Richardson v. Anderson

Thomas, J., delivered the opinion of the Court. The appeal in this case brings up for review the rulings of the Court below in sustaining plaintiff’s, appellee’s, demurrer to defendant’s, appellant’s, third, fourth and fifth pleas, in admitting the evidence in the first and second bills of exception, and the action of the Court on the prayers, and defendant’s special exception to the modification of his prayer. The Maryland Grain Agency of Baltimore City, a corporation, on the 27th of Eebruary, 1908, made a deed of trust for the benefit of creditors to the appellee. At the time of the assignment the appellant was the manager of said agency, and the appellee shortly after the assignment employed him to make out a statement of the assets of the ag’ency from its books.

After the statement was made out, he and the appellant went over it together, “and verified it with the books” of the agency. This statement showed that the appellant was indebted to the agency for the balance due on account between them to the amount of $1,781.41, which the appellant, according to the testimony of. the appellee, said was correct, with the exception of two items, one of $72.44 and the other of $138.00, which the appellee deducted, leaving a balance of $1,541.71, and upon failure of the appellant to pay this balance the appellee, on the 9th of April, 1908, brought suit to recover it. The defendant in his testimony states that while he was employed as bookkeeper for the agency, in 1895, at a salary of $100.00 a month, he was employed hv the agency to do extra work on its hooks, for which it agreed to pay him whatever such extra services were worth; that the agency never paid him; that the matter was brought up several times at the meetings of the directors, but each time it was postponed for future action and settlement; that such services were worth ⁶⁴⁴ $500.00; that he had never said anything to the appellee about his claim for such extra services until the morning of the -trial. Defendant’s first and second pleas were, never indebted as alleged, and never promised as alleged.

His third plea, for defense on equitable grounds, states that the.deed under which plaintiff claims was a deed of trust for the benefit of the creditors of the said agency, dated the 27th day of February, 1908, and that defendant holds the promissory note of said agency, dated July 1st, 1907, and payable six months from date, in favor of one George H. Merryman, for $1,100.00, and by him indorsed to the defendant subsequent to the execution of said deed of trust, which he is entitled to have applied as an equitable set-off against the claim of the plaintiff., His fourth plea, for defense on equitable grounds, alleges that the deed under which plaintiff -claims was a deed of trust for the benefit of creditors, and that the defendant, with George H. Merryman and Wm. Olement Brooke, indorsed a promissory note for $2,500.00, dated December 14, 1908, and payable four months after date, drawn by the said agency in favor of itself, which note was on said date discounted by the Third National Bank of Baltimore City for the use of said agency; that said note was not paid and was protested, and that the defendant and said Merryman were called upon to pay and did pay the same, and that the defendant paid one-half thereof, amounting to $1,253.19, and that by reason thereof he is entitled to have said amount applied as an equitable set-off against the plaintiff’s claim. The fifth plea, for defense on equitable grounds, states the two claims set out in the third and fourth pleas, and says that by reason thereof' there is no liability on his part to the plaintiff. The claim referred to in the third plea is a promissory note acquired by the defendant after the execution of the deed of trust, and the one set out in the third plea is on a promissory note on which he was liable as accommodation indorser before the execution of the deed of trust, but which came ⁶⁴⁵ due after the date of the deed of trust, and was paid in part by him after the institution of the suit.

The first question, then, presented by the third plea is, can a debtor of an assignor for the benefit of creditors acquire, after the execution of the assignment, claims against the assignor, to be applied by him as a set-off to his debt duo the trust estate ? If this can be done, then a debtor by the purchase, for a very small consideration, depending upon the extent of the insolvency of the trust estate, of claims against the assignor, can acquire a preference in the distribution of the trust estate, to the full extent of his debt, thus taking from the creditors what they are entitled to, and preventing a prorata distribution among them. Such a result would be unjust and inequitable, and cannot be'tolerated in either law or equity. Burrill on Assignments (5th Ed.), sec. 403; Waterman on Set-Off (2nd Ed.), sections 106, 123; Am. & Eng.

