Case ID: ny-st-rep_3/html/0471-01.html
Source: Caselaw Access Project
Author: {"author": "Haight, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Bernard Rothschild et al., Resp’ts, v. Jacob W. Mack, Assignee, App’lt.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed October 22, 1886.)
    
    Assignments — Equitable set off — "When allowable as against
    ASSIGNEE.
    A court of equity has the power to permit an equitable set off in cases not within the statute if from the nature of the claims or the situation of the parties justice cannot be obtained by a cross action, and this, even though the debt sought to be set off, is not due if the defendant is insolvent. Smith v. Felton (43 N. Y.. 419), and Littlefield v. The Albany County Bank (97 N. Y., 581); followed, Martin v. Funzrmuller (37 ÍT. Y., 396), M er v. Baris (22 N.Y , 489), and Chance Y.Isaacs (5 Paige, 592,594), distinguished.
    Appeal from a judgment entered upon a decision of the Monroe special term.
    
      David Hayes, for resp’ts; Stern & Myers, for app’lt.
   Haight, J.

This action was brought to have a demand in favor of the plaintiffs set "off, and applied in extinguishment of a claim against the plaintiffs held by the defendant.

The facts as found by the trial court were substantially as follows: The plaintiffs were indebted to the firm of Rindskopf Brothers & Co., of the city of New York, in the sum of $2,796.77, which became due and payable about January 1, 1885. On or about the 6th day of September, 1881, the firm of Rindskopf Brothers & Co. endorsed and delivered to the plaintiffs a joromissory note executed by Buchman Brothers & Co., of Cincinnati, Ohio, for the sum of $5,000, and requested the plaintiffs to raise for them at the Traders’ National Bank of Rochester the amount of the note, and give them the proceeds, at the same time representing to the plaintiffs that the note “ was as good as the bank of England, that the plaintiffs should endorse it, and that there was no risk in their doing so; ” that the plaintiffs thereupon, and on the 10th day of September, 1884, endorsed the note and delivered the same to the Traders’ National Bank of Rochester, and obtained the amount of the note less the usual discount, and thereupon forwarded the proceeds thereof to the firm of Rindskopf Brothers & Co., who received and used the same; that the note became due on the 22d of December, 1884, and was on that day presented for payment at the place where it was made payable, and payment thereof demanded, which was refused, and thereupon the same was duly protested, and notice of non-payment was given to the plaintiffs and to Rindskopf Brothers & Co. Thereupon the note was paid by the plaintiffs and no part thereof has ever been repaid to them; that the firm of Buchman Brothers & Co. were, at the time of making the note, and ever since, insolvent, and on the 20th day of September, 1884, made a general assignment; that the firm of Rindskopf Brothers &. Oo. were, at the time of the delivery of the note to the plaintiffs, and ever thereafter, insolvent, and on the 19th day of December, 1884, made a general assignment to the defendant for the benefit of creditors; that the plaintiff endorsed the note and procured and delivered to Rindskopf Brothers & Oo. the proceeds of the discount, relying upon the statement made to them to the effect that “the note was as good as the bank of England, and that there was no risk in their endorsing it, ” and also on their liability and indebtedness to Rindskopf Brothers & Co., which was thereafter to mature and become due and payable.

It is contended on the part of the appellant that at the time of the assignment the plaintiffs had no present claim due and payable by the1 assignors, and that consequently they had no right to a set off; that a court of equity can only decree a set-off in the case of mutual credits due at the time of making the assignment.

The fact is undisputed that at the time of the making of the assignment the note was held by the Traders National Bank of Rochester endorsed by the plaintiffs.

