Case ID: ohio-st_50/html/0090-01.html
Source: Caselaw Access Project
Author: {"author": "Dickman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Barbour v. The Bank.
    
      Equitable set-off of judgments.
    
    A manufacturing company, incorporated under the laws of Ohio, borrowed money of a National Bank, at a rate of interest in excess of that prescribed by section 5197, of the Revised Statutes of the United States, and gave its note to the bank for $5,000.00, payable at a future day. The bank, for the accommodation of the company, discounted from time to time, sundry promissory notes indorsed by the company to the bank in the ordinary course of business, and before maturity. Before the maturity of any of the notes, the company became insolvent, and a receiver was appointed, who took charge of all its proper y and assets. The receiver thereafter recovered a judgment against the bank for twice the amount of interest paid by it to the bank on the note for five thousand dollars, as and for the penalty provided for taking interest in excess of the rate prescribed by the Statute of the United States. Subsequently to the recovery of that judgment, the bank obtained two judgments in the same court in which the receiver brought his action, to-wit: one, for the balance due on the note for five thousand dollars, against the company and its sureties on the note, and one, against the company, for the amount due on the discounted promissory notes indorsed by the company to the bank.
    In an action to enjoin the collection of a balance due on the judgment in favor of the receiver, and for other relief, held:
    
    That after the appointment of the receiver, and the rendition of judgment on the respective claims of the company and the bank the judgments in favor of the bank, were, upon principles of equity, a proper subject of set-off against the judgment in favor of the receiver.
    (Decided January 31, 1893.)
    
