Carwile, Rec'r v. Metropolitan Life Ins. Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] February 8, 1926. The opinion of the Court was delivered by An opinion prepared by the late Justice Fraser, concurred in generally by Justice Watts and "in result" by Justice Marion and Justice Cothran, was filed March 19, 1925, affirming the judgment of the County Court.

Within due time thereafter the defendant filed a petition for a rehearing, and an order was passed staying the remittitur until the further order of the Court. On account of the fact that an appeal in a similar case between the same parties was heard by this Court at the June term, 1925, the petition for a rehearing in this case has been held in abeyance until the same matters involved in both cases could be carefully considered and determined.

It has come to this, that a majority of the Court are now of opinion that the opinion heretofore filed is erroneous, and, in view of full argument in both cases, involving the same points, it is not deemed necessary to order a reargument in this case. It is therefore ordered that the opinion heretofore filed be annulled, and that the following be substituted therefore as the judgment of this Court:

The action is for the recovery of $2,081.60, with interest from March 20, 1923, as actual damages, and $750 as punitive damages, alleged to have been sustained by the plaintiff as receiver of the Carolina Bond Mortgage Company (hereinafter referred to as the bond company), by reason of the conversion by the defendant (hereinafter referred to as the insurance company), of certain money belonging to said receiver officially.

The facts are quite complicated and a solution of the questions of law involved requires a detailed statement of them, as follows:

Beginning in October, 1918, and continuing until November, 1922, a written contract was in force between the bond company and the insurance company, under which the bond company acted as "financial correspondent" of the insurance company in the states of North Carolina and South Carolina. The bond company, with headquarters at Columbia, S.C. was extensively engaged in making loans upon bonds secured by real estate mortgages. The contract with the insurance company enabled it to obtain large sums of money from that company in conducting that business, and it provided in detail the manner in which the contemplated transactions were to be conducted. In brief, the bonds and mortgages were to be taken in the name of the bond company, assigned and forwarded to the insurance company with formal applications, abstracts of title, opinions, releases, etc. Upon approval of the loan, the insurance company was to deposit the amount of the loan to the credit of the bond company in a New York bank, with which the loan was consummated. Thereafter payments of installments of principal and interest were to be made by the mortgagors to the bond company, and by it remitted to the insurance company; the bond company being charged with the duty of collection and remittance.

It appears to have been contemplated that, for some reason, the bond company, in the event of failure to collect the installments of principal and interest when due, might desire to advance the payment of such defaulted installments before collecting them from the borrowers, and, to meet this contingency, the contract provided on the part of the insurance company:

"It further agrees that, if the said correspondent shall pay the interest or any part thereof, or of the principal of any mortgage to the said company, before collecting the same from the borrower, it shall advise the company when making payment that the same has been advanced by it, and any and all right, title, and interest which the correspondent may have in and to said bond or note and mortgage or deed of trust, or in the proceeds thereof, by subrogation or otherwise, shall be subordinate in all respects to the interest therein of the company."

In January, 1921, on account of the prevalent financial depression, many mortgagors had defaulted in the payment of installments upon their loans, and other defaults were expected. The bond company was anxious under the circumstances to avoid the sacrifices incident to foreclosures, by securing indulgence to such mortgagors, and on January 3, 1921, wrote to the insurance company concerning conditions and its desire. On January 5, 1921, the insurance company replied, outlining a plan of extension; the only provision pertinent to this litigation being:

"The financial correspondent by letter to us agreeing to purchase and take over and hold as junior lien all unpaid items coming within the scope of this arrangement on December 20, 1921."

The proposed plan was accepted and agreed to by the bond company on February 24, 1921, and was confirmed by the insurance company on February 26, 1921.

Among these "unpaid items," was an installment of $1,800, due on March 1, 1921, by Dr. L.H. Jennings of Lee County, upon a loan of $18,000 previously made to him by the bond company, upon a bond and mortgage which had been duly assigned and forwarded to the insurance company, under the plan above outlined.

