Court Opinion

ID: 7968332
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:52:45.649841+00
Date Added: 2024-06-11T16:34:42.460833
License: Public Domain

Collins, J.
An examination of the adjudicated cases on the question now before us will disclose that the positions assumed by the counsel for the respective parties to this controversy are well supported by the authorities, and that any attempt to reconcile the squarely-conflicting views found in the many opinions would prove futile. Evidently it has been regarded as an open question in this state, although the principle involved has received some attention in Balch v. Wilson, 25 Minn. 299; Tripp v. Northwestern Nat. Bank, 45 Minn. 383, (48 N. W. 4;) and recently in Laybourn v. Seymour, 53 Minn. 105, (54 N. W. 941.)
That the insolvency of a party against whom a set-off is claimed is a sufficient ground for the exercise of the jurisdiction of a court of equity in allowing a set-off in cases not provided for by law, or, in other words, that insolvency has long been recognized as a distinct equitable ground for set-off, cannot well be disputed. Some of the cases supporting this doctrine are cited in Waterman, Set-Off, §§ 431, 432. See, also, Kentucky Flour Co.’s Assignee v. Merchants’ Nat. Bank, 90 Ky. 225, (13 S. W. 910,) and eases hereinafter mentioned. From these authorities there-can be little or no controversy over the proposition that had the bank itself while insolvent, and prior to an assignment, brought an action upon the note in question, defendant McLeod could have invoked the power of the court in his behalf, and could have been allowed to interpose his equitable set-off arising out of the certificate of deposit, although it had not then matured. So that the prominent inquiry now is whether this equitable power of the court was impaired by the assignment to plaintiff under the statute of 1881 a few days before the note became due and several months prior to the maturity of the certificate.
Upon principle, it is difficult to see why a set-off which a debtor might have utilized in an action brought against him by an insolvent creditor cannot be made available when the action is brought by an assignee. To determine that it cannot, it must be held, contrary to the general rule, that, by reason of the assignment, the relations between the parties have been radically changed. Just how this change is brought about is not clearly pointed out in any of the cases cited by respondent’s counsel, although it is said in the ease mainly relied upon — Fera v. Wick-*92ham, 135 N. Y. 223, (31 N. E. 1028) — that, before the assignment,, an equitable adjustment by set-off may be made without interfering with the equities of others, while immediately upon the passing of the estate to an assignee the formerly existing and natural equity disappears in superior equities resting in the general body of creditors; the latter are then interested, says the court, in having equality of distribution.
In line with this reasoning, the counsel for respondent in the-case at bar argues that, if the defendant McLeod can be allowed to set off the certificate to the amount of his note, he thereby gains the preference over other creditors forbidden by our insolvency law. One answer to this line of argument is that, whenever a debtor is insolvent, all of his creditors are interested in the equality of distribution referred to. The interest in having the estate of an insolvent ratably distributed among all of his creditors arises out of the fact of his insolvency, and not by the assignment. If the general body have superior equities as to the property and its distribution over the equitable rights of one of their number, they must antedate and have become vested before the assignment.
It seems to us that any line of reasoning based upon the proposition that these superior equities are not brought into existence until the assignment is made, and then suddenly come to life,, while at the same time, all as if by the wand of the magician, the former and natural equity of the single creditor as suddenly disappears, is unsound. We are convinced that the better rule is-that an equitable set-off which the debtor of an insolvent has at the time the latter stops payment is not affected or altered by an assignment. ' This statement is well supported by authorities, some-from jurisdictions governed by statutory provisions similar to our own. Schuler v. Israel, 120 U. S. 506, (7 Sup. Ct. 648;) Carr v. Hamilton, 129 U. S. 252, (9 Sup. Ct. 295;) Scott v. Armstrong, 146 U. S. 499, (13 Sup. Ct. 148;) Merwin v. Austin, 58 Conn. 22, (18 Atl. 1029;) Wagoner et al., Receivers, v. Paterson Gas Light Co., 23 N. J. Law, 283; Nashville T. Co. v. Fourth Nat. Bank, 91 Tenn. 336, (18 S. W. 822;) Barbour v. National Exchange Bank, 50 Ohio St. 90, (33 N. E. 542.)
The defendant McLeod being the principal debtor, and Leek an indorser simply, the set-off can be allowed, although McLeod alone *93owned the certificate. Becker v. Northway, 44 Minn. 61, (46 N. W. 210.)
Order reversed.
Buck, J., absent, sick, took no part in this case.
(Opinion published 58 N. W. 826.)