Gerseta Corp.. v. Equitable Trust Co. of New York
| Decision Date | 12 January 1926 |
| Citation | 150 N.E. 501,241 N.Y. 418 |
| Parties | GERSETA CORPORATION v. EQUITABLE TRUST CO. OF NEW YORK et al. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Action by the Gerseta Corporation against the Equitable Trust Company of New York, the Raw Silk Trading Company, and others. From a judgment of the Appellate Division (208 N. Y. S. 221, 212 App. Div. 12), reversing as matter of law a judgment of the Special Term (203 N. Y. S. 58, 122 Misc. Rep. 361) in favor of plaintiff, and dismissing the complaint, and affirming dismissal of the counterclaim, plaintiff appeals.
Judgment of the Appellate Division reversed, and that of Special Term affirmed.Appeal from Supreme Court, Appellate Division, First Department.
David Steckler and Emil Weitzner, both of New York City, for appellant.
Joseph H. Choate, Jr., of New York City, for respondent.
Plaintiff Gerseta Corporation brought suit against the Equitable Trust Company of New York, the Raw Silk Trading Company, and others, seeking, among other things, a judgment subrogating plaintiff to the rights of the trust company in shares of stock in its possession to the amount of $36,000 and interest. The Special Term gave judgment in favor of the plaintiff. The trust company has dropped out of the litigation. The trading company appealed to the Appellate Division, which denied the right of subrogation, and dismissed the complaint. For convenience, plaintiff will be referred to as Gerseta, defendant trust company as the bank, and defendant Raw Silk Trading Company as trading company.
The material facts are briefly stated as follows: Both corporations were engaged in the silk business in the city of New York. The trading company was an importer. Each at various times bought silk of the other. Although each delivery was regarded as a separate sale, the actual credit extended was, by the course of dealing, for the balance on the mutual account, and not for the full amount owing by one to the other. From about July 15, 1920, trading company was in financial embarrassment. On August 31, 1920, it was in fact insolvent. A committee of creditors took charge of its business, to continue or liquidate as it might seem most desirable. Gerseta then owed trading company about $93,000 but trading company owed Gerseta about $96,000. The balance on mutual accounts was at least $3,000 in favor of Gerseta, but the entire indebtedness of trading company to Gerseta had not matured prior to August 31, 1920.
In October, 1919, Gerseta had bought 100 bales of silk of trading company on contract for future delivery. Under the contract settlement was to be made within 30 days by cash or trade acceptance. Deliveries of silk were made in July-August, 1920, amounting to $93,553.98. The bank had financed the transaction for the trading company by issuing letters of credit, and held the silk by security title. Trading company had also deposited as security various shares of stock, including the stock in question, so that the bank was amply protected. Trading company made the deliveries, having received the silk under trust receipts from the bank. Gerseta had notice of the bank's claim of ownership at least as to certain deliveries. The bank demanded trade acceptances which Gerseta refused to give because trading company was indebted to it.
On October 20, 1920, the indebtedness of trading company to Gerseta had fully matured. The bank sued Gerseta to recover the amount of $93,553.98 above mentioned, and obtained judgment for $74,953.75. On June 15, 1923, Gerseta satisfied the judgment by paying $36,000. The bank assigned the judgment to a designee of Gerseta. Certain shares of stock were set apart subject to the decision of the court. The payment of $36,000 reduced by that amount the balance due from trading company to the bank.
The Appellate Division held without discussion that Gerseta had no right of set-off, citing Fera v. Wickham (31 N. E. 1028, 135 N. Y. 223,17 L. R. A. 456), however, as authority for the proposition that set-off against an insolvent estate will not be allowed, unless the claim was due when insolvency first existed; that trading company was insolvent in fact before its indebtedness to Gerseta had matured, and Gerseta, therefore, could not claim an offset to the indebtednessof trading company to it, but must pay its claim in full, and then receive a dividend in common with other creditors. The conclusion followed that Gerseta did nothing more than pay its own valid obligation when it paid the bank $36,000 under the settlement.
[1][2] The first question to be considered is whether on October 20, 1920, when the bank sued Gerseta for the purchase price of the trust receipt silk, Gerseta was entitled to a set-off against trading company of the amount due to it. At that time trading company was insolvent, and its affairs were in the hands of liquidating trustees, but there had been no judicial recognition of the fact, no passing of an estate as to an assignee or receiver or otherwise for the purpose of liquidation. Equity will allow a set-off in insolvency, providing the claim of the party asserting the right of set-off has matured. It is immaterial that the claim against the party asserting the set-off has not matured. Bradley v. Angel, 3 N. Y. 475; Fera v. Wickham, supra; Matter of Hatch, 50 N. E. 49, 155 N. Y. 401,40 L. R. A. 664. In Frank v. Mercantile Nat. Bank. 74 N. E. 841, 182 N. Y. 264,108 Am. St. Rep. 805, the difference between the rule in the United States Supreme Court that unmatured claims against the bankrupt are the subject of set-off and the rule in this state was pointed out. Cullen, C. J., in allowing set-off under the Bankruptcy Law, said:
‘If the defendant's rights depended on the equitable rule of set-off as it obtains in this state, it is clear that the notes held by it which had not matured at the time of the transfer of the title from the bankrupt to his assignee could not be set off against the plaintiff's claim.’
In Appleton v. National Park Bank, 202 N. Y. S. 516, 122 Misc. Rep. 248;Id., 208 N. Y. S. 228, 211 App. Div. 708;Id., 150 N. E. 555, 241 N. Y. 561) where the attachment of an insolvent depositor's account was upheld against the claim of the bank against the insolvent on notes not matured, at the time of the attachment the debtor was insolvent but no receiver then had been appointed. All that was necessary to the decision was the holding that a bank had no legal right to off-set against a depositor a note not yet matured. (See Proskauer, J.'s first opinion.) But the rule that there could be set-off in equity if the claim to be set off was presently due was recognized. It was also held that the Debtor and Creditor Law (Consol. Laws, c. 12), which provides for setting off mutual debts and credits when an assignment for the benefit of creditors had been made, applied only to a distribution of assets under a general assignment or an analogous proceeding.
The law of this state, when unmodified by statute, is that in insolvency a distinction exists between a debt due to the one who claims the set-off and a debt due from him. If the debt is due to...
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