Laybourn v. Seymour

At the time of the assignment by the insolvent corporation of all its property to this plaintiff for the benefit of its *108creditors the defendants were indebted to the corporation for goods sold to them. This is an action to recover the amount of that indebtedness. The defendants assert the right to set off a claim against the corporation which arose as follows: The corporation by its treasurer and managing agent had made an order, directed to the corporation, to deliver to one Fagan sash, doors, blinds, and mouldings to the amount of $375. This was not signed, but across the face of it the corporation, by its proper agent, wrote its acceptance, with the further words, “Note received in settlement of open account.” By assignment this afterwards passed from Fagan to these defendants, who now seek to avail themselves of it by way of set-off. At the time the corporation made its assignment under the insolvent law, this .acceptance, as it may be called for convenience, had not been fully satisfied by a delivery of goods to the amount specified, nor had there been any demand for the delivery of the full amount of goods.

The unsigned order thus “accepted” by the corporation constituted an express agreement on its part to deliver goods as therein specified; but that was the extent of its obligation in the first instance. While the conditions remained as they were when it was issued, the corporation could not be called upon to pay the specified amount in money, nor could the “acceptance” have been available as a set-off, under the statute, against a debt due to the corporation, of the nature of that for which this action is prosecuted; but the making of the assignment under the insolvent law changed the situation and the legal rights of the holder of this instrument. The corporation thereby disabled itself from performing the specific obligation expressed in its written undertaking, and hence subjected itself at once to the alternative liability to answer in damages as for breach of contract. The law does not require the doing of a useless thing, and, the corporation having thus disabled itself to specifically perform its agreement, a demand was not necessary to convert the right to demand the goods into a right to compensation in money. The situation of defendants is the same as it would have been if, before the assignment in insolvency, they had demanded the goods, and the corporation, from inability to comply with the demand or from other cause, had refused to deliver the same.

*109Such being tbe case, this demand was allowable as a set-off by tbe terms of tbe statute, which, “in an action arising on contract,” allows, as a counterclaim or set-off, “any other cause of action, arising also on contract, and existing at tbe commencement of tbe action.” 1878 G-. S. cb. 66, § 97.

But by reason of the insolvency of the corporation such a set-off is allowable in equity, even though the case be not within the statute. The equitable right of set-off, or “stoppage, ” as it was formerly called, was not derived from, nor is it dependent upon, statutes,—Waterman, Set-Off, § 398; Rothschild v. Mack, 115 N. Y. 1, 8, (21 N. E. Rep. 726;) Becker v. Northway, 44 Minn. 61, (46 N. W. Rep. 210;) Freeman v. Lomas, 9 Hare, 109, 113,—although its exercise is limited to cases involving some distinct equity, independent of tbe mere existence of mutual but unconnected accounts or demands. Tbe insolvency of tbe party against whose demand tbe other party claims tbe right of set-off has been recognized as affording a sufficient reason for allowing tbe set-off in equity, at least where tbe debt sought to be set off is already mature. Martin v. Pillsbury, 23 Minn. 175; Hunt v. Conrad, 47 Minn. 557, (50 N. W. Rep. 614;) Lindsay v. Jackson, 2 Paige, 581; Richards v. La Tourette, 119 N. Y. 54, (23 N. E. Rep. 531;) Pond v. Smith, 4 Conn. 297; Colt v. Brown, 12 Gray, 233; American Bank v. Wall, 56 Me. 167; Tuscumbia, C. & D. R. Co. v. Rhodes, 8 Ala. 206; Krause v. Beitel, 3 Rawle, 199; Chenault v. Bush, 84 Ky. 528, (2 S. W. Rep. 160;) Richardson v. Parker, 2 Swan, 529. Even if it be, as was considered in the late case of Fera v. Wickham, 135 N. Y. 223, (31 N. E. Rep. 1028,) that, in the case of an insolvent who has assigned bis property for the benefit of creditors, a set-off will not be allowed of debts to the insolvent not due at the time of the assignment, that would not defeat the right of set-off in this case. The debt here sought to be set off became a money demand, presently due, at the very instant when the assignment -was made.

Our conclusion is that the defendants were entitled to have their demand set off against that of the plaintiff, and the order denying a new trial must be reversed.

(Opinion published 54 N. W. Rep. 941.)