In the case of Martin v. Kunzmuller (3Y N. Y., 396), it was held that an allowance to a party by way of set-off, is always founded on existing demands inpresenti and not on one that may be claimed in futuro; that in an action by an assignee the defendant cannot off-set a note made by the assignor which fell due after the assignment of the subject of action when made. And in the case of Myers v. Davis (22 N. Y., 489), it was held that until a demand becomes matured a set-off may be defeated by the assignment of the claim, although the assignor be insolvent. But these cases were actions at law and the set-off was attempted under the statute. In the case of Chance v. Isaacs (5 Paige, 592-594), it was held that the set-off could not be decieed for the reason that the plaintiff was not the owner of the note at the time of the assignment although he was liable upon it as an endorser. The chancellor in delivering the opinion says: “ It is now well settled that a person who receives a negotiable promissory note from the payee out of the usual course of business or in security for an antecedent debt; and not for a present consideration such as the payment of money, the delivery of goods, or the relinquishment of an existing security, takes it subject to all equities which exist against it in the hands of the former holder, and this principle applies with peculiar force to the voluntary assignee of an insolvent debtor who receives negotiable paper from the assignor under a general assignment for the benefit of creditors. In the present case, therefore, if the complainant had been the holder and owner of the note of Isaacs at the time this assignment was made, I should have no hesitation in declaring that Smith took the assignment of the complainant’s notes subject to the equitable right of the latter to have the note given to himself set-pif against them; although this note was not due at the time of the assignment. * ' * And as this note did not belong to the complainant at the time of the assignment although he was contingently liable for the payment thereof, I am satisfied the vice-chancellor was right in supposing that no equitable right of set-off then existed which attached to the complainant’s notes in the hands of the assignee.” It is upon this case that the appellant chiefly relies; and if it is to be followed it must defeat the plaintiffs’ recovery. But we are inclined to doubt the soundness of the rule as applied to the facts of the case under consideration. The court, as we have seen, has found that not only the makers, but the firm of Rindskopf Brothers & Company were at the time of the delivery of the note to the plaintiffs and ever thereafter insolvent; that the plaintiffs borrowed the money at the Traders National Bank upon the note so endorsed by them. So that the only contingency remaining to make their liability fixed was the presenting of the note at its maturity, demanding payment and the serving of notice of non-payment. This contingency did not depend upon any act of the makers, the defendants or the defendants’ assignors. A court of equity has the power to permit án equitable set-off in cases not within the statute, if from the nature of the claim or the situation of the parties, justice can not be obtained by a cross-action; and that even though the debt of the complainant to the defendant is not due, if the defendant is insolvent. Lindsay v. Jackson, 2 Paige, 581; Gay v. Gay, 10 id., 369; Smith v. Fox, 48 N. Y., 674; Davidson v. Alfaro, 80 N. Y., 660-662; Shipman v. Lansing, 25 Hun, 290.

In the case of Smith v. Felton (43 N. Y., 419), it was held that the amount of a partnership deposit with an insolvent banker was a proper subject of set-off in an action brought by the assignee in trust for creditors of such bank on a note held by the banker, made by one of the partners and endorsed by the other for partnership purposes, although such note was not due at the time of the assignment.

In the case of Littlefield v. The Albany County Bank (97 N. Y., 581), the action was for a set-off in equity; the plaintiff and defendant dagger were' partners in business as manufacturers, and one Perry prosecuted them for in- and obtained a them for $50,000. The case was pending on appeal when the plaintiff bought of dagger his interest in the firm and gave promissory notes therefor. It was agreed that the purchase should not affect dagger’s liability in the Perry suit, but that the plaintiff should attend to its defense and that dagger would pay one-half of the expenses, and of the recovery, if the judgment was sustained. At the maturity of the notes, dagger sued the plaintiff on the notes, and while the action was pending he assigned to the Albany County Bank all moneys which he might recover thereon. He recovered judgment, and subsequently the plaintiff settled the Perry suit, paying the sum of $50,000. He then brought action against the bank and dagger to have the amount so paid by him in settlement of the Perry suit, which belonged to dagger to pay, to be off-set upon the judgment which had been recovered against him on the notes. It was held that he was entitled to the off-set.

It appears to us that this case is decisive of the question under consideration. At the time of the assignment by dagger to the Albany County Bank, the plaintiff had not paid the Perry judgment. The case was still pending upon appeal, and his liability to pay depended upon the affirmance thereof. He was not in fact liable to pay dagger’s portion of the judgment, only as such liability grew out of the fact that he was a member of "the firm and could therefore be compelled to pay the whole.

No other question is presented which requires discussion. The judgment should be affirmed, with costs.

So ordered.

Smith, P. d., Barker and Bradley, dd., concurred.