Ency. of P. & P., Vol. 2, p. 723-724; Colton v. Drovers’ Bldg. Assn., 90 Md. 85 . The proposition presented by the fourth plea is not so free of difficulty. The precise question here is, can a defendant who, at the time of the execution of a deed of trust for the benefit of creditors, was liable as an accommodation indorser of a promissory note of the assignor, not yet due, which he is called upon to pay in part after the assignment, and after suit brought by the assignee on a claim of the assignee due at the time of the assignment, set off the amount he so paid against the claim of the plaintiff ?

The rule as stated by Burrill on Assignments, sec. 403 (5th Ed.), is “that an assignee for the benefit of creditors takes the property subject to all existing equities. The equities need not exist at the inception of the debt. It is sufficient if they exist prior to the assignment. A claim acquired after the assignment cannot he set off against the assignee; nor a liability, existing but not due at the time of the assignment, even if it becomes due before the suit was commenced.” But in note 7, on page 642, it is said that “where the claim in favor of the estate of the assignor is not due at the time of ⁶⁴⁶ the assignment, hut the claim against the estate is due, an equitable set-off in favor of the assignor’s debtor will be allowed.” Or, as stated in Waterman on Set-Off, sec. 131 : “Where one claiming a set-off has a demand against the other presently payable,, and the other party is insolvent, the former may claim to have the set-off made, though the demand of his adversary against him has not become payable.” So in the case of Colton v. Drovers' Bldg.

Assn., supra, where the association had, at the time of the appointment of receivers for the South Baltimore Bank, a deposit with the bank of $367.23, while the bank held its promissory note, not then due, for one thousand dollars,- the Court, after a careful examination of the decisions in other States, held, in accordance- with the great weight of authority, that the association was entitled to set off the amount of its deposits against the note of the bank. The reason assigned for this rule is that the right of the creditor of the insolvent to- the set-off exists at the time of the assignment, and that the assignee of the insolvent takes the- note in favor of his assignor, not yet due, subject to this right.- Where, on the other hand, the claim against the insolvent or assignor is not due at the .-time of the assignment, and the claim in favor of the insolvent or assignor is due, the right to a set-off does not exist at the time of the assignment, and the assignee .takes the debt in favor of the assignor in trust for the benefit of the creditors, against whom a set-off cannot be subsequently acquired. In other words, in ol der that there may be a set-off in favor of the creditor of the assignor, it must exist at the time of the assignment by virtue of a claim then due. In an extensive note to Fera v. Wickham, 17 L. R. A. 456, the author says; '“While the decisions are not .uniform in reference to either class,- there is -a decided weight of authortiy on one- side in each case, and that weight is in favor of the set-off where the immature debt is owing to the insolvent and against it where it'is owing by him.” In the ease of Sidles v. Houston, 110 Pa. 254 , 2 Atl.

Rep. 30 , where, when plaintiff’s in ⁶⁴⁷ testate died, his debt to the defendant was due, and his claim against the defendant was not yet due, the Court held that the defendant was entitled to set off his claim, and said: “Had the position of these parties been reversed so that Henderson’s (intestate’s) debt to Houston (defendant) was not due and payable at Henderson’s death, but Houston’s debt to Henderson was then due and payable, the application of the same principle would have prevented Houston from setting off his debt- against Henderson in an action by Henderson’s administrator, because, at Henderson’s death, there was no right of set-off, and the right of action passed to the administrator unaffected by the right of set-off.” In the case of In Re Hatch, 155 N. Y, 401, 50 N. E. Rep. 49, the Court of Appeals of New York reviews at length the previous decisions in that State dealing with the right of set-off where the claims of the assignors or insolvents, or the claims of creditors of such insolvents, are not due, and holds that a creditor of the insolvent, whose claim is due at the time of the execution of an assignment for the benefit of creditors, is entitled to set off his claim against a debt from himself to the insolvent which had not matured at the time of the assignment; hut where the claim of the creditor of an insolvent was not dne at the time of the assignment, it cannot he set off against the claim in favor of the insolvent, dne at the