Court Opinion

ID: 6698395
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:01:32.631628+00
Date Added: 2024-06-11T16:01:19.659718
License: Public Domain

Seawell, J.,
dissenting: I think the main opinion fails to apprehend the real issue in the controversy between the parties upon which decision should rest. Whatever other claims the plaintiff may have, and however *441vigorously they may have been projected into the argument of the case, the fact remains, upon a proper showing, that there is sufficient in her pleading and in the record history of the case to entitle her to equitable set-off or recoupment against whatever interest the defendant Katzis may have, and that it is within the power of the Court, in the exercise of its equity jurisdiction, to make orders to protect the corporate defendant in whatever interest it may have, so that the major equity — the protection of the plaintiff in the assertion of her claim and a proper hearing thereupon — may be achieved. The case has been viewed merely as another attempt to attack the note now held by the bank (of which Katzis is the equitable owner), and defeat it for want of consideration, and the decision is based upon the principle of res adjudicatei. But the pleadings and the brief of plaintiffs present to us the question of equitable set-off, which has nothing to do with a failure of consideration or any adjudication which has been made upon the note.
We have advanced from the common law, where no set-off was recognized, to statutory set-off or counterclaim, as provided in the statute, C. S., 521, where an action has been brought for the enforcement of contrary demands, hut that is by no means the end of the law. It is familiar learning that a judgment, and, a fortiori, the foreclosure of a mortgage, may be enjoined and stayed where to enforce either would be unjust, and especially where because of the relation of parties and the connection between the items of indebtedness on either side the enforcement of the demand would be inequitable. There is presented here a situation which, according to the practice of the courts, has been considered peculiarly a subject of equity jurisdiction.
For convenience, I use the name “Sineath” to represent the plaintiffs, and “Katzis” to represent the defendants, unless it otherwise appears.
On 1 February, 1937, Katzis sold to Sineath his business as Goldsboro Cleaners and Hatters, Inc., in the town of Goldsboro, consisting of the good will of the business and a quantity of stock and equipment suitable for carrying it on. Katzis agreed not to engage in that business within Wayne County for a period of fifteen years from that date. Sineath paid $10,000.00 in cash and executed several notes aggregating $20,200.00, and to secure these notes he executed a deed of trust or mortgage on the stock and equipment. Subsequently, Katzis borrowed money from the Bank of Wayne and assigned the Sineath note and mortgage in security. There is now due upon this mortgage the sum of $10,900.00, and the interest of the Bank of Wayne is approximately $2,463.01.
Almost immediately after this transaction, Katzis opened up the same kind of business in the town of Goldsboro, operating through other parties. Sineath enjoined Katzis from further prosecution of the business and asked that his note be delivered up and canceled because of the *442breach of the contract and for total failure of consideration, and for damages for the breach of the contract.
Upon the trial of this ease the jury found that the contract was breached, and, under the instruction of the court, awarded nominal damages. As to the note, an issue was submitted upon which it was found that Sineath was indebted thereon as appeared in the note. The bank was held to be owner and holder in due course, by reason of the assignment. The injunction against Katzis with regard to prosecution of the business was continued. On appeal to this Court the judgment was upheld. Sineath v. Katzis, 218 N. C., 740.
Afterward, plaintiff instituted the present action, alleging further breaches of the contract on the part of Katzis since the trial of the former case, obtained an injunction against the enforcement of the deed of trust or mortgage, and sought to have such damages as might be awarded applied in offset or recoupment against the note. It is alleged that the defendant is insolvent.
In the court below, the injunction against the enforcement of the mortgage, pending a hearing, was dissolved and plaintiffs appealed.
At the time of the purchase of the business, the contract between Sineath and Katzis, of which the note was a part, was executory, or continuing, both with respect to the payment of the purchase price on the part of Sineath, and the performance on the part of Katzis of his agreement to refrain from carrying on the business. Except as partly performed on the part of Sineath, and, further, as qualified by the former trial, the mutual performance of this contract is still a matter for the court when its jurisdiction is properly invoked, with the rights of the parties to be adjusted as far as may be done under established rules of law and equity.
