30 F. Cas. 1081 | Conn. | 1876
Judge Shipman’s Opinion.
E. Crosby & Sons were manufacturers in Connecticut, who were in the habit of consigning their goods to Goodrich & Lockwood, merchants in New York, for sale. The manufacturers were adjudicated bankrupts upon their own petition, and John S. Dobson was appointed assignee upon their estate. Goodrich & Lockwood proved a debt against the bankrupts which amounted to $16,595, the same being for cash advances by the consignees to the bankrupts on merchandise consigned for sale, and $3,935 for notes of E. Crosby & Sons, purchased by Goodrich & Lockwood for value before any act of bankruptcy by said bankrupts, and without collusion, and without suspicion of insolvency of the makers, and at a rate fairly predicated upon their solvency, and without the knowledge of the makers.
Goodrich & Lockwood held at the time of the bankruptcy, and at the time of making said proof, merchandise on hand then estimated as of about the value of $15,750, which has since been sold by them for a sum sufficient to pay both said advances and said notes. They now retain the amount of the advances and of said notes, claiming a right so to do, in payment therefor, and by way of sdt-off and mutual credit. The assignee denies their right to retain the proceeds of said sales beyond the amount of said advances, and the parties have submitted the question of such right to my arbitrament.
The question which is at issue between the parties depends upon the meaning of the term “ mutual credits,” contained in section 5073 of the revised statutes, formerly known as the 20th section of the bankrupt act, which section is as follows: “ That in all cases of mutual debts or mutual credits between the parties, the account between them shall be stated, and one
No question is made that the notes are not provable against the estate of the bankrupt, and it is also admitted that if prior to the bankruptcy the goods had been converted into money, the assignee could not properly claim any sum beyond the balance due from Goodrich & Lockwood upon their entire account. But it is claimed, inasmuch as the goods were in specié at the time of the bankruptcy, and as no lien existed thereon except for the advances, and as no contract had been macle by which they were to be sold to pay any and all indebtedness, that these goods did not constitute a mutual credit within the meaning of the section which has been quoted. The sole question is whether, under the circumstances which have been stated, the goods were a “credit,” so that their avails can be applied in payment of the notes of the bankrupt ?
The term “ mutual credits ” is one which is not generally used in the statutes of the different states relating to set-off, and is peculiar to the bankrupt laws of England and of the United States. It has a more extensive meaning than tho term “ mutual debts,” and has received a liberal construction in England for the benefit of trade and commerce. The 28th section of 5 George II., chap. 80, provided “that where it shall appear to the commissioners, or the major part of them, that there hath been mutual credit given by the bankrupt and any other person, at any time before such person became bankrupt, the commissioners, or the major part of them, or the assignees of such bankrupt’s estate, shall state the account between them, and one debt may be set against another; and what shall appear to be due on either side, on the balance of such account, or the setting such debts against one another, .and no more, shall be claimed on either side respectively.”
As thus expounded, the familiar doctrine of the right to set off mutual debts is enlarged by the addition of the term “ mutual credits;” so that if one party owes a debt which is due at the time of the bankruptcy to a person who is indebted to the other in a sum payable in futuro, the one debt may be set off in bankruptcy against the other, and if, at the time of the bankruptcy, A, a bankrupt, owes B a debt, and has also placed goods in his hands with directions generally to turn into money, though not on account of, or in payment of, that particular debt, the goods are a mutual credit, and their avails when sold, which avails have then become a debt due to A’s assignee, may be set off against the debt which is due from the bankrupt.
It will be observed that this principle has no reference to any legal or equitable lien which has been created by contract or custom between the parties, but rests entirely upon the statute.
It is also to be remembered that it was never supposed that goods or choses in action which had been deposited by the bankrupt with'a person for a particular purpose, as a coll at-^
The decision in Rose v. Hart, which was carefully considered, and which was a modification of previous decisions, has ever since been regarded of paramount authority by the English courts. Subsequent decisions have somewhat varied from each other as to the exact meaning of that part of the opinion which states that “ the credits must in their nature terminate in debts,” and it has been insisted by eminent judges that those goods only could be considered a mutual credit “when from the nature of the transaction, and according to the terms of the contract or contracts between the parties, the demands arising on the one side and on the other must necessarily result in mutual pecuniary debts.” (Dissenting opinion of Kelly, C. B., in Astley v. Gurney, 4 Law Rep., C. P., 724.) As this distinction is one of great importance in this case, and, if it is supported by the weight of authority, is decisive against the claim of the consignees, an examination of the later English decisions becomes necessary.
The three important decisions upon this subject are Young v. Bank of Bengal, 1 Deac., 622, Naorigi v. Bank of India, 8 Law Rep., C. P., 444, and Astley v. Gurney, 4 Law Rep., C. P., 714.
