| Mass. | Jun 29, 1877
The plaintiffs’ testator, Jonathan S. Baker, agreed on or about March 1,1871, to lend the defendant Backus $5000 upon his note for that sum, payable in six years, and to take an assignment of a certain contract as collateral. The note was given and the contract assigned. Backus received, at the time, Baker’s note for $3180, payable in four months, and cash to the amount of $1820. This note was payable to Backus, and on June 29, 1871, was duly assigned fat value to the defendants Stoddard and Kellogg, and the next day they notified the plaintiffs (who, in the mean time, had been appointed executors of Baker) of the assignment, and that they should demand payment of the note according to its tenor. At the time of the assignment, they knew Backus was in failing circumstances, and, in August following, he was adjudicated a bankrupt. Upon this note an action was brought against the plaintiffs for the benefit of Stoddard and Kellogg, and the note of $5000 was filed in set-off. It was held that the promise of Backus to pay his note of $5000 at maturity, and the delivery of the collateral security
It is conceded by the plaintiffs that the note of Backus, not being due, cannot be set off at law, and the question raised by this bill is whether it can be in equity, and, upon principle and authority, we think it cannot.
It may be stated, as a general rule, that a court of equity will not stay proceedings in an action at law, unless the plaintiff has some equitable ground of defence not available at law ; or, having a defence, has been prevented by fraud or accident from availing himself of it, without negligence on his part. Hendrickson v. Hinckley, 17 How. 443" court="SCOTUS" date_filed="1855-02-12" href="https://app.midpage.ai/document/hendrickson-v-hinckley-86943?utm_source=webapp" opinion_id="86943">17 How. 443. And, in the matter of set-off, courts of equity follow the courts of law, except where there is some equitable ground growing out of the transaction or the relation of the parties, which brings the case within the general jurisdiction of a court of equity, and justifies granting relief beyond the rules of law. Holbrook v. Bliss, 9 Allen, 69, 77. The existence of cross demands is not a sufficient ground for interference ; the party seeking the benefit of the set-off must show some peculiar equity which entitles him to be protected against his adversary’s demand.
Under this rule it has been held, in cases resembling the case at bar that courts of equity will not interfere with proceedings at law In Rawson v. Samuel, Cr. & Ph. 161, 178, Lord Cottenham decided that he could not, on the ground of equitable set-off prevent a party recovering a sum awarded him in an action at law, merely because there was an unsettled account between him
Leaving out of view the subsequent transactions, and the other circumstances previously recited, it is clear that these plaintiffs could have had no ground of equitable set-off against an action brought by Backus upon the note for $3180, when due, merely by reason of the fact that they held the note of Backus due at a future day, although both notes were made in connection with the same transaction. But it is contended that the fact that Backus was afterwards adjudged a bankrupt, and also that Stoddard and Kellogg knew that he was insolvent when they took the assignment, raise equities, which entitle these plaintiffs to set off the note not yet due.
It is well settled that an assignee of a chose in action, while he takes it subject to all equities existing between his assignor and the debtor at the time the notice of the assignment is given, is not to have his rights affected by any matter or claim subsequently arising. Brown v. Maine Bank, 11 Mass. 153" court="Mass." date_filed="1814-05-15" href="https://app.midpage.ai/document/brown-v-president-of-the-maine-bank-6404160?utm_source=webapp" opinion_id="6404160">11 Mass. 153. Greene v. Darling, 5 Mason C.C., 201" court="None" date_filed="1828-11-15" href="https://app.midpage.ai/document/greene-v-darling-8631862?utm_source=webapp" opinion_id="8631862">5 Mason, 201, 214. Watson v. Mid-Wales Railway, L. R. 2 C. P. 593. The subsequent bankruptcy of the assignor cannot defeat the assignment, or raise an equity that would enable the debtor to set off a debt not due; Dix v. Cobb, 4 Mass. 508" court="Mass." date_filed="1808-09-15" href="https://app.midpage.ai/document/dix-v-cobb-6403279?utm_source=webapp" opinion_id="6403279">4 Mass. 508; Winch v. Keeley, 1 T. R. 619; and cannot be availed of to defeat an action brought by the bankrupt for the benefit of the person to whom he assigned the chose in action before the bankruptcy. Boyd v. Mangles, 16 M. & W. 337. In such a case, the rule of mutual credits in bankruptcy is not to be extended beyond the proceedings in bankruptcy or other anal ogous proceedings, and cannot be applied by a court of equity, simply because the assignor afterwards became a bankrupt. Nor are the rules relating to the settlement of insolvent estates of persons living or deceased, or to actions brought by assignees under an assignment for the benefit of creditors, to have application to the claim of an assignee of a chose in action. See Aldrich v. Campbell, 4 Gray, 284; Smith v. Felton, 43 N.Y. 419" court="NY" date_filed="1871-01-24" href="https://app.midpage.ai/document/smith-v--felton-3586077?utm_source=webapp" opinion_id="3586077">43 N. Y. 419, 422, 423; Commonwealth v. Shoe Leather Dealers' Ins. Co, 112 Mass. 181" court="Mass." date_filed="1873-03-15" href="https://app.midpage.ai/document/cobb-v-city-of-boston-6417250?utm_source=webapp" opinion_id="6417250">112 Mass. 181.
