Beatty v. Scudday

Ogden, J. (Slidell, 0. J. absent.) The plaintiff, representing the creditors of Prosper Marcháis is the holder of the defendant’s note for $735, dated Jan. 1st, 1851. The defendant had a claim of $883 70 against Marcháis, for that amount deposited by the defendant with Marcháis, on the 29th of May, 1851. Marcháis was, at the time of the deposit, a private banker in the town of Thib-odauxville, and was the holder of defendant’s note, made paj'able to his, Mar-chais' order, one your after the date. Marcháis absconded in June, 1851, before the maturity of defendant’s note, leaving a letter, which was discovered a long time afterwards, in which he makes a transfer to the defendants of his note, now sued on, to cover the deposit. The note was not delivered up, and the defendant being now sued on it, pleads the amount of this deposit in compensation. It is not denied that Marcháis used the money deposited with him, and that he left the country totally insolvent. The question now is whether the syndic has a right to recover from defendant the whole amount of his note, and leaving the defendant to come in and receive his dividend with the other creditors for the deposits, or whether the defendant’s plea should be sustained and his note declared to be compensated and extinguished by the amount of the deposits. It will be admitted by every one, that under the circumstances, it would be extremely inequitable to compel the defendant to pay his note, and receive only such portion of his deposit as might b.e allotted to him, on a pro rata distribution of the insolvent’s effects. This effect, however, it is contended, must be produced by the law applicable to the case. Let us see what that law is. It is not under the general rule of law on this subject, that such a right can be claimed. The rule is, that when two parties are indebted to each other, there takes place a compensation between them, that extinguishes both debts. This rule is subject to the modification, that to produce this effect by the mere operation of law, the two debts must be equally liquidated and equally demandable. Arts. 0. 0. 2203, 2204, 2205. Exceptions to the rule are then laid down, and Art. 2207 excepts from the operation of it a demand of restitution of a deposit and of a loan for use. The argument then, to support the pretensions of the plaintiff, is this, — that the debt due by Marcháis to the defendant being of a more sacred character, and the law, from a peculiar regard to it, and with the view of protecting it, having declared that it should be exempted from the operation of a rule which would enable the depositor to withhold the thing deposited with him on pretence of a debt due to him by the depositor, the consequences therefore must rigorously ensue, of depriving the depositor himself of all benefit to be derived from the general rule under which, in the present case, if his debt had [406] been cf a character of inferior dignity in the eye of the law, he might have escaped a loss. A construction of the law which leads to such a result, cannot bo a sound one. The maxims “cessante rations, cessat et ipse lex” is equally applicable to the exception as to the rule of law itself. When the depositary has used the money deposited with him and has become a bankrupt what reason can exist for giving effect to an exception to a general rule of law, when, by doing so, the creditor in whose favor the exception was established, will be placed in a more unfavorable position than he would have been without the exception in his favor. In the case of Breed v. Purvis, Wood & Co., 7 An. 53, when an attempt was made to plead compensation against an irregular deposit, on the ground that Art. 2927, which prohibits the retention of things deposited on the plea of compensation, applied exclusively to the case of a real deposit Justice Rost used the following language: “This view is inconsistent with the theory of compensation under the civil law; compensation was then considered as an equitable remedy, and never took place when it would have been against good conscience.” It would be equally inconsistent with the theory to refuse to allow compensation to be pleaded by the depositor in a case like this, for it would be against good conscience, that the creditors of Marehms should be paid a dividend out of money which Marcháis himself would have had no right to exact from the defendant. There can be no doubt that the defendant would have had the right if sued by Marcháis to have pleaded compensation by way of exception. Toullier recognizes this right. He says, “ Comino ce privilege n’est établi qu’on favour de ce dernier, il peut opposer la compensation, s’il lo jugo ü propos, parce qu’on pout toujours renoncer au droit inlroduit en sa favour, et ello s’opére du moment oú. il la propose. Vous avez depose chez moi une somme de 3,000 fr., j’hérilo de mon pére, a qui vous devez une somme de 3,000 fr., produisant des intéréts; la compensation de ces deux sommes liquides no se fait pas ipso jure, du jour de la mort de mon páre; époque á Ja-quello js suis devenu voire créaneior ; mais si jo vous demande la somme quo vous dovicz ñ, mon pére, avec les intéréts, et quo vous m’opposiez on compensation la somme que vous avez déposée chez moi, la compensation s’opérera, exceptionis ope, du jour oú vous me l’aurez opposée, et les intéréts cesseront de laméme époque, et non auparavant, parco que ce n’est qu’á cette époque que j’ai ou la liberté do disposer de vos fonds.” Toullier, do contrats et obligations, vol. 4th, compensation et reconvention, Tit. 3, see. 4, and p. 346. As the privilege is established only in favor of the depositor, he may plead the compensation, if he pleases, because a person may always renounce a right introduced in his favor. He states the following case as illustrating the principle: “You deposited with me the sum of 3000 fr., I inherit from my father, to whom you owed the sum of 3000 fr., bearing interest; the compensation of these two liquidated sums is not made ipso jure from the day of the death of my father, the period at which I became your creditor; but if I demand of you the sum which you owed to my father, with the interest, and you plead against me in compensation the sum