Case ID: ny-st-rep_47/html/0084-01.html
Source: Caselaw Access Project
Author: {"author": "O’Brien, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Edward A. McCampbell, Assignee, App’lt, v. The National City Bank, Resp’t.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed June 29, 1892.)
    
    ■Set off—Claim not due at time of assignment.
    At the time of the execution of a general assignment the assignors were indebted to defendant ufcon a note which was not then due, but which matured prior to the commeneerúent of an action brought by the assignee for moneys collected by defendant for said assignors. Held, that defendant was entitled to set off in such action the amount of said note.
    
      (Rothschild v. Mack, 42 Hun, 73; 3 St. Rep., 471, and Fera v. Wickham, 61 Hun, 343; 40 St. Rep., 644, followed.)
    Appeal from interlocutory judgment overruling demurrer interposed by plaintiff.
    
      Edward C. Perkins, for app’lt; Stern & Rushmore, for resp’t.
   O’Brien, J.

—The amended complaint shows that the plaintiff is thg substituted assignee of the firm of P. Doddridge & Co., under an assignment made by that firm dated February 23,1891, .and valid under the laws of Texas, of which state the members •of the firm were residents, and where they carried on their business. The suit is brought to recover moneys of that firm in the hands of the defendant at the time of the assignment, amounting to $4,635.84, and further moneys collected by it for the firm after the making of the assignment and prior to March 2, 1891, .amounting to $2,095. The answer sets up two affirmative defenses by way of set-off, to which the demurrer was interposed.

By the first defense it is in substance alleged that plaintiff’s .assignors, by permitting the defendant to believe in and rely upon their solvency, allowed that firm to open an account with it on the 15th day of September, 1890 ; that thereafter and on or about December 10, 1890, the firm of Doddridge & Co. delivered their note for $15,000 to the defendant, with the request to discount the same for their account, which the defendant did, believing in and relying upon the solvency of that firm, and placed the proceeds of the discount to the credit of the firm; that when said account was opened the firm of Doddridge & Co. were in embarrassed" circumstances, and were in that condition at the time they requested the discount of the defendant, and thereafter remained and were at all times that they drew the proceeds of ■said discount from the defendant entirely insolvent, and were known by them to be so insolvent, which fact was fraudulently •concealed from the defendant.

It will thus be seen that the first plea of set-off is based on the insolvency of the plaintiff’s assignors, supplemented by facts tending to show fraud in the creation of the debt from such assignors to the defendant.

The second plea of set-off is mainly founded upon the insolvency of plaintiff’s assignors and the natural equities that flow to thé defendant by reason of that condition.

To these defenses the plaintiff demurred upon the ground that they did not state facts sufficient to entitle the defendant to an equitable set-off to plaintiff’s claim.

It will be noticed that at the time of the assignment by Doddridge & Co. to the plaintiff $4,000 of the indebtedness from the defendant was due, and that the balance of it was thereafter collected. The note for $15,000 on which Doddridge & Co. had obtained a discount from the defendant did not mature until after the making of the assignment; though before the plaintiff commenced the action, and in fact before the plaintiff became vested as sole substituted assignee with the right to demand the property of the assignors or to maintain the action, the note of the assignors to the defendant bank had became due and payable.

The defendant’s right to off-set this claim maturing after the assignment as against the amount due to the insolvents at the date of the assignment is placed upon two grounds ; the-first, fraud in contracting the debt, coupled with insolvency; and secondly, the insolvency of Doddridge & Co., coupled with the fact that both debts matured before plaintiff had the legal capacity to sue.

With respect to the first there can be no question in view of the decision in Rothschild v. Mack, 115 N.Y., 1; 23 St. Rep., 922, that if the facts alleged in the answer would j ustify the legal conclusion that the debt Was fraudulently contracted, then the plaintiff’s assignors, having obtained the money by means of fraud, they at once became liable to repay the same, and it was, therefore, a debt immediately due which, as against any claim enforceable by the plaintiff, would have been the proper subject of a set-off. We do not think, however, that it is clearly made to appear upon the facts averred that the debt to the defendant was fraudulently contracted ; the only fact tending to support the theory of fraud being the failure of the plaintiff’s assignors to apprize the defendant of their exact financial condition at the time of opening the account, and thereafter down to the date when they obtained the discount of the $15,000 note. In the absence of any other facts or express representations of solvency, we doubt if legal fraud could be predicated upon such conduct of Doddridge & Co.

It is unnecessary, however, for us to determine this question, as we think the judgment appealed from, in view of the present condition of the law, should be affirmed upon the second ground, namely, the- insolvency of plaintiff’s assignors coupled with the fact that both debts matured before the action was commenced. This latter circumstance, of the maturing of the indebtedness before the plaintiff had legal capacity to sue, or before the action was commenced, is not one upon, which much or great stress is laid; the substantial ground entitling the defendant to the equitable right of set-off being mainly the insolvency of plaintiff’s assignors and the natural equities that arise in favor of the defendant superior to general creditors represented by the plaintiff appearing from the facts alleged in the answer.

The question thus presented may for greater clearness be thus formulated. Where at the date of a general assignment for the benefit of creditors there is an indebtedness due the insolvent from a third party, and an indebtedness from the insolvent to such third person exists but has not yet matured, can such third party be allowed a seboff in equity ? Or, as applied in this case, was the circumstance of the insolvency of P. Doddridge & Co. alone sufficient to sustain defendant’s right to set-off ?

It would serve no useful purpose to examine the numerous and recent decisions upon the question of when the right to set-off exists, it being sufficient to refer to the cases which have passed upon the precise question here presented, and which should be followed until a contrary view is taken by the court of appeals. Rothschild v. Mack, 42 Hun, 73; 3 St. Rep., 471, is a direct authority in favor of the defendant’s right in this case to set-off the claim" which had not matured at the date of the assignment. It is true that upon the appeal the judgment was affirmed upon the ground that the debt having been fraudulently contracted, thereby became immediately due and payable; but the court expressly said that they did not “ wish to be understood as denying the correctness of the holding at general term. We simply do not decide the case upon that ground, and we neither affirm nor dis-affirm its correctness,”

The precise question was again presented before the October term (1891) of this court in Fera v. Wickham, 61 Hun, 343; 40 St. Rep., 644. The principle was again maintained that a plaintiff who had certain claims against an insolvent firm which were not due could maintain an action to secure a set-off against an indebtedness due by him to the defendant assignors.

These two general term decisions of Rothschild v. Mack and Fera v. Wickham have been followed not only in this case, but by the special term of this court in Harding, adm’r, v. Hanover Rational Bank (N. Y. Law Jour., Jan. 20, 1892), and by the special term in Kings county in the case of Peck v. The Pacific Bank (not reported).

We think that these two general term decisions are controlling as authorities upon this court, and should be followed until the precise question is ultimately determined by the court of appeals.

The judgment appealed from should therefore be affirmed, with costs.

Van Brunt, P. J., and Patterson, J., concur.