Case ID: mass_12/html/0419-01.html
Source: Caselaw Access Project
Author: {"author": "Parker, C. J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Artemas Ward, Assignee of Jonathan Winship, a Bankrupt, versus Abiel Winship.
    A promissor in a note of hand, after it was payable, at the request of the promissee, executed a bond to a third person as surety for the promissee, for a less sum than was due by the note ; and it was agreed between the promissor and promissee, that a balance should remain unpaid on the note, which should not be claimed by the promissee, if the promissor should be obliged to pay the bond. The promissee became bankrupt, and passed the note, with his other property, to the assignee ; after which the promissor paid the amount due on the bond ; and these facts being proved were held a good defence pro tanto in an action upon the note by the assignee.
    *This was an action of assumpsit, to recover the [*481] contents of a promissory note, made by the defendant to the bankrupt on the 10th of October, 1799, for the sum of 3550, payable to the bankrupt or his order in thirty days, with interest after due.
    The defendant pleaded, first, the general issue, which was joined. Secondly, that, after said note became due, and before any commis sion of bankruptcy issued against the said Jonathan Winship, namely, on the 16th of December, 1799, the defendant had, at the request of the said Jonathan Winship, become bound as a surety with and for him, and for the proper debt of him, the said Jonathan Winship, in a bond to one J. Jl. and one W. S., with condition to pay to the said obligees the sum of $961.19, with interest on or before the 19tk of June, 1802 ; in consideration whereof it was then agreed between the defendant and the said Jonathan Winship, that a balance should remain unpaid upon the said note, and in the hands of the defendant, as well for his security as for a fund towards the payment of said bond, and should not at any time be claimed by the said Jonathan Winship of the defendant ; provided he should be obliged to pay the money secured by the said bond ; but that, in such ejr 
      event the money paid by the defendant on the said bond should be set off against any balance left unpaid on the note ; by all which a mutual credit was given and created by and between the defendant and the said Jonathan Winship. The defendant then avers, that, when the bond became due, namely, on the 21st of June, 1802, he paid $ 1105.67, being the amount due thereon; that a commission of bankruptcy issued against the said Jonathan Winship on the 23d of March, 1801, and that the said bankrupt has never obtained his certificate of discharge ; that by reason of the mutual credit existing between the said parties at the time of the bankruptcy, and [*482] the payment of *the bond since, the plaintiff, as assignee, is bound by law to set off against the sum apparently due on the note, an equal amount, part of the sum so paid on the bond ; and that the sum so paid on the bond exceeds the amount then apparently due on the note.
    The plaintiff replied, that it was not agreed between the defendant and the bankrupt at any time before the bankruptcy, that the balance due on the note should remain as security, and as a fund towards the payment of the bond, and should not be claimed, &c., as set forth in the plea, and concludes with a verification.
    The defendant rejoined, that it was so agreed, &c., and tendered an issue, which was joined.
    These issues were tried before Jackson, J., at the sittings here, after November term, 1813. At the trial, the note declared on was produced by the plaintiff; on which there were five different payments indorsed, leaving unpaid the sum of $ 670, besides interest. One payment of $ 600 was made before the date of the bond ; the others were all subsequent to that period, but prior to the issuing of the commission.
    The defendant, to prove the agreement set forth in his second plea, offered the deposition of the said Jonathan Winship, the bankrupt, to whom he had executed a release of all demands on account of said bond, and of his payment of the money due thereon, reserving only a right to set off his demands on that account against any moneys claimed of the defendant by the assignee of the bankrupt.
    The plaintiff contended that no agreement to that effect could be valid and effectual, unless made in writing ; and he objected tc the admission of any evidence tending to prove such an agreement trade in any other manner.
    The objection was overruled by the judge, and the deposition was read to the jury. It appeared from this deposition, that a verbal agreement, comporting substantially with that set forth in ■ the plea, was made between the defendant and the said Jonathan [*483] Winship, and that the bankrupt, when he delivered * his other notes to the assignee, delivered also the note in question ; supposing that he was bound by his oath so to do.
    The plaintiff further contended, that this note, being in possession of the bankrupt at the time of his bankruptcy, was assigned by the commissioners, pursuant to the twenty-seventh section of the statute of the United States establishing an uniform system of bankruptcy ; and that he was entitled to recover the balance due thereon, notwithstanding any such supposed agreement.
    The jury were instructed, that, if they believed the facts stated in the said deposition, they should find a verdict for the defendant; which they accordingly did. And the plaintiff moved for a new trial on the two grounds above stated.
    The cause was argued by the plaintiff, a counsellor of the Court, and by Bigelow and Fay, for the defendant.
   Parker, C. J.,

delivered the opinion of the Court.