On December 20, 1921, in pursuance of the terms of the contract and the supplemental agreement evidence by the correspondence referred to, the bond company remitted to the insurance company the amount of the past-due installment of the Jennings loan with interest. No formal papers appear to have been executed by the insurance company in reference to this remittance, other than an acknowledgment of its receipt.

On November 14, 1922, the president of the bond company died; on the 23rd the insurance company gave formal notice of the termination of the contract of October, 1918; on the 27th plaintiff was appointed receiver of the bond company.

At the time of the appointment of the receiver, the bond company was indebted to the insurance company in the sum of $16,488.12, on account of installments of principal and interest collected by it upon bonds and mortgages which had been assigned to the insurance company, the bulk of which had been collected in October and November, 1922.

In February, 1923, two months after the appointment of the receiver, Dr. Jennings paid to the insurance company, by direct remittance, $19,590.68, the total amount unpaid upon his bond and mortgage, which included the installment of March 1, 1921, advanced by the bond company on December 20, 1921 — $1,800, with $281.60 interest, total $2,081.60.

The receiver of the bond company thereafter made demand upon the insurance company for this amount, and, upon refusal, this action was instituted on August 10, 1923.

The defense of the insurance company was that it had the right to set off its claim of $16,488.12 against this demand of the receiver.

The case was tried by his Honor, Judge Whaley, County Judge, without a jury, by consent. He filed a decree refusing to allow the set-off claimed by the defendant, and rendering judgment in favor of the receiver for $2,081.68, with interest from February 23, 1923. From this judgment the insurance company has appealed.

It appears that the insurance company has in its hands about $40,000 of these advance payments made by the bond company, including that involved herein, and whether it shall be allowed to offset against this liability the amount due by the bond company to it, $16,488.12, is a matter of serious consequence to it, determinable by the result of this litigation. If it be not allowed to do so, the insurance company will be required to pay this $40,000 to the receiver and receive a dividend, estimated at 10 to 15 per cent. upon the amount concededly due by the bond company to it; a result which appears to me unjust and not to be tolerated, unless irresistibly compelled by the principles of the law.

The availability of the defendant's asserted claim of set-off is determined by the character and extent of the interest or right which the bond company acquired in the Jennings bond and mortgage, by reason of its advance payment, and not by the accidental fact that the payment by Dr. Jennings was made to the insurance company after the appointment of the receiver.

Under the original contract of October, 1918, it was entirely optional with the bond company whether it would make any advance payment of these defaulted installments; if it did so, the contract provided that whatever right it might acquire by such advance payment should be subordinate in all respects to the interest of the insurance company. By the supplemental agreement, evidenced by the correspondence referred to, the bond company became obligated to purchase and take over all unpaid items of interest and installments of principal, up to December 20, 1921, and hold them as liens junior to the liens of the insurance company. The payment by the bond company of the Jennings installment of $1,800, due March 1, 1921, was made under the conditions and in pursuance of the obligation of the supplemental agreement referred to. The effect of it was a purchase by the bond company of an interest in the Jennings debt, equal to the advance payment made, and has the same force and effect as if the insurance company had formally assigned so much of the debt to the bond company, subject to the agreed priority of the insurance company; in other words, it amounted at most to a partial assignment of a chose in action.

Under ordinary circumstances, the transaction would have constituted an equitable assignment of so much of the bond and mortgage as was equal to the advance payment. But, under the peculiar circumstances of this transaction, the essential elements of an equitable assignment are lacking.

The bond and mortgage remained in the possession of the insurance company; the title to them was in that company; the right, the exclusive right, to enforce collection was in that company; Jennings could not have paid the bond company its part of the debt and secured an acquittance, nor could he have been compelled at the suit of the bond company to have paid such part to it. I think, therefore, that the payment did not constitute an equitable assignment, and that the only right which the bond company acquired was to compel an accounting by the insurance company, as the trustee of an express trust, for its conduct in reference to the subject of the trust. In other words, the insurance company occupied the position of a trustee to hold the entire debt, to use proper diligence in collecting it, and to account to the bond company for its equitable interest.

