McCagg v. Woodman

Waltee, J. It appears from the evidence that defendant in error made his note to Spafford, Stewart & Co., payable in thirty days at the office of Tinkham & Co., bankers, in Chicago. That Tinkham & Co. purchased the note of the payees before its maturity. That some eight or ten days before it fell due, Tinkham & Co. assigned and delivered a part of their assets, principally bills and notes not then due, in trust for the benefit of a part of their creditors named in the deed of assignment. This note was included in the assets thus transferred. Also, that defendant in error kept a bank account with Tinkham & Co., who were indebted to him for a sum larger than the note when the assignment was made, for money deposited, and that Tinkham & Co. have become insolvent and never paid the sum thus deposited. This presents the question whether this sum due to defendant in error, from Tinkham & Co. at the time the assignment was made, can be set off against this note. It will hardly be questioned, that an assignee for the benefit of creditors takes as a volunteer. He pays no consideration for the, property assigned.' He, for the purpose of paying the debts of the debtor, becomes the owner, in trust, of the property so transferred, to be used and applied in the mode, and upon the terms prescribed, in the trust deed. After discharging the debts, for the payment of which the property was appropriated, any surplus which may remain, belongs to, and must be refunded to the debtor. Such surplus does not vest in the creditors or trustee, but remains the property of the debtor, for the recovery of which, he may maintain an action. If he took as a purchaser for value, such would not be his right. Or if the creditors took as purchasers for value, the property would vest in them absolutely, free from all claim of the debtor. By the deed of assignment the trustee at law, or the creditors in equity, succeed only to the rights of the debtor. By the assignment they acquire no greater or more beneficial rights, than those enjoyed by the assignor. The trustee takes the property and chosesin action, subject to all defects arising from the state of affairs, existing at the time the assignment is made. If this suit had been instituted by Tinkham & Co., there can be no doubt that the defense would be clearly admissible, because they were indebted to the maker in a sum more than equal to the amount of the note. Again, had defendant in error, previous to the assignment, applied to a court of equity, to restrain the sale of this note, for the benefit of these creditors, and had shown that Tinkham & Co. were insolvent, and that they owed him this sum, and that loss and injustice would ensue by the transfer, the relief would certainly have been granted. A court of equity would not tolerate such injustice and wrong. Then if the trustee only succeeded to the rights, and occupied the place of the debtor, as it relates to this transaction, as they existed at the time of the transfer, a court of equity would interpose and still afford the same relief, against a mere volunteer, or equitable holder. ITor is there any injustice or hardship in this, as the trustees and creditors knew they were dealing with an insolvent firm, which was manifested by the execution of the deed of assignment. And when so dealing without advancing-any new consideration, and only acting so as to procure a preference in the payment of their debts, over other creditors, they are put upon inquiry as to all equities that exist between the insolvent debtor and thoseagainst whom he claims to have demands. This court has repeatedly held, that when a nominal plaintiff instituted a suit for the use of another, that a court of law will regard and enforce the existing equities of the parties. That in such a case a court of law will not turn the parties over to the chancellor for relief. So in this case, the trustee sues virtually for the use of the creditors, and not for himself, and inasmuch as the defendantin error has presented and established a clear, equitable defense against the equitable and beneficial parties, the creditors of Tinkham <fe Co., it must be allowed to defeat a recovery. The trustee of course took the choses in action, subject to the existing equities at the time of assignment. Had the indebtedness of Tinkham & Co. occurred after the assignment was made, or had any other liability subsequently intervened, it could not have interposed to change the rights of the trustee, or the equitable interests of the creditors. Only the existing rights of the parties, when the transactions occurred, can be regarded. The judgment of the court below is affirmed. Judgment affirmed.