Case Name: Gay and others vs. Gay
Court: New York Court of Chancery
Jurisdiction: New York
Decision Date: 1843-10-17
Citations: 10 Paige Ch. 369
Docket Number: 
Parties: Gay and others vs. Gay.
Judges: 
Reporter: Paige's Chancery Reports
Volume: 10
Pages: 369–378

Head Matter:
Gay and others vs. Gay.
Where one of the copartners in a mercantile film filed a bill against his co-partner for an account and settlement of the copartnership transactions, and to obtain his share of the profits of the firm in the hands of the defendant, and the defendant at the time of the commencement of the suit was an endorser, for the complainant, upon notes on which the holders after-wards recovered judgments, against such complainant, and the defendant who was liable as such endorser paid the judgments, and took an assignment thereof, for his protection and indemnity, before the termination of the suit for an account; Held that the endorser had an equitable claim to offset such judgments against the balance which might be found due to the complainant, who was insolvent; notwithstanding the complainant had assigned all his interest in the suit to a third person, pending the suit, but after the judgments had been assigned to the endorser.
Held also, that the proper mode to obtain such set-off, by the defendant in the suit for the account, was by filing a cross bill; and not by a summary application to the court, previous to a final decree for the balance found due to the complainant, by the report of the master to whom it was referred to take an account of the copartnership transactions.
Held further, that as the assignees, to whom the complainant had assigned his interest in the suit, after the balance due to him had been liquidated by the master, had filed a bill in the nature of a bill of revivor and supplement, to have the benefit of the former proceedings and to obtain a decree for the payment of the amount reported due, the defendant was authorized to claim the right of set-off in his answer to such bill; so as to obtain the benefit thereof at the hearing in such supplementary suit.
The assignee of a chose in action, the assignment of which is available to him in equity only, takes it subject to all the equities which existed against it in the hands of the assignor; including the equitable right of set-off, if any such right existed against the assignor.
Where the defendant, by mistake, obtained a separate order for a set-off to which he was entitled, instead of having it made a part of the decree in the cause, and the adverse party by a similar slip had lost his opportunity to obtain a reversal of such erroneous order, upon appeal, the court refused to open the default of the latter to enable him to obtain such reversal.
Where the proceedings of a party in a suit, in obtaining the default of his ad versary, are strictly regular, and the substantial justice and equity of the case is with him, the court will not open the default; for the mere purpose of enabling the adverse party to raise technical objections, and thus to entangle justice in the net of form.
1843. October 17.
Where there are cross demands, between two parties, of such a nature that if both were recoverable at law they would be the proper subjects of legal offset, if either of such demands is recoverable in equity only, and a suit is brought upon it in the court of chancery, the defendant may offset his demand against it; in the same manner as if both wore recoverable at law, and the suit had been brought against him in a court of law.
Where the appellant himself draws up and enters an interlocutory order, or decree, he has fifteen days after the entry thereof to appeal from the same. And the order or decree will be considered as entered at the time it is left with the register or clerk to be copied into the minutes of decrees, after it is settled and allowed by him.
But where the order or decree is drawn up and entered by the respondent’s solicitor, the appellant has fifteen days, to appeal from the same, after he is served with a copy of such order or decree, or with a written notice that the order or decree is entered. A mere constructive notice of such entry, or a notice thereof by parol, is not sufficient to limit the right of appeal in such a case.
The right to set off one judgment or decree against another, upon motion in the court of chancery, or by a summary application to the equitable powers of a court of law, exists only in those cases where the debts on both sides have been finally liquidated, by judgment or decree, before the assignment of either of them to a third party for his own benefit.
Upon a bill filed in the court of chancery for an equitable set-off, the right to have such set-off does not always depend upon the statutes of set-off; nor upon the question whether both demands have been liquidated, by judgment or decree.
Where an equitable right of set-off exists while the parties have mutual demands against each other, as in the case where the demand due to the party claiming such set-off is so situated that it is impossible for him to obtain satisfaction of such debt by an ordinary suit to recover the same, the court of chancery, upon a bill filed for that purpose, will compel an equitable set-off of one debt against the other. And the insolvency of the party against whom the set-off is claimed is a sufficient ground to authorize the court of chancery to grant relief, in such a case.
