Schieffelin v. Hawkins

Daly, F. J. This action is brought to compel an equitable set-off of cross-claims arising as follows: On the 22d of May, 1860, the defendants Duelos & Co. bought of the plaintiffs a bill of goods amounting to $1,253.52, for which they gave the plaintiffs their promissory note, payable in six months. About a fortnight before the note became due, that is, on the 9th of Nov., 1860, the plaintiffs purchased of Duelos & Co. a bill of goods amounting to $1,593.23, upon a credit of six months, the principal part of which consisted of the same goods which Duelos & Co. had purchased of the plaintiffs, and for which the note above referred to was given ; and in a week afterwards, that is, on the 15th of November, 1860, Duclos & Co. made a general assignment to the defendant Hawkins for the benefit ol creditors. When the assignment was made, neither of the cross-demands were due. The note of Duelos & Co. fell due ten days after the assignment, while the claim against the plaintiffs did not mature until nearly six months afterwards. When it fell due, the plaintiffs brought the present action to restrain Hawkins from assigning or disposing of it, and, as it exceeds the note in amount, that so much of it as will suffice may be set off against, — 114 — and in- extinguishment of, the note. The defendant Hawkins demurs to the complaint, and the plaintiffs move for judgment on the demurrer. This is a case of cross-indebtedness growing out of mutual dealing, and in such a case a court of equity, especially where one of the cross-debtors is insolvent, will always interpose, setting off one debt against the other, and adjudging the balance to be the sum which is equitably due. (Lord Lanesborough a. Jones, 1 P. Wms., 230; Hawkins a. Freeman, 2 Eq. Cas. Abr., 10; Pond a. Smith, 4 Con., 302; Robbins a. Hawley, 1 Monroe, 194; Lindsay a. Jackson, 2 Paige, 581; Story’s Eq. Jur., § 1486.) This power existed in courts of equity before any statute of set-off was passed. (Anon., 1 Mad., 215.) “ Set-offs were allowed,” says Chief-justice Ewing, in The State a. Welslead (6 Moist., 398), “ satisfying one demand by means of another, not because-yof the statute, but because it was incidental to the due administration of the law, and flowing from the right to control suitors to such a course as is demanded by equity and justice; „ . . but this extraordinary power will be exercised only where demands are fixed and ascertained.” It is not sufficient, however, that a demand is liquidated or ascertained.' Before the court will order it to be set off, it must also be due. Thus, it was held by the Court of Appeals, in Bradley a. Angel (3 N. Y., 475), that a set-off would not be ordered in equity where the cross-demand against an insolvent was not yet due—the reason for which is obvious. The insolvent is entitled to the full period of credit; and until he is bound to pay the debt, a debt due to him cannot be set off against it. Whatever may be the effects of his insolvency, the court cannot change the contract of the parties. But where the debt owing to the insolvent has become due, it is not necessary to wait until the cross-claim is payable, as the continuance of the credit in that case is a. matter solely for the benefit of the other party, which he may, if he think proper, waive. (Lindsay a. Jackson, 2 Paige, 581.) In the present case, neither of the cross-demands were due when Duelos & Co. made their assignment, though the amounts respectively owing by each were then ascertained and fixed. How, however, that they are due, and that this application is — 115 — made to the equitable power of the court to set off the one against the other, the question arises whether the right which would otherwise exist has been lost by the transfer of the claim against the plaintiffs to Hawkins. In Chance a. Isaacs (5 Paige, 592), Chancellor Walworth declared that when a demand is not due at the time of an assignment, but will become due before the cross-demand, an equitable right of set-off exists, of which it would be unconscientious to deprive the other party by assigning the claim against him to an assignee for the benefit of creditors; but the point arose incidentally, and was not essential to the decision of the case. The question, however, came up directly before the Superior Court, in Keep a. Lord (2 Duer, 78), a case that differed from the present only in the circumstance that the cross-demands there were independent and disconnected, while here they grew out of mutual dealings, a distinction which is not material,—it being well settled that the insolvency of one of the cross-debtors, even where the demands are independent and disconnected, is a sufficient