which you deposited with me, the compensation will take effect exceptionis ope from the day you pleaded it, and the interest will cease from the same period, and not before, because it is only at this period that I had the liberty to dispose of your funds.” He applies the rule here to the case of a real deposit. It is not evident that in case of an irregular deposit the same rule would apply, and that the plea would take effect from the time that [407] the depositary was in default hy refusing to return the deposit and that the interest would cease to run from that date on the debt duo to the depositary. Marcháis must be considered as in default from the time he absconded, because it was not afterwards in the power of the defendant to demand the restitution of his deposit; the creditors can exercise no greater right under the final surrender than Marcháis himself could have exorcised, and the plea of compensation is an effectual bar to any recovery, because, from the period of Marcháis' default he was without any right whatever to maintain an action cn the note which the defendant had executed in his favor. ToiMier loco citato p. 381, in treating of the principles regulating compensation in cases of bankruptcy, observes: “ La compensation opérée, méme a son insu, en favour de celui qui est en méme temps créancier et débiteur du failli, conserve tout son effet aprés la fail-líte ; nul doute sur ce point. Mais la compensation n’est point admise en favour do celui qui, étant créancier ou dcbitcur du failli avantl’ouvcrture de la faillite, est dovenu depuis son débi-teur ou son créancier, de quelque maniere que ce soit. Car cctto compensation porterait prejudice aux droits acquis par les autres créanciors, ce que ne per-mettont ni l’equité ni la loi.” “The compensation effected in.favor of a person who was at the same time creditor and debtor of the bankrupt, even without the knowledge of the former, keeps all its effect after the failure; there is no doubt on this point, but compensation is not admitted in favor of him, who being a creditor or debtor of the bankrupt before the opening of the bankruptcy, becomes afterwards, his debtor or creditor, in any manner whatever, for this compensation would prejudice the right acquired by the other creditors, which neither justice nor the law permits.” The equity of the rule .on this subject requires that the rights and obligations of all those who have had dealings with the bankrupt, should he so far unaffected by the bankruptcy, that no claims should be enforced either for or against the creditors of the bankrupt which might not equally have been enforced for or against the bankrupt himself. Marcháis himself could not have recovered on the note sued on in opposition to the plea of compensation set up, and the syndics of his creditors is equally without right to maintain this action. It is therefore ordered and adjudged that the judgment of the Court below be reversed, and that there be judgment in favor of defendant with costs in both Courts. Mr. Justice Voorhies and Mr. Justice Buchanan, concurring. Spoeford, J. I think it manifest that compensation never took place by the mero operation of law, which is the only species of compensation treated of in the Civil Code. It seems to be conceded hy the parties that both debts are liquidated. But the fact that one of them was an irregular deposit, whilst the other was an ordinary debt, was an obstacle to their mutual extinguishment by the effect of the law. C. C. 2807, 2927; Bloodworth v. Jacobs, 2 Ann. 27; Breed v. Purvis, Wood & Co., 7 An. 35 ; C. N. 1293; 4 Marcadé, No. 830. But for the purpose of avoiding a circuity of actions and speeding the administration of justice, the courts allow another species of compensation styled compensation facultative by the French civilians, and compensation by wa/y of exception with us. Marcadé illustrates the distinction between these two kinds [408] of compensation by the following example : “Si vous me devcz tel cheval de-terminé et que je vous doive un cheval en général, la compensation légale n’cst pas possible, puisque les objets des deux dettes ne sont pas exactement fongi-liles, et que je ne puis pas étre contraint á gardcr le cheval quelconque que je vous dois, on place du cheval déterminé que vous me devez; mais si, sur la pour-suite que vous dirigez contre moi je declare que c’est précisément le cheval que vous me devez que j’entends vous livrer, les deux dettes se trouveront immé-diatement compensées; ce sera comme si j’avais regu réellement le cheval par vous <34 et queje vous l’eusse livré ensuite.” Explication du Code Civil, Tome IV., No. 851. In like manner, one who makes an irregular deposit of money, when sued by his depositary for an ordinary debt, may waive the exception introduced in his favor by the law, and say to the plaintiff, “ take the money I have deposited with you and pay yourself.” The defence would undoubtedly bo good here, if Marcháis himself were the plaintiff. But can the defendant exercise this option after the failure of Marcháis, whereby his assets, including the note sued on, vested in the mass of the creditors for the purpose of distribution? Let it be observed that the defence is not intrinsic to the debt. There is no connection whatever between the two demands, and they are not compensable ipso jure; moreover, compensation by way of exception is net retroactive, but takes effect only from the filing of the plea. On the one side, we meet the general rule of our law, that the rights of the creditors are fixed by the failure, and, therefore, no one in the concurso should be allowed to profit at the expense of the others bjr his own voluntary act after the insolvency is judicially declared. On the other hand, it seems inequitable that a creditor who is at the same time a debtor of the insolvent, should be deprived, by the failure, of the benefit of any pleas which he might, at his option, have urged against the insolvent himself before the commencement of the insolvent proceedings. The doctrine of set-off by way of exception, seems to have been liberally interpreted by the courts in all countries where it prevails. For these considerations, I concur in the judgment pronounced in the present case.