Case ID: ny_37/html/0450-01.html
Source: Caselaw Access Project
Author: {"author": "Parker, J. Davies, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Martin et al. v. Kunzmuller et al.
    
    
      Set-off.
    
    In an action by an assignee for the benefit of creditors, the defendant cannot set off a note made by the assignor, which matured after the assignment of the cause of action.
    Martin v. Kunzmuller, 10 Bosw. 16, affirmed; Maas v. Goodwin, 2 Hilt. 275, overruled.
    
    Appeal from the general term of the Superior Court of the city of New York, where a judgment entered upon a verdict in favor of the plaintiffs had been affirmed. (Reported below; 10 Bosw. 16.)
    This was an action by John C. Martin and John W. Graydon, assignees for the benefit of the creditors of Graydon, McCreery & Co., against Charles Kunzmuller and Frederick Kunzmuller, to recover a claim oi $3107.42, for goods sold and delivered by the assignors to the defendants.
    The assignment to the plaintiffs.was made on the 7th May 1861, at which time, the defendants were the holders of three several promissory notes made by the firm of Graydon, McCreery & Co., two of which were over due, but the third had not then matured.
    Upon the trial of the cause before White, J., the defendants offered to set off these three notes against the plaintiffs’ demand. The court allowed the first two notes as a legal set-off; but instructed the jury that the third note, which had not matured at the -time of the assignment, could not be set off against the plaintiffs’ demand. To which ruling, the defendants’ counsel excepted.
    
      The jury rendered a verdict in favor of the plaintiffs accordingly, disallowing the amount of the third note. And the judgment entered thereon having been affirmed at general term, the defendants appealed to this court.
    Mapes, for the appellants.'
    
      Parsons, for the respondents.
    
      
       This also overrules Schieffelin v. Hawkins, 1 Daly 289.
    
   Parker, J.

(after stating the case.)—The only question presented for decision upon this appeal is, whether the defendants were entitled to set off the third *note, which was not due at the time of the assignment of the demand in suit. If the defendants might have set it off against Graydon, McOreery & Co., at the time of their assignment, provided that firm had sued the defendants on this assigned demand, it was a proper subject of set-off in this suit—otherwise not; for the case depends entirely upon the statute, which is as follows: “ If the action be founded upon a contract other than a negotiable promissory note, or bill of exchange, which has been assigned by the plaintiff, a demand existing against such plaintiff, or any assignee of such contract, at the time of the assignment thereof, and belonging to the defendant, in good faith, before notice of such assignment, may be set off to the amount of the plaintiff’s debt, if the demand be such as might have been set off against such plaintiff, or such assignee, while the contract belonged to him”

The fact that, under the Code, the action is brought in the name of the assignees, and not of the assignors, as plaintiffs, does not change the rights of the parties, and the defendants are still entitled to the set-off, precisely as if the action had been brought by the assignees in the name of Graydon, McOreery & Co., as plaintiffs, as it must have been when the statute of set-off was passed. (Myers v. Davis, 22 N. Y. 489.) And the statute is now to be read and construed with reference to such change in the mode of bringing the action. The simple principle applicable is this, that the assignee takés the contract assigned to him subject to the right of set-off which the debtor had against it, at the time of the assignment.

It would seem to be very clear, then, that the defend-. ants had no right to set off the third note against the demand in suit; for at the time of the assignment, this note had not become due, and was not then such a demand “as might have been set off against” the assignees, while the contract belonged to them.”

An allowance to a party by way of set-off is always founded on an existing demand inprsesenti, and not one that may be claimed in futuro. (Aymar v. Astor, 6 Cow. 261, 266; *Myers v. Davis, supra; Bradley v, Angel, 3 N. Y. 475; Kingston Bank v. Gay, 19 Barb. 459; Waldron v. Baker, 4 E. D. Smith 440; Thompson v. Hooker, 4 N. Y. Leg. Obs. 17; Wells v. Stewart, 3 Barb. 40; Hicks v. McGrorty, 2 Duer 295; Watt v. City of New York, 1 Sandf. 23.) The remark of the court, in Wells v. Stewart, that “ the words, ‘ if the demand he such,’ do not apply to the notice only, but also to the condition or state thereof,” is sustained by the other cases, and presents a correct construction of the statute, which is decisive of the question before us. The decision of the court below is in accordance with that construction. The judgment, therefore,, is right, and should be affirmed.

Davies, C. J.

The firm of Gray don, McCreery & Co., on the 7th day of May 1861, made a general assignment of all their property to the plaintiffs, for the benefit of their creditors. At the time of making said assignment, the defendants were indebted to the assignees in the sum of |3107.42, for goods sold by them to the defendants, on eight month’s credit, from August 9th to October 20th, 1860. The defendants held and owned, at the time of said assignment, three promissory notes, made by said firm of Graydon, McCreery & Co.; the first for $671.28, which had matured April 4th, 1861; the second for $998.35, which had matured April 11th, 1861; and the other for $1400.78, which did not mature until May 28th, 1861; and none of said notes had been paid. This action was commenced October 3d, 1861. After all of said notes had matured, this action was commenced to recover the price of said goods, and the defendants then sought to set off the amount of the said three several notes, all then due and unpaid.

