considerations of equity, and is intended to prevent one party from losing his own demand on account of the insolvency of his immediate debtor, and from being at the same time compelled to pay the debt originally due from himself to that insolvent. These three rules existed prior to the codes, and have not been changed by the provisions of the statute under consideration.1

§ 92. 164. Illustrations. The true extent and limitations of the doctrine will best be seen in its application to the facts of decided cases. On the 24th of August, 1850, the firm of W. C. & A. A. Hunter, having on deposit in the Union Bank the sum of $3,000, made a general assignment to one Beckwith. At the time the bank was holder of a bill of exchange, which was indorsed by the firm and had been discounted by the bank for them. This bill fell due on the 27th of August, and, not being paid, the amount of it was charged against the firm in their account by the bank. On the next day, the 28th, the assignee for the first time notified the bank of the assignment, and demanded payment of the sum on deposit to the firm's credit, which was refused. The assignee brought a suit to recover the debt, and the bank set up the amount due on the bill of exchange as an offset. It was held by the Superior Court of New York City, and by the Court of Appeals, that the demand in favor of the bank could not be set off, as it was not an existing demand payable when the assignment was made; and that no notice was necessary by the assignee to protect himself against such a defence. Notice is only necessary against subsequent acts and dealings of the debtor with an assignor, which might prejudice the rights of the assignee, such as payment. In March, 1855, (special) rule stated in the text, see Smith v. Spingler, 83 Mo. 408; Green v. Conrad (Mo. Sup., 1893), 21 S. W. 839; Armstrong v. Warner (Ohio, 1892), 31 N. E. 877; Fera v. Wickham, 61 Hun, 343; Laybourn v. Seymour (Minn., 1893), 54 N. W. 941, and cases cited; Yardley v. Clothier, 51 Fed. Rep. 508, and cases cited; Louis Snyder's Sons Co. v. Armstrong, 37 Fed. Rep. 18; Balbach v. Frelinghuysen, 15 Fed. Rep. 685; Jones v. Piening (Wis., 1893), 55 N. W. 413.

[In Wyman v. Robbins (1894), 51 O. St. 98, 37 N. E. 264, it was held that where an indorsee of a promissory note brings an action on it against the maker, the latter may set off an indebtedness due him from a previous indorsee, when such indebtedness existed while such indorsee held the note and both note and indebtedness were then past due.

Way v. Colyer (1893), 54 Minn. 14, 55 N. W. 744: In an action by an assignee of a judgment, the defendant may plead as a set-off against the judgment an

indebtedness to him of the assignor, who was the original judgment creditor, existing at the time of the assignment of the judgment.

Wolf r. Shelton (1902), 159 Ind. 531, 65 N. E. 582: A purchaser of real estate under a warranty deed has the right to set off against his warrantor's assignee of a non-negotiable note, given for the unpaid purchase money, a sum that the purchaser has been compelled to pay to relieve his purchase from a pre-existing debt.]

1 Beckwith v. Union Bank, 9 N. Y. 211, 212. [See, as to necessity of notice, Stadler r. First Nat. Bank (1899), 22 Mont. 190, 56 Pac. 111.] See, however, Smith v. Fox, 48 N. Y. 674, which was an action by an assignee for the benefit of the creditors of one R., a private banker, brought on a note given by defendant to R., and transferred to the plaintiff. At the time of the assignment defendant had an amount of money on deposit with R., - more than sufficient to pay the note; and this demand was held to be a good set-off against the note, on

