Sullivan v. Merchants' Nat. Bank

• Decision Date: 18 December 1928
• Citation: 144 A. 34,108 Conn. 497
• Parties: SULLIVAN v. MERCHANTS' NAT. BANK.
• Court: Connecticut Supreme Court

144 A. 34

108 Conn. 497

SULLIVAN v. MERCHANTS' NAT. BANK.

Supreme Court of Errors of Connecticut.

December 18, 1928

Appeal from Superior Court, New Haven County; John Richards Booth Judge.

Action by James F. Sullivan, administrator, against the Merchants' National Bank, to recover damages for the alleged refusal of the defendant to pay plaintiff the entire balance due on his deposit with defendant. Judgment for defendant, and plaintiff appeals. No error.

The plaintiff was duly appointed administrator on the estate of Willis A. Noble, who died July 21, 1923; his estate at his death was insolvent, and is in process of settlement as an insolvent estate. At his decease, Mr. Noble had a personal checking account in his name with defendant bank, with a balance therein of $2,501.56. On August 10, 1923, the plaintiff, as administrator, made demand for the balance of this deposit, but defendant only turned over to plaintiff $601.56, and refused to pay the remaining $1,900 of the deposit.

Noble gave to defendant his two promissory notes; one on May 3 1923, for $400, payable on August 3, 1923, and one on May 15 1923, for $1,500, payable on August 15, 1923. The defendant charged these two notes, aggregating $1,900, against the deposit of Noble. Neither of these notes was due at the time of the death of Noble, and the $1,500 note was not due at the time demand was made by plaintiff upon the defendant for the payment of the balance due on this account, nor at the time defendant charged it against the deposit of Noble.

The trial court reached the conclusion that " The defendant is entitled to set off against the deposit account of Willis A. Noble, existing at the time of his death, the amount due on the two promissory notes held by the defendant, although the same were not due at the time of the death of Mr Noble."

Ellsworth B. Foote, William L. Hadden, and David E. Fitzgerald, all of New Haven, for appellant.

Ralph H. Clark, of New Haven, for appellee.

Argued before WHEELER, C.J., and MALTBIE, HAINES, HINMAN, and BANKS, JJ.

WHEELER, C.J. (after stating the facts as above).

The single question for decision is as to the right of the defendant bank to set off against the deposit of the insolvent decedent with it the amount due on two promissory notes of the insolvent, held by it and not due at his death. Under the common law, where two persons held mutual debts against the other, each must be prosecuted separately. The right of set-off of mutual debts was a doctrine of courts of equity, which came to hold that mutual debts should be set off against each other, and only the balance recovered. Its foundation was " the prevention of circuity of actions," and its allowance in equity is the rule, unless resulting injustice to third parties, who have acquired rights from the defendant, raise a more impelling equity. Long before statutes of set-off were enacted, courts of equity recognized and enforced the right of setoff.

We have held that our statute of setoff (General Statutes, § 5674) must be read in connection with the broader provisions of our Practice Act (section 5635). Hubley Mfg. & Supply Co. v. Ives, 81 Conn. 244, 247, 70 A. 615, 129 Am.St.Rep. 209; Harral v. Leverty, 50 Conn. 46, 61, 47 Am.Rep. 608. " Mutual debts * * * are cross-debts in the same capacity and right, and of the same kind and quality." Lippitt v. Thames Loan & Trust Co., 88 Conn. 185, 90 A. 369. It is generally held that set-off under the ordinary statute applies to debts which are present obligations, not to debts which, though otherwise mutual, as to one of them is not yet due. Henry v. Butler, 32 Conn. 140.

The plaintiff is the administrator of an insolvent decedent, whose claim against the defendant for the balance of a bank deposit is due; the defendant is a bank holding notes against the insolvent decedent, which were not due at the death of the decedent. These debts could not be set off under our statute. If the right exists, it must be found in those equitable principles out of which the right of set-off grew, which were not restricted by the statute to its own limits, but which exist in all the power they have ever had to serve in situations of hardship and injustice.

We have recognized and sought the aid of equity to accord a set-off, where our statute was found impotent to grant it. A petitioner, who was insolvent and the sole owner of a mortgage note, brought his action for a foreclosure of the mortgage against the respondent, who was not the original mortgagor, but the sole owner of the equity of redemption, who must either pay the note or lose the property. " It was therefore," we said, " in some sense a debt due from her. She at the same time had a claim against the petitioner, which she could not collect in any form of action, for the reason that he was insolvent." The respondent was allowed to set off her demand against the petitioner's claim. We held: " We think the set-off was properly allowed. Courts of equity, in the matter of set-off, usually follow the law; but in many cases, where there is some intervening equity, they will allow a set-off where a court of law would not." That equity we found in the maxim that he who seeks equity must himself do equity. " There would," we continue, " be less reason for applying the maxim if the petitioner was solvent, although even in that case there would be no injustice in it. But, being insolvent, the case presented is one where the " natural equity' is very strong. Insolvency of itself will often raise an equity which will justify the interference of the court, even when the party desiring the set-off is himself the petitioner." Goodwin v. Keney, 49 Conn. 563, 569.

The precise question for decision has not been adjudicated in this jurisdiction. The debts between these parties are subsisting obligations; that of the insolvent was presently due at the time of the insolvency; those to the bank were payable at a future time. When a creditor's debt to the insolvent is not yet payable, while the insolvent's debt to the creditor is payable, the authorities are in practically complete harmony in allowing the set-off of these debts. But where the creditor's debt to the insolvent is due, and the insolvent's debt to him is not due, the authorities are divided; the weight of authority being in favor of allowing the set-off.

In the first of these classes, the set-off is sometimes allowed upon the theory that the insolvent is entitled to waive the time of payment, since it was for his benefit. Both debts thus becoming present debts, equity allows the set-off. Lindsay v. Jackson, 2 Paige (N. Y.) 581, 585; Scott v. Armstrong, 146 U.S. 499, 13 S.Ct. 148, 36 L.Ed. 1059. The receiver of his own volition had no power to change the contract any more than a party to it could. A breach of contract seems an indefensible basis for the interposition of equity. Analyze this theory of waiver as we will, we find no equity hidden within.

The more common foundation for according the set-off is the fact of insolvency. That has changed the situation. Upon the adjudication of insolvency, the debt to the insolvent must be paid in full; if the debt in his favor may not be set off against the debt owed by him, it will result in this debt merely receiving its pro rata share of the insolvent's estate. If the debt not yet due bears interest, equity may make proper allowance. Schuler v. Israel, 120 U.S 506, 7 S.Ct. 648, 30 L.Ed. 707. If no rights of third p...