HOBBS et al. v. DUFF et al., 23 Cal. 596

Crocker, J. delivered the opinion of the Court—Cope, C. J. concurring. This is an appeal from an order granting an injunction, in an action in the nature of a suit in equity, for a decree setting off a certain demand owned by the plaintiffs, against a demand owned by Josephi, one of the defendants. The record discloses these facts, that on the fifteenth day of September, 1857, one Fisher obtained a decree for the foreclosure of a mortgage ‘upon certain real and personal property in the District Court of Humboldt County, against one Ryan, J. R.

Duff and several others; that the mortgaged property was duly sold under the decree; and after the application of the proceeds upon the amount of the mortgage debt found due by the decree, there was a deficiency or balance of $17,248.89 ; that May 9th, 1858, Eisher assigned this balance, due on the decree, to R. & E. Knox, and May 10th, 1860, they assigned it to one Goddard, who, on the nineteenth day of June, 1860, assigned the undivided half to his associate plaintiffs in this action.

This is the demand the plaintiffs claim the right to use and apply as a set-off—the sum due thereon with interest amounting to $53,977.63, at the commencement of this action. The complaint states, that on the twenty-third day of February, 1856, Fisher entered into a contract with the said Ryan and J. R. Duff, two of the defendants in the decree of foreclosure, for the conveyance of the mortgaged property, should he acquire the title to it; but that Ryan and J. R. Duff, for the purpose of defrauding their creditors, had the contract made in the name of W. R.

Duff, instead of their own, the latter being privy to the fraud; that an action was brought thereon, in the name of W. R. Duff, against Eisher, the Knoxes and others, to compel a specific performance, and an account of the rents and profits, in which a final decree was rendered in favor of W. R. Duff against the defendants, for a specific performance of the contract, and for damages in the sum of $13,566.99; that the Knoxes appealed from this judgment'to this Court, and the plaintiffs in the present suit became their sureties on the appeal bond; that the judgment was affirmed on appeal, and W. R.

Duff brought an action on the appeal bond, in which he recovered judgment against the plaintiffs in this action, on the twenty-third day of August, 1861, for $16,900, and they aver that Ryan and J. R. Duff procured all these actions, and proceedings to be had, in the name of W. R. Duff, who acted as a mere naked trustee for them, they being the real owners of the judgment against the plaintiffs. W. R. Duff assigned this judgment on the tenth day of March, 1862, to one Sharp, who, on the twelfth day of March, 1862, assigned it to the defendant Josephi.

It is this judgment that the plaintiffs seek to have set off and satisfied, by having the amount thereof credited on the larger judgment held by them. The injunction is to restrain the defendants from enforcing this judgment against the plaintiffs. The first point raised by the appellants is, that the decree assigned to the plaintiffs is not a money judgment, and therefore does not form a proper foundation of an action for a set-off. The decree is rendered in a form in very common use in the Courts of this State.

It recites that the Court referred the case to the Clerk of the Court, to compute and report the amount of principal and interest due on the bond and mortgage; that the referee had reported due thereon the sum of $33,820, and then “ it is ordered by the Court that the said report be confirmed.” It then proceeds and decrees, that the mortgaged premises be sold; that out of the proceeds certain charges be paid, and the “ said sum of $33,820 shall be paid,” with interest thereon; that if there be a surplus, the Sheriff shall pay such surplus into Court; that if the proceeds should be insufficient to pay the said debt, interest and cost, the Sheriff shall report the amount of such deficiency or balance, and that “ therefor the plaintiff have execution ” against the defendants.

The Sheriff, after the sale, duly reported the balance due as before stated.

This decree appears to be in strict accordance with Sec. 246 of the Practice Act, as it stood at the date of the judgment, by which it was provided, that the “ Court shall have power, by its judgment, to direct a sale of the property, or any part of it; the application of the proceeds to the payment of the amount due on the mortgage, lien, or incumbrance, with costs, and execution for the balance.” The right of the plaintiff, in foreclosure suits, to a personal judgment for the amount of the debt, under this section, was established by the decisions of this Court in: (Rollins v. Forbes, 10 Cal. 299; Brown v.

