Morgan v. Wordell

• Citation: 59 N.E. 1037,178 Mass. 350
• Parties: MORGAN v. WORDELL.
• Decision Date: 01 April 1901
• Court: United States State Supreme Judicial Court of Massachusetts

178 Mass. 350

59 N.E. 1037

MORGAN v. WORDELL.

Supreme Judicial Court of Massachusetts, Bristol.

April 1, 1901

COUNSEL

W. M. Morgan and H. T. Richardson, for plaintiff.

J. W Cummings and C. R. Cummings,

Wm. M Morgan and H. T. Richardson, for

OPINION

HOLMES C.J.

This is a suit by a trustee in bankruptcy against a debtor of the bankrupt. The debtor claims a set-off on the ground that since the bankruptcy he has paid debts due from a former partnership consisting of himself, the bankrupt, and one McGuire, from which debts the bankrupt had covenanted to save his partners harmless. It is objected that the covenant runs to the two other partners jointly, but it is sufficiently plain that there are several covenants to each. The more serious objection is that the principal debt paid is one which has been disallowed by final judgment when offered by the creditors, H. B. Claflin & Co., for proof against the estate, on the ground that they received a preference, and that a claim offered in the defendant's name in respect of the payment also has been disallowed.

As it was assumed on both sides that the provision in section 68b of the United States Bankruptcy Act concerning set-off is more than a rule of procedure and governs in this court as well as in the courts of the United States, we shall make the same assumption for the purposes of this case, without argument. See Hunt v. Holmes, 16 N. B. R. 101, 105 Fed. Cas. No. 6,890; Partridge v. Insurance Co., 15 Wall. 573, 580, 21 L.Ed. 229. We shall assume further, as a corollary, that if a set-off is to be maintained it must be brought within the words of the section referred to. Those words are: 'A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate.' These words are universal in form, and we do not see how a set-off can be claimed in this case outside of them.

If then the defendant claims by virtue of the rights of a quasi -surety (Fisher v. Tifft, 127 Mass. 313, 314) who has paid and therefore is subrogated to the claim of a joint creditor of himself and the debtor (section 57i), the trouble is that he has to take the claim of Claflin & Co. as he finds it, and he finds it a claim which is not provable against the estate, because Claflin & Co. have received preferences which have not been surrendered. Section 57g. It seems hard that a matter between Claflin & Co. and the bankrupt, with which the defendant had nothing to do, should bar rights arising out of a payment which he was compelled to make. But we do not feel at liberty to give the language of section 57i other than its most natural meaning or to interpret the subrogation there provided for as a subrogation free from the disabilities attached to the creditor or as a subrogation to the creditor's rights independent of the effect of the preference upon them. One result of such an interpretation would be to allow that claim without a surrender of the preference, contrary to section 57g.

It is suggested that the adjudication against Claflin & Co. is res inter alios, and there is no other evidence that they accepted a preference. But the defendant's claim by subrogation is affected by the judgment as it is by the preference, and for the same reason. He stands in the shoes of Claflin & Co., succeeds to their place, in the language of the Roman law, and is the same person with them for this purpose, a notion frequently recurring in the law. Dernusson, Subr. (3d Ed.) c. 1, No. 7; Sheld. Subr. 2; 4 Masse, Droit Commercial (2d Ed.) c. 60, No. 2,152; D. 20, 4, 12, § 9; D. 4, 12, 16. See Day v. Railroad Co., 151 Mass. 302, 307, 308, 23 N.E. 824.

The defendant also claims a set-off by virtue of his covenant. We assume that it has been adjudicated between the parties in the district court that the defendant has not a claim which he could prove in his own name, and that this decision carries with it the corollary that he could not prove his claim on the covenant against the estate. If therefore the prohibition of a set-off of a claim 'which is not provable against the estate' is to be taken with simple literalness as applying to any claim that could not be proved in the existing bankruptcy proceedings, the defendant's set-off cannot be maintained. But we are of opinion that the seemingly simple words which we have quoted must be read in the light of their history and in connection with the general provision at the beginning of section 68 for a set-off of mutual debts 'or mutual credits,' and that so read they interpose no obstacle to the defendant's claim.

The provision for the set-off of mutual credits is old. St. 4 Anne, c. 17, § 11; 5 Geo. II. c. 30, § 28; 46 Geo. III. c 135, § 3; Gibson v. Bell, 1 Bing. N. C. 743, 753; Ex parte Prescot, 1 Atk. 230. It was adopted in the United States (Acts 1800, c. 19, § 42, Acts 1841, c. 9, § 5, and Acts 1867, c. 176, § 20)....