Fort v. McCully

By the Court, Morgan, J. At the time the debtor, James H. Goldey, made his general assignment to the plaintiff for the benefit of his creditors, the demand against him in favor of the firm of McCully & Bichards (the defendants) was not due. The deposit was payable on demand, and no demand was made until several days after the assignment. (Downer v. The Phoenix Bank, 6 Hill, 297. Clapp v. The Hudson River R. R. Co., 19 Barb. 461. Payne v. Gardiner, 29 N. Y. 146.) The assignor, G-oldey, having appropriated or assigned the notes of McCully & Bichards to pay his creditors generally, before his debt became due to them, the set-off could neither be enforced at law nor in equity, according to the decisions of the Court of Appeals. (Bradley v. Angel, [90] 3 Comst. 475. Beckwith, v. The Union Bank, 5 Seld. 211. Martin v. Kunzmuller, 37 N. Y. 396.) The only remaining question is whether the assignor has not by the terms of his assignment required' the assignee to allow the offset. I think it is entirely clear, upon th,e authorities, that if G-oldey had been declared a bankrupt, the assignee could only recover the balance after deducting, the sum standing to the credit of the defendants upon his books. By section 20 of the bankrupt act, it is enacted “ that in all cases of mutual debts or mutual credits between the parties, the accounts between them shall be stated, and one debt set off against the other, and the balance ’ only shall be allowed or paid, but that no set-off shall be allowed of a claim hot provable against the estate.” The defendants’ demand was provable, though not due at the time of the assignment. (§ 19.) And it was also a case of “ mutual credits.” (Rose v. Hoyt, 8 Taunt. 499. 2 Smith's Lead. Cas. 179, and notes.) It is also apparent that if Q-oldey had undertaken to make a distribution of his property contrary to the provisions of .the bankrupt act, the defendants could have availed themselves of that act to drive him into bankruptcy, and thus obtained the benefit of its provisions. After demand, these defendants, as- creditors, could have proceeded against him at once, and thus avoided any assignment of the debtor which made a disposition of his property, contrary to the policy of the bankrupt act, and in contemplation of bankruptcy. This assignment, upon its face, shows that it was made in contemplation of bankruptcy, and as against an assignee duly appointed under the bankrupt act, or those who should claim under him, it would unquestionably be void as a fraud upon the rights of' creditors who should come in and prove their debts under the decree in bankruptcy. . (See § 35 of the Bankrupt Act; and per Walworth, Chancellor, in Seaman v. [91] Stoughton, 3 Barb. Ch. 348; Bell v. Leggett, 3 Seld. 176, 180,181.) It was doubtless in view of these decisions that Q-oldey felt constrained to insert a provision in his assignment requiring his assignee to apply the proceeds of his property “ towards the payment of his debts in the same order and manner in which the estate of a bankrupt is required to be used and applied; for and towards the payment of the debts of such bankrupt proved and allowed under and in pursuance of the provisions of the act of congress,” &c. The plaintiff’s counsel argues that this relates to the order and ratio of distribution of the fund, but not to the mode of creating the fund. The language of the provision in the assignment is not very clearly expressed; but if it means anything, it requires the assignee to use and apply the proceeds of G-oldey’s property towards the payment of his debts in the order and in pursuance of the provisions of the act of congress. As that act provides in express terms that an account' “shall be stated, and one debt set off against the other, and the balance only allowed or paid,” no fund can be created under this provision where there are mutual credits, except the balances thus found due the bankrupt. To allow the plaintiff to collect the notes without allowing the defendants’, offset, would, indirectly it is true, but effectually, result in the payment of the assignor’s debts, not “ in the order and in pursuance of the provisions of the act of congress, but contrary to the rule of distribution therein prescribed, by allowing to the defendants, whose demand was not due at the time of the assignment, only a pro rata dividend, instead of the whole amount, as required by the act of congress. But the defendants are to be paid, by the very terms of the assignment, in the order and in pursuance of the provisions of the act of congress. The plaintiff desires to avoid this provision by paying the defendant's a pro rata dividend. Under the bankrupt act they are clearly entitled to be allowed the [92] full amount of their demand. The only criticism to be made is, that the word “allowed” is not used by the assignor.; but it is obvious that the word “payments,” in the assignment, ought to be construed so as to include the allowance of set-off, in the case of mutual debts and credits. The assignee may thus conform to the provision of the act of congress allowing the defendants their set-off, which is one mode of paying the debt. This construction of the assignment will accomplish what the assignor clearly intended by his language. [Onondaga General Term, January 5, 1870. To give it the construction contended for by the plaintiff’s counsel, would invite proceedings by creditors who had offsets which were inadmissible under the decisions of the courts of this State, to compel the assignor to go into bankruptcy, when the assignee would be required to allow them in full; or in other words, these demands would be paid in full. In my opinion, the plaintiff can only recover the balance due the assignor, after allowing the defendants’- offset. The terms of the assignment are so expressed as to justify the assignee in following out the requirements of the act of congress in the distribution of the estate; and this can only be done by the allowance or payment of the defendants’ demand in full. According to the stipulation of the parties, a judgment should be entered in favor of the plaintiff", and against the defendants, for the amount of the notes and interest, less the sum of $280.83, and interest thereon from the 9th of September, 1869, and in favor of the defendants, against the plaintiffs, for their costs and disbursements. Judgment accordingly. Mullin, Morgan and Doolittle, Justices.]