That the insurance company reserved the right to the custody of the securities and the right to collect the entire amount of the mortgage debt does not admit of a doubt. In April, 1921, following the consummation of the supplementary agreement, the insurance company notified the bond company that it intended to hold the securities and the notes representing the advance payments, until payment by the mortgagors, then cancel them and return them to the bond company. No objection to this suggestion was entered by the bond company. The advancement upon the Jennings note was made in December, 1921, by the bond company, without a demand for the installment note then being paid and no dissent from the expressed purpose of the insurance company to hold all such notes until payment. Nearly a year later, in October, 1922, the insurance company called the bond company's attention to the fact that it was holding such notes, and reminding it that it was ready to cancel and return any notes on which payment had been made by the mortgagors; not to remit the money to the bond company, but to return the canceled notes; inferentially to hold the proceeds to the credit of the bond company subject to an accounting between them. No protest against this method was suggested by the bond company. It is clear therefore that there was a definite understanding and agreement as to the right of the insurance company to hold these evidences of debt, the notes representing the advance payments made by the bond company, and to collect the full amounts due upon the mortgages, accounting to the bond company for its proportion thereof, established by oral and written agreements and by the practice of the parties. It appears that, prior to the appointment of a receiver, the bond company had advanced upon deferred payments about $40,000, and that in no instance did the bond company demur to the right of the insurance company to hold the installment notes representing these advances until paid by the mortgagors to the insurance company. This right of the insurance company was distinctly recognized by the receiver in his letter of February 7, 1923:

"I, as receiver, have been informed that these advancements were made to your company with the understanding that you would collect from the mortgagor and return the amounts advanced to the said Carolina Bond Mortgage Company."

It has been uniformly held that, where the holder of a chose in action assigns it in whole or in part and reserves the right to collect the chose in action, whatever the transaction may be it is not an equitable assignment.

In 5 C.J., 912, it is said:

"The assignor of a chose in action must part with the power of control over the thing assigned; if he retains control, it is fatal to the claim of the assignee."

Referring to equitable assignments, it is said in Christmasv. Russell, 14 Wall., 69; 20 L.Ed., 762:

"The assignor must retain any control over the fund — any authority to collect, or any power of revocation. If he do, it is fatal to the claim of the assignee."

"An assignor of a chose in action must part with the power of control over the chose assigned, and the assignment must be so delivered as to be irrevocable." Coffman v.Liggett, 107 Va., 418; 59 S.E., 392.

"Where the supposed assignor retains the subject under but to his own agent, the transaction is not allowed to have his own control by delivering the order, not to the assignee the effect of an equitable assignment." 2 Am. Eng. Enc. L., 1061.

In the case of In re Wood, 243 Pa., 211; 89 A., 975, it was held that an agreement under which the alleged assignor retains any control over the fund, authority to collect, or power of revocation, does not constitute an equitable assignment of a fund in the hands of executors.

Another reason why the transaction in question did not amount to an equitable assignment is that the fund holder, Dr. Jennings, could not have safely paid the amount of his debt represented by the advance payment, to the bond company, and could not have been compelled by the bond company to do so.

The insurance company, in allowing the bond company, for its own purposes, to make the advance payment, certainly had the right to stipulate that its right to collect the entire debt be reserved; that the bond company should not acquire a lien upon the bond and mortgage or upon the proceeds of collection; that its liability to the bond company should simply be the duty of accounting to it for the equitable interest acquired, doubtless to meet the very situation that has been presented to secure the right of set-off. If, therefore, the insurance company retained the exclusive right of collection, the bond company did not have it. Not having it, the bond company could not have compelled Dr. Jennings to pay its part of the debt, and Dr. Jennings would not have been safe in doing so.

In Christmas v. Russell, 14 Wall., 69; 20 L.Ed., 762,supra, it is said:

"The transfer must be of such a character that the fund holder can safely pay, and is compellable to do so, though forbidden by the assignor."