      Error, to the Circuit Court of Seneca county.
    The original action was commenced in May, 1887, in the Court of Common Pleas of Seneca county, bjr The National Exchange Bank, of Tiffin, Ohio, one of the defendants in error, against The Ohio Shoe Company, Elizabeth O. Sneath, administratrix of Alfred G. Sneath, deceased, Rezin W. Sha whan, and Anson C. Barbour, receiver of The Ohio Shoe Company, the plaintiff in error.
    The record discloses the following state of facts:
    “On the 8th day of June, 1878, The Ohio Shoe Company, a manufacturing corporation organized under the laws of Ohio, having become insolvent, the plaintiffm error, Anson C. Barbour, wras appointed as receiver of the property of the corporation in an action brought against it by Alfred G. Sneath to subject its property to the payment of its debts; Sneath being liable as its surety upon a large part of its indebtedness then past due.
    “Immediately upon his appointment, Barbour, as such receiver, took charge and possession of all the property and assets of the corporation, and under the orders of the court, has been converting the same into money, and still holds the same, and the fund now in his hands is the only property or fund applicable to the payment of the debts of the corporation, and the same is insufficient to pay the debts in full; and the corporation is wholly insolvent; has long since abandoned its organization, and its stockholders are also insolvent.
    “ On the 8th day of June, 1881, Barbour, as such receiver, recovered a judgment against The National Exchange Bank of Tiffin, Ohio, for the sum of $6,655.80, in the Court of Common Pleas of Seneca county, Ohio, as and for the penalty against the bank, prescribed by section 5198 of the Revised Statutes of the United States, for taking interest in excess of the rate prescribed by law, from The Ohio Shoe Company. That judgment was reversed by the District Court of Seneca county, on the petition in error, filed therein by the bank, and upon petition in error to the judgment of reversal, filed in the Supreme Court by the receiver, against the bank, the judgment of the district court was reversed and the judgment of the common pleas in favor of the receiver was affirmed by the Supreme Court on the 26th da}^ of April, 1887. (Barbour v. National Exchange Bank, 45 Ohio St. 133). At the. time Barbour was so appointed receiver of The Ohio Shoe Company it was indebted to the bank in the sum of $5,000.00, which indebtedness was then evidenced by a promissory note for $5,000.00 dated April 17, 1878, payable ninety days after date, and signed by The Ohio Shoe Company, and Alfred G. Sneath and R. W. Shawhan, as its sureties. Said note was taken up at maturity and a new note for $5,000.00 dated July 20, 1878, payable ninety days after date, and signed by The Ohio Shoe Company and its said sureties, given in its stead. At the maturity of the last mentioned note, $2,500.00 was paid thereon, and a new note for $2,500.00, dated October 20, 1878, payable ninety days after date, and signed by The Ohio Shoe Company, and its sureties, was given in the renewal of the amount unpaid on said $5,000.00 note so lastly taken up, and on the 21st da}*- of Januar}-, 1879, said $2,500.00 note was taken up and the note for $2,500.00 dated January 21, 1879, paj^able ninet3r da3^s after date, and signed by The Ohio Shoe Company,-and Alfred G. Sneath and R. W. Shawhan, as its sureties, was given.
    “On the 25th day of June, 1881, the bank obtained a judgment for the sum of $2,857.38, in the common pleas of Seneca county, against The Ohio Shoe Company, and Alfred G. Sneath, and Rezin W. Shawhan, as its sureties, upon said note dated Januar3r 21, 1879, the judgment to bear interest at eight per cent, per annum. No execution was ever issued on the last named judgment, and at the time of the commencement of the action below, that judgment appeared to have been satisfied of record, said satisfaction having been entered by mistake, March 25, 1884.
    “On the 5th áscy of February, 1883, the bank, in the court of common pleas of Seneca couut3^, recovered another judgment against The Ohio Shoe Company, for the sum of $2,200.98, upon the liability of the corporation as indorser upon certain promisso^ notes, discounted by the bank prior to the appointment of the receiver, but upon ■which no cause of action accrued to the bank against The Ohio Shoe Company, as such indorser, until after the appointment of the receiver. A part of this judgment bore interest at eight per cent., and a part at six per cent, per annum.
    “After the judgment in favor of the receiver was affirmed by the Supreme Court, the bank filed a motion in the court of common pleas, in the action in which said judgment was rendered against it, to have said $2,200.98 judgment in its favor against The Ohio Shoe Company set off against the iudgment in favor of the receiver. The motion was heard in said court on the 6th of May, 1887, upon the evidence offered in support thereof, and the same was overruled and refused, and thereupon said court rendered final judgment upon the merits upon the question thus presented, in favor of the receiver and against the bank, refusing to allow the set-off. The bank excepted to the decision of the court on said motion, and took a bill of exceptions embodying all the evidence, and it is now prosecuting a petition in error in this court, (No. 2244 General Docket) to reverse the judgment so rendered against it on said motion.
    “Thereupon on the 18th dajr of May, 1887, the bank paid to the sheriff on the execution held by him on the judgment against it in favor of the receiver, the sum of $1,975.53, being the excess due on said judgment over the amount due to the bank from The Ohio Shoe Company, on both of said judgments in its favor, computing interest to that date on each of said judgments, and thereupon brought the action below in this case to enjoin the collection of the balance of the judgment in favor of the receiver against it; and praying that the erroneous entry of satisfaction of said judgment in favor of the bank, might be set aside and held for naught; and praying to have both of said judgments in its favor against The Ohio Shoe Company set off against the balance due to the receiver on said judgment against the bank.
    “The receiver demurred to the petition, and his demurrer being overruled, he answered, and as a second ground of defense, he- pleaded the judgment, refusing to allow the set-off in the original case, in bar, so far as the action related to the judgment for $2,200.98; and as a third ground of defense, set forth the fact that the $2,857.98 judgment was dormant at the time the action was brought.
    “The court of common pleas held that the second ground of defense was good and refused to allow the $2,200.98 judgment to be set off for that reason, but allowed the judgment for $2,857.98 as a set-off against the judgment in favor of the receiver. The case was appealed by both parties to the circuit court, and the circuit court set aside the erroneous satisfaction of said judgment in favor of the bank and against The Ohio Shoe Company, and rendered judgment in favor of the bank, and allowed both of the judgments in its favor against The Ohio Shoe Company, as a set-off against the judgment in favor of the receiver, and enjoined the collection of the judgment in favor of the receiver against the bank as prayed for.”
    A motion for a new trial was made by the receiver, and was overruled. The receiver excepted to the ruling, and prosecutes this proceeding to reverse the judgment of the circuit court.
    
