Court Opinion

ID: 8507872
Source: CourtListenerOpinion
Date Created: 2022-11-23 08:08:16.765398+00
Date Added: 2024-06-11T16:50:58.364839
License: Public Domain

Gholson, J.
In the strongest view in which the facts of the case can be presented for the defendant, the transaction could only amount to this, — that Newman transferred to Johnson the unsold patent rights, and the money due for those sold, receiving in part consideration the note on which the action is founded. This money might come into the hands *392of Newman, and to secure its payment over to Johnson, the bond was taken; but still the money from the time of the transfer was the money of Johnson.
In this view of the matter, the most favorable for the defendant, he would on the receipt of any money by Johnson have been entitled to an action for so much money had and received. Whether a bond having been taken, such right of action would have been merged in it, as a higher security, is a question which does not affect the principle on which the case stands; for, taken either way, in an action on the note, the claim could only be asserted as a set-off.
And this leads to the inquiry, whether the defendant could claim such a set-off against the present plaintiffs, endorsees of the negotiable note before its maturity, though they might have had notice of the existence of the claim when they obtained the note ?
The right of set-off depends on the provisions of the statute; it was not allowed at common law, 15 M. & W. 446. The statutes on the subject of set-off were repealed by the Code, and we are now to look into its provisions for the rules by which it is governed. Upon looking into those provisions, I do not think any new rule as to the right of set-off was introduced.
Section 97 of the Code provides: “A set-off can only be pleaded in an action founded on a contract, and must be a cause of action arising upon contract, or ascertained by the decision of the Court.”
A set-off must be a cause of action, and properly it must be a cause of action against the adverse party; in other words, to constitute a set-off, there must be mutual demands. But when there are such mutual demands, *393one party should not be allowed to defeat the right of set-off of the other by a transfer or assignment of his demand. This matter is accordingly regulated by Section 99 of the Code, which provides: “When cross-demands have existed between persons under such circumstances, that if one had brought an action against the other, a counterclaim or set-off could have been set up, neither can be deprived of the benefit thereof by the assignment or death of the other, but the two demands must be deemed compensated, so far as they equal each other.”
In the sense in which the term “cross-demands” is used ■ in that section, they must have existed before the assignment, and have been such that at the time of the assignment each party could have brought an action on his demand against the other. In this view it is obvious, that no such demand was ever held by Newman against Johnson, prior to the endorsement of the note to the plaintiffs. The note having been transferred before it became due, no cause of action had accrued thereon to Newman, before he assigned the note to the plaintiffs. There never was, therefore, cross-demands between Johnson and Newman within the meaning of the statute, and there was nothing to prevent an endorsement of the note by Newman,-before it became due, unaffected by any independent claim held by Johnson, though the party taking the note had knowledge thereof.
There is another Section of the Code, which remains to be noticed. It is provided in Section 26, that “in the case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off, or other defence now allowed; but this section shall not apply to negotiable bonds, promissory notes, or bills of *394exchange, transferred in good faith and upon good consideration, before due.”
Before the Code a "thing in action” could not be assigned so as to avoid the necessity of suing in the name of the assignor. By the Code, the assignee was allowed to sue in his own name, and it was therefore deemed necessary to provide in Section 26, that the right of action given to the assignee should not prejudice any setoif or defence, now allowed. It is clear, that it was not intended by the first part of the Section to change the law of set-off) and any inference of such change as to negotiable instruments, is expressly guarded against by the latter part of the Section, which provides, that it shall not apply to such instruments, transferred in good faith and upon good consideration, before due.
I am satisfied, that Section 26 in no respect affects or changes the right of set-off, which is regulated by the other sections, to which allusion has been made; That section was borrowed from á similar one in the New York Code, and hence the expression "now allowed,” which, as the statutes in force before their Code, on the subject of set-off, were not repealed, showed an intention not to alter the law. Accordingly in the case of Beckwith vs. Union Bank, 4 Sandf. 604, it was so expressly held by the Superior Court of New York. The circumstance that our Code repeals the former statutes of set-off and reenacts their provisions, cannot be considered as giving to Section 26 any greater effect than has been given to it in New York, from the Code of which State it has been copied.
Being therefore satisfied that the defendant cannot avail himself of the defence he sets up against the present plain,*395tiffs, it is not necessary to pass on the other questions raised on the motion for a new trial, which will be overruled.
Lincoln, Smith & Warnock for plaintiff.
Norton and Judge Probasco, for defendant.