Wolcott v. Pierre

• Decision Date: 26 January 1934
• Docket Number: 14,710
• Parties: WOLCOTT, RECEIVER v. PIERRE
• Court: Indiana Appellate Court

188 N.E. 596

100 Ind.App. 16

WOLCOTT, RECEIVER v. PIERRE

No. 14,710

Court of Appeals of Indiana

January 26, 1934

[Rehearing denied April 27, 1934. Transfer denied October 1, 1934. Petition to reconsider denied February 18, 1935.]

1. SET-OFF AND COUNTERCLAIM---Set-Off---Mutuality of Debts---Exceptions to Rule.---Whenever necessary to prevent irremediable injustice, equity will allow the set-off although the debts are not mutual. p. 19.

2. BANKS AND BANKING---Insolvency---Deposits---Set-Off Against Debts Due Bank---Partnership Deposit for Partner's Debt.---After appointment of a receiver for an insolvent bank a partnership deposit can not be set off against the individual debt of a partner to the bank, even with the consent of other partners. p. 20.

Action by Eben H. Wolcott, Receiver of the State Savings and Trust Company, against Edward D. Pierre on notes, wherein defendant pleaded set-off. From a judgment for defendant on his answer of set-off, plaintiff appealed. Reversed. By the court in banc.

Rehearing denied April 27, 1934.

Transfer denied October 1, 1934.

Petition To reconsider denied February 18, 1935.

From Marion Superior Court; John W. Kern, Judge.

Action by Eben H. Wolcott, Receiver of the State Savings and Trust Company, against Edward D. Pierre on notes, wherein defendant pleaded set-off. From a judgment for defendant on his answer of set-off, plaintiff appealed.

Reversed.

Kelso Elliott, Homer Elliott, and Carl H. Weyl, for appellant.

Howard P. Travis, and Barnes & Johnson, for appellee.

OPINION

SMITH, J.

This appeal involves the question of whether a partnership deposit in an insolvent bank in the hands of a receiver can be set off against a note owing to the bank by one of the partners with the consent of the other partner.

Appellant brought this action against appellee by a complaint in two paragraphs upon two promissory notes payable to appellant's insolvent, The State Savings and Trust Company. Appellee answered each paragraph of complaint in two paragraphs: (1) General denial; (2) a plea of set-off, in which appellee sought to set off a joint deposit of himself and his partner.

Appellant demurred to the second paragraph of appellee's answer to the first paragraph of complaint, which was overruled. Appellant replied in general denial to each paragraph of answer.

The cause was submitted to the court for trial without a jury and upon request special finding of facts and conclusions of law were made and filed.

Appellant excepted to each of the conclusions of law, and judgment was rendered thereon for the appellee for costs.

The appellant assigned as errors: (1) the court erred in overruling of appellant's demurrer to the second paragraph of appellee's answer to the first paragraph of appellant's complaint; (2) the court erred in its conclusion of law number one; (3) the court erred in its conclusion of law number two; (4) the court erred in its conclusion of law number three. Each of these assignments raises the same question, which is stated at the beginning of this opinion.

The substance of the facts found by the court is that on February 3, 1930, the appellee executed his promissory note to The State Savings and Trust Company for $ 750 with interest, and on April 4, 1930, executed another promissory note for the sum of $ 200 with interest; that on the 25th day of April, 1930, The State Savings and Trust Company, having become insolvent, suspended business, and on May 5, 1930, in the Marion circuit court, Marion county, Indiana, in a proceeding by the Bank Commissioner of the State of Indiana against The State Savings and Trust Company, appellant herein was appointed receiver and immediately qualified as such, and had been, and was the acting receiver of said trust company up to and at the time of the trial. No payment had been made on said notes at the time of the suspension of said trust company, or of the appointment of said receiver. The appellee had been for some time prior, and was at the time of the rendering of the special finding herein, a partner in the firm of Pierre and Wright, which firm was a depositor in said trust company at the time of its suspension, and at the time of the appointment of said receiver, and was a creditor of said trust company on account of its said deposit in the sum of $ 1594.24. Subsequent to the appointment of the receiver, the appellee and his partner Wright agreed that as much of said partnership account as was necessary to extinguish these notes sued upon should be applied and used for that purpose. The receiver was told of this arrangement, and was requested to recognize said agreement, and to apply said deposit of the partnership of Pierre and Wright, or as much as was necessary to the payment of said notes owing to appellee, but refused to do so.