ground in equity for compelling a set-off. (Merritt a. Fowler, 6 Dana, 306; Robbins a. Hawley, 1 Monroe, 194; Pond a. Smith, 4 Con., 302; Simpson a. Hart, 14 Johns., 63; Lindsay a. Jackson, 2 Paige, 581; Rawson a. Samuels, 1 Craig & Phillip, 161.) In this case of Keep a. Lord, the opinion of Chancellor Walworth was considered and dissented from "; and it was there held that as the claim against the insolvent was not due when he made his assignment for the benefit of creditors, that the assignee took the cross-demand devested of any right on the part of the solvent debtor to set off against it the claim owing by the insolvent when that claim became due. The ground taken by the court was, that the right of set-off must attach at the time when the assignment is made; that it did not attach then, as neither of the claims were due, and could not arise afterwards when they did become due, as the claim against the plaintiff had passed before that event to the assignee. A similar decision growing out of the assignment in the present case was pronounced by Mr. Justice Hoffman, sitting at the special term. In Maas a. Goodman (2 Hilt., 275), the general term of this court, reversing a decision at the special term, dissented from the view taken by the Superior Court in Keep a. Lord, and held — 116 — in an action brought by an assignee for the benefit of creditors, to recover for a bill of goods sold by the insolvent before his assignment to the defendants, that the defendants were entitled to set off a note made by the insolvent, and held by them when the bill of goods was sold to them, though the note was not due or payable until several months after the assignment. In that case, as in this, the debt owing by the insolvent became due before the cross-demand. Since ¡that decision was made, the case of Myers a. Davis (22 N. Y., 489), has been decided in the Court of Appeals, a case relied upon by the defendant Hawkins as in conflict with our decision in Maas a. Goodwin, and as sustaining the decision of the Superior Court in Keep a. Lord. Upon examining that case, however, it will be found that it does not affect or touch the question now under consideration. In that case an action was brought by an assignee for the benefit of creditors, to recover for goods sold by the insolvents to the defendant before their assignment; and it was held that the defendant could not set off against the debt a claim for articles ordered by the insolvents of the defendant, before their assignment, but which were not manufactured by him until several months afterwards. In this case the debt proposed to be set off had not been created when the assignment was made. The contract was then executory, and one which the defendant was under no obligation to perform after the parties to it had become insolvent. If he saw fit, after that event, to go on and execute the order, it gave him, undoubtedly, a claim against the insolvents, but none against the estate which they had previously assigned. The claim against the defendant was a subsisting liability when the assignment was made. It was for goods sold and delivered to him by the insolvents, and no right of set-off attached to it, as no liability on the part of the insolvents had then grown out of the performance of any contract on the part of the defendant. While any thing remains to be done under an executory contract, it cannot be the subject of a set-off. It must be executed, or all that the party is required to do must be done, before it can be enforced for any purpose, whether by way of set-off or otherwise. The equitable right of set-off 'attaches only in cases where the respective liabilities have been fully ascertained, liquidated, and fixed. This Was not the case in Myers — 117 — a. Davis, but it was in the present case. When the assignment was made here, each of the cross-debtors had received the consideration upon which his obligation was founded. The amounts respectively due were ascertained and the day of payment fixed, and in the order of payment the plaintiffs were entitled to receive from the insolvents the amount of the note in their hands long before they could be called upon to pay the note given by them. The reciprocal obligations having had their origin in mutual credits, and the consideration for each having been fully received, an equitable right of set-off existed, which the plaintiffs had the right to compel as soon as the note of Duelos & Co. was past due, and which could be defeated only by a transfer of the plaintiffs’ note to a bonarfide holder. The assignee in this case was not a bonarfide holder; and the error of the Superior Court, in Keep a. Lord, as pointed out by Judge Brady, in Maas