Case ID: ohio-st_41/html/0403-01.html
Source: Caselaw Access Project
Author: {"author": "Martin, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Baker v. Kinsey.
    Kinsey, the endorsee of Blystone, the payee of a promissory note, sued Baker, the maker. The defenses were that Kinsey did not own the note, and that a certain joint judgment in favor of Baker against one Itummel and Blystone was an equitable set-off founded on the insolvency of the judgment debtors continuous since the transfer to Kinsey. On the trial testimony touching both defenses was admitted, and the court instructed the jury to set off the judgment. Held:
    
    1. The instruction is erroneous. The jury should have been instructed to pass on the weight of the testimony, first as to Kinsey’s ownership, and if they found in his favor then as to the existence of the insolvency as stated, and if they found that in Baker’s favor to set off the judgment.
    2. The maker of a separate note, in suit, who holds an overdue joint note made by the plaintiff and another who are both insolvent, may, in equity, set off the joint demand.
    8. The holder of a promissory note who took it after maturity holds it subject to every objection, including equitable set-off, to which it was subject in the hands of his assignor.
    4. A joint judgment on a joint and several promissory note exhausts the creditor’s incidental right of election, and extinguishes the note, which as to him is to be held as having always been joint.
    5. The merger of a debt into judgment is not so perfect in equity as to preclude the judgment creditor from resorting to the original demand and the relations of the parties to it, for the purpose of enabling him to disclose and assert an equitable set-off.
    Ekrob to tbe District Court of Richland County.
    On the 1st day of April, 1873, Baker gave his promissory note to one,Blystone for $500, payable two years after date. On the same day one Rummell, and Blystone as his surety, gave to Baker their three promissory notes, two of which were for $200 each, and the other for $125, payable respectively on the 1st day of October, in the "years 1874, 1875 and 1876. Baker at the March term of the Richland common pleas, 1879, obtained judgment on the three notes against both makers, in which it is certified that Blystone was surety on the notes.
    The original action below was upon the note for $500 brought against Baker by Kinsey, an alleged endorsee of the same after maturity. One defense was a denial of Kinsey’s ownership by indorsement or otherwise. Another defense was an equitable set-off of enough of Baker’s judgment above referred to, to satisfy the note. This defense was founded on the averment (disputed in the reply) that Kinsey, Rummell and Blystone were each before the alleged transfer of the note, and have been ever since insolvent, and that the judgment is unpaid and uncolleetable.
    At the September term, 1881, the case was tried to a jury, resulting in a general verdict for Baker.
    On the trial Kinsey introduced testimony tending to maintain his ownership in the note, and rested. Baker then introduced testimony tending to maintain his defenses. Before his testimony was all introduced the parties at the suggestion of the court refrained from offering further testimony. Subsequent proceedings on the trial are detailed in the bill of exceptions as follows:
    “ Thereupon the court suggested to the parties that under the pleadings in the case and the law of the case as the court should give it to the jury, further evidence was immaterial, but that the court would permit any further evidence that was competent if parties desired it. Thereupon no further testimony was given, and the above is all the evidence that was given to the jury on the trial of this case.
    “Thereupon attorneys for the plaintiff requested the court to give the following instructions in charge to said jury;
    “We ask the court to instruct the jury this, that the joint and several notes mentioned in said defendant’s answer are not the proper subject matter of set-off against the note sued upon in this action, and is not a proper set-off or defense against the plaintiff.
    “ Which instruction said court refused to give in charge to said jury, to which refusal to give said instructions to said jury the plaintiff at the time excepted.
    “ Thereupon attorneys for the plaintiff requested the court to give the following instruction in charge to said jury:
    “We ask the court to charge the jury that the judgment set up in the second division of defendant’s answer is not a proper set-off in favor of defendant against the plaintiff, Carr Kinsey, in this action, and that the merger of said three notes in said judgment is a waiver of the defendant’s right to have or use the said judgment as a set-off in this action.
    “Which instructions said court refused to give in charge to said jury, to which refusal to give said instructions to said jury the plaintiff at the time excepted.
    ' “ Thereupon the plaintiff requested the court to charge the jury in writing, and thereupon said court delivered to said jury the following charge in writing, to wit:
    “ This action is brought upon the promissory note described in the petition of the plaintiff.
    “ The defendant for defense and set-off, in the second defense and division of his answer, describes and sets forth by copy three several promissory notes which he avers have been reduced to judgment, and I instruct you as matter of law, that the amount due and unpaid upon the judgment obtained on these three notes is to be considered by you as a valid set-off and defense to the note upon which this suit is brought.”
    The above is all the charge given to the jury, and said plaintiff at the time excepted thereto.
    “ And said plaintiff having filed a motion for a new trial, and the court having overruled said motion for a new trial, the said plaintiff excepted to the said ruling of said court on the- said motion for a new trial and to the judgment thereon rendered, and pray the court here to sign and seal this, his bill of exceptions, and order the same to be made a part of the record in this case. All of which is done and ordered as said plaintiff has prayed for.”
    • Yarious assignments of error were presented in the district court including errors in the charge of the court and in overruling a motion for a new trial.
    The district court reversed the judgment of the common pleas for error in not submitting to the jury the question as to whether the plaintiff was the owner of the note, and in failing to charge the jury on that subject. The present proceeding in error is brought to reverse the judgment of the district court.
    