This case came before the chancellor upon the application of E. A. Jee, A. W. Jee, and P. R. Morrison, three of the complainants, to vacate an order, taken by default, dismissing their appeal in this suit; and also to open a decree, obtained upon an ex parte argument, in the cross appeal of the defendant John S. Gay, and to dismiss that appeal.
In September, 1837, the complainant James P. Gay filed his original bill in this cause against the defendant John S. Gay, for an account and settlement of a copartnership, which had existed between the parties, and- for the specific performance of an agreement for the conveyance of the undivided half of an oil mill free from incumbrances. And in July, 1838, a decree was made by the vice chancellor of the seventh circuit for the specific performance of the contract, and also to refer it to a master to take and state an account of the partnership transactions between the parties. Previous to the filing of such bill, the defendant J. S. Gay had become endorser, for the complainant J. P. Gay, of two promissory notes, to Wolf & Co., upon which notes a judgment was recovered against the complainant, on the 7th of May, 1838, for $518,65. And on the 14th of the same month the defendant in this suit, as the endorser of such notes, paid to Wolf 8c Co. the amount of the judgment and took an assignment thereof. In July, 1836, the defendant also became the accommodation endorser of another note to Pruyn & Co. for the complainant J. P. Gay, on which a judgment was recovered for $491,41, on the 7th of May, 1838, against such complainant; and the defendant J. S. Gay as such endorser, paid the amount of the last mentioned judgment, and took an assignment thereof on the 10th of May, 1838.
The master reported a balance due from the defendant to the complainant, upon the copartnership accounts, and the complainant had then become insolvent, so that the judgments could not be collected from him. The defendant J. S. Gay, instead of filing a cross bill for the purpose of having the assigned judgments offset against the balance for which the complainant would be entitled to a decree, made an affidavit of the above facts, and annexed copies of the docket of the judgments, and served them upon the complainant’s solicitor, with notice of an application to have the same offset against the balance which might be found due to the complainant, and be decreed to him, upon the final hearing of this cause on the equity reserved. Upon the hearing, a a motion was made accordingly 3 and the same was decided by the vice chancellor in the same manner as he afterwards decided at the time of making the final decree and order upon the supplemental bill. But as it then appeared that J. P. Gay, the complainant had, on the 1st of April, 1839, subsequent to the master’s report, assigned all his interest in the balance due upon the partnership account, to the appellants E. A. Jee, A. W. Jee, and P. R. Morrison, in part payment of a judgment which they held against him, no decree or order could then be made, nor until the proceedings were revived, and such assignees were made parties to the suit.
The original complainant, together with such assignees, thereupon filed their bill in this cause, in the nature of a bill of revivor and supplement, to make such assignees parties, and to have the benefit of the proceedings in the cause which had been had at the time of the assignment to them. The defendant put in his answer to that bill, setting up the assignment to him of the two judgments against the original complainant, long before the assignment of the demand of such complainant to the Jees and Morrison 3 and stating the proceedings which had previously taken place in the cause, and insisting upon his right of set-off. He also annexed to his answer, as a part thereof, copies of the original affidavits, assignments, and dockets of judgments, on which his motion for a set-off had been founded 3 averring that the facts stated therein were true.
Upon the final hearing of the. cause upon this bill of revivor and supplement," and upon the motion for set-off, the vice chancellor made a decree that there was due to the complainant J. P. Gay, upon the copartnership account, $1068,50 3 which sum he decreed to be paid to the other complainants, as assignees of J. P. Gay, and that neither party should have costs, as against the other. And he directed a separate order to be entered, at the same time, that the complainant’s solicitor should be entitled to retain from the sum decreed to be paid by the defendant, the costs due him from his clients, and that the balance of such moneys be set off against the judgments due from ,the complainant J. P. Gay, which had been assigned to the defendant.
