Fusting v. Sullivan ( 1879 )

Bartol, C. J.,

delivered the opinion of the Court.

John C. Sullivan, in 1871, instituted an action of assumpsit against Joseph P. Fusting; pending the suit the defendant died, and his executors were made parties, and judgment was recovered against them for $1524.18. This judgment, upon an appeal taken by the defendants was affirmed in this Court on the 2nd day of December 1874, (41 Md., 162.)

. On the 3rd day of December 1874, the judgment was assigned by Sullivan, the plaintiff, to James McDougall for valuable consideration. This assignment was made in pursuance of a previous agreement, and was evidenced by an order of that date directing the clerk of the Court of Appeals to enter the judgment to the use of McDougall. The order was signed by Mr. Horwitz, one of the plaintiff’s attorneys, under the plaintiff’s direction. This order was afterwards accidentally mislaid, and another was prepared of the same tenor, signed by plaintiff’s attorneys and filed in the Court of Appeals on the 15th day of December 1874. A like order was filed in the Superior Court where the- judgment had been recovered.

A writ of fieri facias on the judgment was issued out of this Court, directed to the. sheriff of Baltimore City, and was returned nulla bona, whereupon another writ of fi. fa. was issued out of the Superior Court directed to the sheriff of Baltimore County.

The defendants in the judgment, Charles T. and Caroline Rusting, executors, claiming a right to set off certain promissory notes of Sullivan, held by them as endorsees of R. K. Cross, obtained from the Circuit Court for Baltimore County, an order temporarily staying proceedings under the fieri facias.

They then filed their bill of complaint in the Circuit Court of Baltimore City, claiming the right to set off the promissory notes against the 'judgment and execution, alleging the insolvency of Sullivan, bringing into Court the balance due upon the execution, after deducting the amount of the promissory notes, and praying an injunction restraining further proceedings on the fieri facias. An injunction was issued as prayed. The cause was heard on motion to dissolve the injunction, upon bill, answers and evidence, and the injunction was by the order of the Circuit Court dissolved. From this order the present appeal was taken.

The two promissory notes which are claimed by the complainants to be an equitable set-off, were made by Sullivan, payable to the order of Richard K. Cross, each for the sum of $728.85, dated December 1st, 1871, one of them payable eleven months after date, and the other payable twelve months after date. These notes were endorsed by Cross “ without recourse,” and delivered to the complainants on the 5th day of December, 1874. On that day an agreement in writing was entered into between Cross and the complainants, stipulating “that in case the the judgment of Sullivan against the executors, in the Court of Appeals, be set aside in any way, or in case said judgment be assigned by Sullivan, so that executors shall not be able to use the two notes of said Sullivan this day endorsed to them by said Cross, * * * as a set-off to said judgment, then the said notes shall be returned to said Cross, and he shall refund any money he may have received therefor from said executors.”

We think there are several insuperable objections to the set-off claimed by the complainants:

1st. It appears from the evidence that the judgment was assigned to McDougall in good faith, and for a valuable consideration before the promissory notes came into the possession of the complainants.

Though the entry of the use was not made upon the record till the 15th day of December, the proof shows that the equitable assignment was made on the 3rd day of December, in pursuance of an agreement previously made by Sullivan with McDougall, to assign the judgment to him, in case it should he affirmed on appeal. At the time the assignment was made, there existed no equitable right of set-off, or any cross-claim whatever by the defendants in the judgment; the promissory notes were then held by Cross, who was a stranger to the judgment. Under these circumstances the transfer of the notes to the complainants, could not affect the rights of McDougall the assignee, who purchased in good faith and without notice. Code, Art. 9, sec. 3, &c.

2nd. Another objection to the set-off here claimed is, that the promissory notes, even if they had been purchased in good faith, and were held absolutely by the complainants, do not constitute a cross-claim or “mutual debt” within the meaning of the Statute, because not held by them in the same right in which they are liable upon the judgment.

This was rendered against them in their character of executors, whereas the 'promissory notes are held and could only be lawfully acquired by them in their individual character and in their own right. As executors it was not competent for them to apply the assets of their testator in purchasing outstanding claims against creditors of the estate. Mead vs. Merritt and Peck, 2 Paige, 402, 405. Claims so acquired are held in their own right and not as executors. Dennis vs. Cronan, 99 Mass., 334.

It is well settled that an executor cannot set off a claim so held against a debt due by his testator, or by him in his representative character. Shipman vs. Thompson, Willes, 103; Mardall vs. Thelusson, 6 Ellis & Blackburn, 776; Hills vs. Tallman’s Adm’r, 21 Wend., 674; Dudley vs. Griswold, 2 Bradford, 24, and the cases there cited in the Court’s opinion. Waterman on Set-Off, sec. 206, and notes.

3rd. It appears by the agreement between Cross and the complainants, that the transfer of the promissory notes was not made absolutely and in good faith, but merely for the benefit of Cross, to enable him to collect a debt which he claims to be due to him from Sullivan, by placing the notes in the hands of the complainants conditionally, to be used by them as a set-off against the judgment.

In Waterman, sec. 59, it is said that the right of set-off does not extend to claims purchased conditionally for the purpose of using them as a set-off, and with an agreement to return them to the seller if not so used, and for this the author cites Straus vs. The Eagle Ins. Co., 5 Ohio, (N. S.,) 59; Adams vs. McGrew, 2 Ala., (N. S.,) 675 ; McDade vs. Mead, 18 Ala., (N. S.,) 214.

We have no doubt of the correctness of the proposition stated by Mr. Waterman; to allow a set-off in such case would be a fraud upon the Statute. We refer also to Fair vs. McIver, 16 East, 131 m, and London, Bombay, &c. Bank vs. Narraway, L. R., 15 Eq. Ca., 93.

We do not go into the consideration of the evidence in the record, upon the question of the alleged insolvency of Sullivan, because in the view we take of the case, that question is not material. It is no doubt true that Courts of equity allow set-off in cases in which it could not, for some technical reason, be allowed at law, “where the party seeking the benefit of it, can show some equitable grounds for being protected against his adversary’s demand.” Rawson vs. Samuel, 1 Cr. & Phil., 161, 178; Waterman, sec. 360; 31 Md., 18. And the insolvency of the party against whom the set-off is claimed sometimes affords strong equitable ground for allowing it. Marshall vs. Cooper, 43 Md., 46; Levy vs. Steinbach, 43 Md., 212.

(Decided 18th June, 1879.)

But the insolvency of Sullivan, even if it were clearly proved, could have no effect upon the rights of the parties in this case; as it appears for the reasons before stated, that the right of set-off claimed by the complainants, upon which 'the whole equity of their bill depends, cannot be maintained against the assignee of the judgment.

' The order of the Circuit Court dissolving the injunction will be affirmed, and the bill dismissed with costs.

Order affirmed, and bill dismissed with costs.