Table Mountain Water Co., Id. 441; Rowland v. Leihy, 14 Id. 156 ; Cormerais v. Genella, 22 Id. 116.) But in those cases there seems to have been a direct decree,, that the defendants pay, or that the plaintiff recover the amount found due— which is not found in the decree we are now considering. In this respect it is like the decree passed upon in Chapin v. Broder (16 Cal. 403).

In that case the judgment had been docketed at the date of its rendition; and the question was at what time the lien of the judgment attached upon the lands in controversy; and it was held, that until the amount of the deficiency had been ascertained after a sale, the amount of the judgment was uncertain and indefinite; and that no effect could be given to it, beyond a sale, so long as this uncertainty continued.

The question before us is, whether, in such a decree, there is a judgment for the amount of the deficiency when it has been duly ascertained by a report of the Sheriff, with the usual qualities of a judgment at law, or a decree in equity for the payment of money ? That question was not directly decided in Chapin v. Broder; but the language used by the Court would seem to imply, that such was their opinion; and that the docketing of such a judgment would make it a valid lien on the property of the defendants, from the time the deficiency was duly ascertained—but could not date prior to that time.

The fact that the statute does not require, in such cases, a direct personal decree for the payment of the money, and yet authorizes an execution to issue for the balance, would give a decree, rendered in accordance with its provisions, one of the highest and most important attributes of a money judgment—the foundation of an execution to enforce its collection; and a sale of property, under such an execution, would certainly convey a valid title. But it is unnecessary for us to determine what is the character and quality of such a judgment, further than as it may apply to the present ease.

We think it clear that the original debt is merged in such a judgment, at least so far as to make it a certain and liquidated demand, existing at the date when- the amount was ascertained, sufficient as a foundation of a right of action or set-off. The principle is well settled, that it is not necessary that the demand sought to be used as a set-off should be in the form of a judgment.

It appears from the record, that prior to the suit for a specific performance, Fisher had conveyed the mortgaged property which he had purchased, to the Knoxes, and they were therefore made parties to the action, it being alleged that the sale was fraudulent and void, and that the Knoxes were therefore bound by Fisher’s contract to convey. This issue was found in favor of the plaintiffs in that action; and the decree, therefore, was rendered against the Knoxes.

The appellants contend that the assignment of the judgment by Fisher to the Knoxes was without consideration, and fraudulent, and that the decree in the action for a specific performance was an adjudication to that effect, binding upon the plaintiffs, and vitiating the judgment in their hands. It is a sufficient answer to this, to say that the assignment of this judgment by Fisher to the Knoxes formed no part of the matters in controversy in that action, and no judgment was entered affecting it in any way.

It is also urged, that this assignment of the judgment by the Knoxes to the plaintiffs was made without any consideration. It appears from the record, that it was made for the purpose of securing the plaintiffs against them liability on the appeal bond, which they executed as sureties for and at the request of the Knoxes. This is clearly a sufficient consideration to support the assignment. It is both a valuable and adequate consideration. The assignment is not conditional, as was the case in Gilman v. Van Slyck (7 Cow. 469). The Knoxes are the principals, as to the liability of the plaintiffs to William R.

Duff, and it was their duty, as such principals, to secure and protect their sureties. The assignment of the balance due on the judgment for that purpose was proper and valid, and should be sustained accordingly. It is urged, that the Knoxes are attempting to save themselves from their liability upon the money judgment rendered in the action for specific performance, through the complainants, by means of their assignment. If such should prove to be the case, we do not see what difference it can make as to the rights of the parties in this action.

If the Knoxes have a just demand, which is an equitable set-off to the judgment held against them by William R. Duff, what rule of equity is violated by allowing them, or their sureties for them, to maintain an action for that purpose ? If William R. Duff is not the real owner of the judgment against the Knoxes, but is the mere trustee for Ryan and J. R. Duff, who are the beneficial owners, he is not injured in any way by the set-off; and the latter are not injured, for the judgment is applied in payment of an equal amount justly due from them, which is the object sought to be accomplished by a set-off.

Indeed, we are not sure that if the Knoxes had not assigned the judgment to the plaintiffs, but still held it, the latter could apply to a Court of Equity to compel a set-off, to relieve them from the payment of their liability. That, however, is a question not before us. It is sufficient for the purposes of the present case, to say, that the assignment was for a proper and valid purpose, and made upon a good and sufficient consideration.