The agreement stated in the defendant’s plea in bar having been proved, upon a trial of the issue tendered thereon by the plaintiff, and joined by the defendant, it is now contended, that the matter set forth in the plea does not constitute a legal defence to the action, and that judgment ought to be rendered for the plaintiff, notwithstanding the verdict. And the plaintiff is right in this course (although it would have been more convenient to have demurred to the plea), provided the defendant has not shown a legal defence to the action.

The plaintiff contends that this agreement did not constitute a mutual credit between the bankrupt and the defendant; because it was made at a time subsequent to the original contract; and because no debt actually existed from the bankrupt to the defendant at the time of the bankruptcy and assignment ; but that the demand of the defendant depended upon the contingency of his being compelled to pay or actually paying the sum due on the bond, in which he was surety for the bankrupt.

But we consider that, at the time of the assignment of the bankrupt’s effects to the plaintiff, the defendant had * a good and legal defence against an action upon the [ * 484 ] note, by the agreement ; and that this defence could not be taken away by the assignment ; no better right passing to the assignee, than the bankrupt himself had in the note. When the agreement was made, the note was due ; the promissee might have coerced payment of the whole. He, however, applied to the promissor to become surety for him in a bond payable at a future day, and agreed that such balance should be left due upon the note as would indemnify the defendant against that bond. The giving of the bond by the promissor was a sufficient consideration for this agreement; and the promissee could not have recovered the whole amount of his note, in violation of this agreement.

Nor is the agreement inconsistent with the written contract, it being made subsequently, and after the contract was broken by nonpayment ; so that it may be considered as a mode of payment agreed upon by the parties. It may be considered as a new debt, contracted at the time of the agreement for the balance due up: n the note, with a stipulation that payment should not be exacted ; but that.a sufficient sum should remain unpaid in the hands of the debtor, to indemnify him against a liability he then assumed for his creditor ; and we think that the creditor could not coerce payment of his demand in violation of his agreement. It is not like the case of Dow vs. Tuttle, cited at the bar ; for there the promise in writing was to pay on demand, and the agreement offered to be proved was, that a year’s credit was to be given, which was directly contradictory to the note. Nor is it like the case of Holland vs. Makepeace, also cited in the argu-, ment; for there the demand prayed to be set off was a note or notes purchased by the promissor, without any privity of the promissee, so that a mutual credit could not exist. Besides which, the purchase was made after the failure of the promissee, with a view to speculate upon his own debt, to the prejudice of other creditors. This note may be considered invalid in the sense of the term as used by the Court in that case, as a payment of part would show that it was , invalid for that part.

[*485] *Nor is it important in this case, that it was uncertain whether the defendant would be obliged to pay the bond in which he was surety ; for, although a contingent debt cannot be set off under a commission of bankruptcy, yet the agreement of the party bankrupt, that his claim shall not be enforced against his debtor while the debt remains contingent, may be a good defence at law in an action by the assignee, as was settled in the case of Dobson & al. vs. Lockhart, cited by the defendant’s counsel.

It has been said, however, by the plaintiff, that, as the note was in possession of the bankrupt when the commissioners made the assignment, it passed to the assignee free from any right in the promissor to avoid it on the ground taken by him, according to the provision of the twenty-seventh section of the United States statute of bankruptcy. But that provision contemplates goods and merchandise which might be deposited with the bankrupt under certain circumstances ; and the object of the provision was, to defeat secret and fraudulent contrivances between the bankrupt and those who might claim property ostensibly his, on pretence that it was deposited with him as a trustee or factor. It certainly will not do to extend this provision to notes of hand, or other securities for the payment of money. For, if it was so extended, even evidence of payments made, but not indorsed, could not be received to diminish the amount apparently due, which would be altogether unjust.

Upon this reasoning, we are satisfied that the defence shown in the plea is sufficient; and judgment must be entered on the verdict. 
      
       4 Mass. Rep. 414.
     
      
       8 Mass. Rep. 418.
     
      
      . 5 D. & E. 133.
     
      
      
        Sargent vs. Southgate, 5 Pick, 312. — Peabody vs. Peters, 5 Pick. 1. — Stockbridge vs. Dawson, 5 Pick. 223. — Maynard vs. Fisher, 6 Pick. 355.