      Pritchard Wolfe, for plaintiff in error.
    The right to set-off was not lost by a merger of the notes in a judgment. Myer v. Hewitt,. 16 Ohio, 453; Boos v. Ewing, 17 Ohio, 522; Corwin v. Collett, 16 Ohio St., 394; Bell v. Tenny, 29 Ohio St., 242; Clarke v. Rowling, 3 Comst., 215; Rawley v. Hooker, 21 Ind., 144; Waterson on Set-off. §§ 387, 359, 363; Simpson v. Hart, 14 Johns, 75 ; Brown v. Hendrickson, 39 N. J. L., 241; Diehl v. Friester, 37 Ohio St., 473; Rev. Stats., §§ 3173, 4993, 5071, 5076, 5077. In equity there are many exceptions to the technical rule that joint and separate debts cannot be set off against each other. Sarchet v. Sarchet, 2 Ohio St., 320; Wagner v. Stocking, 22 Ohio St., 297; Bank v. Heminggray, 31 Ohio St., 168; 34 Ohio St., 381; 3 Story’s Eq. Jur., §§ 1437, 1437a, 14375, and cases cited. And-insolvency is a sufficient ground for such exception. Lindsey v. Jackson, 2 Paige, 581, and cases cited ; Brewer v. Norcross, 17 N. J. Eq., 219; Smith v. Felton, 43 N. Y., 419.
    
      Thomas McBride, for defendant in error.
    The notes were merged in the judgment. Smiley v. Dewey, 17 Ohio, 156 ; Myers v. Hewitt, 16 Ohio, 453; Corwin v. Collett, 10 Ohio St., 289. The judgment being joint could not be set off. Sarchet v. Sarchet, 2 Ohio, 320; Wagner v. Stocking, 22 Ohio St., 297.
   Martin, J.

Two issues were submitted to the jury, viz.: whether Kinsey owned the note, and whether Baker could set off his judgment. In the charge nothing was said about the first issue. And the only instruction given was that the jury should consider the judgment a valid offset against the note. This was the entire charge, and is obviously faulty. It virtually assumes that due proof of Kinsey’s ownership had been made. It also assumes that proof had been made of extrinsic facts to constitute the judgment a set-off. For it was not of itself a set-off. It was joint and rendered after the transfer of the note ; and either circumstance distinguished it from a legal set-off. These assumptions withdrew from the jury any consideration of the testimony, and devolved on them the merely clerical duty of an arithmetical calculation. It is true that Kinsey cannot complain of the assumption that he was owner of the note, if the jury understood and received it as a fact. The verdict does not find an amount due Kinsey, nor an amount set off — a finding quite as requisite under the statute (§ 5329 Rev. Stat.), where the set-off exceeds the debt as where it does not. The verdict is general — “We the jury do find for the defendant.” And the judgment is equally general. Either is more nearly responsive to the issue on the ownership of the note than to that on the set-off. Baker’s counsel earnestly contend that under the testimony the note belonged to Mrs. Kinsey, with whose means it was purchased- from Blystone. May not the jury through misapprehension of the charge have taken that view in arriving at the verdict ? The issue as to the set-off had been settled by rulings on demurrers to the answer and reply, and. the only material controversy was as to the insolvency of Rummell and Blystone. The extraneous fact of their insolvency as alleged in the answer having been adjudged sufficient to raise an equitable right of set-off, the testimony touching it should have been submitted to the jury under proper instructions. It seems to us that the virtual decision of that question of fact by the court was an invasion of the province of the jury, and a manifest error. -From these views it follows that the .judgment of reversal must be affirmed.