the firm of Watrous & Lawrence made a general assignment to one Meyers, having before that time sold goods to the defendants on credit, the price of which did not become due and payable until September, 1855. In February of the same year, W. & L. had ordered from the defendants a quantity of articles patent churns to be manufactured and delivered at a certain agreed price. There had been such mutual dealings between the parties before. In May, 1855, the defendants completed the churns, and tendered them to the assignee, who declined to receive them. The assignee brought an action for the price of the goods when it became due in September, and the defendants insisted upon the value of the churns as an offset. The defence of offset was rejected. The court held that the situation of the parties at the date of the assignment must determine the question, and unless a right of offset existed then, it could not arise afterwards. It did not exist then, because neither of the demands had matured; but it was enough that the defendant's claim was not yet payable, even if the one assigned was presently due.1 If the defendant's demand had become mature at the time of the assignment, it could undoubtedly have been set off under the equitable rule before stated, on account of the insolvency of W. & L. A firm made a general assignment, having at the time a claim due and payable against the defendants. The assignee brings an action upon the demand, and the defendants set up a note of the assignors which they held at the time of the assignment, but which did not fall due until after that date. The attempted setoff was rejected. "An allowance to a party by way of set-off is always founded on an existing demand in præsenti, and not on one that may be claimed in futuro."2 In an action by an as

the authority of Smith v. Felton, 43 N. Y. 419. The claim made against the defendant, and the demand set up by him, must both affect him in the same capacity; thus, when the defendant is sued for a personal debt, he cannot interpose as a set-off a demand due him as an executor. Barlow v. Myers, 6 N. Y. Sup. Ct. 183.

1 Myers v. Davis, 22 N. Y. 489, 490, citing Chance v. Isaacs, 5 Paige, 592; Bradley v. Angell, 3 N. Y. 475, 493. [This case, Myers v. Davis, was quoted and approved in Stadler v. First Nat. Bank (1899), 22 Mont. 190, 56 Pac. 111.]

See also Fera v. Wickham, 135 N. Y. 223, reversing s. c. 61 Hun, 343, and overruling Rothschild v. Mack, 42 Hun, 73. In Kentucky, however, the assignor's insolvency is a sufficient ground for allowing the set-off of a claim not due at the time of the assignment. Kentucky Flour Co.'s Assignee v. Merchants' Bank (Ky., 1890), 13 S. W. 910. [Same rule in Minnesota : St. Paul, etc. Trust Co. v. Leck (1894), 57 Minn. 87, 58 N. W. 826.]

2 Martin v. Kunzmuller, 37 N. Y. 396; Watt v. The Mayor, etc., 1 Sandf. 23; Wells v. Stewart, 3 Barb. 40.

signee for the benefit of creditors, the defendant relied upon a judgment for costs recovered by himself against the assignor after the making of the transfer. This set-off was not admitted, and it was decided that no notice of the assignment was necessary to cut off such a defence.1 And when the defendants, in an action brought upon an assigned demand, alleged payments which they had made, subsequent to the assignment, as sureties for the assignor upon a liability existing prior to and at the time thereof, this set-off was overruled on the same principle; for, although there was a liability which might result in a debt, there was no existing debt until the payment had actually been made.2 In another action by an assignee the defendant insisted that a similar set-off arising from his payment as surety for the assignor, made under the same circumstances as the last, should be allowed as within the equitable rule on account of the assignor's insolvency. The set-off was rejected, however, because there was no existing indebtedness in favor of the defendant against the assignor at the date of the assignment. Such a present indebtedness is indispensable, whether the case is to be governed by the ordinary rule, or whether the equitable doctrine based upon the assignor's insolvency is relied upon.

1 Ogden v. Prentice, 33 Barb. 160. See also Lucas v. East Stroudsburg Glass Co., 38 Hun, 581.

2 Adams v. Rodarmel, 19 Ind. 339. 8 [The meaning of the word "insolvency," as used in this connection, was considered by the supreme court of Montana in Stadler v. First Nat. Bank (1899), 22 Mont. 190, 56 Pac. 111. The court, after quoting the above portion of the text, said: " Insolvency has two meanings. In its popular sense, it signifies the condition of a person whose entire assets are insufficient to pay his debts in full. The term is, however, used in a restricted sense to express the present ability of a trader to pay his current obligations as they mature, in the usual course of business. . . . The National Bank Act seems strongly to imply that, so long as an association is carrying on its business and meeting its obligations as they mature, whatever its actual condition as to future ability may be, it is, in the absence of fraud, not to be deemed insolvent, as between itself and its cus

When a negotiable prom

tomers; and that it does not become so until, at the least, it commits an act of insolvency, and probably not until it suspends payment or is closed by the government."]