      Lutes & Lutes, for plaintiff in error.
    1. Should a judgment against a National Bank, for the penalty prescribed for its taking interest in excess of the rate prescribed by law, when recovered against it by a receiver of the insolvent corporation from which it took such excessive interest, be set off against judgments recovered by such bank against such insolvent corporation, upon causes of ac. tion which accrued to such bank against such insolvent corporation after the appointment of such receiver, where the effect of allowing such set-off, would be to prefer such bank over the other creditors of such insolvent corporation, in the distribution of its assets in the hands of such receiver? Section 5075, Revised Statutes; Section 5077, Id; Hade v. McVay, 31 Ohio St.; 231; Fuller v. Steiglitz, 27 Ohio St., 355; Stop's Eq. Jurisp., Secs. 1434, 1435; Bank v. Hemingray, 34 Ohio St., 381; Whitaker v. Busch, Ambler’s Reports, 407; Jordan v. Bank, 74 N. Y. 467; Baker v. Kinsey, 41 Ohio St., 403; Myers v. Davis, 22 N. Y. 489; Martin v. Kunzmuller, 37 N. Y. 396; Roberts v. Carter, 38 N. Y. 107; High on Receivers, Sections 249, 250, 251 and 252; Ramsey's Appeal, 2 Watts. 230; Diehl v. Friester, 37 Ohio St., 473; Blount v. Windley, 5 Otto. 173; Barbour v. National Exchange Bank, 45 Ohio St., 133; High on. Receivers, Section 250; Osgood v. Ogden, 4 Key’s (43 N. Y.) 70; Bank v. Trimble; 40 Ohio St., 629; Crocker v. Bank, 4 Dillon, 358; Thompson’s National Bank Cases, 317: Storm v. Weddel, 2 Sandf, Ch. 494; Barnett, Assignee v. Muncie National Bank, 8 Otto, 555; Oriental Bank v. Freeze, 6 Shep. (Me.) 109; Lucas v. Government National Bank, 78 Penn. St., 228; Overholt v. National Bank of Mt. Pleasant, 82 Penn. St., 490; Bank of Chambersburg v. Commonwealth, 2 Grant, 348; Rouse, Trustee, v. The Merchant's National Bank, 46 Ohio St., 493; Holmes v. Robinson, 4 Ohio, 90.
    2. When such bank refused to exercise the privilege which it had by way of jacus penitentim of applying the excessive interest so taken as a credit upon the indebtedness of such corporation upon which such interest was paid, before either of said judgments were rendered, is it not now bound by its election then made, and in equity estopped from asking to have its judgment against such corporation now set-off against the judgment in favor of the receiver? Duncan v. First National Bank of Mt. Pleasant, 11 Bank Mag., 787; Higley v. The First National Bank of Beverly, 26 Ohio St., 75; Love v. Freer, Wright’s Report, 412.
    3. Said bank having failed to make application for such set-off after such judgments were rendered, until after its judgment against said corporation became dormant by lapse of time, can it now) in the same action, ask to have the judgment in its favor revived against such insolvent corporation, and when so revived, have the same set-off against such judgment in favor of the receiver, where the effect of allowing such set-off, will not only prefer such bank over the other creditors, in the distribution of the assets of such insolvent corporation, in the hands of such receiver, but will also compel such receiver, out of the trust fund in his hands, to pay such bank interest on such judgment in its favor during such lapse of time, at a greater rate than such bank is required to pay during the same time, on such judgment in favor of such receiver?
    4. Is the refusal of the court to allow such set-off, upon motion made for that purpose, in the action in which such judgment in favor of said receiver was obtained, not a final judgment, and until reversed, a bar to a subsequent action brought for that purpose, when the facts stated in the petition, |in such subsequent action, are the same as those set forth in the motion made in the original action? Mayer v. Wick, 15 Ohio St., 548; Hyatt v. Bates, 35 Barb. 316; Holmes v. Remson, 7 Johns. Ch. 290; Diehl v. Friester, 37 Ohio St., 473; Simpson v. Hart, 1 Johns. Ch. 91.
    