"But a mere promise or agreement to pay a debt out of a designated fund, when received, does not givt an equitable lien upon the fund, or operate as an equitable assignment of it. Something more is necessary. To constitute an equitable assignment, there must be an assignment or transfer of the fund, or some definite portion of it, so that the person owing the debt or holding the fund on which the order is drawn can safely pay the order, and is compellable to do so, though forbidden by the drawer." Hicks v.Roanoke Co., 94 Va., 741; 27 S.E., 596.

"It is well settled that an order to pay a debt out of a particular fund belonging to the debtor gives to the creditor a specific equitable lien upon the fund, and binds it in the hands of the drawee. A part of the particular fund may be assigned by an order, and the payee may enforce payment of the amount against the drawee. But a mere agreement to pay out of such is not sufficient. Something more is necessary. There must be an appropriation of the fundpro tanto, either by giving an order or by transferring it otherwise in such a manner that the holder is authorized to pay the amount directly to the creditor without the further intervention of the debtor." Trist v. Child, 21 Wall. 441; 22 L.Ed., 623.

Under these authorities the assignee of the entire chose in action is not the holder of an equitable assignment if the assignor reserve the right of collecting it. A fortiori is the assignee of a part of the chose in action under a greater disability.

"An assignment of a portion of a debt, assigned without the consent or ratification of the debtor, cannot be recovered on the portion so assigned, and this principle is of force in equity as well as at law." Burnett v. Crandall, 63 Mo., 410.

"An assignment of a portion of a debt does not vest the assignee with any greater right than the assignor himself had, and, as the assignor could not himself institute an action to recover part of the amount, his assignee cannot." Weinstockv. Bellwood, 12 Bush. (Ky.), 139.

"A partial assignment of one's interest in a fund in the hands of another is not binding on the latter, unless accepted by him; and he may deal with the assignors as if no assignment had been made, in the absence of the institution of a suit to which all persons interested are parties." Shearerv. Shearer, 137 Ga. 51; 72 S.E., 428.

"As between an assignee and a debtor, a partial assignment cannot be enforced." Burditt v. Porter, 63 Vt., 296;21 A., 955; 25 Am. St. Rep., 763.

"A partial assignment of a debt so as to authorize the assignee to recover thereon cannot be made without the consent or ratification of the debtor." Hughes v. Kiddell, 2 Bay (S.C.), 324.

But assume that, notwithstanding these difficulties, the assignment of a part of the chose in action may constitute an equitable assignment, the assignee's right, being equitable, is enforceable only in a Court of equity.

"While a single debt may be partially assigned to one or more assignees, such assignees can sue only in a Court of equity, which can adjudge the rights of all parties in one action." Carvill v. Mirror Films, 178 App. Div., 644;165 N YS., 676.

In 5 C.J., 894, it is said:

"At law a partial assignment of a chose in action is not recognized unless made with the consent of ratification of the debtor. Courts of equity, however, have always recognized partial assignments of choses in action for many purposes, and will protect the assignees under such partial assignments whenever they can do so without working a hardship upon the debtor."

The reason of the rule is that a creditor is not permitted to split up a single cause of action into many actions, without the consent of his debtor, and thus subject him to annoyance and embarrassment not contemplated by his original contract.

In Fourth St. Nat. Bank v. Yardley, 165 U.S. 634;17 S.Ct., 439; 41 L.Ed., 855, the Court said:

"The owner of a chose in action or of property in the custody of another may assign a part of such rights, and that an assignment of this nature, if made, will be enforced in equity, is also settled doctrine of this Court."

In James v. Newton, 142 Mass. 368; 8 N.E., 122; 56 Am. Rep., 692, cited in the Yardley case, it is held that in equity there may be, without the consent of the debtor, an effectual assignment of part of an entire debt.

"The rule is well settled that only a Court of equity can enforce a partial assignment of a fund when the debtor has not assented to the assignment." Timmons v. Bank,11 Ga. App. 69; 74 S.E., 798.