The facts in Young v. Bank of Bengal, which are substantially taken from the syllabus of the case, are as follows:— Palmer & Co. having borrowed a large sum of the Bank of Bengal, deposited the promissory notes of the government of Bengal, commonly called the company’s paper, as a collateral security, accompanied with an agreement in writing, authorizing the bank, in default of repayment of the loan by a given day, to sell the company’s paper for the reimbursement of the bank, rendering to Palmer & Co. any surplus. Before default was made Palmer & Co. were declared insolvent under the India insolvent act, which contains a provision in regard to set-off similar to the section of the act of George II. which
It will be perceived that the paper which was deposited by the bankrupt with the bank was as collateral security for the repayment of a particular loan. Lord Brougham, who gave an elaborate opinion in the case, does not rest his decision entirely upon that ground however, but substantially holds that the doctrine of mutual credit only applies where the person who had given the credit “ had placed the other party in a situation which he himself could not alter, had given him funds of which he could not dispossess him, or, which is the same thing, a power over funds which he could not revoke and that Palmer & Co. had not placed themselves in this position, because they could at any time, by repaying the moneys advanced, have regained possession of the deposit, and determined the power of sale, and thus have prevented the bank from ever receiving the surplus. The court considered the decision in Rose v. Hart to be “that such a set-off is only competent to the pawnee where the thing alleged to be a giving of credit either constitutes a present cross debt or must end in one.” If the opinion of Lord Brougham, though not necessary to the decision of that case, was now the law of England, it would follow that in the case now under consideration no mutual credit existed, for the assignee could probably have compelled the consignees to deliver up the goods, at the time of his appointment, by the repayment of their cash advances, and have determined their power of sale.
In Alsager v. Currie, 12 M. & W., 751, the Court of Ex
The facts.of that case, and of the present, bring them within the second rule laid down by Gibbs, Ch. J., in Rose v. Hart. Kelly, Ch. B., in his dissenting opinion, did not fail to point out that the authority to sell did not take away from Joyce & Co. the power to provide themselves for the acceptances, and to take back the bills of lading, and thus that the coffee was not necessarily to be converted into money, and ought not to have been treated as money. The majority of the court, however, clearly held with the court in the Bank of India case, that where the natural result of the arrangement between the parties in the ordinary course of business would be the conversion of the property into money, such a delivery constituted a mutual credit. It can, therefore, now be considered, that so far as Young v. Bank of Bengal is an authority for holding that, to constitute a mutual credit, the authority to sell must be irrevocable, the authority is overruled in England. It may be added that the dicta in Murray v. Riggs, 15 Johns., 571, and Ex parte Caylus et al., Lowell, 550, the American cases which are directly upon this point, are in conformity with Rose v. Mart.
The remark of Judge Woodruff in Clark v. Icelin, 10 Blatchf. C. C. R., 211, that “ any collections in excess of the advances for which they [the assets of the bankrupt] were specifically pledged, made after the filing of the petition, were collections for the account of the consignees, and as to them no such right of set-off exists,” refers to collections of .assets which were pledged as collateral security for a specific debt, which assets, while they existed in specié, did not constitute a mutual credit, and the avails of which, unless collected before the filing of the petition, could not therefore be used as a set-off.
It is true that Lord Brougham’s rule is one which relieves assignees from responsibility, and does not cast upon them the burden of deciding whether they will or will not raise the money to pay the consignees cash advances, and take posses
If the notes of E. Crosby & Sons had been directly given to Goodridh & Lockwood for moneys loaned to the former, though without reference to the goods, or for property purchased by the bankrupts from Goodrich & Lockwood, the merchandise would clearly have been a mutual credit, under all the decisions except Young v. Bank of Bengal. It is then to be considered whether the fact that the notes were purchased of these persons without the knowledge of E. Crosby & Sons, though with no suspicion of their insolvency, varies the rights of the parties.
The notes are a debt provable against the bankrupt estate, and if the goods constitute a credit given by the bankrupts to the consignees, the avails of the goods may be set off against any provable demand which Goodrich & Lockwood have against the bankrupts, and it is not material whether that claim consists of purchased notes of the bankrupts or of money directly loaned to them. Alsager v. Currie, 12 M. & W., 757. The important question to be determined is, were the goods deposited under such circumstances that they constitute a credit ? And if they were a credit the only reinain
In cases of involuntary bankruptcy it would not seem, under the amendment of June 22d, 1874, to be important where or for what purpose the claims against the bankrupt were purchased, provided they were not purchased after the filing of the petition.
As has been suggested, the material question in cases of this class is, were the goods delivered under such circumstances as to constitute a mutual credit ?
The conclusions which are sanctioned by the authorities are, that where a known debt is due from the bankrupt, and goods have been deposited with the creditor, not as a pledge, for sale under such circumstances of dealing between the parties that a conversion into money is, in the ordinary course of business, the natural result of the transaction, such goods constitute a mutual credit given by the bankrupt to the other, and when they are sold, either before or after the filing of the petition, the avails may be set off against any unsecured claims due from the bankrupt, under the restrictions provided in section 5078 of the revised statutes.
Goods deposited as a pledge or as collateral security are not a mutual credit, but if sold before the filing of the petition, in good faith, the excess above the debt for which they are a security, becomes a debt of the consignee to the bankrupt, capable of being set off like any other mutual debt. If such goods are sold after the filing of the petition; the excess belongs to the assignee.
Upon the foregoing principles it follows that nothing is due from Goodrich & Lockwood to the estate of E. Crosby & Sons.