Fuller v. Steiglitz.

FULLER V. STEIGLITZ.

(27 Ohio St.355)

Assignment—set-off — conflict of laws—inter-state comity.

The assignment of a non-negotiable demand, arising on contract, before due, defeats a set-off by the debtor of an independent cross-demand, on which no right of action had accrued at the time of the assignment.

An assignment of personal property and choses in action by an insolvent debtor for the benefit of creditors in conformity to the laws of the State of New York, where such debtor resided and did business, operates to transfer the right of action to recover said choses in action to the assignee, and he may maintain an action as such assignee in the courts of this State, to collect the same, although said assignment, as authorized by the laws of New York, gives preferences to certain of the creditors.

In case of such an assignment of choses in action, the law of the domicile of the assignor controls and determines what is a sufficient transfer to authorize the assignee to collect the same.

The principles of comity between States will allow such assignee to maintain an action, in the courts of this State, against one of its citizens, to collect the same, notwithstanding such preferences, in the absence of any set-off or other defense to such action, or of any lien or charge against said claim under the laws of Ohio by the debtor.

A

CTION on an account. The opinion states the case.

J. E. Ingersoll, for plaintiff in error. The doctrine of comity does not require a sovereignty to aid in enforcing a contract made without its jurisdiction, which contravenes its own public policy, or is injurious to the interests and rights of its own subject. Story on Confl. of Law, §§ 244, 259; 2 Kent's Com. 455; 2 Pars. on Cont. 82; Ingraham v. Geyer, 13 Mass. 146: Guillander v. Howell, 35 N. Y. 65.

As to set-off in this case, see 35 N. Y., cited above; La Chevelier v. Lynch, Doug. 170; 40 N. H. 237; 5 Cranch, 298; Follett v. Buyer, 4 Ohio St. 591; Waterman on Set-off, §§ 395, 398.

The policy of the law of Ohio is averse to assignments giving preferences. 1 S. & C. 712, § 16; 2 id. 952, § 26; id. 981, § 99.

[This case being decisive of Benedict v. Steiglitz, the argument of counsel in that case is given here. ]

Fuller v. Steiglitz.

Estep & Burke and Prentiss & Vorce, for plaintiffs in error. On the question of set-off, the court is referred to Burr. on Assign 438, 439; 2 Kent's Com. 700, note b; Morgan v. Bank of N. A., 8 Serg. & R 73; Stewart v. Anderson, 6 Cranch, 203; Aldrich v. Campbell, 4 Gray, 284; Bigelow v. Folger, 2 Metc. 255; Myers v. Davis, 22 N. Y. 493; Guillander v. Howell, 35 N. Y. 657; Dorsheimer v. Bucher, 7 Serg. & R. 9.

R. P Ranney, for defendant in error: On the question of setoff, cited 37 N. Y. 396; Williams v. Brown, 2 Keyes, 486; 1 Handy, 338; 5 Ohio St. 59; and claimed that the laws of New York govern the case. Story on Confl. of Law, § 558.

JOHNSON, J. In the Common Pleas, Steiglitz, assignee of J. Smal, brought an action on an account of $968.75, for goods sold by Smal October 9 and November 3, 1866, on a credit of six months. Smal was a resident of and doing business in the State of New York, and, becoming insolvent, made an assignment of certain property, including this account, on the 11th of December, 1866, in trust for creditors, giving certain preferences, as allowed by the laws of that State.

The defendant, a citizen of Ohio, makes no formal objection to the plaintiff's capacity to sue as such assignee. He makes no defense to a recovery of the amount claimed, but seeks to have set off a cross-demand which he holds. This set-off is placed on two separate grounds.

1. He says that, after contracting this debt to Smal, he purchased, in due course of business, a promissory note on Smal, which became due December 19, 1866, for $1,806; that owing to the preferences given in the assignment, the estate will not pay exceeding ten per cent to the general creditors; and he asks that so much of this note as is necessary be applied to cancel the plaintiff's demand.

2. If this cannot be done, he then, for the reason stated, asks for a reference to a master to inquire and state an account of the amount, pro rata, that Smal's estate will pay, if settled up according to the principles of equality among creditors, and to have his pro rata share, as a creditor holding said note, offset against the plaintiff's action.

The court charged that neither of said defenses constituted a valid cross-demand, and gave judgment for plaintiff, which was affirmed by the District Court.

Fuller v. Steiglitz.

This presents two questions:

1. As neither the account sued on nor the note set up was due, at the time of the assignment to plaintiff, could the defendant's prospective cause of action be defeated as a set-off by the assignment? 2. As the assignment preferred creditors, but was valid by the law of New York, where made, will the courts of Ohio apply the principles of comity, and allow a recovery of the claim by the assignee under the circumstances stated in defendant's answer?

Neither cause of action was due at the date of the transfer. There is no connection between the two claims. They did not grow out of the same transaction, nor is the note in any way connected with the account. It is not a case where, by mutual dealings, they were each the debtor of the other, a case of mutual accounts between parties dealing with each other.

In such case there are strong equitable considerations for applying the principles of compensation.