The court charged the jury, that the defendants were entitled to set off the amount of the promissory notes held by the defendants, due at the time of making the assignment, with interest from date of maturity, from the amount of the plaintiff’s claim. And the justice further charged the jury, that the defendants were not entitled to set off the amount of the note thirdly above described, and which did not mature until *after the making of such assignment, or any portion thereof, from the plaintiff’s claim; to which portion of said charge, the defendant’s counsel excepted. The jury, under the direction of the court, rendered a verdict for the plaintiffs for $1534.26; thus allowing the defendants’ set-off for the two notes due at the date of the assignment, and rejecting the set-off as to the other, not due at that time. Judgment on the verdict was affirmed at the general term, and the defendants appealed to this court.

The only question presented for the consideration of tliis 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. The provisions of the revised statutes applicable to set-offs, are as follows: “If the action be founded upon a contract, other than a negotiable promissory note or bill of exchange, which has been assigned by the plaintiff, a demand existing against such plaintiff, or any assignee of such contract, at the time of the assignment thereof, and belonging to the defendant, in good faith, before notice of such assignment, may be set off to the amount of the plaintiff’s debt, if the demand be such as might have been set off against such plaintiff, or such assignee, while the contract belonged to him.”

The Code has introduced no new rules affecting set-offs. The alteration made by it, allowing the beneficial owner of a chose in action, not negotiable at law, to sue thereon in his own name, does not change the actual rights of the parties to any assignment of it. The defendant is entitled to the same defence which he would have had, if the former rule had continued to prevail, and the action had been brought in the name of the- assignor, and to no other or different defence. The assignee would have been protected in his equitable rights,' notwithstanding the non-negotiable nature of the contract, to the same extent that he is entitled to have them protected, now that the owner or holder can prosecute *in his own name. The change affected by the Code is simply as to the form in which the action is to be carried on. (Per Denio, J., in Myers v. Davis, 22 N. Y. 489.)

This action is founded upon an indebtedness other than that arising upon a promissory note or bill of exchange, in other words a non-negotiable contract. It has been assigned- by the party, who, previous to the Code, must have been the plaintiff upon the record. In such an event, the statute declares that a demand existing against such plaintiff (now assignor) or any assignee of such contract, at the time of the assignment thereof, may be set off to the amount of the plaintiff’s debt. To entitle the defendant to avail himself of such demand by a set-off, he must show that it belonged to him in good faith, before notice of the assignment. There is no point made that the defendant did not acquire all the notes they claimed to set off, prior to the making of the assignment to the plaintiffs. The question, therefore, is, if the plaintiffs’ assignors, at the time of the assignment, had commenced an action against the defendants to recover the amount of the said account, could the defendants have set off the note due May 28th, 1861 ?

This precise point was distinctly presented in Wells v. Stewart (3 Barb. 40). Stewart, on the 14th of April 1845, made his negotiable note, payable to one Coyne, ninety days after date, and which on the 26th day of May 1845, was assigned to and became the property of Wells. On the 28th of May 1845, Wells owed Stewart $75.70, which account, on that day, was assigned by Stewart for the benefit of creditors. The action was in Stewart’s name, by his assignees, against Wells, to recover the amount of the account, and Wells claimed to set off the note of Stewart. The action must have been brought, months after the note became due„ Hand, J., in the opinion of the court says, that the last clause of the statute above quoted is fatal to the claim set up by Wells. At no time while this account belonged to Stewart, could this note have been set off against the account, on *the day he made his assignment, or had the assignees sued him, within some weeks afterwards, the note would not have applied. The words “if the demand be such,” de not apply to the nature, but also to the condition or state thereof.

In Watt v. City of New York (1 Sandf. 23), the action was by one Ellsworth, in Watt’s name, as assignee, to recover the amount of several awards, payable by the corporation of New York, for lands of Watt taken for opening streets in said city. The defendant sought to set off against the award an assessment for benefit upon the land of Watt, made in the same proceedings, and the sole question was, whether such set-off could be made, and the superior court of New York thought it could not. Oakley, O. J., said, “ it is clearly a case not coming within any provision of the statute relative to set-offs. At the time of the assignment, there was no right of action by the defendant against Watt, no demand of the assessment having been made, and we are at a loss to perceive any reason why the award in his favor was not assignable, before it was due, like any other debt, so as to vest the entire interest in the same in the assignee, whose equitable rights the court is bound to protect.”

