91 Tenn. 336 | Tenn. | 1892
The Connell-Hall-McLester Company, a Tennessee mercantile corporation, located at Nashville, executed a general assignment to the Nashville Trust Company, for the benefit of cred
At the date of the assignment,'- the assignor company had on deposit, subject to its check, in said bank, $5,222.66, and the bank held its four notes for borrowed money, due as follows: One due July 3, 1891, for $10,000; one due July 17, 1891, for $4,500; one due July 19, 1891, for $9,000; one due August 22, 1891, for $4,500. Making a total of $28,000..
The bank, after the assignment was made and noted for registration, and on the same day it was ■made, with knowledge of the assignment, applied said deposit to the credit of the assignor upon its indebtedness to the bank on the above stated notes. Within'three days after the assignment, the assignee drew its check upon the bank for the amount of the deposit, caused the same to be presented for payment, and payment was refused. The assignor is insolvent, and was insolvent at the date of the assignment, and will not pay its debts in full.
On December 4, 1891, the assignee and the Fourth National Bank submitted an agreed case to the Chancery Court at Nashville for decision upon the foregoing facts — the assignee claiming, as stated in the agreed case, “that it had the right to collect the deposit, and. that it still has such right;
These questions were submitted for decision, with the agreement that costs should be paid by the losing party.
The Chancellor held for the defendant, the bank, grounding his decision upon the doctrine of equitable set-off, and the complainant has appealed.
Two questions are now presented for decision.' The first is, whether the doctrine of equitable set-off applied, and gave to the bank, immediately upon the assignment being made and the insolvency of the assignor established, the right to have the deposit credited upon' or allowed as a set-off’ against the indebtedness of the assignor, not then due.
The complainant’s counsel argues with much force and plausibility that the mere fact that one of the parties to independent, cross-indebtedness is insolvent constitutes no ground for equitable set-off; that some connection of dependence or “ mutual
On the other hand, it is argued with equal force and plausibility for defendant, that insolvency is of itself a sufficient ground for equitable set-off, without any connection or “mutual credit” between the debts or parties; that connection and insolvency are separate and distinct grounds for such relief, each being alone sufficient; that where insolvency exists, it makes . no difference that the indebtedness on one side is not due, nor which party is insolvent — whether the party seeking the set-off or the party resisting it; that under the statutes providing for the equal fro rata distribution of the assets of insolvent persons and corporations, the assets of the insolvent, in respect to choses in action, are only the balances due the insolvent estate after deducting all proper credits,
The second question is — the indebtedness on both sides being due / when the agreed case was filed — whether the bank has the legal right of set-off.
‘ On this question, in addition to the contentions already suggested, it is insisted for complainant that the rights of the parties were fixed at the date of the assignment, and the bank having no right to set-off at that date, it has not such right now; that the lapse of time did not enlarge defendant’s right in this respect; and that, the as-signee represents the creditors of the assignor,' and not the assignor only, and, therefore, that the as-signee is not to be regarded as standing in the shoes of the assignor simply.
On the other hand, it is insisted for defendant that the assignee takes not only as a volunteer, subject to all the equities existing against the as-" signor, and not as a purchaser for value, but also as the personal representative of the assignor, and stands for and in the place of the assignor in all
Opposed as they are to each other, the positions of counsel are each supported by apparently well-considered cases on both of the general questions stated; but no adjudication of this Court upon a similar state of facts has been cited, nor is the Court aware of any case in this State in which the precise questions here raised have been decided. The adjudged cases in this country and in England, and the text-books founded upon them, are in hopeless and irreconcilable conflict on many of the points involved. Any effort to reconcile them would be utterly futile. There is no touchstone of reason that will distinguish and harmonize them upon any general principle applicable to all of them, for their antagonism is not apparent simply, but real and fundamental. They but furnish one of the many illustrations of that diversity of judgment which is inherent in the minds of men, which often, out of substantially similar raw materials and general conditions, has founded and 'built up dissimilar systems of jurisprudence, and which, too, often proves a delusion and a snare to the worshiper of mere precedent.
