#### *Feazle v. Dillard and Another.

January, 1834,

Bichmond.

(Absent Carr and Green, J.)

Assignments — Equitable Set-Off against Assignee of Insolvent Assignor.* — Feazle is indebted to Dillard by bond payable January 1820, which, after It is due, is assigned by Dillard to Camp bell: but, be- ' fore notice of assignment, Feazle becomes surety for Dillard in a bond to Burd payable February 1822 ; Dillard becomes insolvent: Hero, Feazle is entitled, in equity, to set-ofi the amount of the bond in which he is Dillard’s surety to Burd, though not yet due (unless he is indemnified against his suretyship), against his own bond to Dillard, in the hands of Campbell the assignee :

Same — Same —Waiver.† — But he may waive this equity, as against the assignee, by his own conduct; and, in this case, it was held, he did so waive it.

On the 11th December 1819, Reazle executed his bond to Dillard, for 1253 dollars, payable the 10th January 1820; on which *22there was indorsed the following agreement —1 ‘The within bond is to be paid to the said Dillard or his assignee, and I oblige myself not to procure any set-off, unless it is satisfactory to the person who holds it at the time it becomes due;” which was signed by Feazle. Dillard, however, continued to hold the bond till it was past due; and on the 27th August 1821, Feazle became Dillard’s surety in a bond to Burd for 363 dollars, payable the 27th February 1822. About the same time that Feazle thus became Dillard’s surety in the bond to Burd, Feazle’s bond to Dillard was assigned by Dillard to Campbell, as an indemnity to him for suretyships to a much larger amount which he had incurred for Dillard; but' Feazle had no notice of this assignment of his bond to Campbell, when he joined Dillard as his surety in the bond to Burd; the first notice that Feazle had of the assignment was in November 1821. At the time of the assignment of Feazle’s bond-by Dillard to Campbell, Feazle was acknowledgedly entitled to credits for payments to Dillard, to the amount of 704 dollars. Dillard had then become embarrassed, and shortly afterwards, he took the oath of insolvency, and left the state. Campbell, *the assignee, brought a suit on Feazle’s bond assigned to him by Dillard, and recovered judgment at law. And Burd had brought a suit against Dillard and Feazle on their bond to him for 363 dollars.

But' before Burd recovered judgment, Feazle exhibited his bill, in the superior court of chancery of Lynchburg, against Dillard and Campbell, wherein he set forth the facts above stated, and insisted that he was entitled, in equity, to set-off the amount for which he was bound as surety for Dillard in the bond to Burd; first, on the general ground, that he had incurred that responsibility for Dillard before notice of Dillard’s assignment of his own bond to Campbell, and that Dillard was now insolvent; and secondly, on the special ground, that before he consented to become Dillard’s surety in the bond to Burd, being aware of Dillard’s embarrassments, he stipulated, and Dillard agreed, that if he should be compelled to pay the debt to Burd, the amount thereof should be credited to him against his own bond to Dillard; an agreement verbal, at first, he alleged, but afterwards reduced to writing, which was exhibited with the bill. And he prayed an injunction to restrain Campbell from executing his judgment from so much as he was bound to pay as Dillard’s surety to Burd. The injunction was awarded.

Campbell, in his answer, controverted the allegations of the bill, as to the special agreement between Dillard and Feazle, for the allowance of a credit to the latter for the amount of the debt due to Burd, in case Feazle should be compelled to pay the same; and he alleged, that in April 1822, he and Dillard went together to Feazle’s house, in order to have a settlement of the credits to which Feazle was entitled on his bond to Dillard, then held by Campbell; that Feazle and Dillard referred the settlement between them as to those credits, to William Otey, who made the settlement accordingly, in the presence of all the parties, and ascertained the amount of credits to be 731 dollars, and indorsed the same on the bond; in which, however, there was an over credit of 27 dollars allowed by mistake, as was *afterwards discovered, but as Otey’s award was final, the mistake had never been corrected : that, at that settlement, Feazle mentioned his suretyship for Dillard to Burd, and proposed to take on himself the payment of that debt, and to take credit on his own bond for the amount, but Dillard refused to allow such credit, and denied that he had ever agreed to allow it; and that It was expressly agreed between the parties, that that settlement, so made by Otey, should be final.

Dillard, having left the state, was proceeded against as an absent defendant.