There is some conflict of authority, how far the insolvency of one of the parties is a sufficient ground for a court of equity to exercise its jurisdiction in allowing an equitable set-off. See Greene v. Darling, ubi supra, and cases cited; Lindsay v. Jackson, 2 Paige, 581; 2 Lead. Cas. in Equity, (4th Am. ed.) 1346. But we consider it unnecessary to enter into an elaborate examination of the authorities on this question. Whatever may be the rights of a party whose debt is due and payable, to compel an insolvent debtor to set off a claim against him not due, — which question we are not called upon here to decide, — we are clearly of opinion that a party, whose debt is not due, has no equitable claim to have it set off against a debt of his own, already due, in the hands of a party who is insolvent.
In Rawson v. Samuel, Cr. & Ph. 161, 175, previously cited, which was a bill to stay proceedings in an action at law, and prevent the defendant from recovering the sum awarded by a jury, and to set off an unsettled account, Lord Cottenham was of opinion that the insolvency of the defendant, who had brought the action at law, could give the plaintiff no equity.
In Lindsay v. Jackson, 2 Paige, 581, the plaintiffs held an overdue acceptance of the defendants, who were insolvent. At the same time, the defendants held notes of the plaintiffs not due. The bill sought to restrain the defendants from negotiating the notes, and prayed that the amount due them might be applied in set-off against the amount due on the acceptance. The bill was sustained on the ground that it would be unjust and inequitable to permit the defendants to dispose of these notes, either for their private purposes or in payment of their general or favorite creditors, leaving the plaintiffs’ acceptance unpaid. Chancellor Walworth, in delivering the opinion, remarks: “It might present an entirely different question if the defendants’ debt was now due from the complainants, who were seeking to compensate it by a claim against the defendants payable at a future day.” And, after citing from Pothier on Obligations, 590,
The case here suggested, to which the doctrine of equitable set-off would not apply, is the case at bar; and the precise question afterwards arose in the same state. In Bradley v. Angel, 3 Comst. 475, the plaintiffs were indebted to the defendants’ testator in a large sum, to recover which the defendants had brought an action at law. The plaintiffs thereupon brought a bill to compel a set-off of certain notes given to them by the testator, not yet due, and to restrain the action at law. The estate of the testator was insolvent, and it was held that the bill could not be maintained.
The distinction pointed out in these two cases appears to be just and reasonable. For, assuming that a court of equity may enforce a set-off in favor of a plaintiff, to whom a debt is due, against an insolvent debtor, who holds a claim not due, it by no means follows that it would be equitable to protect a plaintiff from the payment of his debt according to his contract, simply because the defendant, against whom he has a claim due at a future day, is at the time insolvent. In the one case, an insolvent debtor, refusing to pay his own debt already due, would be simply restrained from holding a claim, not due against the plaintiff, as an investment, or for the purpose of paying or preferring creditors, and might be compelled to set it off, if the plaintiff was ready to anticipate the payment. In the other, the plaintiff would be relieved from the performance of his contract presently due, and be allowed to obtain payment of his own claim before it is due by the terms of his contract.
It is conceded that this cannot be allowed at law, and we are aware of no case where the doctrine of set-off has been carried to that extent in equity, and the authorities already cited are clearly against it.
Bill dismissed, with costs.