Beckwith v. Union Bank (4 Sandf. 604) is to the same effect. The suit was by Beckwith, as assignee of the Messrs. Hunters. At the time of their assignment, there was standing upon the books of the Union Bank, a sum of money to the credit of the Hunters. The assignee brought suit to recover this money. At the time of the assignment, the bank held a bill indorsed by the Hunters, which subsequently fell due, and was protested, and the Hunters charged thereon as indorsers, and the bank charged the amount thereof against the credit of the Hunters. The superior court held, that the assignment having been made in good faith, and transferring to the plaintiff all the property of the Hunters, of every description, the deposit to their credit in the bank thereby became vested in the assignee. Therefore, when the bill fell due, and the Hunters became liable to the bank for its payment, there were no demands existing between them and the bank which cou^ the subject of set-off; the *money to their credit belonged to the plaintiff. The judgment in this case was affirmed in this court (9 N. Y. 211); this' court holding that the Code had effected, no change in the substantial rights of the parties. In other words, the provision is, that the substantial rights of the defendant shall not be affected by the substitution of the assignee as plaintiff, in place of the assignor. Judge Johnson observes, in the opinion of the court, that there is no pretence to hold that, in an action in the name of the Hunters, before the Code, the demand of the bank could have been set off.”

The same doctrine is enunciated in Myers v. Davis ubi supra). That was an action for goods, wares and merchandise sold by Watrous & Lawrence to the defendant, the plaintiff being the assignee of all their property in trust for creditors. The defendant sought to set off an account for work done for Watrous & Lawrence, under a contract made with them, before their assignment, but upon which nothing was due at the time of the. assignment. In the opinion of the court, Judge Denio said: “If this suit had been prosecuted in the name of Watrous & Lawrence, for the benefit of their assignee, under the law as it stood before the Code, the defendant’s claim for a set-off would have been rejected by the provisions of the revised statutes already quoted, and the condition that the demand proposed to be set off, must have been one existing against the assignors, before the assignment, and have been capable of being set off against them, while the contract was held or belonged to them, would have been fatal to the defendants. I have said, that the change in the practice does not affect the right to set off; it certainly does not impair the defendant’s condition; for though the set-off, if the demand was perfect at the time of the assignment, would not be within the words of the statute (for it would not be against the -plaintiff, but against his assignors), still, it would, no doubt, be within its spirit. 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 ma^ure<^’ so as sufrjerá °f a set-off; *and when it had so matured, the demand against them on which this suit is brought, had passed into the hands of the plaintiff, against whom they had no claim whatever.” So, in the case at bar. At the time Graydon, McCreery & Go. assigned to the plaintiffs their demand against the defendants, they had no matured demands against them, except upon the two notes. On the authority of this case, it is clear, therefore, that the debt not matured could not be the subject of a set-off against these present plaintiffs.

In Chance v. Isaacs (5 Paige 592), a similar question arose and was decided. The defendant, Isaacs, being indebted to the complainant in the sum of $687.28, gave to him a negotiable note for that amount, payable four months after date; which note the complainant soon indorsed and transferred to a third person, in the ordidary course of business. Some time afterwards, the plaintiff became indebted to Isaacs in about the sum of $700, for which he gave him two promissory notes, payable at four and six months. A few days before the note of Isaacs fell due, he became insolvent and made an assignment of his property to the defendant Smyth, for the benefit of his creditors, including the two notes of the complainant. When the note given to the complainant fell due, it was protested for non-payment, and the complainant, as the indorser, was obliged to pay and take it up. He, therefore, filed his bill in this cause, to restrain the defendant Smyth from parting with the two notes given to Isaacs, and to have the note of Isaacs set-off. The vice-chancellor decided, that the set-off could not be allowed, as the creditors under the assignment had acquired an interest in the notes of the complainant, before the note given to and indorsed by him had been protested for non-payment and taken up by him. The bill was dismissed with costs, and on appeal to the Chancellor, the decree was affirmed'.

So, in Bradley v. Angel (3 N. Y. 475), where the complainants were indebted to the defendant’s testator in the sum of between three thousand and four thousand dollars, to recover which the defendant, as executor, brought an action at law. The complainants thereupon filed their bill to compel *a set-off of certain notes given to them by. the testator, which were not yet due, and to restrain the action at law. The estate of the testator was insolvent. It was held, nevertheless, that the bill could not be sustained.

I have looked at the case of Maas v. Goodwin (2 Hilt. 275); and it certainly seems to conflict with the authorities above referred to. With every possible respect for the learned members of the court deciding that case, it cannot be properly followed, and thus overrule the law as unequivocally settled by this court in repeated decisions. 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. We see no sufficient reason, from any of the suggestions made by the counsel for the appellants, for departing from the doctrine so often enunciated and approved. The judgment appealed from must, therefore, be affirmed, with costs.

Judgment affirmed.