The court further found that said partners do now agree, and at all times since the beginning of this action have agreed that said partnership deposit account may be used, and applied to the payment of said notes. The court also found that there was due on said notes the sum of $ 1045.16, and in addition the sum of $ 125 for appellant's attorney's fee.

Upon the facts so found, the court concluded the law to be as follows:

"1. That the law is with the plaintiff upon his complaint and that the defendant is indebted to the plaintiff upon the notes sued on in the sum of $ 1045.16; but that the law is with the defendant upon his second paragraph of answer and that the defendant is entitled to set off against the amount due on said notes the full amount thereof on account of the claim set out in said paragraph of answer.

"2. That the plaintiff is not entitled to recover of the defendant and that the plaintiff take nothing by his complaint.

"3. That defendant recover his costs herein laid out and expended and taxed at $ "

The exact question raised in this case has not been presented to the courts of appeal of this state before.

Appellee contends that he is not relying upon a statutory set-off under section 371, Burns' Ann. St. 1926, § 2-1016, Burns 1933, § 120, Baldwin's 1934, but seeks an equitable set-off "because of the fact that appellant was insolvent, and therefore appellee and his partner had no way of enforcing their demand against appellant at law." The courts of Indiana have long recognized the doctrine of equitable set-off: and, while the general rule is that only mutual debts existing in the same right are proper matters of set-off, still this rule has exceptions, one of them being that whenever it is necessary to prevent irremediable injustice, equity will allow the set-off although the debts are not mutual. Watson's Works' Practice, section 715, page 511. Appellee cites to this proposition two cases from Indiana, Eigenmann et al. v. Clark et al. (1898), 21 Ind.App. 129, 51 N.E. 725; Sefton v. Hargett et al. (1888), 113 Ind. 592, 15 N.E. 513. The rule announced in both of these cases cited by appellee is to the effect that a court of equity will sometimes allow a set-off in the absence of strict mutuality, in order to prevent irremediable injustice.

Appellant concedes this rule, saying that it is "too well settled for debate. But they do not decide what, in every instance, is irremediable injustice; they do not decide what nor where the equity would be if there were other creditors equally entitled to share in the distribution of the insolvent's estate."

So, the question here is, Is the enforcement of the set-off herein necessary to prevent irremediable injustice?

Appellee bases his right to this set-off upon the fact of the insolvency of the bank and the consent of his partner that the joint deposit may be used for this purpose; and that to disallow the set-off would work an irremediable injustice to appellee; and cites several cases from outside jurisdictions upon this proposition, among them some from the State of Pennsylvania, which has gone further in the allowing of set-offs than most of the other states in this country. In the case of Gray v. Rollo (1874), 85 U.S. (18 Wall.) 629, 632, 21 L.Ed. 927, the Supreme Court of the United States, speaking of the Pennslvania rule, said:

"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 do not think that the Pennsylvania rule, which allows set-offs without regard to mutuality, should be followed in this state.

We have examined all of the cases cited by appellee, and many others. Those cited by appellee, except the Pennsylvania cases, do not extend the rule of set-off of partnership debts against individual debts so far as appellee would have us go. Chamberlin v. Stewart and Powell (1837), 36 Ky. (6 Dana) 32, was not a banking case, nor did it involve the question of other creditors, and does not support appellee in his contention. Appellee also cites the case of The Second National of Cincinnati v Hemingray (1878), 34 Ohio St. 381, in which the question of fraud entered into the transaction. Homans, a private banker, "under circumstances of deception amounting to a fraud," induced Hemingray and Company, who desired to withdraw their deposits prior to the insolvency and failure of the bank and pay up their indebtedness, to continue their deposits. That is an entirely different situation than in the case at bar, where no fraud is...