While the plaintiff and the defendant Jagger were equal partners in business as manufacturers, one Perry prosecuted them for infringing letters-patent, and obtained judgment under which damages were assessed at upwards of $50,000. Exceptions taken by the firm were undecided, when on the 11th of March, 1872, Littlefield bought of Jagger his interest in the firm, and gave therefor his promissory notes. At the same time, it was agreed that this purchase should not affect Jagger's liability in the Perry suit, but that Littlefield should attend to its defense, and "Jagger pay one-half of the *Page 584 expenses and of the recovery therein." In August, 1873, Jagger sued Littlefield on these notes, and in May, 1876, while the action was on trial before a referee, assigned to the Albany County Bank all moneys which he might recover therein. He was charged by way of set-off in that suit, with one-half of the costs and expenses incurred by Littlefield between the 11th of March, 1872, and the commencement of the action, but the referee refused to take an account of those incurred subsequently, and on the 3d of March, 1877, judgment was entered against Littlefield for $22,576.20, which was affirmed on appeal June 7, 1880. On the 29th of June, 1880, the Perry suit was settled by Littlefield for the sum of $50,000, and he also paid other money for costs and expenses in defending it. The bank threatened to enforce the judgment, and this action was brought to have the sums paid by Littlefield on account of Jagger applied to its satisfaction. Upon trial of the issues, the trial court held that in the proportion fixed by the agreement between Littlefield and Jagger, the money so paid was applicable to that purpose. It appeared that Jagger was insolvent on the 14th of September, 1875, and so continued — that the assignment was made as collateral security for a precedent indebtedness, and that the bank parted with nothing on account of it.
We think the equity raised by these facts in favor of the plaintiff required no less a judgment than that given to him. There is, perhaps, as the appellant claims, no case just like the present, but the rule is perfectly established that whoever takes the assignment of an overdue debt or obligation, takes it subject to all the equities of the person who makes the assignment, and the debtor has against him exactly the same equities that he would have against the assignor; in other words, the assignee must abide the case of the person from whom he takes. The question on this appeal, therefore, is to be considered in the same manner as if Jagger had never assigned the right of action, and was himself about to enforce the judgment obtained upon the notes. What then is this equity?
It would certainly be unconscientious and a breach of moral *Page 585 duty for Jagger to enforce payment while his indebtedness to the judgment debtor exceeded the judgment, and if this action was against him, no court could hesitate to apply the rule that mutual demands, even if independent, should compensate each other, leaving the difference as the sum due. In fact this rule was applied in his suit before judgment, so far as the expenses had accrued before its commencement. Subsequent ones were excluded, not because they did not constitute a valid debt, but because they had not been incurred before the commencement of the action, and as the debt so incurred was not liquidated until after the assignment, the appellant now relies upon a similar doctrine. It seems to have no application. The debts or obligations are not even independent. One may fairly be presumed to have been contracted on the faith of the other, each forming part of a single transaction, and the insolvency of one party renders the interposition of the court necessary for the protection of the other. These facts are not found in the cases relied upon by the appellant. It should be observed, moreover, that the obligation of Jagger to pay one-half of the Perry claim existed, and the claim itself was due, when the notes were given. The only question was whether the sum reported as damages should be reduced. The liability was conceded. It formed part of the partnership obligations. It was not separable except at the pleasure of the parties, and although provided for in a distinct agreement, the latter was necessary only to prevent misunderstanding as to the actual extent of the duty assumed by Littlefield as the purchaser of Jagger's interest in the firm. Jagger was liable for the Perry debt, as it should be established, and for the costs of litigation as part of the partnership liabilities. As to that the joint obligation was not dissolved. He, as well as Littlefield, was bound to Perry. After the maturity of the notes, and before their assignment to the bank, he became insolvent, so that to do complete justice equity would have required the action upon them to be suspended until the extent of Perry's claim should be determined and the proportionate share of each ascertained. That was not done, but the omission does not impair the plaintiff's *Page 586 rights. Equity requires that when two claims are connected, although one is unliquidated, set-off should be compelled when, by reason of the insolvency of either debtor, satisfaction cannot be obtained. (Gay v. Gay, 10 Paige, 369; Davidson v.Alfaro, 80 N.Y. 660.) That fact exists here; and when the present suit was commenced the precise sum due from Jagger was ascertained. It would, therefore, be neither just nor equitable to require Littlefield to pay Jagger's claim and be remitted to a suit against an insolvent for his own. The bank did nothing to displace Littlefield's equity or get a better right than Jagger had.
We think the appeal fails, and the judgment should be affirmed.
All concur.
Judgment affirmed.