Case Name: F. M. Tuttle, Appellant, v. J. L. Bisbee
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1909-04-10
Citations: 144 Iowa 53
Docket Number: 
Parties: F. M. Tuttle, Appellant, v. J. L. Bisbee.
Judges: 
Reporter: Iowa Reports
Volume: 144
Pages: 53–64

Head Matter:
F. M. Tuttle, Appellant, v. J. L. Bisbee.
1 Setoff: legal or equitable: determination. Where the plaintiff in a suit on a promissory note, submitted to the court by agreement, asked the equitable relief that items of defendant’s counterclaim for services be credited on the note as of their dates, the right to which is denied in the reply, the court is authorized to determine whether such credits shall be allowed as an equitable setoff.
2 Setoff and counterclaim: mutual debt's: compensation. Mutual debts were not extinguishable by the common law, but by the civil law relief is granted by the reciprocal acquittal of debts between two persons indebted to each other; the compensation being the extinction of debts by which two persons are reciprocally debtors and creditors of each other.
3 Same: equitable jurisdiction. While it is ordinarily true that equity follows the statutes in the matter of allowing a setoff or counterclaim in a law action; that a mere account or claim is not ground for equitable relief; and that equity will not intervene except where justice can not be administered according to the strict rules of law; still, independent of the statute and under its jurisdiction equity will grant relief where there is a mutual credit between the parties, based on the existence of some debt due from the crediting party to the other party.
4 Same. In the instant case defendant gave plaintiff his note payable on demand with interest and providing for interest on past due interest. During a period extending from a time prior to the execution of the note to about seven years thereafter defendant rendered services for plaintiff at various times but nothing was credited on the note. Held, that items for services rendered should be credited on the note as of the date rendered.
Deemer, J. dissenting.
Appeal from Clay District Court. — Hon. A. D. Bailie, Judge.
Saturday April 10, 1909.
Rehearing Denied Thursday, September 30, 1909.
Action on a promissory note to which defendant pleaded a counterclaim and recovered judgment thereon.
Affirmed.
Buck & Kirkpatrick, for appellant.
W. E. Barnhart and Geo. A. Heald, for appellee.

Opinion:
Ladd, J.
The defendant gave his promissory note to the plaintiff February 1, 1898, for $291.15. It was payable on demand and bore interest at the rate of eight percent per annum, payable . annually, and provided that "should any of the interest not be paid when due it shall bear interest at the rate of eight percent per annum." The action was begun August 9, 1907, up to which time nothing had been credited on the note. The "answer and counterclaim" averred that the note had been fully paid, that defendant had rendered services for plaintiff as set out in an itemized account extending from December 20, 1897, to October 30, 1906, of the reasonable value of the several items, and prayed for judgment thereon, and that."the account be ascertained that is due this defendant over and above the amount of the note sued on, and that the charges as they appear in defendant's bill of particulars be deducted from the note as held by the plaintiff as of the date of the items, and for all other legal and equitable relief in the premises, and that an accounting be had between plaintiff and defendant." By way of reply, plaintiff admitted the correctness of the account, but asserted that, as the account was continuous and open, defendant was entitled to interest thereon from six months after the last item only and then at 6 percent per annum, that he was not entitled to have the items applied as payments. on the -note until the filing of the an swer and counterclaim, and is "not entitled to equitable relief." A jury was waived, and tbe cause submitted on tbe pleadings, save tbat the note was introduced in evidence. Tbe court applied tbe total of items of each year as a credit on tbe note on tbe last day of said year and found there to be due tbe defendant tbe sum of $18.26, for which judgment was entered.
It will be observed that no issue of fact is presented by tbe pleadings, and that the action was rightly begun on the' law side of the calendar. Section 3428 of the Code. No' error as 1° the kind of proceedings adopted then appears to have been made, so that cause might not have been transferred to the equity side of the docket, even though motion that this be done bad been filed. Johnston v. Robuck, 104 Iowa, 523. But in such a case "either party shall have the right, by motion, to have any issue heretofore exclusively cognizable in equity tried in the manner hereinafter prescribed in cases of equitable proceedings." Section 3435 of the Code. No motion to have the issue beard as in equity was presented, but the answer definitely prayed for equitable relief, in that the items of the account be applied on the note as of their dates, and the right thereto was specifically challenged by the reply. As the issue was thus made, we are of the opinion, in view of the fact that the cause was submitted on the pleadings, that the question was presented to the court whether credit should be applied as an equitable setoff.