Otey was twice examined as a witness. In his first deposition (taken when Feazle was not present) he said, he was requested by Feazle, Dillard and Campbell, to meet them at Dillard’s houáe, in April 1822, for the purpose of settling the accounts between the parties, touching the credits claimed by Feazle against his bond to Dillard assigned to Campbell; that he and the parties met there accordingly, and the settlement was made; that it was his impression, that all the credits were then allowed, and Dillard and Feazle both expressed their satisfaction with the settlement, with the exception of one claim for a credit, which Feazle required should be entered on the bond, namely, a credit on account of his suretyship for Dillard’s debt to Burd, and which Dillard positively refused to allow, saying he had never agreed to allow such credit against Feazle’s bond to him, and in this Feazle at that time acquiesced; that it was the witness’s understanding, that the balance due on Feazle’s bond, after allowing the credits, as then adjusted, and indorsed on the bond by the witness, was to-be paid to Campbell the assignee; and that there was a credit for above 20 dollars; allowed, to which Feazle was not justly entitled, but having been inadvertently admitted, both parties agreed it should remain, as the settlement was a final one respecting the bond.

In Otey’s second deposition, in answer to interrogatories put by Feazle, he said, that he was requested by Dillard, Feazle and Campbell, to settle the accounts, between Dillard *and Feazle, and to enter the credits, to which Feazle was-entitled on the bond, at the time of the settlement, namely, -in April 1822 — that Feazle claimed a credit for the amount of the bond due to Burd [that in which Feazle was surety for Dillard] which Dillard refused to allow, alleging that it was time enough to claim a credit for the same, when Feazle should have paid the money as surety.

In pursuance of the settlement made by Otey, Dillard indorsed a credit on Feazle’s. bond, for 731 dollars, under date of the 1st April 1822, when the settlement was made. And there was a paper exhibited by Feazle with his bill, bearing the same date of the 1st April 1822, purporting to be an agreement signed by Dillard, in which Dillard *23agreed, that if Feazle should have to discharge the bond in which he was jointly bound with Dillard to Burd, and on which suit had been brought, then Feazle should have a credit on his bond to Dillard due the 10th January 1820. But there was no proof of the execution of this paper: and Otey, in his deposition, said he had no recollection of any such agreement being executed.

Pending the suit, Burd recovered a judgment against Dillard and Feazle, and sued out execution for principal, interest and costs, amounting to 429 dollars, which Feazle was compelled to pay: and this was the sum which he claimed, in this suit, to have set-off against the judgment which Campbell as assignee of Dillard had recovered against him.

The chancellor, on the hearing, dissolved the injunction which he had previously awarded to Feazle, and dismissed the bill with costs; from which decree Feazle appealed to this court.

In the argument of the cause here, by Beigh for the appellant, and Johnson for the appellee,

the latter endeavoured to maintain, as a general proposition, that, having respect to the date of the assignment of Feazle’s bond by Dillard to Campbell, (namely, November 1821, when notice of the assignment *was given to Feazle,) Feazle had no just claim, in equity any more than at law, to have the amount of the bond for which he was surety for Dillard to Burd, and which was not due till February 1822, discounted against his bond to Dillard, assigned to Campbell, upon which the debt had become due in January 1820, or to any relief in equity on account of that responsibility for Dillard, even as against Dillard, if he had still held the bond, much more against Campbell his assignee. But the argument at the bar turned chiefly upon the effect of Otey’s evidence upon the case; as to which there was (as will be seen) a diversity of opinion on the bench.

*

Assignments — Equities against Assignee. — It is the settled law of Virginia that the assignee of any bond, note or writing, not negotiable, stands in the shoes of the assignor, or, in other words, the assignment is subject to all the equities of the debtor against the assignor until notice of the assignment. Stebbins v. Bruce, 80 Va. 397, 400, citing the Code of 1873, ch. 141, sec. 117 ; Norton v. Rose, 2 Wash. 233*(saa foot-note*to this case): *Feazle v. Dillard, 5 Leigh*30 ; and Etheridge v. Parker, 76 Va. 217. To the same effect, the principal case was cited with approval in Gordon v. Rixey, 86 Va. 858. 11 S. E. Rep. 562 ; Stuart v. Peyton, 97 Va. 816, 34 S. E. Rep. 696. See principal case also cited in Lambert v. Jones, 2 P. & H. 164.

