Opinion
No. 3285.
Decided January 6, 1942.
An exception taken by the plaintiff in trustee-process to an order discharging the trustee, challenges the correctness of that order. In such case the allowance of a bill of exceptions to that order properly presents the question to the Supreme Court for decision. In trustee-process an attaching creditor stands in the shoes of the principal defendant and any off-set which could be used by the garnishee against him is equally available against the attaching creditor. The rule governing the allowance of set-offs is that the claims must be mutual, (P. L., c. 335, s. 7) i.e., due to and from the same persons in the same capacity. Hence where a bank is summoned as trustee of the principal debtor, who has a deposit with such trustee, the bank cannot set off against the deposit the liability of the principal defendant on a promissory note payable to the Reconstruction Finance Corporation, in which the trustee had purchased a fifty per cent participation. The doctrine of equitable set-off does not apply to such case because a partial assignment is subject to the general rule that the assignee of a chose in action takes the same subject to all defences against it in the hands of the assignor at the time of the assignment.
ASSUMPSIT, for rent, commenced by trustee-process against the Merchants National Bank. The trustee disclosed as follows: "There are no funds unless it can be shown that the sum of seven hundred forty-four dollars and twenty-nine cents ($744.29) now on deposit should not be held as an offset against a loan for more than that amount held by the Bank." There was a judgment for the plaintiff against the principal defendant by agreement. At a hearing as to the chargeability of the trustee, it appeared that the defendant is the maker of a note originally for $40,000, payable to the Reconstruction Finance Corporation, dated September 13, 1938 and payable in installments. In this note the trustee purchased a fifty per cent participation. The participation agreement provides that the corporation shall hold the note and all collateral delivered in connection therewith; shall receive all payments on account of principal or interest and remit to the bank its pro rata share thereof, and the interest of the bank is further recognized by a provision in the note that the payee may declare all or any part of the indebtedness to be immediately due upon the happening of certain events, among which are: "2. Nonperformance . . . of any agreement with or required by the Merchants National Bank of Manchester and Reconstruction Finance Corporation." At the time the trustee-process was served upon the bank there were installments due and unpaid in excess of $744.29, the amount of the defendant's deposit here in question. The court ordered that the trustee be discharged, and to this order the plaintiff seasonably excepted. A bill of exceptions was allowed by Johnston, J.
Sullivan Dolan (Mr. Dolan orally), for the plaintiff.
Wyman, Starr, Booth, Wadleigh Langdell (Mr. Wadleigh orally), for the trustee.
The trustee takes the position that plaintiff's exception to the order discharging it raises no question of law, and relies upon the rule that "a party cannot question the sufficiency of evidence to support a verdict or material issue in a case by motion after the case has been submitted to the court or jury or by exception to the verdict." Head Dowst Co. v. Club, 75 N.H. 449, 450. This contention must be overruled. The hearing in the present case was designed exclusively to secure a ruling of law as to the chargeability of the trustee. No other question was involved. The plaintiff's exception to the order of the court adequately challenged the correctness of that ruling and by the allowance of the bill of exceptions the question is properly presented to this court for decision. The rule above quoted has frequently been relaxed in cases tried by the court and has no application to the present situation.
The trustee relies upon the principle stated in a note to Walters v. Bank, (59 Pac. Rep. (2d) 983) in 106 A.L.R. 62, as follows: "It is clearly the general rule that a bank may set off against the matured indebtedness of its depositor the latter's bank account, although it has been garnishe[e]d at the instance of a creditor of a depositor." This is not an independent principle of law conferring upon banks an unrestricted right to apply deposits against the debts of depositors to the bank. It merely embodies a recognition of the principle also stated in the note above referred to, that at law an attaching creditor stands in the shoes of the debtor and any offset which might be used against the debtor by the garnishee is equally available against the attaching creditor. In other words, if the bank was legally entitled to set off a deposit against the debt of the depositor, it may still exercise that right in spite of the trustee-process. Hence the rights of the trustee are to be determined by the ordinary rules of set-off.
It is a cardinal rule governing the allowance of set-offs that the debts involved must be mutual, P. L., c. 335, s. 7, i.e., "due to and from the same persons in the same capacity. . . A joint debt can not be set off against a separate demand nor a separate debt against joint demand where the statute authorizes mutual demands only to be set off." Brown v. Warren, 43 N.H. 430, 435; Dole v. Chattabriga, 82 N.H. 396. Here the debt of the defendant against which the trustee seeks to set off the deposit, consists of a note payable to the Reconstruction Finance Corporation in which the trustee had purchased a fifty per cent participation. In the view most favorable to the trustee it was a debt due jointly to the bank and the corporation. It appears to come squarely within the rule that a joint debt cannot be set off against a separate demand, and unless the position of the trustee is affected by other considerations, it follows that the set-off must be disallowed.
In order to escape this conclusion, the trustee invokes the doctrine of equitable set-off, and argues that, in equity, it should be regarded as a partial assignee of the note, entitled as such to enforce payment of its share against the defendant and consequently entitled to set off this amount against the defendant's deposit. This contention cannot be adopted. It is everywhere understood that an assignee of a chose in action takes the same subject to defences against it in the hands of the assignor at the time of the assignment. Thompson v. Emery, 27 N.H. 269; Dearborn v. Nelson, 61 N.H. 249. As a necessary corollary of this proposition it follows that a partial assignment of an obligation cannot be made in such a way as to defeat any legal or equitable defence to which it may be subject in the hands of the assignor. Burton v. Willin, 6 Houst. 522; 4 Am. Jur., Title, Assignments, s. 67. A fortiori partial assignment will not be given effect in equity when, as here, the sole purpose of the party claiming it is to defeat a defence which the debtor, and through him the plaintiff, had against a claim of set-off.
Exceptions sustained: trustee charged.
All concurred.