purchased by them on the 5th of June, 1851.

In their answer, they claimed an equitable right to' set off the note against, and in extinguishment of, a like amount of the account, on the grounds that they owned the note when King assigned the account he had against them to the plaintiff; that King was then and since has been insolvent, and since then has moved out of, and ceased to reside in, this State. There was no allegation in the answer, that King assigned to the plaintiff with the intent to prevent one demand being set-off against the other, or that he knew when he assigned that the defendants owned the note mentioned in their answer, or that his subsequent removal from the State was fraudulent.

All-other facts requisite to a full understanding of the case, are stated in the opinion of the Court.

A. P. Man, in behalf of the appellants,

made and argued' the following points.

I. It is a primary principle, that the assignee of a thing in action (other than negotiable paper) takes it subject to all equities between the original parties. (Murray v. Sylburn, 2d Johns. Ch’y R. 441, 443; 2d Story’s Ev., § 1047; Niagara Bank v. Rosevelt, 9 Cow. 409 .)

II. Die present case is fully within the equity, if not within the letter, of the statutes of set-off.

III. The answer presents a clear case for an equitable set-off, and courts of equity have uniformly compelled a set-off under like circumstances.

(See cases below cited.)

1. The counter-claim or set-off is properly presented by answer. It was not necessary to file a cross-complaint. (Jennings v. Webster, 8 Paige, 503; Gay v. Gay, 10 Paige, 369, 377.) 2. The power of courts of equity to compel a set-off is not derived merely from the statute. It rests upon the original

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jurisdiction of courts of equity, and upon their general power over their suitors. (Gay v. Gay, 10 Paige, 369, 376; Simpson v. Hart, in error, 14 J. R. 63; Merrill v. Fowler, 6 Dana, on p. 306; 2d Story’s Eq. Jur., §§ 1431, 1432, 1437, 1444.) 3. The true and actual debt due from defendants to King, at the time of his assignment to plaintiff, was only the balance between their respective demands against each other. This was the rule of the civil law, and has always been acted upon by courts of equity. 4. The facts of the insolvency of King, and his removal beyond the State, and that defendants have no security for their note, are controlling reasons with a court of equity for compelling a set-off. (Lindsay v. Jackson, 2d Paige, 581; Gay v. Gay, 10 Paige, 369, 376; Stewart v. Chamberlin, 6 Dana, 32 ; Merrill v. Fowler, 6 Dana, 305 ; Jennings v. Webster, 8 Paige, 503. 5. A court of equity, under such circumstances, would compel a set-off, even against a plaintiff who had purchased for actual consideration paid at the time. It certainly would, in a case like the present, where no consideration has passed. (Stewart v. Chamberlin, 6 Dana, 32 ; Merrill v. Fowler, 6 Dana, 305 ; Chance v. Isaacs, 5 Paige, 592.) 6. The fact that the note of King was not due at the time when he assigned the book account to the plaintiff, does not impair the equitable right to a set-off. The right to an equitable set-off became perfect the moment King became insolvent. It was enough, at any rate, that the note would mature before the account. (Chance v. Isaacs, 5 Paige, 592; Lindsay v. Jackson, 2 Paige, 581; Gay v. Gay, 10 Paige, 369.)

E. S. Young, in behalf of the respondent,

made and argued the following points.

I. The claim of the defendants is not a demand against the plaintiff, nor is it such as might have been set off against Charles King, the assignor, while the demand on which suit is brought belonged to him. (2 R. S., 3d ed., p. 450, § 39, sub. 7, 8,10,11.) The defendants’ demand had not become due at the time of the assignment to plaintiff of demand on which suit is brought; consequently, no right to set off defendants’ demand existed at the time, and the assignee took the claim

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clear of any right of set-off' against it. (Wells v. Stewart, 3 Barb. S. C. Rep. 40; Graves v. Woodbury, 4 Hill, 559 ; Spencer v. Barber, 5 Hill, 569 ; Watts v. The Mayor, &c., 1 Sand. Supr. Ct. R. 23; Beckwith v. The Union Bank, 4 id. 604 .)

