Case ID: misc_10/html/0222-01.html
Source: Caselaw Access Project
Author: {"author": "McCabthy, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George F. Norton et al., Appellants, v. Frederick McCarthy, Respondent.
    (City Court of New York
    General Term,
    November, 1894.)
    In an action brought by an assignee the defendant can only offset or counterclaim such claims against the assignor as were due or had matured at the time of the assignment of the claim in suit, and which were acquired by the defendant in good faith before he obtained knowledge or notice of the assignment.
    Where claims held by defendant by assignment are set up as counterclaims in such an action, the plaintiff has a right to examine the defendant as to the time, date and manner of the assignment to him, to show actual or constructive notice to defendant of the assignment to plaintiff and as bearing on the "question of defendant’s good faith, and he is entitled to present and maintain any defense to the claims so set up which his assignor might have had at the time of such assignment.
    Appeal from order" denying motion to set aside a verdict in favor of the defendant and for a new trial, and from judgment entered thereon.
    
      George W. Gdlinger, for appellants.
    
      Richard B. Kelly, for respondent.
   McCabthy, J.

This is an appeal from an order denying the plaintiffs’ motion to set aside a verdict in favor of the defendant and for the refusal to grant a new trial, and to permit the plaintiffs to go to the jury on the question of fact presented by the evidence, and upon the exceptions taken in said action, and from the judgment entered thereon. '

Plaintiffs sued as assignees of a claim for $760, for work, labor and services rendered by their assignor to the defendant. The answer denied only knowledge or information sufficient to form a belief as to the assignment, and sets up a further defense or counterclaim, a demand for seventy-one and seventy-four one-hundredths dollars over and above the amount sued for by plaintiffs against the plaintiffs’ assignor on four promissory notes held by the defendant. To this a reply was served’ denying everything except the execution of the four promissory notes, and further alleging satisfaction and compromise of the notes with defendant’s transferrors, transfer of the claims represented by the notes for value to a stranger, and also a denial that defendant is a bona fide holder of the notes.

Numerous exceptions were taken during the trial to decisions of the court excluding evidence, and also to the refusal of the court to submit specific questions to the jury,, and to the direction of a verdict in favor of the defendant, as well as to the denial of a new trial. In other words, the plain-’ tiffs’ action is on an assigned claim, which the defendant admits, but counterclaims and offsets against the same the amount of four promissory notes made by plaintiffs’ assignor which were sold to defendant on January 3, 1894.

Section 502, subdivison 1, of the Code of Civil Procedure, reads: “ If the action is founded upon a contract which has been assigned by the party thereto, other than a negotiable promissory note or bill of exchange, a demand existing against the party thereto, or an assignee of the contract, at the time of the assignment thereof, and belonging to the defendant, in good faith, before notice of the assignment, must be allowed as a counterclaim, to the amount of the plaintiff’s demand, if it might have been so allowed against the party or the assignee .while the contract belonged to him,” and this must control.

It clearly means that the defendant can only offset such claims against plaintiffs’ assignor, and thus these plaintiffs, as were due or had matured at the time of the assignment to plaintiffs of the claim in suit.

If this be correct, and the authorities are clear, then there was error in considering, allowing or directing a verdict for the defendant on the offset, for it certainly appears and must be admitted that if the assignment to plaintiffs was on December 5, 1893, then none of the notes of the plaintiffs’ assignor which were assigned to the defendant were due or had matured on that date, and could not, therefore, be the subject of an offset at that time; and if it is contended by the defendant that the date of the assignment of plaintiffs’ claim by their assignor was on January 5, 1894, then that question should have been submitted to the jury, and here at least two of the notes offset by defendant were not due or matured on J an u ary 5, 1894, and could not be the subject of offset, and was, therefore, error.

Davies, Ch. J., in Martin v. Kunzmuller, 37 N. Y. 398, says : “ The only question presented for the consideration of this court upon this appeal is, whether the defendants were entitled to set off against the plaintiffs’ demand the amount of "the note made by their assignors, which was «not due at the time of the assignment to the plaintiffs of the demand against the defendants,” and, at page 402, says: “ The defendants’ difficulty is, that at the time of the assignment they had no demand against any one. At the time of the assignment to the plaintiff in this case, the demand of the defendants had not matured so as to be the subject of a set-off,” and, at page 403, says: “ We have held that if, at the time of the assignment, the defendant has no present debt, due and payable by the assignor, he has no set-off, and that he cannot set-off against a debt due and payable by him to the assignor a debt of his which matures afterwards.” See, also, Myers v. Davis, 22 N. Y. 489, 490.

And these cases and many others are fully approved by Gray, J., in Fera v. Wickham, 135 N. Y. 229, in which he says: “ In other words, if there is no right of set-off when an insolvent assignment is made, it cannot arise afterwards in favor of a creditor. Cross-demands which do not mature until after such an assignment could not have been the subject of set-off when the assignment was made, for a demand in proesenti is necessary to an allowance by way of set-off. I think the logical and natural extension of the principle of the decision in Myers v. Davis is authoritative in the decision of the present case. The right of set-off must attach at the time of the-making of the assignment.” It cannot arise afterwards.

Besides, as to any notes or demands which were due or had matured, for such an assignment to entitle the defendant to avail himself of such demand by set-off, he must show that it belonged to him in good faith before notice of the assignment.

This does not mean that he may set off any claims acquired by him prior to his receiving notice of plaintiffs’ assignment, but that he must prove the fact as well that he has acquired the claim (which under the statute is already limited to that due or matured at the time of the assignment to plaintiffs) in good faith and before obtaining notice or knowledge of such assignment.

If he acquires this claim after he receives notice of the assignment to the plaintiffs and in bad faith, it would defeat his set-off.

Upon this branch the plaintiffs had a right to examine the defendant as to the time, date and manner of the assignment to defendant, to show actual or constructive notice to defendant of the assignment to plaintiffs. This could only be done in the manner observed by plaintiffs, and also on the question of good faith thereof, and to show, if possible, that the claim ■ or demand had been paid or compromised before the sale and transfer to the defendant.

Of course the plaintiffs could not question the amount of the consideration paid by the defendant in the purchase, sale and transfer of these notes or demand. It is immaterial, and the other party cannot inquire into the same. The assignor could give the demand to the defendant or sell it to him for an inadequate consideration. It is enough that the defendant had the legal title to the demand, and that the plaintiffs* assignor and plaintiffs would' be protected in a payment or recovery. Greenwood v. Marvin, 111 N. Y. 423, 440 ; Sheridan v. Mayor, 68 id. 30. The defendant, however, took these notes subject to all the defenses and equities which existed between the defendant’s assignor and the plaintiffs’ assignor up to the time of the making of the assignment of the claim to the plaintiffs, and, therefore, the plaintiffs would have the right to present and maintain any defenses which their assignor might have had to these notes at that time.

We do not say that the plaintiffs were correct in all the questions put by them, and which were disallowed, and to which they excepted, but we say that sufficient questions were put by them and disallowed by the court, and properly excepted to by them, to raise the various points which we have treated and commented upon here.

The trial justice having erred in directing a verdict for the defendant, and in also excluding evidence as above, the judgment should, therefore, be reversed and a new trial granted, with costs to the appellants to abide the event.

Ehrlioh, Oh. J., and Van Wyck, J., concur.

Judgment reversed and new trial granted, 'with costs to appellants to abide event.