†

Same — Same—Waiver of. — When, however, after notice of the assignment, the debtor promises the assignee to pay the debt, or by Ills conduct induces him to believe that he will, under such circumstances as that a retraction of the promise, if permitted, would operate as a fraud upon the assignee, the former is thereby estopped from afterwards setting up any defense which he may have had against the assignor. Thus, where after the assignment of a bond, the obligor, the assignor and assignee all met together and agreed upon the credits to which the obligor was entitled, it was held that the bond was not subj ect to a.ny set-off not embraced in such settlement. Stebbins v. Bruce, 80 Va. 397, citing the principal case.

See further, editorial in 5 Va. Law Reg. 114, 115; monographic *note*on “Assignments” appended to Ragsdale v. Hagy, 9 Gratt. 409.

Equitable Relief — Insolvency,—In Franklin v. Commercial Bank, 2 Va. Dec. 394, it is said : “That insolvency may so affect the rights of the parties to a transaction as to give rise to equities which will be considered and enforcedin a court of chancery, even though a court of law has taken jurisdiction and rendered a judgment, is true; and this source of equitable relief has received frequent illustration in cases before this court, and examples of it abound in the text-books. See *Feazle v. Dillard,*5 *Leigh*30 ; Wayland v. Tucker, 4 Gratt. 267 ; M’Clellan v. Kinnaird, 6 Gratt. 352 ; Hupp v. Hupp, 6 Gratt. 310; Linke v. Fleming, 25 Gratt. 707.”

TUCKER, P.

If this case depended solely upon the general principles of the law as to assignees, I should have no difficulty in reversing the decree. Nothing is better established, than that an assignee takes the obligation assigned to him subject to the same equity that affected it in the hands of the obligee. This was the doctrine of courts of equity anteriour to our statute (Chan. Ca. 232 ; 2 Vern. 428, 692, 765), and the statute has, in this respect, made no alteration; for it was not intended to abridge the rights of the obligor, nor to enlarge those of the assignee. Norton v. Rose, 2 Wash. 248; Garland v. Richeson, 4 Rand. 266. The statute merely had the effect of enabling the assignee to sue in his own name, instead of leaving him as at common law, under the embarrassments arising out of a suit for his benefit in the name of the obligee. The same construction has been given to the Pennsylvania statute in pari materia; Wheeler v. Hughs, 1 Dall. 23. If, therefore, the appellant could, in equity, have arrested the recovery of the amount of his bond by Dillard, the obligee, he has equal equity against Campbell, unless he has waived or forfeited it by his conduct.

The counsel, apparently aware of this, contended that Feazle would not have been entitled to injoin the recovery of the bond by Dillard himself. I cannot think so. That a bond not due cannot be used as a set-off at law, is very *true; and it seems to have been supposed, that if the bond attempted to be set-off, was not due when the assigned bond became due, it could not be set up against the assignee, at law. Stewart v. Anderson, 6 Cranch 203. See also Hankey v. Smith, 3 T. R. 507, in note. Be this as it may, it affords no ground for the opinion, that a bond not yet due, cannot be the subject of set-off in equity, whatever may be the circumstances. In a naked case, where there is no reason to apprehend insolvency, it would by no means follow, that instead of paying what I owe to my creditor to-day, I should set-off against it what he may on a different transaction owe me twelve months hence. For as money is sometimes worth more than its interest, and the payment of it when due is often of vital importance to the creditor, the rebate or discount of interest may be a poor compensation for the loss of prompt payment. On the other hand, if I owe an insolvent man 100 dollars, and I hold his bond for the same sum payble a week hence, neither equity nor good sense would demand, that I should pay my money to him, with the certainty of losing that which is due from him to me. The insolvency constitutes a new ingredient in the case, and upon the principle of the bill quia timet, a court of equity will retain in my hands what I owe, for my indemnity, unless my adversary will secure me by some other satisfactory indemnity. Nothing is more common, I think, than the application of this principle to cases in equity. It is extended so far as to justify the suspension of the payment of purchase money, where there is an incumbrance upon the land purchased, Sugd. Baw Vend. ch. 9, *<¿*6, p. 345,* and with us, even upon proof of better title in a third person to part of the land, although there has not been, and possibly never may be, an eviction, and of course the demand is both unliquidated and uncertain; Ralston v. Miller, 3 Rand. 44. Nor have I ever before heard a doubt suggested of the propriety of injoining the recovery of a judgment, when the plaintiff at law was insolvent, and was debtor to the defendant, to an equal amount by bond, though not*jret due. The case is not materially different, where the plaintiff in the injunction, is surety in a bond to a third person for the plaintiff at law; for upon the supposition of the insolvency of the latter, the former is in equal danger of loss. In both cases, the court proceeds upon the same principle, of protecting the party from a payment of money to one, to whom, in justice and equity, he owes nothing.