It is also urged, that Josephi purchased the judgment against the plaintiffs in good faith, and for a good and valuable consideration, and is therefore entitled to protection against the claim to set-off. This judgment, which was rendered August 23d, 1860, was assigned by Wm. R. Duff to one Sharp, March 10th, 1862, and Sharp assigned the same to Josephi, March 12th, 1862.

But the judgment claimed as a set-off by the plaintiffs was assigned to their principals, the Knoxes, May 9th, 1858, and was assigned by them to Goddard, May 10th, 1860, and by him to the other plaintiffs June 19 th, 1860; so that the right of set-off claimed by the plaintiffs existed at the date of the judgment against them, and the subsequent assignees of that judgment took the same subject to the right of set-off (Pr. Act, Sec. 5; McCabe v. Grey, 20 Cal. 509; Wright v. Levy, 12 Id. 257.) But Joseph! cannot justly claim that he is a purchaser without notice of this claim of set-off asserted by the plaintiffs.

As assignee of the judgment, he is deemed to have notice of all matters disclosed by the record and proceedings in the action in which the judgment was rendered. The record in that action discloses the fact of this claim of set-off, which the plaintiffs in this action attempted to use as a defense to that action; but the Court in that case ruled it out as a defense, on the ground that that action was strictly at law, and the defense did not come within the provisions of Sec. 47 of the Practice Act. (Duff v.

Hobbs, 19 Cal. 646.) The Court in that case, however, did not hold that the plaintiffs had no remedy in equity. The defendant Josephi, therefore, had full notice of the equitable claim of set-off of the plaintiff, and he cannot, therefore, claim the rights of a bona fide purchaser in this action. The appellants also contend that the complaint is defective, as it does not allege that the Knoxes are insolvent, or that they are not able to repay to the plaintiffs the amount they may be compelled to pay as sureties. It is the insolvency of Ryan and J. R.

Duff, the persons who owe the debt claimed by the plaintiffs as a set-off, and not that of the Knoxes, that is the material question upon this point. Their insolvency is averred, and does not seem to be disputed. It is the fact that they are the real owners of the judgment against the plaintiffs; that they are insolvent, and therefore the only means of collecting the judgment due from them to the plaintiffs is by the set-off, that forms one of the chief grounds for the interference of a Court of Equity.

The parties named in the record of these two judgments are not the same, and therefore a Court of Common Law jurisdiction cannot make the set-off; but a Court of Equity will look beyond the nominal to the real parties in interest, and adjudicate the rights of the parties accordingly. The interposition of a trustee will not prevent a Court of Equity from reaching his eestuis que trusts, when all the parties are before it, and compel them and the trustee to allow a set-off, even though such relief could not be granted by a Common Law Court.

A Court of Equity will not permit eestuis que trusts, who are insolvent, to enforce and collect, through their trustee, a judgment against parties who hold a just and valid demand against them, which they have no means of enforcing or collecting if a set-off is denied. ( Walker v. Sedgwick, 8 Cal. 405 ; Russell v. Conway, 11 Id. 93; Naglee v. Palmer, 7 Id. 543; Howard, v. Strous, 20 Id. 277.) The next point of the appellants is, that the plaintiffs are estopped from showing that Ryan and J. R.

Duff are the real owners of the money due on the judgment against them, by the judgment in the action for a specific performance brought by Win. R. Duff against Fisher and the Knoxes. An examination of the record in that case shows, that no question of that kind was raised by the pleadings, and no judicial determination of the point raised in this action was had in that. The plaintiffs in this action could not be barred from setting up this fact as the foundation of their right of action, unless it was clearly shown that the same matter was in issue in the former action and adjudicated by the Court therein.

Ho such adjudicar tion being shown, the plaintiffs are not estopped by the decree in that case. It appears, that after the assignment of the judgment in the foreclosure suit by the Knoxes to Goddard, the latter issued execution thereon and had it levied upon a mill in Humboldt County. Wm. R. Duff brought suit against him and the Sheriff to enjoin the sale, on the ground that he was the owner of the mill, and that the execution defendants, Ryan, J. R. Duff, and others, had no interest in it.

Goddard answered, denying these averments of the complaint, and alleging that the execution defendants were the beneficial owners of the mill. The action does not appear to have been defended by Goddard any further than filing the answer, and the plaintiff recovered judgment therein; and the appellants insist that the plaintiffs are also estopped by this judgment from showing that Wm. R. Duff is the trustee of Ryan and J. R. Duff, of the judgment against the plaintiffs, or that they are the real owners thereof.