II. The account began in December, 1897, and amounted to but $19.25 prior to the execution of the note, February 1, 1908. This note was matured during the remaining eight years and more of the account. During this period payment for the services as rendered at each of the eighty-five different times became due and owing tbe defendant when performed, and tbe note was payable at each of these several dates until satisfied. It is unreasonable to suppose that tbe one or the other of the parties would have allowed so long a period to elapse but for the implied understanding that the noninterest-bearing items of account were to be credited on the note. Mutual debts were inextinguishable at the common law, but by the civil law under the doctrine of compensation relief, was granted by "the reciprocal acquittal of debts between two persons who are indebted the one to the other." "Compensation is the extinction of debts of which two persons are reciprocally debtors to one another, by the credits by which they are reciprocally creditors to one another." 2 Story, Equity Jurisprudence, section 1437. In the work cited the author notes "that, independently of the statutes of setoff, courts of equity, in virtue of their general jurisdiction, are accustomed to grant relief in all cases where although there are mutual and independent debts, yet there is a mutual credit between the parties founded, at the time, upon the existence of some debts due by the crediting party to the other. By mutual credits, in the sense in which the terms are here used, we are to understand a knowledge on both sides of an existing debt due to one party and a credit by the other, founded on an<j trusting to such debt as a means of discharging it." Story's Equity Jurisprudence, section 235. In Trent v. Term., 3 Doug. 257, Mr. Justice Buller observed that "wherever there is a trust between two men on each side, that makes a mutual credit," and Mr. Justice Dallas declared in Key v. Flint, 8 Taunt, 21, that " 'mutual credit' meant something different from mutual debts. Mutual credit must mean mutual trust." The cases are reviewed in Greene v. Darling, 5 Mason, 207 (213 Fed. Cas. No. 5,765), summing up thus:
"The conclusion which seems deducible from the general current of the English decisions (although most of them have arisen in bankruptcy) is that courts of equity will set off distinct debts, where there has been a mutual credit, upon the principles of natural justice, to avoid circuity of suits, following the doctrine of compensation of the civil law to a limited extent. That law went further than ours, deeming each debt sub jure, set off, or extinguished pro tanto; whereas, our law gives the party an election to set off, if he chooses to exercise it; but if he does not, the debt is left in full force, to be recovered in an adversary -suit. Since the statutes of setoff of mutual debts and credits, courts of equity have generally followed the course adopted in the construction of the statutes by courts of law, and have applied the doctrine to equitable debts. They have rarely, if ever, broken in upon the decisions at law, unless some other equity intervened, which justified them in granting relief beyond the rules of law, such as has been already alluded to; and, on the other hand, courts of law sometimes set off equitable against legal debts, as in Bottomley v. Brooke (cited 1 T. R. 619). The American courts have generally adopted the same principles, as far as the statutes of setoff of the respective States have enabled them to act."
Since the enactment of statutes allowing a setoff or counterclaim to be pleaded in actions at law, the courts of equity have usually followed the law, save when peculiar equities intervene. 2 Story, Equity, section 1437. Such cases are too various for citation. Ordinarily a mere claim or account will not furnish ground for relief. As said by Judge Story, in section 1435 of the work-cited: "Independently of the statutes of setoff, courts of equity, in virtue of their general jurisdiction, are accustomed to grant relief in all cases where, although there are mutual and independent debts, yet there is. a mutual credit between the parties, founded at the time upon the existence of some debt due by the crediting party to the other. By 'mutual credit,' in the sense in which the terms are here used, we are to understand a knowledge on both sides of an existing debt due, to one party, and a credit by the other party, founded and trusting to such debt as a means of discharging."
This well describes the situation of the parties in the case before us. No other inference is reasonably to be drawn from the facts disclosed than they were trusting to the services rendered by defendant, concern- . _ . _ _ mg which there was no controversy, to satisfy plaintiff's demand. The precise question was before the Supreme Court of Georgia in Merriwether v. Bird, 9 Ga. 594. An action was brought by an administrator on a note. .One of the makers set up an account for legal services rendered plaintiff's decedent after the maturity of the note, and the court, after recognizing the plea of setoff as good in bar, referred to the doctrine of setoff under the civil law, and speaking through Lumpkin, L, proceeded: "The rule of that Code has been correctly cited by the learned counsel, from Pothier, namely: If you have a debt due from me, which carries interest, and afterwards become my debtor of a sum which from its nature does not carry interest, my debt will be held to be discharged to the extent of the mutual credit, from the time of such credit taking place, and interest would only be due for the balance, from that time — and the author puts the following illustration: If you are my creditor of a sum of £1,000 for the price of an estate which you have sold and conveyed to me, and afterwards you become sole heir to Peton, and in that quality my debtor for £800, the amount of a loan from me to Peton; from the death of Peton, your demand' of £1,000 is to be regarded as acquitted to the amount, of £800, and subsisting only for the remaining £200, and from the death of Peton the interest will only continue to run upon the remaining £200. Is there anything in 'our law of set-off which excludes this construction ? I know of nothing, and it is so manifestly right that it commends itself to the conscience of every man. Interest is only given by way of damages for the detention of a debt. . . . But there is another principle which would seem to entitle the defendants to the relief which they seek, and that'is, in cases of mutual credit, where there is knowledge on both sides of an existing debt due to one party and a credit by the other party, founded on and trusting to such debt, as a means of payment, that the law will so apply it."
Equity will intervene to effect a' setoff ofily when under the strict rules of the law justice can not be effectuated, and we are of opinion that the record presents such a cáse. Deeisiobs to the contrary may be found, but in all to which our attention has been directed the defenses or counterclaims were at law, and equitable relief was not prayed. The rule adopted will effectuate justice, and is supported by authority. — Affirmed.