This case, however, does not seem to me to depend on these principles. Otey’s testimony changes its aspect entirely. Whether the parties designed to constitute him ar*24bitra'tor or not, I think we must consider that settlement as final. If he was arbitrator, this is clear; for the credit was claimed, was resisted, and was not allowed. If he was not arbitrator, still it is obvious that the assignee Campbell, and Feazle and Dillard met together, and called on Otey to adjust the credits to which Feazle was entitled. For what purpose? obviously, that it might be ascertained on the one hand, what Feazle owed upon the bond, and on the other, how far Campbell the assignee would be paid by him, and how far he should have to look to his failing debtor, Dillard, for further security, or indemnify for his liabilities. If Feazle had insisted on his equity, Campbell would have been warned of the necessity of pressing Dillard for some equivalent to what he would lose by that credit on Feazle’s bond. But Feazle did not urge it, nor intimate that it would be further insisted on. On the contrary, he acquiesced in the indorsement of credits, to the exclusion of this credit; and moreover, Otey says, that it was his impression from the transaction, that Feazle was to pay the balance without further deduction, to Campbell. Now, if the conduct of Feazle gave this impression to Otey, it may fairly be considered as having given it to Campbell. And if Feazle left Campbell under the impression that he would pay the amount, and not insist on his equity, it would be a fraud in him afterwards to attempt to set it up.

There is a paper in the cause, purporting to be signed by Dillard on the very day of the settlement. I do not consider it as proved. Otey, the only witness examined, never *heard of it; the handwriting is not proved, and it is certainly not admitted. But if it be genuine, it looks very much like a fraud on the part of Dillard and Feazle. For it was executed on the very day of the settlement, when Feazle was perfectly aware of Campbell’s rights; and as neither Campbell nor Otey knew any thing of it, and there is no .subscribing witness, it would seem to have been a secret transaction between Dillard and Feazle. What could have been its object, but to give Feazle the benefit of the credit, while Campbell was left. to suppose he was to have the bond absolved from it, and was therefore diverted from pressing Dillard for farther security?

Upon the whole, I think the decree is right and should be affirmed.

BROOKE, J., concurred.

*

Ingraham’s edi. Philadelphia 1820.

OABEBB, J.,

dissented. He said — This is a- contest between two sufferers by an insolvent debtor, each endeavouring to throw a portion of the loss upon the other. If the bond executed by Feazle to Dillard, had not been assigned, but had remained in Dillard’s hands, and he had obtained judgment and execution thereon in November 1821, I think it is very clear, that, under the circumstances disclosed in this record, Feazle would have been entitled, at that time, to the interference of a court of equity, for indemnity against the payment of the smaller debt for which he was Dillard’s surety, although that debt was not then due; and that the chancellor ought to have granted him an injunction for the

amount of it, unless such indemnity were given. There is good reason to believe, that Dillard was then insolvent, and that Campbell knew it; and it appears that Dillard, shortly afterwards, took the benefit of the insolvent laws, and removed out of the country. If the contest then had been between Dillard and Feazle, in November 1821 (at which time Feazle had notice of the assignment), I cannot doubt but that a court of to have an injunction to the amount of the debt for *which Feazle was security for Dillard, unless the latter had indem nified him against the suretyship. This equity, wffiich Feazle had against his own bond in Dillard’s hands, attached to it in the hands of Campbell, the assignee, according to the well settled doctrine of this court.

I do not think there is any thing in the testimony of Otey, to take this case out of the general rule, even if we regard him as an arbitrator in the settlement which he made for the parties in April 1822. Feazle’s right to indemnity against the bond in which he was surety for Dillard, was not submitted to Otey; for he says expressly, that he was called upon to settle the accounts between the parties, and to enter the credits to which Feazle was entitled on the bond, at the time of the settlement. It is true, that Feazle demanded a credit for the amount of the bond in which he was surety to Burd, but Dillard refused to allow it, alleging that Feazle had not yet paid it, and that it was time enough to claim a credit for it, when he should have paid it. This reasoning was irresistible in a contest about credits then due, but had no force as to a right of indemnity not then submitted to the arbitrator. Feazle has, since, been compelled to pay the debt to Burd; and I think that the same equity which entitled him to an indemnity before it was paid, entitles him to a credit for it, now that it has been paid.

Decree affirmed.