Leaving aside all extraneous matter, I return to the question: Are plaintiffs entitled to equitable set-off or recoupment for losses or damages sustained since the former trial, through breach of the contract, as against whatever interest the defendant Katzis may now have in the note and mortgage given for the purchase price?
As stated, the question of failure of consideration of the note as between Sineath and Katzis is not involved in the question of set-off. The right of set-off or recoupment would exist in favor of the plaintiffs, notwithstanding any adjudication in that respect, which did not include the subject matter of the proposed set-off. It becomes a question whether there are now legal or equitable means to enforce it.
Insolvency on the part of one who seeks to enforce a claim against a judgment debtor-creditor has long been recognized as raising the right of equitable set-off to secure justice between the parties. Schuler v. Israel, 120 U. S., 506, 30 L. Ed., 707; North Chicago Rolling Mill Co. v. St. *443Louis Ore & Steel Co., 152 U. S., 596, 38 L. Ed., 565; Citizens Bank v. Kendrick, 92 Tenn., 437, 21 S. W., 1070.
Upon this point I quote from 24 R. C. L., p. 807, section 15: “In order to effect an equitable set-off it is well settled that equity has jurisdiction to restrain' a judgment creditor from collecting his judgment against the judgment debtor, until a claim of the latter against the former has been judicially established, and then to permit an equitable offset of the one against the other, where the judgment creditor is either insolvent or has no property out of which the judgment debtor can collect his claim” . . .
In North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., supra, the plaintiff obtained an injunction against the defendant to restrain the enforcement of a judgment under circumstances similar to those in the case at bar. The opinion of the Court denied the plea of the defendant that the claim of the plaintiff in equity was unliquidated and disposed of the other matters at issue as follows: “Again, it is well established that equity will entertain jurisdiction and afford relief against the collection of a judgment where in justice and good conscience it ought not to he enforced, as where there is a meritorious, equitable defense thereto, which could not have been set up at law, or which the party was, without fault or negligence, prevented from interposing. Illustrations of these general principles are found in the cases of Leeds v. Marine Ins. Co., 19 U. S. 6 Wheat. 565 (5 :332) ; Scammon v. Kimball, 92 U. S., 362 (23 :483) ; Crim v. Handley, 94 U. S., 652 (24:216) ; Embry v. Palmer, 107 U. S., 3 (27 :346) ; Knox County v. Harshman, 133 U. S., 154 (33 :586) ; Marshall v. Holmes, 141 U. S., 589 (35 :870).
“By the decided weight of authority it is settled that the insolvency of the party against whom the set-off is claimed is a sufficient ground for equitable interference. Leeds v. Marine Ins. Co., 19 U. S., 6 Wheat. 565 (5 :332) ; Lindsay v. Jackson, 2 Paige, 581; Gay v. Gay, 10 Paige, 369; Pond v. Smith, 4 Conn., 302; Robbins v. Holley, 1 T. B. Mon., 194; Hinrichsen v. Reinback, 27 Ill., 295; Raleigh v. Raleigh, 35 Ill., 512; Hall v. Kimball, 77 Ill., 161; Chicago D. & V. R. Co. v. Field, 86 Ill., 270; Doane v. Walker, 101 Ill., 628; Davis v. Milburn, 3 Iowa, 163; Tuscumbia R. Co. v. Rhodes, 8 Ala., 206; Wray v. Furniss, 27 Ala., 471; Keightley v. Walls, 27 Ind., 384; Wulschner v. Sells, 87 Ind., 71; Laybourn v. Seymour (Minn.), April 27, 1893; Rothschild v. Mack, 115 N. Y., 1; Richards v. La Tourette, 119 N. Y., 54; Schuler v. Israel, 120 U. S., 506 (30:707).”
Where it is shown that the right of equitable set-off exists in behalf of the plaintiff by reason of matters happening since the judgment, and the defendant is insolvent, that right may he protected by injunction against further proceeding even after execution has been issued upon *444tbe judgment. Wiggin v. Janvrin, 47 N. H., 295; Steere v. Stafford, 12 R. I., 131; Markey v. Markey, 13 N. Y. S., 295; Bass v. Chambliss, 9 La. Ann., 376.