On the 8th of May, 1843, the solicitor for the complainants drew up both the decree and order, and left them upon the clerk’s table to be entered ; and the clerk entered them accordingly. But no copy of the decree or order, or notice thereof, was served on the defendant, or on his solicitor. Nineteen days after the entry of the order, the complainants, E. A. Jee, A. W. Jee, and P. R. Morrison appealed from so much thereof as allowed any part of the offset claimed. And on the 7th of June thereafter, the defendant entered an appeal from so much of the order as allowed the complainants’ solicitor to retain his costs out of the balance due upon the copartnership account, as against the defendant’s claim of offset. On the 12th of June, notice of the last mentioned appeal, and notice of hearing of the same for the first Tuesday in July, was served upon the complainants’ solicitor, by leaving the same with his partner or clerk, in his office; the solicitor being absent from home. And on the same day, notice of a motion to dismiss the first appeal, as not being made in time, was served in the. same manner. D. Cady, of Albany, was employed to argue the appeals, and to resist the defendant’s motion to dismiss the first appeal. But he supposing that the chancellor was engaged in the court for the correction of errors, in New-York, and that the motion term would not be held at Saratoga Springs on the first Tuesday of July, did not attend. The motion to dismiss the first appeal was therefore granted, by default, and the second appeal was argued by the appellant’s counsel ex parte. And so much of the decree as was appealed from by the defendant was reversed.
D. Cady, for the appellants in the first appeal.
J. Rhoades, for the defendant John S. Gay.

Opinion:
The Chancellor.
The excuse for not attending the special term is unquestionably sufficient, as the court for the correction of errors was in session until the first Tuesday in July. The counsel employed to argue the appeals and to resist the defendant's motion, had therefore very strong reasons for believing that the chancellor would not be able to return in time to hold his special term, at Saratoga Springs, on that day, and that cases noticed for that term must stand over until the third Tuesday in July, under the general rule of the court. It would therefore be a matter of course to let these appellants in to resist the defendant's motion to dismiss the appeal, and to open the decree made upon the cross appeal ex parte, upon the usual terms, if the substantial equity and justice of the case was with them. But where the proceedings of the other party have been technically regular, and he has obtained a decree or order which is in conformity with the real equity of the case, this court will not open a default, as a matter of favor, to enable these applicants to insist upon mere technical objections; and thus to give them an opportunity to entangle justice in the net of form. I therefore permitted the parties, on the argument of this motion, to go into the merits of the case, not only as to the regularity of the appeals, but also as to the equity of the defendant's claim to offset the judgments due to him from James P. Gay, against the balance of the copartnership account which was assigned by the latter to the appellants E. A. Jee, A. W. Jee, and P. E. Morrison, pending the suit brought for the settlement of the copartnership transactions.
In relation to the regularity of the first appeal, although the appellant's solicitor acted under a misapprehension as to the practice, I think the defendant's counsel is right in supposing that it was not made within the time limited by the statute for appealing from an interlocutory order. The appeal from such an order must be entered, and notice thereof served on the adverse party or his solicitor, within fifteen days from the time that the appellant has notice of such order. And this court, in the case of The New-York Coal Company v. Dyett, (4 Paige's Rep. 274.) decided that where the appellant draws up and enters the order appealed from, he has notice in fact of the order at the time he enters the same. And an order is considered as entered from the time it is drawn up, or settled, and left with the register or clerk to be copied into the records of the court. In this case, the solicitor for the complainants actually drew up the order, as well as the decree, and left them with the clerk; or rather, he laid them before him on his table, to be entered, after showing his draft to the solicitor of the defendant; and without any direction to the clerk to consult such solicitor before entering the same in the records of the court. The order and decree must therefore be deemed to have been entered by the complainant's solicitor, and at that time ; and the first appeal which was entered on the 27th of May, nineteen days afterwards, was too late. The time for appealing in this case, being fixed by statute, and not by a mere rule of the court, the appeal must therefore have been dismissed, even if the counsel had appeared to oppose the application on the first Tuesday of July ; as the court has no power to extend the time for appealing, in such cases. (1 Barbour's Chan. Prac. 400.)
When the party appealing does not himself enter the order or decree appealed from, he has fifteen days to appeal, after he has notice of the entry of such order or decree, either by the service of a formal written notice on him or his solicitor, or by the service of a copy of the order or decree itself. A mere constructive notice, or even a parol notice of the order, is not sufficient to limit the right of appeal in such a case. (Idem, 399. Wilde v. Jenkins, 14 Wend. 539.) The application to dismiss the defendant's appeal must therefore be denied, even if the decree entered upon the ex parte argument should be opened.