"But the settled rule of the national Courts and the general and rational rule is that the assignee of a part of a credit or of a chose in action or of property in the custody of another may enforce his claim by a suit in equity, for the very reasons that he cannot do so, and hence has no adequate remedy, at law, and that he may make the assignor and all the assignees parties to the suit, so that the debtor will be subject to but a single action" — citing cases. Rogers v.Penobscot Co., 83 C.C.A., 380; 154 F., 606.

I do not think that there can be a doubt, therefore, as to the proposition that the only right acquired by the bond company, on account of its advance payment, was to compel an accounting by the insurance company of its equitable interest.

But in this particular case, concerned as we are with the availability of the asserted claim of set-off, it makes very little difference whether the payment of the defaulted installment created an equitable assignment, an equitable right to an accounting, or an equitable right in the bond company as the assignee of a part of a chose in action; for, in any event under any construction of the effect of the transaction, the bond company must have asserted its right in a Court of equity. If so, the bond company did not acquire the legal title to a chose in action or to any part of it, and the acquisition of the receiver is limited to that of the bond company. If the receiver did not acquire the legal title to a chose in action, in whole or in part, he succeeded only to the equitable rights of the bond company.

In Carroll v. Cash Mills, 125 S.C. 332; 118 S.E., 290, it is declared:

"It hardly needs authority for the proposition that the receiver is in no sense a subsequent purchaser or creditor, but stands in the shoes of the debtor, with no greater title or interest than he possessed" — citing cases.

See In re American Co., 125 S.C. 214; 118 S.E., 303.

Whether the collection of the entire Jennings debt was made before or after the appointment of the receiver, the insurance company would have done no more than it had the right to do under its contract with the bond company.

As the title to the securities was in the insurance company, and the rights to collect the whole amount due, regardless of the advance payment, was vested, by agreement and express reservation, in the insurance company, I apprehend that there could arise no controversy as to the right of the insurance company to make that collection before the appointment of the receiver. It was a right which continued certainly up to the moment of the receiver's appointment; a right which the bond company was compelled to recognize. Was this right destroyed by the appointment of a receiver? As quoted from 34 Cyc., 191, in the case of In re American Slicing Machine Co., 125 S.C. 214;118 S.E., 303:

"A receiver can acquire no other, greater, or better interest than the debtor had in the property."

And in Carroll v. Cash Mills, 125 S.C. 332;118 S.E., 290, it is declared:

"The appointment of a receiver works no metamorphosis in the title or interest to or in the assets of the insolvent; that the receiver takes possession of them as the arm of the Court, subject to all existing liens and incumbrances, to be administered under the direction of the Court having due regard to the legal and equitable rights of the parties and those stockholders and creditors represented by the receiver."

"A receiver holds the property coming into his hands by the same right and title as the person for whose property he is receiver, subject to liens, priorities, and equities existing at the time of his appointment. He becomes merely the assignee of the insolvent and has exactly the same rights." 23 R.C.L., 56, citing cases.

"The receiver took the assets of the Fidelity Bank as a mere trustee for creditors, and not for value and without notice, and, in the absence of statute to the contrary, subject to all claims and defenses that might have been interposed as against the insolvent corporation. * * *" Scott v. Armstrong,146 U.S. 499; 13 S.Ct., 148; 36 L.Ed., 1059.

The receiver makes no claim that he has created a new right against the insurance company or that a new right has inured to him since his appointment. He has done nothing and the insurance company has done nothing which by any possibility could be construed into the creation of a new cause of action in favor of the receiver. All that has been done is the collection of the entire debt from Jennings, including the advance payment, a right Jennings debt, subject of course to accountability to the bond company, and which the receiver, standing in the shoes of the bond company, could not deprive it of. Consequently the right upon which the receiver sues, the right to require an accounting, is a right which was vested in the bond company and which succeeded to him as receiver. It follows, therefore, that, if the insurance company had the right, before the appointment of a receiver, to collect the entire Jennings debt, subject of course to accountability to the bond company, that right was not affected by the appointment, and that the receiver succeeded only to the rights which the bond company may have asserted, and subject to all defenses against it.

