Summary
In Rothschild v. Mack (115 N.Y. 1) the court said: "It has been frequently held that, as to the right of set-off in equity, the fact that the debt owing to the insolvent is not due when he makes an assignment is entirely immaterial" (p. 8). The same rule was laid down in the same words in the case of Richards v. La Tourette (supra, p. 58) and a careful reading of the opinion in Fera v. Wickham (supra) will show that the learned judge had the same principle in mind.
Summary of this case from Matter of HatchOpinion
Submitted April 25, 1889
Decided June 4, 1889
Sterns Myers for appellant.
David Hays for respondents.
It is impossible to escape the conclusion that a gross fraud was perpetrated upon the plaintiffs by the firm of Rindskopf Bros. Co., in the transaction which led to their obtaining on the eve of their failure from the plaintiffs, by reason of the note in question, the sum of nearly $5,000. The court has not, in so many words, found that the representations were fraudulent, but the specific facts that were found lead to no other inference, and they cannot be squared with an honest purpose on the part of the defendant's assignors. And when the evidence is examined the inference as to the existence of fraud is simply conclusive. The evidence is confined to that which was given for the plaintiffs, there having been none introduced on the part of the defendant. Examining the findings, in connection with the evidence, it is clear that when the member of the firm of Rindskopf Bros. Co. made his representations to one of the members of plaintiffs' firm as to the value of the note, his statements imported actual personal knowledge of the facts in regard to which he was speaking, and it would naturally convey such impression. The truth of his representations depended upon the financial ability of the makers or indorsers of the note. If both or either were in such condition as to render it morally certain that they could and would pay it at maturity, then the representations might be regarded as true. If neither were, the contrary would be the case.
It must be assumed that he knew the financial condition of his firm at that time. With no evidence of any special change in such condition the firm fails in less than a fortnight after the representations were made, and can pay scarcely fifty cents on the dollar; and, added to that, it gives preferences to the entire exclusion of the plaintiffs. This alone casts a rather strong reflection upon the bona fides of the transaction on the part of the defendant's assignors. The member who made the representations knew that, so far as his firm was concerned as indorsers, the note was wholly without value. At the same time he either knew or he did not know of the financial condition of the makers of the note. If he did know it, then he knew that the note, as to both makers and indorsers, was without value. If he did not know its condition, he yet assumed to have actual knowledge of the truth of his statement that the note was as good as the Bank of England; and he also knew that if it were, it would be because the makers were beyond all question good, as he knew his own firm was insolvent, and hence when he made the representations he did assume to have actual knowledge of the condition of the maker's firm. He certainly meant to convey the impression of actual knowledge of the truth of the representations he made as to the value of the note, and he either knew such representations were false or else he was conscious that he had no actual knowledge while assuming to have it and intending to convey such impression. If damage ensue, this makes an actionable fraudulent representation. ( Marsh v. Falker, 40 N.Y. 562; Meyer v. Amidon, 45 id. 169.)
It thus appears that the defendant's assignors procured from the plaintiffs' firm nearly $5,000 by reason of false and fraudulent representations relied on by the plaintiffs. This fact will be assumed to have been found by the court below if necessary to sustain the judgment, because it is supported by the evidence, and is, indeed, conclusively proved thereby. ( Oberlander v. Spiess, 45 N.Y. 175.)
Having obtained this money by such fraud, the effort is now made in their behalf to use it all and to pay every dollar of it to their preferred creditors, leaving their indebtedness to the plaintiffs wholly unprovided for, and at the same time their assignee, the defendant, is to recover from the plaintiffs in cash the full amount of their indebtedness to those assignors; and yet it was partly upon the fact of the existence of plaintiffs' indebtedness to defendant's assignors that they indorsed and procured the money on this note. It is difficult to imagine a more unjust and inequitable result than that contended for by defendant, and a court of equity would deliberate long before consenting to assist at such a consummation. Fortunately it is not necessary to stretch the law in the slightest degree to prevent such gross injustice. An action in the nature of an action of assumpsit lies against one who has obtained money from another by a fraud, and such a claim is a proper subject of set-off in an action brought by the party against whom it exists. An assignee of such party takes a cause of action subject to such defense. This money thus obtained is, in contemplation of law, money received for the use of the party who is defrauded, and the law implies a promise on the part of the person who thus obtains it to return it to the rightful owner. The tort arising from the manner in which the money was obtained may be waived and the action founded upon the implied contract. ( Harway v. Mayor, etc., 1 Hun, 628; Bk. of Dallas v. National Park Bk., 32 id. 105; Wood v. Mayor, etc., 73 N.Y. 556). In this case the defendant's assignors having obtained money to the amount of nearly $5,000 from the plaintiffs by means of the fraud above stated, at once became liable to repay the same, and the law will imply a promise to repay it to the plaintiffs. This cause of action (the tort being waived) was on contract, and it existed the moment the assignors obtained the money from the plaintiffs, and, of course, it was in full life when they assigned their property to the defendant, who took it subject to all defenses existing against it while owned by the assignors. ( Chance v. Isaacs, 5 Paige, 592, 594; Gay v. Gay, 10 id. 369; Smith v. Felton, 43 N.Y. 419.) It has been frequently held that, as to the right of set-off in equity, the fact that the debt owing to the insolvent is not due when he makes an assignment is entirely immaterial. The setting it up as an offset is a waiver by the debtor of any defense upon the ground that the debt is not due, and such waiver of the right to demand the full time in which to pay his debt can lawfully and properly be made by the debtor. ( Lindsay v. Jackson, 2 Paige, 581, 584; Smith v. Felton, supra.) In equity the right to a set-off does not depend upon the statute, but upon the equities existing in each particular case, and the fact of the insolvency of one of the parties, so that no satisfaction can be obtained by a direct proceeding against the defendant for recovery of the debt, frequently gives rise to the right of set-off aside from any other fact. (Cases above cited.)
The case of Chance v. Isaacs (5 Paige, 592), is in no way inconsistent with the views above expressed. At the time of the assignment by Isaacs, the complainant had already indorsed and transferred the note made and delivered by Isaacs to him, and he was only contingently liable thereon if not paid at maturity. Isaacs having been guilty of no fraud in executing and delivering the note to the complainant, was only liable on the note, and at the time of the assignment the complainant was not the holder of it and it was not due. The complainant having subsequently taken up the note at maturity, asked to set off his debt to the assignor Isaacs upon two notes made by complainant against the note which he had thus taken up. The prayer was refused, because the note did not belong to the complainant at the time of the assignment by Isaacs, although he was contingently liable for its payment, and it was stated that no equitable right of set-off existed when the assignment was made which attached to the complainant's notes in the hands of the assignee. The court also said that the fact that the note executed by Isaacs was not due when the assignment was made, would not prevent the offset if the plaintiff had only become the owner of the Isaacs' note at the time of the assignment, because the Isaacs note would be due long before the complainant's notes were payable.
In the case now before us we have seen that a cause of action, in the nature of one in assumpsit, existed in favor of the plaintiffs herein against the defendant's assignors at the very time of the making of the assignment, and this cause of action we hold may properly be offset against the debt due from plaintiffs to defendant, as assignee, to the extent necessary to extinguish such indebtedness. Upon the ground of the existence of a cause of action on contract against the defendant's assignor at the time of the assignment, we hold the case was a proper one for a set-off, but we do not, therefore, wish to be understood as denying the correctness of the holding at General Term. We simply do not decide the case upon that ground, and we neither affirm or disaffirm its correctness.
The conclusion arrived at by the General Term was right, and its judgment should be affirmed.
All concur, excepting GRAY, J., dissenting.
Judgment affirmed.