      Brewer & Brewer and John McCauley, for defendant in error.
    The bank asks that these two judgments, which it held against the shoe company, should be set off against the judgment which Barbour, as the receiver and representative of the shoe company, had against the bank. Would anyone doubt this if The Ohio Shoe Company had not been put into the hands of a receiver, and it had obtained this judgment in its own name? Could, or did, the appointment of the receiver in any way change the rights of the parties as to the claims that were then in existence, or take from the bank any right which it might have ? It was not a party to the suit appointing the receiver. No new right was thereby secured to The Ohio Shoe Company, or its creditors, or any rights thereby taken away from the bank. The right to set off, counter-claim, or defense, is not impaired by any assignment. Sec. 4993 and Sec. 5077 Revised Statutes; 31 Ohio St., 231; Sec. 5075, Revised Statutes; Holmes v. Robinson, 4 Ohio, 90; Brooks v. Harris, 41 Ind. 390; Rix v. Nevins, 26 Vt., 384; Wright v. Mooney, 6 Ired. 22; Kimball v. Munger, 2 Hill, 364; 7 Wait’s Actions and Defenses, 526; Temple v. Scott, 3 Minn. 419; Simpson v. Hart, 14 Johnson, 63; Waterman on Set-off, 404, 473.
    
      It is not res 'judicata. A decision of a court of law on motion and affidavit is not such a res judicata as will conclude another court from inquiry into the case. Arden v. Patterson, 5 Johnson’s Chancery, 54; Simpson v. Hart, 14 Johnson, 62; Waterman on Set-off, 403, 466; 11 Cal. 93.
   Dickman, J.

The principal question that arises in determining the rights of the parties in the case at bar is, whether The National Exchange Bank is entitled to have the judgments it recovered against The Ohio Shoe Company set off against the judgment recovered against it by Barbour, as receiver of the shoe company.

At the time of the appointment of the receiver, on June 8th, 1878, the notes upon which the bank afterwards recovered judgments had not matured, and hence no cause of action thereon had then accrued.

The shoe company had not availed itself of the right under section 5198 of the Revised Statutes of the United States, to recover back, in an action in the nature of an action of debt, twice the amount of the interest paid to the bank. The right to the amount recoverable as and for a penalty against the bank had not then become vested. As said in Oriental Bank v. Freese, 18 Maine, 112. “When a party, by the statute provisions, becomes entitled to recover a judgment in the nature of a penalty, for a sum greater than that which is justly due to him, the right to the amount, which may be so recovered, does not become vested till after judgment.” And until there was a change in the nature of the cause of action of the shoe company, there could be no statutory set-off of the shoe company’s claim. Under section 5075 of the Revised Statutes, “A set-off can only be pleaded in an action founded on contract, and must be a cause of action arising upon contract, or ascertained by the decision of a court.” But in an action authorized by the national banking act of 1864, to recover back from the bank, as penalty, twice the amount of interest paid, the cause of such action does not arise upon contract within the meaning of section 5075, and, therefore, is not available as a set-off. Hade v. McVay, 31 Ohio St., 231. The receiver, therefore, could not have set-off the demand for twice the interest paid, against the claims of the bank, as such demand was not a cause of action arising upon contract; and the bank, it is contended, could not, as defendant,-have set off its claims against the demand of the receiver, in an action that was not founded on contract.

But, after the appointment of a receiver, the respective demands of the bank and shoe company were put into-judgment, and thereafter they stood on a level as subjects, of equitable set-off, whether arising on contract, or growing out of a forfeiture or penalty. The provisions of the statute relating to set-off, do not, in terms, apply to the set-off of one judgment against another; but doubtless those provisions will be applied whenever they are in their nature applicable, upon careful consideration of all the circumstances of the transaction out of which the judgments arise. Diehl v. Friester, 37 Ohio St., 473. In Holmes v. Robinson, 4 Ohio, 90, the court say: “The practice of setting off one judgment against another, between the same parties, and due, in the same rights, is ancient and well established.”' In Ramsey's Appeal, 2 Watts, 230, Gibson, C. J. observes: “Judgments are set off against each other not by force of the statute, but by the inherent powers of the courts immémorfelly exercised.” The practice of thus setting off one judgment against another is addressed to the discretion of the court; and being discretionary, the propriety of its exercise cannot be questioned on appeal. Davidson v. Geoghagan, 3 Bibb. 233; Scott v. Rivers, 1 Stew & Port. 24; Biirnssr. Thornburgh, 3 Watts, 78; Tolbert v. Harrison, 1 Bailey, 599; Coxe v. State Bank, 3 Halst. 172; Simpson v. Lamb, 40 Eng. L. & Eq. R. 59 (Q. B.); Chipman v. Fowle, 130 Mass. 352.