We must, therefore, look for guidance to the
“ In pursuance of these old statutes, and of the dictates of equity,” says the Supreme Court of the United States, in Carr v. Hamilton, 129 U. S., 255, 256, “the principles of set-off between mutual debts and credits has for nearly two centuries past been adopted in the English bankrupt laws, and has always -prevailed in our own whenever we have had such a law in force on our statute-book; and it mattered not whether the debt was due at the time of bankruptcy or not.” Citing authorities.
The jurisdiction of Coui’ts of Equity over the subject of set-off was exercised before there was
Ey the civil law, from which the great body of our system of equity comes, a cross-debt was, by mere operation of law, without any act of the pai’ty, extinguished. .It was treated as an absolute payment. Courts of Equity in this country, while not going so far, have accomplished the same result in numerous cases, by granting perpetual injunctions against judgments in favor of insolvent persons who were indebted in larger amounts to the judgment debtor. Brazelton v. Brooks, 2 Head, 193; Hough v. Chaffin, 4 Sneed, 238. And in other cases where,- on account of the non-residence of the judgment plaintiff, or for other reason, the defendant could not save the demand due himself except by setting it off against the judgment. Gregory v. Hasbrook, 1 Tenn. Ch., 220; Edminson v. Baxter, 4 Hay., 112; 'Waterman on Set-off, Sec. 431. The Court, in all such cases, is governed, not by the statute of set-off’, but by the general principles of equity. Jeffries v. Evans, 43 Am. Dec., 158. And the general principle of equitable set-off seems to be, that it will be allowed where the party claiming it appears in good conscience to be entitled to it, and no superior equity in
With these general principles in view, we proceed to examine the reasons urged in argument for and against the application of the doctrine of equitable set-off in this case.
And, 'first, as to the capacity in which the complainant stands before the Court. Is the Nashville Trust Company to be - regarded as standing in the shoes of its assignor — the Connell - Hall - McLester Company — or upon different and higher ground?
On this point the authorities are not in harmony; but we are of opinion that reason and the weight of authority support the view that. an assignee for the benefit of creditors takes the choses in action of his assignor, not as' a purchaser for value, but as a volunteer, and therefore subject to all the defenses and equities existing against them in the hands of the assignor; and not only so,but that he holds as the representative of the assignor and his estate, and in this respect is to be distinguished from a particular assignee holding for himself, either as volunteer or purchaser. Burrell on Assignments, Sec. 391; 3 Zab. (N. J.), 283;
“It is deducible from tbe general scope of tbe authorities,” says Mr. Waterman, “that insolvency has long been recognized as a distinct equitable ground of set-off.” Waterman on Set-off, Sec. 432.
Numerous authorities are cited by the learned author, but it is not deemed useful or necessary to review them, as this Court has repeatedly so held. Brazelton v. Brooks, 2 Head, 193; Hough v. Chaffin, 4 Sneed, 238; Gregory v. Hasbrook, 1 Tenn. Ch., 220; Edminson v. Baxter, 4 Hay., 112; Richardson v. Parker, 2 Swan, 529; Moseby v. Williamson, 5 Heis., 287; Comfort v. Patterson, 2 Lea, 670; Howe Machine Co. v. Zachary, 2 Tenn. Ch., 478; Catron v. Cross, 3 Heis., 584; Smith v. Mosby, 9 Heis., 501; Fields v. Carney, 4 Bax., 137.
Thirdly, as to the fact' that the indebtedness on one side is not due when the set-off is claimed.
It seems to be conceded by counsel for complainant that the fact that the indebtedness from the party claiming the right of set-off is not due would constitute no obstacle, as he might be allowed, if he chose, to expedite payment of a debt due from himself without doing any injustice to the opposite party. But it is earnestly insisted that it is quite different where it is the debt against which the set-off is claimed that is not due; that, in such' case, to allow the set-off, and thereby compel payment of a debt not due without the
The argument is persuasive, and not without the support of respectable authority. Spaulding v. Bachus, 122 Mass., 553 (S. C., 23 Am. Rep., 391); Hannon v. Williams, 34 N. J. Eq., 255 (S. C., 38 Am. Rep., 378); Jordan v. National Shoe and Leather Bank, 74 N. Y., 467 (S. C., 30 Am. Rep., 319); Lockwood v. Beckwith, 6 Mich., 168 (S. C., 72 Am. Dec., 69); and "Watermán on Set-off, Secs. 131, 132, all seem to support this position, as do other cases not cited. The most of these and, like eases seem to be, and many of them are, expressly based on the principle- stated and illustrated in Potheir On Obligations, 590, as follows:
“ I am your debtor for six pipes of wine of a particular vintage. You ' are' my debtor for six pipes of wine generally. I may demand the six particular pipes, and, ’ therefore, you cannot offset the general debt for six pipes; but I may offset my particular pipes, if I please, against yours, because I could turn them out to you in' payment of the general debt.”.