But as the case will be for re-trial in the common pleas, it is proper to inquire whether the issue as to an equitable set-off is well made; in other words, whether the alleged insolvency of Rummell and Blystone, if proved, would entitle Baker to set' off his judgment. Blystone transferred the note in suit to Kinsey after it was due. Kinsey took it subject to every equity and defense, including set-off, to which it was subject in the hands of Blystone. Was it at that time subject to a legal offset in favor of Baker ?

At law a joint debt cannot be set off against a separate debt. We may admit that the separate promise of the surety, Blystone, was a- legal set-off at Baker’s election. Baker, however, seeks to make this election after judgment. He is too late. In taking the judgment he exercised his right of election for his own advantage. The judgment .exhausted his right and extinguished the notes, which as to bim must be held to have been always joint and therefore no legal offset. But were the joint notes an equitable set-off ?

The situation was this : Baker was in danger of losing his entire debt for which the three notes were given, on account of the insolvency of the makers. At the same time he was in danger of being compelled to pay the debt due to one of those makers. The injustice of allowing this is manifest, and gives rise to an equity in his favor to insist on a set-off, notwithstanding he has no such right at law. Pond v. Smith, 4 Conn., 297.

Prior to the Code system a court of chancery enforced the right. Under the Code (§ 5071 Rev. Stat.), defenses legal and equitable are preserved. And § 5076 Rev. Stat. provides for making a new party, if necessary, to a final decision upon a set-off, if, owing to the insolvency or non-residence of the plaintiff, or other cause, the defendant will be in danger of losing his claim unless permitted to use it as a set-off. This provision refers exclusively to an equitable set-off, and seems to recognize the precise equity we are considering.

It remains to determine whether the technical merger of the notes into the judgment is so perfect as to preclude Baker from resorting to the original cause of action for the purpose of enabling him to disclose and protect his right. We think that such controlling effect should not be given to the doctrine.

In Clark v. Rowling, 3 Comst., 216, the decision was based on the principle that the demand on which a judgment is rendered is not so complete as that courts may not look behind the judgment to see upon what it is founded, and to protect the equitable rights connected with the original relation of the parties. To the same effect are Wyman v. Mitchell, 1 Cow., 316 ; Raymond v. Merchant, 3 Id., 147 ; Betts v. Bagley, 12 Pick., 572; Rawley v. Hooker, 21 Ind., 144. The case of Clark v. Rowling, supra, was this: In February, 1845, Clark brought a creditor’s bill against Rowling to obtain satisfaction of a judgment rendered in May, 1843, on promissory notes. Rowling answered that in December, 1842, he had duly applied, by petition in the proper court, for the benefit of the bankrupt act of 1841; that he was adjudged a bankrupt, and that in July, 1843, he was discharged from all debts owing by him at the date of his application. There was no opportunity to plead the discharge because judgment was taken before it was granted. It was contended for Clark that the notes were- merged in the judgment, which is a new debt not in existence at the time of the application, and therefore not affected by the discharge. But the court held that the discharge was available as a defense, notwithstanding the technical merger of the notes.

In the light of these adjudications we are of opinion that Baker is entitled, in equity, to set off his debt,-notwithstanding it is in judgment.

Judgment affirmed.