Richards v. La Tourette , 60 N.Y. Sup. Ct. 623 ( 1889 )

Hardin, P. J.

Upon this appeal the pivotal question is whether the defendant Mersereau was entitled to set off the claims which he held against the Rockwells against the mortgage which the plaintiffs, as assignees, seek to foreclose. At the time of the assignment by the Rockwells to the plaintiffs nothing was past or over due upon the mortgage. The principal had not matured, nor had any interest become overdue, nor had there been any demand of payment of the money on deposit with the banking-house, nor any return of the certificate and demand of payment thereof.

In Richards v. Village of Union, 48 Hun, 263, we held that, the plaintiffs-being the owners of an order for the payment of money before it came due, they were clothed with all the rights of assignees before maturity of negotiable instruments, and that the defendant was not entitled to offset as a counter-claim against the said order the balance of money due it from the firm. Our decision was placed upon the ground that “at the time of the assignment the defendant was not entitled to offset or counter-claim against said order the balance o'f money due it of $221.17. Before the order came due, the defendant had notice of its assignment to plaintiffs. If the defendant, on the day before the assignment, or the day after the assignment, had commenced the action to recover the balance due its treasurer, the order in question would not have been alegal offset or counter-claim against the balance due to the defendant.” It is insisted on behalf of the respondent that our decision in that case “is in no way a precedent to govern this, ” and the only suggestion made why it is not is foundin the remark of the respondent’s counsel, to-wit: “It was not contested, and only submitted on points presented by the assignee.” That was an action upon an order, and this is an action upon a bond and mortgage. At the time the assignment was made to the plaintiffs, Mersereau could not have maintained an action to set off either his deposit or his certificate of deposit against the mortgage held by Rockwell, as the mortgage was not, nor was any part of it, then due and payable. In Smith v. Felton, 43 N. Y. 421, the note on which the assignees brought the action was not due at the time of the assignment to them, or at the time of the failure of their assignor; nor was the note on interest, and it was said, therefore, “the holder would lose nothing by a present payment;” and in that case “the plaintiffs took title to the note, subject to the equitable claim of the defendants as it existed at the time of the assignment, which was to set off their debt against the note to the amount of the latter, and the legal title will not avail to defeat this prior equity of the defendants.” Thus it appears that the right to set off was rested upon the circumstance that, although the note was not due, yet as it did not bear interest the holder at the time of making the assignment thereof would not suffer by a set-off. In the circumstance we have mentioned that case differs from the one before us. . In Lindsay v. Jackson, 2 Paige, 581, the debt of the complainants, who sought to compel an offset, was not due, and the debt to them from the defendants was overdue, and an injunction restraining the defendants from disposing of their debt was sustained, and the chancellor observes: “The complainants alone had an interest in obtaining the time of-credit which was given on these demands. 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. See Young v. Gye, 10 J. B. Moore, 198. ” That case furnishes no authority for the contention of the defendants here. In section 501 of the Code of Civil Procedure it is provided that a counter-claim in an action on a contract may be set up of “any other cause of action on contract existing at the commencement of the action.” That provision is limited and restricted, however, by the language found in section 502 of the Code of Civil Procedure. In subdivision 1 of the latter section it is provided that, “if the action is founded upon a contract which has been assigned by the party thereto, * * * a demand existing against the party thereto * * * at the time of the assignment thereof, and belonging to the defendant, in good faith, before notice of the assignment, must be allowed as a counterclaim, to the amount of the plaintiff’s demand, if it might have been so allowed against the party, or the assignee, while the contract belonged to him.” Applying the provision just quoted to the case in hand, it is to be observed that, while the bond and mortgage belonged to Rockwell, they were not due, and therefore the defendants’ claim was not such an one as “might have been so allowed against the party * * * 'while the contract belonged to him.” Wells v. Stewart, 3 Barb. 40. In Bradley v. Angel, 3 N. Y. 475, the complainants held debts which were not due, and they sought to compel an offset against them of debts held by the defendant’s testator, which were overdue; and in speaking of the situation Gardiner, J., says: “The proposition is, in effect, to change the contract of the paities in some of its most important provisions, in order to meet a supposed equity arising from matters ex post facto.” In Martin v. Kunzmuller, 37 N. Y. 397, it was held that “in an action by an assignee the defendant cannot offset a note made by the assignor which fell due after the assignment of the subject of the action was made.” Seymour v. Dunham, 24 Hun, 95, is distinguishable from the case before us. There the action was upon a promissory note, which fell due before the holder thereof made an assignment to the plaintiffs, who brought an action thereon, and an outstanding certificate was allowed to be offset, although the defendant had made no demand for the money deposited; a majority of the court being of the opinion that, as the banker had become insolvent, “no demand of the deposit is needed for his protection,” and that deposits are debts payable in prcesenti; and it was also intimated, viz., “that no demand was-needed "when the deposit was to be used only as a set-off or defense.” In Jordan v. Bank, 74 N. Y. 470, it was held that a bank “has not the right to retain the balance of a customer’s deposit, to pay or apply upon an indebtedness of his to the bank, not yet matured;” and it was observed in that case “that none but mutual debts could be set off against one another, and that by mutual debts was meant those which, on each side, were, at the time, due and payable.” In Munger v. Bank, 85 N. Y. 580, it was held that there was no right of action upon a certificate of deposit in ordinary form issued by a bank until demand of payment, and in the latter case the court observed, in reference to Smith v. Felton, supra, viz.: “We repeat that there the defendants were willing and desirous to pay the debt owing by them, whether then payable or not, and had so acted as to make the debt owing to them become accrued, due, and payable, and the debtor to them was insolvent.”

In respect to the case in hand we are led to apply the remark found in Myers v. Davis, 22 N. Y. 492, in the opinion of Denio, J., viz.: “The defendants’ difficulty is that at the time of the assignment they had no demand against any one” entitling them to a set-off, and by the assignment the creditors have become interested in the proceeds of the bond and mortgage, and to allow an offset “ would change the contract of the parties to the prejudice of the other creditors of the” assignor. If the foregoing views are correct, the referee fell into an error in allowing an offset against the plaintiffs, who were assignees for the benefit of creditors. Judgment reversed upon the exceptions, and a new trial ordered, with costs to abide the event.

Martin and Merwin, JJ., concur.