Some early eases, much outweighed and largely abandoned in tbe development of tbis subject, are to tbe effect that tbe insolvency of a party alone will not give rise to tbe equitable jurisdiction. .Amongst them is Riddick v. Moore, 65 N. C., 382. Tbe latter case is not followed in tbis respect by subsequent cases.
At any rate, insolvency bas always been considered “a material circumstance to be considered in determining whether an equitable set-off should be allowed, and, when coupled with other matters, may authorize tbe allowance of tbe set-off.” North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., supra; Dewey v. West Fairmont Gas Coal Co., 123 U. S., 329, 31 L. Ed., 179; Cromwell v. Parsons, 219 Mass., 299, 106 N. E., 1020; Smith v. Smith, 79 N. C., 455.
In tbis State tbe scope of tbis remedy bas been enlarged by our statute declaring unliquidated demands connected with tbe transaction, out of which tbe action arises, to be proper matters of set-off.
Courts of equity have for a very long period of time entertained actions and .provided a forum for equitable relief with regard to set-off, counterclaim, and recoupment, without tbe statutory authority later found necessary to make such relief available in courts of law. And they still proceed under that authority where, as here, their jurisdiction bas not been curtailed by tbe statute. “Equity follows tbe law,” and it can make no difference whether tbe matter pleaded as set-off is yet to be established. It is for that purpose equity creates tbe forum. A party who bas tbe right of equitable set-off is not confined in asserting it to an action brought by tbe contrary party and bis answer with respect thereto. Such a forum at law may not exist, but tbe party having tbe right may create the forum by appeal to a court of equity by way of injunction to stay tbe judgment or restrain tbe foreclosure of tbe mortgage until bis countervailing claim is established. North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., supra.
Recoupment, as included in tbe remedy generally classed as “set-off,” bas been variously defined in terms which distinguish it from a plea of failure of consideration: “Tbe keeping back and stopping something which is diie.” Fricke v. W. E. Fuetterer Battery, etc., Co., 220 Mo. A., 623, 288 S. W., 1000; Waterman Set-Off, 2nd Edition, 457. “Tbe keeping back or stopping something which is otherwise due because tbe other party to tbe contract bas violated some duty devolving upon him in tbe same transaction.” Nelson Co. v. Goodrich, 159 Wash., 189, 292 P., 406, 408. “Tbe keeping back of something that is due because there is an equitable reason to withhold it.” Michigan Yacht, etc., Co. v. Busch, *445143 Fed., 929, 936. “A quasi offset of counterclaims not liquidated.” Barber v. Chapin, 28 Vt., 413, 416. Tbe distinctions between recoup^ ment, offset and counterclaim are of no practical value excepting as showing the intimate connection of this form of offset with the demand made by the other party and, therefore, its equitable implication. It proceeds on the equitable principle that because of the acts of the other party to the contract who seeks to enforce the obligation, the party who seeks relief by way of set-off has been denied the full enjoyment of the right he has purchased, and has been thereby damaged. It is, in itself, equitable in its nature. Johnston v. Grimm, 209 Iowa, 1050, 229 N. W., 716; Bryne v. Dorey, 221 Mass., 399, 109 N. E., 146.
No one can contend that it is fair or just to permit the defendant to continue in the enjoyment of the full measure of the purchase price received for the good will of the business, when in open violation of his contract, and in defiance of the injunction of this Court, he continues to engage in the business from which he has solemnly contracted to desist, and thereby deprives the plaintiff of the very thing he agreed to deliver to him. Under the facts as they have been found, he has never completely delivered the good will of the business. He now seeks to take away the physical stock and equipment. After paying around $20,000.00 of the purchase price, there is little left to the plaintiff but a lot of experience.
It may be conceded that there are instances of wrong where no remedy is provided. If so, a court of equity should not be astute to find them or multiply them.
In formulating its judgments the Court has power to protect the interests of all persons before it. The right of the bank to realize on its collateral cannot be questioned. An order should be made either requiring that this money should be paid to the bank, or that a sufficient bond be given to protect it against loss. Upon such condition, the injunction should be continued to the hearing.
ClabksoN, J., concurs in dissent.