The order of the General Term in this case should be reversed.
The court below was entirely right in saying that the single question involved herein is, whether the defendant Mersereau was entitled to set off the claim which he held against the Rockwells, as against the mortgage which the plaintiffs as assignees seek to foreclose. The General Term has denied this right on the sole ground that, at the time of the assignment by the Rockwells to the plaintiffs herein, the debt to the Rockwells upon the mortgage was not due. It was not necessary that it should have been due in order to permit the offset. The debt from the assignors Rockwell, who were insolvent, was due at the time that they made the assignment; and the debt upon the mortgage in favor of the Rockwells, although not due at the time of the assignment was nevertheless treated by the debtor as due, and he waived any defense based upon the fact that the mortgage was not due, by endeavoring to have the debt due to him offset against it. It is not claimed that this offset comes within the statute in regard to offset, where it would be allowed in a court of law. It is allowed upon equitable principles by a court of equity for the furtherance of justice, and in carrying out what such a court states is one of the principles which guides it, viz.: The principle of offsetting cross demands against each other, in which, as it is stated, there is a natural equity. *Page 58
This case cannot be distinguished in principle from that ofRothschild v. Mack (115 N.Y. 1). In that case the debt to the insolvent was not due at the time of the assignment; and still it was held that the debt due from the insolvent at the time of the assignment was properly offset against the debt to him. It was in that case stated that it has been frequently held that as to the right of set-off in equity, the fact that the debt owing to the insolvent is not due when he makes the assignment, is entirely immaterial. The cases of Lindsay v. Jackson (2 Paige, 581) and Smith v. Felton (43 N.Y. 419) are cited in support of this proposition. Chance v. Isaacs, (5 Paige, 592) is distinguished, and it is seen that in that case the mere fact that the debt to the insolvent was not due, would have furnished no excuse for refusing an offset.
The cases cited by the learned judge at General Term, are not, we think, in point. They are Bradley v. Angel, (3 N.Y. 475);Myers v. Davis (22 id. 492); Martin v. Kunzmuller, (37 id. 397); Jordon v. National Shoe Leather Bank (74 id. 470); Munger v. Albany City National Bank (85 id. 580). In most of those cases the debt from the insolvent to the party desiring to avail himself of the set-off was not yet due, and it was in regard to such a debt that Judge GARDNER said, "by allowing a set-off in this case, the executors would be deprived of the legal right secured to the testator by contract and the complainants would obtain payment of their debt before it became due, to the prejudice of other creditors of the decedent." (Bradley v. Angel, supra.) In that case the plaintiffs owed a debt which was then due to the decedent's estate and the debt from the decedent's estate was not due at the time of the commencement of the action, and would not become due in some time thereafter. The action was commenced to compel the executors to offset their claim against the plaintiffs, by the claim of the plaintiffs against the estate, which was not yet due. This the court held could not be done either under the statute relating to set-off, or by virture of the jurisdiction of a court of equity to adjudge a set-off in furtherance of justice. The distinction is of course very obvious. To allow a set-off *Page 59 against an estate of an insolvent by setting off a debt from that estate, not yet by the terms of the contract due, as against a debt then immediately due to the estate, is to effect a change in the contract between the parties, and in the most vital and material portion of it, in order to meet, as is stated by Judge GARDNER a supposed equity arising from matters ex post facto. Whether it be equitable or not, the power of a court might well be doubted to absolutely change a contract entered into by the parties, without the consent of the one who was to make the payment at the time and in the manner prescribed by the contract.
But where a debt is due from the insolvent, and it is a debt from the other party to the insolvent which is not due, the court does not change the contract against the will of the parties, but it simply takes the waiver of the debtor whose debt is not yet due, and only by his consent and at his request treats it as due at once. Where the insolvent holds a demand against his creditor, not due, he has no right to retain it as an investment. (Bradley v. Angel, supra.) All of his estate is to be used at once for the payment of his debts, and the party who owes the debt which has not yet matured under the circumstances of the insolvency, and where third persons are not injured, has the right, if he desire it, to treat his obligation to the insolvent as due at once, and, therefore, if the insolvent's debt to him is also due, he has the right to offset the two demands.
