Gray v. Rollo

• Decision Date: 01 October 1873
• Citation: 18 Wall. 629,85 U.S. 629,21 L.Ed. 927
• Parties: GRAY v. ROLLO
• Court: U.S. Supreme Court

85 U.S. 629

21 L.Ed. 927

18 Wall. 629

GRAY v. ROLLO.

October Term, 1873

APPEAL from the Circuit Court for the Northern District of Illinois; the case being thus:

The Bankrupt Act enacts:¹

'That in all cases of mutual debts or mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid.'

And a statute of Illinois² enacts that——

'All joint obligations shall be taken and held to be joint and several obligations.'

These statutes being in force, Moses Gray filed a bill in the court below against William Rollo, assignee in bankruptcy of the estate of the Merchants' Insurance Company of Chicago, to compel a set-off of alleged mutual debts. The insurance company had become bankrupt by the great fire at Chicago, and at that time held two promissory notes for $5555 each, made by the complainant, Gray, jointly with one Gaylord, which the company had received from the payee in the regular course of business. By the fire referred to, Moses Gray, the complainant, and his brother, Franklin Gray, doing business under the firm of Gray Brothers, suffered in the destruction of buildings, and these being insured by the said insurance company for $30,000 on three several policies, the company became indebted to them in the sum named. The complainant alleged in his bill that his just share of liability on the two notes was one-half of the amount, and he desired to have that half extinguished by a set-off of the like amount due on the policies. The money due on the policies was confessedly not due to him alone, but to Gray Brothers. But he alleged that his brother assented to and authorized such appropriation.

The insurance company demurred, and the demurrer being sustained the court dismissed the bill. From its action herein Gray took this appeal.

Mr. J. S. Norton, for the appellant, argued that under the statute of Illinois the whole debt, under both notes, which Moses Gray owed to the assignee in bankruptcy, was a several debt; that while it would be inequitable that Gaylord's debt should be paid by the application of a policy of insurance in which he had no interest, the reverse was true in regard to the share of the notes which Moses Gray owed. The counsel cited Tucker v. Oxley,³ in this court, as much in point and binding; a case which he observed was supported by Wrenshall v. Cook, in the Supreme Court of Pennsylvania,⁴ ever more in point, and by other cases in that tribunal.⁵

Mr. A. M. Pence, contra.

Mr. Justice BRADLEY delivered the opinion of the court.

The bill being demurred to, the assent of Franklin Gray to the appropriation asked by the complainant must be taken as true; and the question is, whether set-off can be allowed in such a case as the one presented?

The language of the Bankrupt Act, on the subject of set-off, is: 'That in all cases of mutual debts, or mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid.' It is clear that these claims are not mutual debts. They are not between the same parties. The notes exhibit a liability of the complainant and Gaylord; the policies, a claim of the complainant and his brother. But it is said that by the law of Illinois, all joint obligations are made joint and several; and, therefore, that the complainant is separately liable on the notes, and could be sued separately upon them. Granting this to be so, the debts would still not be mutual. If sued alone on the notes, the claim on the policies, which he might seek to set off, pro tanto, against the notes, is a claim due not to him alone, but to him and his brother. His brother's consent that he might use the claim for that purpose would not alter the case. Had his brother's interest been assigned to him before the bankruptcy of the company, and without any view to the advantage to be gained by the set-off, the case would be different.

Nor does the case present one of mutual credit. There was no connection between the claims whatever, except the accidental one of the complainant's being concerned in both. The insurance company, so far as appears, took the notes without any reference to the policies of insurance; and Gray Brothers insured with the company without any reference to the notes. Neither transaction was entered into in consequence of, or in reliance on, the other; and no agreement was ever made between the parties that the one claim should stand against the other. There being neither mutual debts nor mutual credits, the case does not come within the terms of the Bankrupt law. If it can be maintained at all, it must be upon some general principle of equity, recognized by courts of equity in cases of set-off; which, if it exist, may be considered as applicable under an equitable construction of the act. But we can find no such principle recognized by the courts of equity in England or this country, unless in some exceptional cases which cannot be considered as establishing a general rule. In Pennsylvania, it is true, set-off is allowed in cases where the claims are not mutual, and, in that State, under the decisions there, it is probable that set-off would be allowed in such a case as this. But we do not regard the rule adopted in Pennsylvania as in accord with the general rules of equity which govern cases of set-off. We think the general rule is stated by Justice Story, in his treatise on Equity Jurisprudence,⁶ where he says: 'Courts of equity, following the law, will not allow a set-off of a joint debt against a separate debt, or conversely, of a separate debt against a joint debt; or, to state the proposition more generally, they will not...