It is not claimed that the assignment was tainted with bad faith, or that there was any purpose to defraud the defendant or defeat his cross-demand.

The plaintiff, as assignee for creditors, could acquire no greater title than Smal had when he made the assignment. The account being a non-negotiable thing in action passed subject to all the defenses existing against it at that time against the assignor.

At common law such a chose in action could not be assigned so as to allow the assignee to sue in his own name. It must be in the name of the assignor for the use of the assignee. Whatever equities existed, whether by way of defeating the cause of action, or by counter-demand, could be interposed.

By section 25 of the Code of Civil Procedure, the real party in interest, in this instance the assignee, must sue in his own name as trustee for the creditors.

In order that this change in the plaintiff in such cases should not cut off existing rights of defense, the 26th section provides that "in case of the assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off or other defense now allowed."

This section preserves to the debtor the same rights of defense as under the old practice.

No new rights were acquired by the debtor, nor were any addi tional burdens imposed on the right to transfer such demands.

Fuller v. Steiglitz.

These provisions of the Code recognized the existing law, and adapted the new system of pleading to it. Myers v. Davis, 22 N. Y. 489; Martin v. Kunzmuller, 37 id. 396; Pomeroy on Remedies, § 4.

The set-off allowed by the Code, instead of being limited, as formerly, to liquidated demands, extends to any cause of action founded on contract or ascertained by the decision of the court. Whether the words "now allowed," in section 26, limits the set-off to the former, or includes the latter, does not arise in this case, as both are liquidated demands.

The plaintiff in error relies on the provisions of section 99 of the Code, which provides, "when cross-demands have existed under such circumstances, that if one had brought an action against the other, a counter-claim or set-off could have been set up, neither can be deprived of the benefit thereof by the assignment or death of the other, but the two demands must be deemed compensated, as far as they equal each other."

If the circumstances were such that, had Smal brought an action against Fuller, his set-off could have been set up, then Smal could not deprive Fuller of the benefit of his set-off by this assignment. But the circumstances were not such. Before the assignment Smal could bring no action, for no right of action had accrued. Fuller had no cause of action that could not be set up, because none had accrued.

On the 11th of December, 1866, neither had any demand within the meaning of section 99, that was not subject to be defeated by assignment or death.

It is well settled in such case, the death of one of the parties defeats after-accruing cross-demands.

Assignment or death are mentioned together, and the circumstances that will defeat the set-off in the one case will do so in the other. Granger v. Granger, 6 Ohio, 35; McDonald v. Black, 20 id. 196.

The same rule applies in cases of insolvency as in case of death. Waterman on Set-off, § 19; Finnell v. Nesbitt, 16 B. Monr. 351. We wish to limit these remarks to the case now before us, which 18 purely an independent cross-demand.

As to defenses which go to defeat the plaintiff's right to recover on his cause of action, such as want of consideration, payment and the like, section 99 has nothing to do.

Fuller v. Steiglitz.

It is said that set-off is the creature of statute law, and was prob ably borrowed from the doctrine of compensation of the civil law. Compensation in case of mutual dealings was founded on a natural equity which permitted the reciprocal acquittal of mutual debts. The statutes of the different States differ as to the exact character of the set-off, and when it may be allowed in cases of assignment, and the bankrupt laws differ much from the general laws.

66

By 2 Geo. II, ch. 22, § 13, a set-off of mutual debts was allowed. Under this statute, a set-off was called a cross debt." Chitty on Cont. 824.

The set-off allowed in Ohio, prior to the Code, was defined by the act of February 19, 1824, and was, like the English statute, limited to liquidated demands, or such as might be liquidated by computation.

Then, as well as now, it is clearly distinguishable from payment, recoupment, counter-claim, or any defense which went to defeat plaintiff's right to recover.

It is an independent right of action, which is set up to cancel in whole or in part an admitted demand. Waterman on Set-off, ch. 1. "Until a demand becomes due the set-off or counter-claim may be defeated by the assignment by the opposite party of his claim. though the latter be insolvent, and his demand has not been payable when assigned." Waterman on Set-off, § 99.

Myers v. Davis, 22 N. Y. 489, was a case of an assignment similar to the one at bar. It is there said: "The actual rights of the parties were not changed by the alteration of the practice allowing the real party in interest to sue. The defendant is entitled to the same defense as under the former practice, and the change effected by the Code is simply as to the form in which the action is brought. The defendant's difficulty is, that at the time of the assignment to the plaintiff, in this case, the demand of the defendant had not matured, so as to be the subject of a set-off, and when it had so matured, the demand against him had passed into the hands of the plaintiff, against whom he had no claim."

In Martin v. Kunzmuller, 37 N. Y. 396, the same question was considered. It was said a set-off must be in præsenti at the time of the assignment; that if at that time the defendant had no present demand or debt due and payable, he had no offset; that he cannot set up a debt due by him to the assignor- a debt of his matured afterward." In Roberts v. Carter, 38 N. Y. 107, in a like case, it was said "the assignment prevented any right of set-off accruing"