II. The defendants have no right, in equity, to set off the note held by them against the plaintiff’s demand.

1. The demands are independent, and not connected with each other. To be the subject of set-off, in equity, under its extra statutory jurisdiction, there must be a connection between the demands. (2 Story’s Eq. Jur., § 1434; Schermerhorn v. Anderson, 2 Barb. S. C. Rep. 584; Rawson v. Samuel, 1 Craig and Phil. 161, 173, 174, 178.) 2. No equitable right of set-off in favor of the defendants, had attached at the time of the assignment to plaintiff, the note held by them not being then due. A court of equity would not interfere to enforce or establish a set-off in their favor of a claim not due. The doctrine of equitable set-off has never been carried to the extent of changing the contracts of parties. (Bradley v. Angel, 3 Com. 475; Spencer v. Barber, 5 Hill, 569 ; Ainslie v. Boynton, 2 Barb. S. C. Rep. 263; Lindsay v. Jackson, 2 Paige, 584; Duncan v. Lyon, 3 John Ch. Rep. 358, 360.)

The debt owing to King by the defendant, was for goods sold and delivered by him to them between the 20th of February and the 1st of July, 1851, and became due on or about the 25th of December, 1851.

King, on the 18th of September, 1851, assigned to the plaintiff, in trust for the payment of his debts, all his property, including the debt owing to him by the defendants.

About the 5th of June, 1851, the defendants purchased a note against King for the payment of $300, payable six months from June 2d, 1851, or on the 9th of December following, being a few days prior to the maturing of the demand on which this action is brought.

The defendants insist on the right to set off the amount of the note in satisfaction of a like amount of the debt or demand on which this action is brought, on the grounds that they owned

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the note when King assigned his account against them to the plaintiffs; that he then was and since has been insolvent, and ‘since then has moved out of, and has ceased since to reside in, the State.

It is perfectly well settled that such a set-off cannot be made under any provision of the Revised Statutes, as neither demand was due when King assigned to the plaintiff. (2 R. S. 354, § 12, sub. 8, and id., p. 174, § 43.)

But the defendants insist that the case presents a natural equity, entitling them to a set-off, and insist in their answer, under §§ 149 and 274 of the Code, for the same relief that a court of equity would have given them on a bill filed to compel the set-off to be made.

This is not a suit between King and the defendants, and neither demand was due when King assigned to the plaintiff. If, on a bill filed by the defendants against King on the day, but before the assignment was made, stating the facts contained in their answer, they would not be entitled to a decree malting the set-off, then the judgment appealed from is correct, and must be affirmed. Ho case has been cited in which such a bill was sustained on such grounds, where the debt owing by the defendants was not due at the time the bill was filed.

In Lindsay v. Jackson, 2d Paige, 584, a set-off was decreed, but the demand against the defendant was due when the bill was filed. The demand against the complainant was not due. It was the duty of the defendants to pay at once and without delay. The complainants alone had an interest in having the credit on the demands against themselves to which the terms of their obligations entitled them. And, in that case, no third persons had acquired any legal or equitable right.

In Chance v. Isaacs & Smyth, 5 P. 594 -595, the Chancellor intimated that, in that case, if the complainant had held and owned the note against Isaacs at the time the latter assigned a demand he had against the complainant to Smith, he would have decreed the set-off, on the ground that, although the note held by “ Chance was not due at the time of the assignment, yet, as it would have become due long before the complainant’s notes were payable, an equitable right of set-off would then have existed, which it would have been unconscientious on the

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part of Isaacs to deprive him of by assigning the complainant’s notes to other creditors.”

The same remark is applicable to this opinion as the .same learned Chancellor made concerning an opinion intimated by Chancellor Sandford in Troup v. Haight, Hop. R. 270, viz. “ that it is not entitled to the force of a judicial decision, and was not called for by the case before him; nor does it appear to be founded upon any adjudged case.” (Jennings v. Webster, 8 P. 505 .)

The opinion intimated in Chance v. Isaacs, 5 Paige, 595, professes, on its face, to have no other authority for its support than the principle of the case of Lmdsay v. Jackson. In the latter case, the bill was entertained because the debt owing by defendant was due at the time the bill was filed, and the Chancellor there said that it might present an entirely different question if the defendant’s debt was now due from the complainants, who were seeking to compensate it by a claim against the defendants, payable at a future day.” (Young v. Gye et al., 10 J. B. Moore, 198.)

In Gay and others v. Gay, 10 Paige, 269, before and at the time J. P. Gay assigned to Messrs. Lee and Morrison, the defendant owned judgments against J. P. Gay, recovered on notes endorsed by defendant for J. P. Gay’s accommodation, and which defendant had paid. The judgments were due at the time of the assignment, and the demand assigned was due, and the amount owing by defendant had been liquidated by a master’s report. It therefore presented a case in which the party seeking to compel the set-off had a demand against the other, which was due when the latter assigned the demand belonging to him.