Now the question arises whether the insurance company, in the event of the collection before receivership and an action by the bond company for an accounting, could have set off the debt which the bond company owed it against the debt which it owed the bond company. If so, it has the same right as against the receiver upon collection after his appointment. Upon this proposition I do not think that there can be room for controversy even. The bond company was under a contract duty to collect the installments of principal and interest as they fell due, and to remit them to the insurance company. This clearly established a trust relation between them, and the moment a collection was made the bond company became a trustee for the insurance company. In like manner the insurance company was under a contract duty to collect the entire mortgage debts and to account to the bond company for its interest in them. This clearly established a trust relation between them, and the moment a collection was made the insurance company became a trustee for the bond company. Both of these relations spring from the same contract, and present a perfect illustration of the right of recoupment in equity, which entitles the one party to set off against the claim of the other that which such other owes to him.

"The doctrine of recoupment rests upon the principle that it is just and equitable to settle in one action, thus avoiding a multiplicity of suits, all claims growing out of the same contract or transaction." 3 Story, Eq. Jur. (14th Ed.), § 1878.

This doctrine grows out of the inherent power of a Court of equity to do justice between the parties and in avoidance of a multiplicity of suits. It operates only by way of abatement of the claim against which it is opposed, and does not entitle the party asserting it to a judgment for any difference as a counterclaim would. 34 Cyc., 623.

The objection is raised that the obligation of the insurance company to account did not arise until after the receiver was appointed, the collection not having been made by the insurance company until after such appointment, that the cause of action was then created in the receiver, and that consequently there was no mutuality in the demands.

As I have endeavored to show, the fact of collection after the appointment does not make a particle of difference, for the reason that the right to collect was vested in the insurance company by the contract; it was binding upon the bond company and upon the receiver; and the collection after the appointment was referable to the original contract right.

It is well settled that, where a receiver sues on a claim or in a right existing, but not mature, at the time of his appointment, the defendant may set off a debt due it from the receiver's predecessor at the time of his appointment. Colton v. Drover Perpetual Building Loan Ass'n, 90 Md., 85; 45 A., 23; 46 L.R.A., 388; 78 Am. St. Rep., 431. Building and Engineering Co. v.Northern Bank, 206 N.Y., 400; 99 N.E., 1044. VanWagoner v. Paterson Gas Light Co., 23 N.J. Law, 283.Steelman v. Atchley, 98 Ark. 294; 135 S.W. 902; 32 L.R.A. (N.S.), 1060. Davis v. Industrial Mfg. Co.,114 N.C. 321; 19 S.E., 371; 23 L.R.A., 322. Skiles v.Houston, 110 Pa., 254; 2 A., 30. Scott v. Armstrong,146 U.S. 499; 13 S.Ct., 148; 36 L.Ed., 1059. Thus the alleged fact that the claim on which the receiver sues did not mature until after his appointment does not prevent the set-off by the insurance company of its debts from the bonding company admittedly due at the time of his appointment, for any lack of mutuality.

Even if there were a question of mutuality of the demands, it is well recognized that in equity a set-off does not have to meet the requirements for a counterclaim under the Code. Falconer v. Powe, Bailey Eq. 156. North Chicago Rolling Mill v. St. Louis Steel Co.,152 U.S. 596; 14 S.Ct., 710; 38 L.Ed., 565. Smith v.Perry, 197 Mo., 438; 95 S.W. 337.

In North Chicago Rolling Mill v. St. Louis Steel Co.,supra, it is said: But the defendant's claim, while not good in law may still be entitled to recognition as an offset in equity; "cross-demands and counterclaims, whether arising out of the same or wholly disconnected transactions, and whether liquidated or unliquidated, may be enforced by way of set-off whenever the circumstances are such as to warrant the interference of equity to prevent wrong and injustice."