The case of Jordan v. Natl. Shoe, etc., Leather Bank (supra), is entirely in accord with these principles. Judge FOLGER, in that case, said there was no foundation for the defendant's claim that it had a banker's lien on the funds of the depositor to secure the payment of a debt from the depositor not then due. It was a case, he said, which was to be decided on the statute of set-off, and upon that statute there would be no pretense that it could be allowed. The opinion, however, distinctly recognizes the power of the court to compel a set-off independently of any statute, if facts for equitable interposition should be shown. None was pretended in that case. Insolvency *Page 60 was neither alleged nor proved, and the learned judge closed his opinion with the remark, that if there were any circumstances existing which render it inequitable to deny him a set-off, he may set them up in the action on the demand against himself, and invoke the equity power of the court for that purpose.
In Munger v. Albany City Natl. Bank (supra), the same general principles were also recognized. In that case the note in regard to which the principle of set-off was to be applied, was transferred by a Rochester to the Albany bank, before it became due, and the latter took it in the ordinary course of business, in good faith and for a valuable consideration, and without notice of any claims in regard to it or offset connected with it, which might have existed in favor of Munger, the plaintiff, in the hands of the Rochester bank. The case of Richards v.Village of Union (48 Hun. 263), cited by the learned judge in his opinion, was, we think, wrongly decided, because it refused a set-off of the debt due by the insolvent at the time he made the assignment, simply because the debt from the village to the insolvent was not then due. The very fact of the insolvency gave to the party to whom the insolvent owed the debt the right to regard his own debt to the insolvent as due at once and to offset the two debts against each other.
In Lindsay v. Jackson (supra), the court, while holding that a debt from the insolvent, which was due, might be offset at the request of the debtor to the insolvent on a debt not due, stated that it would be otherwise if the debt were not due from the insolvent and the party were endeavoring to offset such debt against one then immediately due by him to the insolvent.
In this case it is claimed, however, that there is a defense to this offset, upon the ground that the certificate of deposit had not been presented to the plaintiffs' assignors and a demand made for its payment prior to the assignment. To maintain an action strictly upon a certificate of deposit against the person or banking institution signing it, a presentation of the certificate, with a demand for its payment may be necessary, *Page 61 for the mere purpose of protection against the claim that the debt was due at the time the contract was made and that the party signing is liable for the payment of principal and interest from that time. The principle is also invoked as an answer to the statute of limitations, where the certificate has been outstanding more than six years. Under such a proceeding as this, where offsets are to be allowed as between these parties upon principles of equity and justice, the fact that no technical demand was made for the payment of this certificate, has no weight. For such a purpose the claim of offset may be regarded as a demand, and it should have relation to the time when the assignment was made, so far as to give form and life to the claim that the debt of the insolvent was due at the time. We agree, in this respect, with the views expressed by the learned presiding judge in Seymour v. Dunham (24 Hun, 93), where such a certificate was held valid as a set-off, although there had been no prior demand.
Nor is the allegation that the two Rockwells formed a partnership, and that both were liable as partners upon this certificate of deposit, material in this view. The findings of the referee are that Melvin C. Rockwell had no interest in the profits of the business, nor was he to sustain any of the losses, nor did Martin C. Rockwell sell or transfer to Melvin any interest in the banking business whatever, and the plaintiffs, in their own complaint, allege that the bond and mortgage and the debt secured thereby, belonged to and were the property of Martin Rockwell at the time of making the assignment, and that under and by virtue of said assignment the bond and mortgage passed to and became the property of the plaintiffs, as such assignees. Substantially, therefore, the transaction was one with the individual defendant, Martin C. Rockwell, as the deposit was made in the bank or banking office in which he was really solely interested, and the bond and mortgage were his individual property. Whether Melvin C. Rockwell was, by virtue of his agreement with Martin, a partner as to third persons, and so liable for the debts of the so-called partnership, is not a matter of any importance here. *Page 62
It is also claimed that the defendant lost his right of offset because he commenced an action and recovered a judgment against the insolvent subsequent to the assignment for the amount of the debt due him. The reason why an offset is allowed in favor of an individual against the estate of an insolvent, where his debt to the insolvent is not yet due, is, because the party to whom the insolvent owes the debt cannot obtain any satisfaction by proceedings at law, and that unless the offset be allowed, he can obtain no satisfaction in any way. It is the inability to otherwise obtain satisfaction, which is the reason and foundation of the allowance of the offset. Proof of the insolvency of the party owing the debt is sufficient evidence of such inability. But the fact of that inability is rendered no less certain, where, in addition to other proof of insolvency, it is shown that a judgment has been recovered for the debt, and that an execution issued thereon has been returned unsatisfied.
We see no ground upon which the order of the General Term granting a new trial, can rest, and it should, therefore, be reversed, and the judgment entered upon the report of the referee should be affirmed, with costs in all courts to the defendants.
All concur.
Judgment reversed.