The subject matter of that action was the mill, and not the debt due or the judgment rendered on the appeal bond. The two are entirely separate and distinct matters, and a judgment settling the question, as to the ownership of the mill, cannot in any way determine the question as to who is the real owner of this judgment against the plaintiffs. This point is therefore untenable.

But, it is insisted, that they are also estopped from showing the same facts by the judgment rendered against them on the appeal bond, because in that action they set up the same matters alleged in this suit, as a ground of set-off or counter claim. The record, however, shows that the Court in that action excluded all evidence tending to show that Ryan and J. R. Duff were the real owners of the amount due on the appeal bond, and the action of the Court below was sustained by this Court for the reasons before stated. (Duff v.

Holds, 19 Cal. 646.) It was then held that these matters could not be adjudicated in that action. The record shows that they were not adjudicated, and it follows that the judgment therein cannot be pleaded or claimed as an estoppel in this action. Although a Court of Law declines to determine a question of set-off, yet it is not res judicata, so as to preclude an inquiry in a Court of Equity. (Hackett v. Connett, 2 Edw. Ch. 73.) The next position is, that the rules of set-off are the same in equity as at law.

It is true, that Courts of Law and Equity follow the same general doctrines on the subject of set-off; but where some equity intervenes, independent of the fact of mutual unconnected debts, Courts of Equity will take jurisdiction, and determine the matter upon the principles of natural equity. And when the law could not give a proper remedy, as in case of the insolvency of one of the parties, equity will afford relief. (Barb, on Set-Off, 190; Lindsay v.

Jackson, 2 Paige, 581.) The demands in this case are judgments, and the aid of a Court of Equity is invoked because the defendants in one of the judgments are insolvent, and the plaintiff in the other is not the real party in interest, but a trustee for the insolvent defendants in the other judgments. Each of these facts forms a ground for applying to a Court of Equity, and entitles the plaintiffs to equitable relief. On a complaint filed to set off one judgment or decree against another, the jurisdiction of a Court of Chancery is more extensive than that of Common Law Courts.

In equity, a set-off in such cases is a matter of right, and not of discretion, and it depends, not upon the Statutes of Set-Off, but upon the equitable jurisdiction of the Court over its suitors. (Barb, on Set-Off, 194.) And the set-off will be allowed as between the real parties in interest, regardless of a nominal party. ( O’Conner v. Murphy, 1 H. Blackstone, 657.) A person who holds a claim as a trustee, cannot have it set off against a demand due from him in his own right. (Fair v.

McIver, 16 East, 130.) And upon the same principle, we think it clear that a set-off should be made in equity as between the real parties in interest, even though one of the judgments is in the name of a trustee who holds for the use and benefit of such real parties. ( Wolf v. Beales, 6 S. & R. 242; Barb, on Set-Off, 61, 71-73.) In other words, the Court will decree a set-off as between the real owners or persons beneficially interested in the several demands. (Russell v.

Conway, 11 Cal. 93.) Another position taken by the appellants is, that Fisher should have pleaded the balance due on the judgment of foreclosure, as a set-off against the damages in the action brought by Wm. R. Duff against him and the Knoxes for a specific performance; and not having done so, the plaintiffs claiming under him are estopped or barred from maintaining this action. If he had so pleaded it in that suit, it would probably have been held, that the Court could not entertain the defense or allow the set-off in that action, on the same grounds that it was ruled out in the subsequent action of Duff v.

Holls (19 Cal. 646). But independent of that, it is clear that a party does not lose his right to bring a separate action for a demand which he might have pleaded as a set-off, but neglected to do. (Barb, on Set-Off, 21.) It is also insisted that the action is barred by the Statute of LimRations, it having been commenced on the seventeenth day of March, 1862, and the judgment which the plaintiffs seek to set off having been rendered September 17th, 1857.

This is substantially “ an action upon a judgment or decree,” and is therefore governed by Sec. 17 instead of Sec. 19 of the Statute of Limitations, as claimed by the appellants. The action having been brought within five years from the date of the decree, it is not barred by the statute. We have thus examined all the questions raised by the appellants, and find no error in the action of the Court below. The order granting the injunction is therefore affirmed.