And in Smith v. Perry, supra, the Court says:

"But it does not necessarily follow that, because defendant's claims could not be pleaded as set-offs under the Statute, they cannot be pleaded as set-offs in a proceeding in equity; the right to do so depending upon the circumstances, among which is the insolvency of the party against whom the set-off is claimed, this being distinct ground for entertaining it. * * *"

The Courts have uniformly applied the principle of equitable set-off with great liberality to prevent injustice even in cases where elements requisite to legal set-off have been lacking. The facts indicating the injustice of denying the insurance company a set-off in the present case have been sufficiently presented. These facts warrant the allowance of a set-off, even if it should be conceded, as it is not, that there was no strict mutuality of demands. The Courts have repeatedly held that the absence of strict mutuality does not prevent the allowance of an equitable set-off, where justice demands it. Falconer v. Powe, Bailey Eq. 156. Edwards v. Williams, 39 S.C. 86; 17 S.E., 457.Scott v. Armstrong, 146 U.S. 499; 13 S.Ct., 148;36 L.Ed., 1059. Merrill v. Cape Ann Granite Co., 161 Mass. 212;36 N.E., 797; 23 L.R.A. 313. Hughitt v. Hayes,136 N Y, 163; 32 N.E., 706.

In addition to the plain equity of the insurance company, under ordinary circumstances, to set off its claim against the claim of the receiver, in considering the relative equities, the very fact of insolvency of a creditor against whom a set-off is claimed creates an equity permitting the set-off. As said by the Supreme Court of the United States in North Chicago R.M. Co. v. St. Louis O. S. Co.,152 U.S. 596; 14 Ct., 710; 38 L.Ed., 656:

"By the decided weight of authority it is settled that the insolvency of the party against whom the set-off is claimed is a sufficient ground for equitable interference" — citing case.

See, also, Edwards v. Williams, 39 S.C. 86;17 S.E., 457. Scott v. Armstrong, 146 U.S. 499; 13 S.Ct., 148;36 L.Ed., 1059. Colton v. Drover's Perpetual Building Loan Ass'n, 90 Md., 85; 45 A., 23; 46 L.R.A., 388; 78 Am. St. Rep., 431. Hughitt v. Hayes, 136 N.Y., 163;32 N.E., 706. State v. Allen, 292 Mo., 360; 239 S.W. 105. Wyckoff v. Williams, 136 App. Div., 495;121 N.Y.S., 189. St. Paul Co. v. Leck, 57 Minn., 87; 58 N.W., 826; 47 Am. St. Rep., 576.

In the Scott case, it is said:

"Courts of equity frequently deviate from the strict rule of mutuality when the justice of the particular case requires it, and the ordinary rule is that, where the mutual obligations have grown out of the same transaction, insolvency on the one hand justifies the set-off of the debt due upon the other."

The suggestion that the allowance of the set-off will work a preference in favor of the insurance company in derogation of the rights of general creditors is fully answered by the Supreme Court of the United States in Scott v. Armstrong, 146 U.S. 499; 13 S.Ct., 148;36 L.Ed., 1059:

"Where a set-off is otherwise valid, it is not perceived how its allowance can be considered a preference and it is clear that it is only the balance, if any, after the set-off is deducted, which can justly be held to form part of the assets of the insolvent. The requirement as to ratable dividends, is to make them from what belongs to the bank, and that which at the time of the insolvency belongs of right to the debtor does not belong to the bank."

See Union Bank v. Bank, 136 U.S. 223; 10 S.Ct., 1013;23 L.Ed., 341. Trust Co. v. Leck, 57 Minn., 87;58 N.W., 826; 47 Am. St. Rep., 576. People v. California SafeDeposit Trust Co., 168 Cal., 241; 141 P., 1181, L.R.A., 1915-A, 299. Van Wagoner v. Paterson Gaslight Co.,23 N.J. Law, 283. McLauren v. Bank, 76 Wis. 259;45 N.W., 223.

The judgment of this Court is that the judgment of the County Court be reversed, and that the case be remanded to that Court for such proceedings as may be necessary to carry into effect the conclusions herein announced.

MR. JUSTICE MARION and MR. ACTING ASSOCIATE JUSTICE PURDY concur.

MR. CHIEF JUSTICE GARY did not participate.