4 Walker v. McKay, 2 Metc. (Ky.) 294. [And in Merchants' Nat. Bank v. Robinson (1895), 97 Ky. 552, 31 S. W. 136, the court said: "An unmatured debt cannot be set off against a bona fide assignee for value of a demand due from the defendant to the assignor." See also Stadler r. First Nat. Bank (1899), 22 Mont. 190, 56 Pac. 111, quoting the text. See, to the contrary, Stolze v. Bank of Minnesota (1897), 67 Minn. 172, 69 N. W. 172; St. Paul, etc., Trust Co. v. Leck (1894), 57 Minn. 87, 58 N. W. 826; St. Louis Nat. Bank Gay (1894), 101 Cal. 286, 35 Pac. 876.] See, however, Morrow's Assignees v. Bright, 20 Mo. 298, in which the set-off was allowed, the court plainly mistaking or misconceiving the extent and limitations of the equitable doctrine flowing from the insolvency of the assignor. See also the decision in Chenault v. Bush, 84 Ky. 528, which is similar to that in

issory note is assigned before it becomes due, the maker thereof cannot offset against the assignee a claim existing against the original payee and assignor of the note, although the assignee have notice of such claim at and before the time of the transfer to him; there is no case for the set-off between the original parties at the date of the assignment, because the demands are not then matured, and the notice given to the assignee is not of any existing legal defence.1 There being no possibility of setting off a claim of damages arising from a tort or fraud against a demand growing out of contract, if two such opposing claims exist and are in suit, and the creditor in the contract assigns his cause of action, which is afterwards merged in a judgment in favor of the assignee, and subsequently to that assignment the opposing party - the debtor in the contract- obtains a judgment for the damages in his action on the tort, the latter is not entitled to set off this judgment against the one recovered against himself by the assignee. No rights of set-off existed at the date of the transfer, and none could spring up after that time.2

*

§ 93. 165. Right of Set-off may be Available although once Suspended. Illustration. It is possible that a right of set-off may be available at the time an action is brought, although at some prior period it was suspended, as is well illustrated by the following case: On the 29th of August the Hollister Bank discounted for one Monteath a sight draft on New York drawn by him, and passed the proceeds to his credit as a deposit. He did This draft was dishonored on presentment.

not draw them out.

Morrow's Assignees v. Bright. The latter case has recently been overruled by Huse v. Ames, 104 Mo. 91, and the rule in Walker v. McKay, stated in the text, now prevails in Missouri. See also, in support of the text, Kinsey v. Ring (Wis., 1892), 53 N. W. 842.

1 Williams v. Brown, 2 Keyes, 486. See also Barlow v. Myers, 6 N. Y. Sup. Ct. 183; s. c. reversed on appeal, 64 N. Y. 41. But, where negotiable paper is assigned after maturity, the maker's rights of set-off are the same as though the demand assigned was not negotiable. Norton v. Foster, 12 Kan. 44, 47, 48; Leavenson v. Lafontane, 3 Kan. 523; Harris v. Burwell, 65 N. C. 584; contra, Richards v. Darly, 34 Iowa, 427, 429. The maker has the

same rights of set-off also when the note is assigned before maturity, but not in good faith and for a valuable consideration. Bone v. Tharp, 63 Iowa, 223. In Richards v. Union Village, 48 Hun, 263, and in Richards v. La Tourette, 53 Hun, 623, claims in the hands of the defendants were not allowed to be offset against demands sued upon by assignees not due at the time of the assignment; in the first case, against an order for the payment of money; in the second case, against a bond and mortgage. It is fair to say, however, that in neither of these cases was Barlow v. Myers mentioned.

2 Roberts v. Carter, 38 N. Y. 107. See Martin v. Richardson, 68 N. C. 255.