The doctrine is distinctly stated in Chandler v. Drew, 6 N. H. 469, that, when the mutual claims of parties have passed into judgments, it is the practice of courts to set off one judgment against another; that this practice does not rest upon any statute, but upon the general jurisdiction of courts over the suitors in them; and that it is an equitable-jurisdiction, frequently exercised. And, as before suggested, demands which in their nature cannot be made the subject ■of set-off, such as demands arising upon personal, torts, as ■soon as they are put into judgment, are placed upon the ■same legal footing as all other judgments, irrespective of the nature of the action in which they were recovered; or, in other words, all the peculiar features which may have ■characterized a claim are at once lost sight of, and merged when judgment is perfected on it, and the demand takes rank equally among all other judgments. Temple v. Scott, 3 Min. 419; Sampson v. Hart, 14 Johns. 63.

Such equitable considerations as are usually deemed sufficient by courts for setting off judgments against each other, exist, we think, in the present case. The judgments of the parties are subsisting and unsatisfied claims; they were rendered in the same court; the interests of virtually the same parties are involved; and the shoe company is conceded to be insolvent. In Diehl v. Friester, supra, it is said in the opinion of the court, “Even the fact that the judgments are in different courts, one for a tort and the other on contract, ■and some of the parties in one case were not parties in the other, does not necessarily afford an inseparable objection to ■such set-off.”

The insolvency of the party, against whom the set-off is claimed, is recognized in numerous authorities, as a sufficient ground for the exercise of the jurisdiction of a court of ■equity in allowing a set-off in cases not provided for by they statute, and that too, although the demands on both sides are not liquidated by judgment or decree, so as to authorize a set-off upon a summary application by motion.

In Lindsay v. Jackson, 2 Paige, 581, in which there is a review of authorities, the complainants, in May, 1831, gave to the defendants two negotiable promissory notes, for the sum of about $1,500 each, payable in six months, without interest. About the same time the defendants became indebted to the complainants, on an acceptance for $4,000, payable on the 13th of June. A few days before this acceptance became due, the defendants became insolvent, and stopped payment. In July, 1831, the complainants filed their bill in the cause to restrain the defendants from negotiating or transferring the notes; and praying that the amount-to become due thereon might be set off, or applied in part satisfaction of the $4,000 due on the acceptance. An injunction having been granted, according to the prayer of the bill, the vice-chancellor denied a motion for a dissolution of the same, and Chancellor Walworth affirmed the decision of the vice-chancellor. See also Gay v. Gay, 10 Paige, 369, referring to Lindsay v. Jackson.

In Pond v. Smith, 4 Conn. 302, the Supreme Court held that the insolvency of one of the parties was a sufficient ground for the interference of a court of chancery to offset mere legal demands against each other, although they were so situated as to be incapable of being set off at law; and that the complainant ought not to be left to pursue his legal remedy against the defendants, when, from their insolvency, no satisfaction of his demand could be thus obtained.

In Collins v. Farquar, 4 Litt. 153, the Court of Appeals of Kentucky recognized the principle that the insolvency of the defendant will, in equity, give the court jurisdiction to decree a set-off of a demand against him, which might be recovered in an action at law, if he was solvent.

In White v. Wiggins, 32 Ala. 424, it was held, that one legal demand may be set off against another in equity, when the defendant is insolvent.

In Field v. Oliver, 43 Mo. 200, it was said by the court, that where the demand sought to be set off is certain and definite, and the insolvency of the adverse party is admitted) the chancellor has jurisdiction to retain the matter and give full and final redress by decreeing a set-off or any other relief consistent and proper in the case; that the rule is founded in reason and justice, and will be enforced when a proper case is made out justifying its application.