a. Goodwin, consisted in applying to a general assignee for the benefit of creditors, a rule that is applicable only when an assignment is made to an insolvent purchaser for value. (Brown a. Heathcote, 1 Atk., 162.) That the court did not consider that there was any distinction, is apparent from a case reported in the same volume (Hicks a. McGrorty, 2 Duer, 295), in which it was decided that an assignee for the benefit of creditors has, as against a set-off, all the protection that is afforded to an assignee for value. No authority is cited in the opinion of the court in support of this decision, nor is any referred to upon the argument, except the case of Jackson a. Bloodgood (1 Johns. Cas., 51), a case that by no means warrants any such conclusion; all that the court held in that case being, that the defendant could not set off against his own debt a note of the insolvent, purchased after it was due, and after the defendant had constructive notice that the insolvent had made a general assignment to the plaintiff for the benefit of creditors; while, on the contrary, there are a number of cases in this State, the conclusion to be adduced from which is, that such an assignee is not to be regarded as a purchaser for a valuable consideration, and is in no better position in enforcing choses in action, transferred by the assignment, than the insolvent would be. (Clason a. Morris, 10 Johns., 525; Curtis a. Leavitt, 15 N. Y., 195; Yan Heusen a. Radcliffe, 17 Ib., 580; Griffin a. Marquardt, Ib., 28; Leger a. Bonaffe, 2 — 118 — Barb., 475 ; Warren a. Fenn, 28 Ib., 333 ; Marine & Fire Ins. Bank of Georgia a. Jauncy, 1 Ib., 486; Matter of Howe, 1 Paige, 125; Mead a. Phillips, 1 Sandf. Ch., 83; Murray a. Lyburn, 1 Johns. Ch., 443.) A general assignee'for the benefit of creditors succeeds merely to the rights of the assignor. He is not, in respect to the property transferred, a bona-fide holder for value, but takes it simply as a trustee, subject to any equities which may exist between the debtor and his creditors. It is an appropriation by the debtor of his property, in trust, for the payment of his debts, in the order and manner specified; an act by which he devests himself of it for the time being, without altogether parting with his interest in it; for, should any property or its proceeds remain after the trust is accomplished, it returns to him. In Tan Waggenen a. The Patterson Gas Light Co. (3 Zabriskie, N. J., 283), it was said that the general doctrine is, that a debtor is entitled to the same allowance by way of set-offs against the claim of an assignee for the benefit of creditors, that he would have against the insolvent himself. Assignments of this nature transfer the rights of the insolvent to the assignee, precisely in the same plight and condition as he possessed them. In Trow a. Ferguson (11 Ala., 885), the court says: “ The general assignee of a debtor in failing circumstances stands precisely in the same condition as the debtor himselfand in Knowles a. Lord (4 Wharton, 507), “ Such an assignment does not place the assignee in any different situation in point of equity than the assignee himself;” and in an early case (Redoubt a. Brough, Cowp., 134) it was declared that, as respects the right of set-off, the assignee occupied the same position as the bankrupt. Assignments of this nature have been aptly termed by Chief-justice Gibson, “ A bankrupt law made by the debtor for the benefit of himself” (5 Rawle, 321); and viewed in this light, the principle laid down in the English courts of equity, in assignments to commissioner's in bankruptcy, is applicable—that assignees of this character, in the language of Lord Hardwicke, “ though they are trustees for creditors, yet stand in the place of the bankrupt, and can take in no better manner than he could.” (Brown a. Heathcote, 1 Atk., 162.) “ They are not,” says Lord Eldon, in Mitford a. Mitford (9 Ves., 100), “ considered pur — 119 — chasers for a valuable consideration. The rights of the bankrupt pass precisely in the same plight and condition in which he possessed them. Even where a complete legal title vests in them, and there is no notice of any equity affecting it, they take, subject to whatever equity the bankrupt was entitled to.” There was, as I have already stated, an ascertained and subsisting equity between the plaintiffs and Duelos & Co., when they made their assignment, which was not, and could not be, affected by that instrument. The defendant Hawkins, as their assignee, stands precisely in the same condition as they did; and now that their note is due and payable, the plaintiffs are entitled to have it set off against the debt owing by them. The demurrer, therefore, is overruled.