In Bradley v. Angel, 3 Coms. 475, the Court of Appeals denied the right of set-off, although the plaintiff’s debtor was dead, and his estate insolvent, on the ground that the debt against his estate was not due when the bill was filed. In that case, the debt owing to the defendant by the plaintiffs was due. Allowing a set-off before the debt owing by the defendant becomes due, is compelling him to pay before the time stipulated by his contract, and is making a new contract for him.

This, it is believed, a Court of Equity never attempts to do,

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in a case of independent and. disconnected demands, on the mere ground of the insolvency of one of the parties.

Unless there has been a mutual credit, founded on a subsisting debt on the other side, or an express or implied agreement of set-off, it will not be done. (Howe et al. v. Shephard, et al., 2 Sum. 414-418; Gordon v. Lewis, id. 629 ; Dade v. Irwin's Ex’rs, 2 How. S. R. (U. S.) 383, 390.)

In Ainslie v. Boynton, 2 Barb. S. C. R. 263, the assigned claim had been liquidated in amount by a report of referees before it was assigned; and before and at the time it was assigned, the plaintiffs held a judgment against the assignor of the claim. The plaintiff’s claim was due when the assignment was made, and the amount of the claim against him had been then ascertained and liquidated.

I find no adjudged case to the effect that one of two parties, having distinct and disconnected demands against each other, neither of which is due, can, on the mere ground of the insolvency of the other, file a bill against the insolvent and compel a set-off against the other. Unless this can be doné, no bill could have been filed by the defendants against King, on the facts stated in the answer, at any time prior to kjs assignment to the plaintiff. Ho equitable right to a set-off had then attached, because neither debt was then due, and there was no connection between them, creating an equitable right to have tine debt made to compensate the other.

I do not find, in any of the cases cited on the argument, nor in any which have come under my observation, any opinion in favor of the contrary doctrine, except that intimated in Chance v. Isaacs, 5 Paige, 505, and this intimation is opposed to one made by the same Judge in Lindsay v. Jackson, 2 Paige, 584-585, on this point.

It seems to me that the principle decided in Bradley v. Angel, is conclusive upon this question.

"Whether the debt owing by the party against whom a set-off is sought matures before or after the one owing to him, does not seem to affect the principle.

Although maturing first, he cannot be compelled to pay it before it is due by the terms of his contract. Where there is no fraud, and no agreement to set it off against a debt owing-

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to him, and where there is no connection between it and any such debt, he cannot be compelled to pay it before the time he contracted to pay it by cancelling and discharging a debt owing to him by a person to whom he is thus indebted.

Hie fact that the debt owing by the party against whom the set-off is sought falls due last instead of first, throws no difficulty in the way of adjusting equities to the accuracy of a penny, and if insolvency alone is a sufficient ground for administering an equity at variance with the statutory rules of set-off, it would seem to be at variance with reason and right to hold that a set-off might be compelled if the demand owing by the defendant fell due sixteen days before the one owing to him, but could not be, if it fell due sixteen days after-wards.

But if it can only be compelled on a bill filed after the demand against the defendant is due, no principle is violated. The defendant, in such a case, owes a debt which, in equity and good conscience, he should pay instantly. No injustice is done him, and no new contract is made for him, by compelling him" to pay, by receiving a credit for it, before a demand owing to • himself by the person to whom he is indebted, and who has a strict right to immediate payment.

The principle of such a rule is, that, in case of distinct and independent demands owing by each of two persons to the other, an equitable right of set-off attaches, if one becomes insolvent, the moment the demand against the insolvent becomes due, and not before.

That, where insolvency is the only equity for enforcing a set-off, contrary to the provisions of the statute, such equity gives no right to compel the insolvent to pay before the demand against him has become due.

(Gordon v. Lewis, 2 Sumner, 633-634; Bradley v. Angel, 3 Coms. 475; Wells v. Stewart, 3 Barb. S. R. 40; Schermerhorn v. Anderson, 2 id. 584 ; Spencer v. Barber, 5 Hill, 569 ; Graves v. Woodbury, 4 id. 559.)

If this be the true rule, then no equitable right of set-off had attached at the time King assigned to the plaintiff. We are of the opinion that the judgment appealed from should be affirmed.