It is obvious that this- illustration does not involve any principle of equitable set-off. It is only the statement of the general principle, applicable not only to the law of set-off‘, but to contracts as well, that an obligation payable in one commodity cannot be paid in another without the consent of
The case of Spaulding v. Bachus, supra, relied on for the distinction under consideration, is not strictly an authority for the position; for, while the learned Court does approve the distinction that a party cannot anticipate payment of, an unma-tured debt to himself by setting off against it a debt due from himself presently payable, notwithstanding the insolvency of the complainant, the suit in that case was by or for the benefit of an assignee by purchase, and the real question was whether a debt owing by the defendant to the assignor at the date of the assignment, though not then due, was to be regarded as an equity so attacked to the assigned debt as to carry with it the right *of set-off as against the assignee with notice of assignor’s ’insolvency. The holding in the negative is not necessarily inconsistent with the right of set-off as between the original parties, and appears entirely consistent with the de
Lockwood v. Beckwith, Jordan v. National Shoe and Leather Bank, and Hannon v. Williams do fairly hold the proposition contended for by complainant’s counsel. The effect of the sections cited from Waterman on Set-off is, that the set-off will be allowed where the debt not due is in favor of the, party against whom the right of set-off is asserted. It is only by implication that the learned author can be treated as against the right in cases like the present.
We cannot agree with these authorities, either in their reasoning or result.
The question is, Assuming the insolvency of the party owing the unmatured debt, can his debtor, when sued by the insolvent on a debt which is due, set off against it in equity the unmatured debt because of the insolvency? We are of opinion that both reason and the weight of authority answer in the affirmative.
In connection with the general plhnciple of equity before alluded to, that a set-off' will be allowed where the party appears in good conscience to be entitled to it, and where no opposing equal or superior equity will be defeated — and we are
Technicalities are not to be so sweeping in their consequences. This Court looks to the substance and not to the shadow of things. It is the very fact that the contract eannot be performed literally
But it will be found, upon examination, that this objection may be urged with equal force in almost if not every case where the doctrine of equitable set-off has been applied. Take, for example, the case of a judgment on the one side and a simple contract debt on the other. The judgment plaintiff is entitled to immediate execution and to collect his money at once. lie does not have to await the law’s delay and the expense of litigation. He has not only the right to demand his money, but to compel payment at once by final process before the defendant can possibly obtain judgment and place himself on equal footing in respect to the debt due him. He must await the delay of legal proceedings, while the plaintiff in the judgment may, in the meantime, in the exercise of not only a contract right, but a contract right sanctioned by the final judgment of the Court, proceed to collection at once. And yet, it has never been considered that this right of a judgment plaintiff, if he is insolvent, stands in the way of equitable relief to the other party by injunction and set-off, although it cannot be said that there is here any less violation of the clear legal right than there is in setting off a debt not due against one that is due and payable.
The right of set-off in such and like cases is sanctioned by many authorities.
In Fra v. Wickham, Sup. Ct., N. Y., Oct., 1891, reported in New York Supplement, 892, the right of set-off was upheld in a case like this, except that the parties were natural persons instead of corporations.
In Schuler v. Israel, 120 U. S., 506, the Supreme Court of the United States approves the same doctrine in a garnishment proceeding, the syllabus, fairly supported by the opinion, on this point being: “A garnishee has a right to set up any defense against the attachment process which he could have done against the debtor in the particular action; and if the debtor be insolvent, and owes the garnishee on a note not due, for which he has no sufficient security, he is not bound to risk the loss of his debt in answer to the garnishee process.” The facts appearing in the answer of the garnishee, he was discharged.
In Carr v. Hamilton, 129 U. S., 252, the same doctrine was applied between an insolvent life insurance company and the holder of an unmatured endowment policy, who was also indebted to the company for a loan, past due at the date of insolvency.