The same doctrine is declared in many other cases, but it is unnecessary to cite or collate them.

It is urged, however, that although as between the bank and the shoe company, the one might have set off its judgments against that of the other if there had been no receivership, yet, after the appointment of a receiver, the claims of creditors supervened, and such right on the part of the bank no longer existed. Granting that before and at the time of the receiver’s appointment, there was no right, under the statute, to set off the bank’s claims against that of the shoe company for excessive interest paid, in our view, an equitable set-off then existed which the appointment of a receiver did not impair. The rule, that an equitable off-set which the debtor of an insolvent corporation has at the time the corporation stops payment, is not altered by the appointment of a receiver, is well settled. Miller v. Receiver of Franklin Bank, 1 Paige, 444; Matter of the Receiver of the Middle District Bank, 1 Paige, 585. Any defense or set-off which the debtor might have urged in an action brought against him by the corporation itself, may still be made in an action brought against him by the receiver. High on Rec. § 318. The shoe company at and prior to the appointment of the receiver was insolvent, and if before the receivership the shoe company, while thus insolvent, had sued the bank to recover the penalty for taking excessive interest, and if the bank could not then have had the right of set-off under the statute, yet, on just and equitable grounds, and upon a proper valuation of the bank’s claims not matured, we think the bank would have been entitled to an equitable set-off against the claim of the shoe company. Nor would such an equity in favor of the bank have ceased to exist, because’ afterwards a receiver came in to wind up the affairs of the insolvent shoe company.

The argument, that by allowing the judgments to be set off, the fund for the benefit of the creditors of the shoe company will be thereby diminished, resulting in an inequality of distribution among the creditors, does not commend itself to us. Upon equitable grounds, we may apply the language of the vice-chancellor, in the matter of the Receivers of the Globe Insurance Company, 2 Edw. Ch. 625 : “ A set-off in such case is not a means of paying one debt in preference to other debts which the bankrupt or insolvent owes; for, to the extent of the demands set off or compensated, there was no debt—from the moment they were contracted, they extinguished each other. Hence, the operation of the set-off is, not to pay, but to ascertain a debt made up of the difference between the amounts of respective debits and credits.” So far as it concerns the diminution of the resources of the shoe company for the payment of its obligations, its assets for that purpose would be none the less by reason of a set-off of the bank’s judgments, than they would be if the bank, prior to the receivership, had exercised its right of voluntarily crediting on its claims twice the amount of interest it had received, and paying the balance.

Without attempting to determine the relations of the parties in the forum of conscience, it is quite manifest, that in a pecuniary point of view, the other creditors of the shoe company received no appreciable detriment from the dealings of the company with the bank. The shoe company recovered judgment for twice the interest it ever paid, and thus secured a clear gain equal to the amount of interest stipulated, and in addition, had substantially without charge the use of all the money borrowed of the bank. Instead of decreasing the assets of the shoe company, the transactions with the bank operated rather to increase the same.

After the judgment in favor of the receiver was affirmed by the Supreme Court, the bank filed its motion in the court of common pleas, in the action in which the judgment was rendered against it, to have the judgment for $2,200.98 in its favor against the shoe company set off against the judgment in favor of the receiver. That motion was overruled, and the court refused to allow the set-off. It is now contended that the decision of the court in overruling the motion was res judicata, and hence, that the circuit court, in the present case, erred in allowing the judgment to be set off. Whether the court of common pleas erred in overruling the motion of the bank, is a question now pending in this court on petition in error in another case—No. 2244 on the General Docket. The right of the bank, therefore, to set off against the judgment recovered by the receiver not only the judgment for $2,857.38, but also that for $2,200.98, is directly before us for determination. How far the adjudication of the court of common pleas on the motion of the bank to set off the judgment was conclusive upon the circuit court, we do not deem it necessary to decide in determining the rights of the parties to this action.

For the reasons stated, we are of the opinion that the judgment of the circuit court was right, and should be affirmed.

Judgment of affirmance.