Merwin v. Austin

Pardee, J. In May, 1888, Elijah Gilbert was indebted to the City Bank of New Haven by his note for $5,000, for money loaned to and used by him. For his accommodation the defendant had signed the note as surety. On November 13th the bank notified the defendant that the note was overdue and unpaid and that it should look to her for payment. On December 5th she orally promised the bank to secure the note by a mortgage, and on December 7th duly executed and delivered it. On December 10th Elijah Gilbert was adjudicated an insolvent upon a petition filed on December 6th, and served on December 7th, and the plaintiff was duly appointed trustee of his estate in insol-: [33] veney. On January 22d, 1889, the defendant upon the demand of the bank paid the note from her own money and now holds it as her property, as a claim against the estate of Elijah Gilbert. The estate is also indebted to her for the rent of a store to the amount of $2,000. The plaintiff as trustee complains that the estate has a claim against the defendant for money paid for or to her from time to time during the years 1887 and 1888; for an account on book; and upon a rent account; aggregating $4,633.02; and asks for judgment. Gilbert had been insolvent during the entire year preceding the adjudication of his insolvency; but that fact was unknown both to him and to the defendant until the adjudication. It is the claim of the defendant that so much of the sum of $4,633.02, paid to and for her by Elijah Gilbert, as is necessary to pay the amount of $2,000 due from him to her for rent, should be so applied; or, if not so applied, that she should be permitted to set off the $2,000 against the claim of the estate against her; and that she be allowed to set off such portion of the sum of $5,000 which she has been compelled to pay to the bank, as is necessary to meet the balance. The plaintiff denies the right of set-off. The Superior Court determined that the defendant is entitled to a set-off to the extent of $2,000, the amount due from the estate to her for rent, but that she is not entitled to any set-off by reason of having paid the note for $5,000 to the City Bank. The defendant appeals from this denial of her right of set-off. Upon November 13th the note for $5,000, owned by the bank, made by Elijah Gilbert as principal and the defendant as his surety, being due and unpaid, she stood as the sole and solvent surety for a hopelessly insolvent principal upon a matured obligation; she owed a debt to the bank, and the bank had the right to compel instant payment. No circumstance was wanting to the certainty of her obligation to pay the amount of the note for the sole benefit of the insolvent principal. He having procured her suretyship for his own accommodation upon his implied agreement to [34] save her harmless therefrom, it became his duty on November 13th to credit her upon his account with the amount of the note; to so state the account as that he should be her debtor for a balance. He omitting to do this, it has been continuously her right since that day to ask a court of equity to compel him to do it. And, not only so, but to compel him to make such provision for the payment of the balance as would protect her from possibility of loss. For this purpose, in equity, she became, so far forth as he was concerned, the real creditor in a matured debt and could move in compelling him to instant payment. 1 Story’s Equity Jurisprudeftce, § 327, and cases there cited; 3 Pomeroy’s Equity, note to § 1417 on p. 468; Bishop v. Day, 13 Verm., 88; Ardesco Oil Co. v. Nor. Am. Oil & Mining Co., 66 Penn. St., 381; Martin v. Reed, 11 So. Car., 593. And this even in the absence at that time of belief on her part that he was insolvent. That she for a long time had been and then was the sole solvent surety for a hopelessly insolvent principal, is now made certain by judicial determination ; certain that she then was under an obligation to the bank, for his sole accommodation, from which there could be no release except by payment. The right to relief in equity was in her, even if she did not know it; it rests upon the existence of the fact, not upon her knowledge of it. It has been in her continuously thence to the present; she has not released it; she has not forfeited it. In her answer she moves the court to enforce it; and her motion relates back to the first moment of the existence of the right; and that was prior to the aquisition of any right by the trustee; and his right is subject to her elder and stronger equity. For, while it is true that the trustee can exercise some rights which are not in the insolvent, such as the setting aside of preferences and the recovery of property conveyed in fraud of the rights of creditors, yet as a general rule he is entitled to have and do only what the insolvent could have had and done; must take the estate with the burdens placed thereon by him, with all outstanding equities against it. [35] In Parsons v. Root, 41 Conn., 161, the defendant was factorized by the plaintiff as the debtor of French & Nichols : at the time of service of the factorizing process Root owed them, but he then had an unperformed contract with them upon performance of which they would be indebted to him. He subsequently performed it, and they became his debtor. This court denied him the right of set-off of any part of this indebtedness for the reason that at the time of service of the garnishee process it was uncertain whether anything would ever be due to him from French & Nichols. In effect, the court declined to make the possibility that he would complete a contract, the basis of a set-off. There is error in the judgment complained of. In this opinion the other judges concurred.