set-off doctrine in New York

1931S. Code, tit. 11, § 108) provides: “ (a) In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid. “ (b) A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate; or (2) was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was inso

1914In reality this is a single rather than a two-fold question, for the Bankruptcy Act “ was not intended to enlarge the doctrine of set-off, * * * in cases where the principles of legal or equitable set-off did not previously authorize it.” (Sawyer v. Hoag, 17 Wall. 610, 622 ; Libby v. Hopkins, 104 U. S. 303 ; Western Tie & Timber Co. v. Brown, 196 U. S. 502, 509 .) I think the set-off is without sanction, either statutory or equitable.

1875It was assumed that the fact that one of the obligors was surety for the other, might be shown by extrinsic evidence; and in equity this could always be done to let in a defence or *Page 539 to establish a right founded upon that relation. ( Artcher v. Douglass, 5 Denio, 509 ; Barry v. Ransom, 12 N.Y., 466 .) The insolvency of a party against whom a set-off is demanded is often a decisive reason for the interposition of a court of equity; and it cannot be denied, I think, that if in this case that fact existed, in respect to the mortgagees, the set-off of the claim of the defendant Haskin ough

1875(Artcher v. Douglass, 5 Denio, 509 ; Barry v. Ransom, 12 N. Y., 466 .) The insolvency of a party against whom a set-off is demanded is often a decisive'reason for the interposition of a court of equity; and it cannot be denied, I think, that if in this case that fact existed, in respect to the mortgagees, the set-off of the claim of the defendant Haskin ought, within the principles acted upon by courts of equity, to be allowed.

1994The Court of Appeals went on to note in connection with the set-off claim asserted by the reinsurer in that case that: "Moreover, liquidation cannot place the liquidator in a better position than the insolvent company he takes over, authorizing him to demand that which the company would not have been entitled to prior to liquidation (see, Bohlinger v Zanger, 306 NY 228, 234 ; see also, 2A Couch, Insurance 2d §§ 22:48, 22:50 [rev ed]). * * * [Preliquidation rights of offset] were not altered merely because a liquidation order was entered.

1937Sympathy for the defendants, as suggested in the brief of defendants’ counsel, cannot avail, as indicated by the opinion of the court in the Bevilacqua case. “ The liability [for assessment] arises independently of any fault of the stockholder, and courts of equity have no power to exonerate any stockholder from that liability because of hardship or of previous sacrifice of the stockholder for the benefit of creditors.” Counsel for defendants in his brief cites the case of Broderick v. Britting ( 147 Misc. 363 ).

1931The cases in which a set-off was allowed on special grounds are so very various as to admit of no comprehensive enumeration.” (3 Story, Equity Jurisprudence [3d Eng. ed.], § 1437a.) The question in this case is whether “ peculiar equities intervened ” which require relaxation of the rule. “ In equity the right to a set off does not depend upon the statute, but upon the equities existing in each particular case, and the fact of the insolvency of one of the parties, so that no satisfaction can be obtained by a direct proceeding against the defendant for recovery of the debt, *129 frequently give

1931S. Code, tit. 11, § 108) provides: “ (a) In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid. “ (b) A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate; or (2) was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was inso

1914In reality this is a single rather than a two-fold question, for the Bankruptcy Act “ was not intended to enlarge the doctrine of set-off, * * * in cases where the principles of legal or equitable set-off did not previously authorize it.” (Sawyer v. Hoag, 17 Wall. 610, 622 ; Libby v. Hopkins, 104 U. S. 303 ; Western Tie & Timber Co. v. Brown, 196 U. S. 502, 509 .) I think the set-off is without sanction, either statutory or equitable.

1914In reality this is a single rather than a two-fold question, for the Bankruptcy Act “ was not intended to enlarge the doctrine of set-off, * * * in cases where the principles of legal or equitable set-off did not previously authorize it.” (Sawyer v. Hoag, 17 Wall. 610, 622 ; Libby v. Hopkins, 104 U. S. 303 ; Western Tie & Timber Co. v. Brown, 196 U. S. 502, 509 .) I think the set-off is without sanction, either statutory or equitable.

1898Having thus reached the conclusion that the moneys under consideration were assets of the estate of said decedent, it follows that the defendant cannot assert in this action, either as a set-off or defense, any claim which he may have against Ann Murphy individually, by reason of her torts (Sperb v. McCoun, 110 N. Y. 605, 610 ), or for moneys received by her from the estate as a distributee.

1898Having thus reached the conclusion that the moneys under consideration were assets of the estate of said decedent, it follows that the defendant cannot assert in this action, either as a set-off or defense, any claim which he may have against Ann Murphy individually, by reason of her torts (Sperb v. McCoun, 110 N. Y. 605, 610 ), or for moneys received by her from the estate as a distributee.

1895Prac. 356 , it was held that the plaintiff might reply another cause of action as a set-off and defense to the defendant’s set-off, .and that that decision was followed in Stewart v. Travis, 10 How.

1895Prac. 148 , and in Hall v. Hall, 30 How.

1889There 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

1875That if the set-off is allowed the principle of pro rata distribution provided for by the Revised Statutes (2 R.S., 87, §§ 27, 28) would be broken in upon. ( Fry v. Evans, supra; Hill v. Talman's Admr., supra .) And applying the first of these reasons, it has been said that, not only need not the plaintiff sue as executor or administrator nor allege a representative character, but that if the representative character appears in the plaintiff's pleading it may be treated as a descriptio personæ, and the action be conducted and maintained as one brought to enforce the plaintiff's own right.

1875That if the set-off is allowed the principle of pro rata distribution provided for by the Revised Statutes (2 R.S., 87, §§ 27, 28) would be broken in upon. ( Fry v. Evans, supra; Hill v. Talman's Admr., supra .) And applying the first of these reasons, it has been said that, not only need not the plaintiff sue as executor or administrator nor allege a representative character, but that if the representative character appears in the plaintiff's pleading it may be treated as a descriptio personæ, and the action be conducted and maintained as one brought to enforce the plaintiff's own right.