Again ; I think the whole equity of the caséis with the defendant, in relation to the subject matter of both appeals; although there are some technical difficulties existing as to the manner in which the defendant has proceeded to enforce his equitable right of set off. The right to set-off one judgment or decree against another, by a motion to this court, or by a summary application to the equitable powers of a court of law, only exists in those cases where the debts on both sides had been finally liquidated, by judgment or decree, before the assignment of either to a third party. (Graves v. Woodbury, 4 Hill's Rep. 559.) Where one debt, therefore, as in this case, is absolutely assigned to a stranger, pending the litigation, and before it is liquidated by a final judgment or decree, the same cannot be set off against the other, on motion, even in this court; where the two debts have no connection with each other. Upon a bill filed in this court for a set-off, the right of set-off does not always depend upon the statute, nor upon the question whether both demands are liquidated by judgment or decree. But if an equitable right of set-off exists, while the parties have mutual demands against each other, because the debt due to the party claiming the set-off is so situated that it is impossible for him to obtain satisfaction of such debt by an ordinary suit at law, or in equity, to recover the same, this court, upon a bill filed, will compel an equitable set-off of one debt against the other. And the insolvency of the party against whom the set-off is claimed is a sufficient ground for the exercise of the jurisdiction of the court of chancery, in allowing a set-off in cases not provided for by the statute, although the demands on both sides are not liquidated by judgment, or decree, so as to authorize'a set-off upon a summary application, by motion. (See Lindsay v. Jackson, 2 Paige's Rep. 581, and cases there referred to.) And where there are cross demands, between two parties, of such a nature that if both were recoverable at law they would be the subjects of legal offset, then if either of the demands is matter of equitable jurisdiction only, the set-off may be enforced in equity. (Clark v. Coit, 1 Craig & Phil. Rep. 154.)
In this case, it appears by the defendant's affidavit, on which the motion for set-off was founded, and which by the admission of the complainant's solicitor was served on him on the 1st of February, 1839, that J. P. Gay, the complainant, was then insolvent; that executions against him to a large amount had been returned unsatisfied $ and that the payment of the two assigned judgménts could not then have been enforced by executions thereon. This was two months previous to the assignment of his claim against the defendant in this suit j which assignment was not made until the 1st of April, 1839. Previous to that assignment, therefore, an equitable right existed in favor of this defendant, to have his two judgments set-off and applied^in satisfaction of the balance which should be decreed to be due from him, to the complainant J. P. Gay, on account of the copartnership transactious. And if John S. Gay-had adopted the proper technical proceedings to obtain such set-off, by filing a cross bill, instead of resorting to the informal mode of giving notice of a summary application for a set-off upon the final hearing of the cause upon the master's report, it would have been a matter of course, upon these facts, to have made it a part of the decree that the amount due upon the two assigned judgments should be offset, against the balance found due from him by the report of the master. The assignees of the subject matter of this suit, therefore, took it subject to this prior equitable right of set-off which existed against it in favor of the defendant in this suit. For the assignee of a chose in action, the assignment of which is available only in equity, takes subject to all the equities which then exist against the assignor. (Ord v. White, 3 Beavan's Rep. 357.)
When the assignees of the original complainant, therefore, were obliged to file their bill in the nature of a bill of revivor and supplement, to revive and have the benefit of the former proceedings, it was competent and proper for the defendant, as he has done, to set up this equitable right of set-off, in his answer, and to claim the benefit thereof at the hearing. Here again, however, the defendant's solicitor, by a technical slip, relied upon a summary application at the hearing, to obtain his set-off, by a separate order, founded upon aEdavits and documentary evidence of the facts, instead of proving those facts in the usual way, and having the set-off made a part of the decree in the cause. But as there is no doubt as to the facts in the case, and as the defendant has obtained such an allowance of the set-off as he was equitably entitled to, by a slip of the adverse party, it would be inequitable to open the decree upon the appeal, and to grant a rehearing, for the mere purpose of enabling the assignees to insist upon these technical objections to his right of set-off; even if the first appeal had been entered within the time prescribed by the statute. And as no costs were awarded to either party as against the other, in the suit to settle the copartnership account, no equity existed in favor of the complainant's solicitor to have the costs, due to him from his own clients only, paid out of the balance found due upon the copartnership account •, to the exclusion of a part of the defendant's right of set-off.
The motion must be denied, with ten dollars costs.