“It is unquestionably the law that, as between individuals, the right of equitable set-off exists, although the debt had not matured at the time of the 'insolvency. Ordinarily, of course, a debt not due cannot be set off against one already due. To allow it would be to. change the contract and advance the time of payment. But where the party asserting the due debt is a non-resident or becomes insolvent, then either of these conditions, ipso facto, gives to the other party the right of equitable set-off, although his debt had not matured when the debtor became insolvent or the condition arose giving the right of equitable set-off.”
¥e conclude, therefore, that insolvency • is a good ground of equitable set-off, even where the indebtedness on one side is not due, and that it makes no difference in which party’s favor is the unmatured debt. The supposed hardship or injustice resulting from the anticipation of the unma-tured debt may and should be wholly obviated by discounting it or adding interest to the due debt for the unexpired time of the debt not due, and in this way equalize the interest.
Fourthly, as to the effect of the statutes providing for' the equal and ratable distribution among
Without elaborating this question, it is sufficient to say we are of opinion that the position of defendant is the correct one. Under a similar statute in reference to the estates of insolvent deceased persons, this Court held, in Richardson v. Parker, 3 Swan, 529, that it is only the balance remaining in favor of the estate after all just settlements with debtors that goes into the fund for distribution. These balances are the “ assets ” to which the statute refers. In that case a set-off was allowed to the debtor of an insolvent estate in a suit by the administrator against him; and although it was a case of legal set-off purely, we are of opinion the principle announced applies equally to the case of equitable set-off. The Court has, in fact, shown a disposition to extend the principle to every case. It was so expressly extended to insolvent corporations in Moseby v. Williamson, 5 Heis., 287, and to a general assignment by an insolvent bank in Comfort v. Patterson, 2 Lea, 670. It has also recognized that the same principle is applicable to the estates of bankrupts under national bankrupt laws. 2 Swan, 530; 5 Heis., 287; 2 Tenn. Ch., 479, and casqs there cited. And the principle has been uniformly so applied by the. bankrupt Courts. Drake v. Rollo, 4 Nat. Bankrupt Reg., 689; In re City Bank of Savings, 6 Id., 71; In re H. Petrie, 7 Id., 332; 2 Vern., 428, note 1. It is applicable to receiv
In these and numerous like cases the Courts proceed upon the idea so well expressed by the New Jersey Court in Receivers v. Paterson Gaslight Co.:
“ The object of the Act is to do equal justice to all the creditors; and equality is bquity. But equality of what and among whom? Clearly of the assets of the bank among the creditors of the bank. In cases of cross-indebtedness, the assets of the bank consist only of the balance of the accounts. That is all the fund which the bank itself would ’have had to satisfy its creditors in case no receiver had been appointed. And there is no equality and no equity in putting a debtor of the bank who has a just and legal set-off as against the corporation, in a ivorse position, and the creditors in a better position, by the failure of the bank and the appointment of receivers.” 3 Zab., 294, 295.
In that case, although the debt to the bank
These considerations and authorities are equally conclusive against tbe argument of complainant that the rights of tbe parties were, fixed at tbe date of the assignment. It is true they were fixed in the sense that a debtor of tbe assignor could not thereafter ■purchase or acquire a debt against tbe assignor and set it off against his own debt to the assignor. McGinnis v. Allen, 2 Swan, 645. Dnless the debt was held at the date of assured insolvency, in case of a corporation, or at the date of the assignment of an insolvent debtor or the death of an insolvent decedent, it cannot be set off. Id.; 5 Heis., 287; 2 Swan, 529; 9 Heis., 501, 506; 8 Bax., 408. If the estate be solvent, the set-off will be allowed, although acquired after the death of plaintiff’s intestate.- 2 Swan, 645.
The second question presented by the agreed case is, whether the legal right of set-off existed when the suit was commenced.
The indebtedness on both sides being then due, and mutual under tbe rules herein announced, it would seem that the only question remaining is, whether the agreed case is to be treated as in effect a suit to recover the deposit.
"We are of opinion that it must be so treated.
Tbe Chancellor’s decree is, therefore, affirmed, and tbe assignee, out of tbe assets in its hands, will pay costs.