Chance vs. Isaacs & Smyth, 5 Paige Ch. 592

The Chancellor. It is now well settled that a person who receives a negotiable promissory note from the payee, out of the usual course of business, or in security for an antecedent debt, and not for a present consideration, such as the payment of money, the delivery of goods, or the relinquishment of an existing security, takes it subject to all the equities which existed against it in the hands of the former holder.

And this principle applies with peculiar force to the voluntary assignee of an insolvent debtor, who receives negotiable paper from the assignor, under a general assignment for the benefit of creditors. In the present case, therefore, if the complainant had been the holder and owner of the note of Isaacs at the time this assignment was made, I should have no hesitation in declaring that Smyth took the assignment of the complainant’s two notes, subject to the equitable right of the latter to have the note given to himself set-off against them.

Although this note was not due at the time of the assignment, yet, as it would become due long before the complainant’s notes were payable, an equitable right of set-off would have then existed, which it would have been unsonscientious on the part of Isaacs to deprive him of, by assigning the complainant’s notes to other creditors. I think the principle of the case of Lindsay v. Jackson McJimpsey, (2 Paige’s Rep. 581,) would have sustained an equitable set-off in such a case, where the assignor was insolvent, although neither of the notes had become due at the time of the assignment.

The assignment is dated the 30th of January; but as the defendants, in their answer, have sworn it was made on the 18th, and the complainant has thought proper to. go to hearing on bill and answer, without giving them an. opportunity to prove that fact, this allegation in the answer must, for the purposes of this suit, be taken to be true, however imbrobable it may appear to be.

And as this note did not belong to the complainant at the time of the assignment, although he was contingently liable for the payment thereof, I am satisfied the vice chancellor was right in supposing that no equitable right of set-off then existed which attached to the complainant’s notes, in the hands of the assignee. There were neither mutual debts, nor mutual credits which by the efflux of time would necessarily ripen into mutual debts, existing between Chance and Isaacs at the time of the assignment. In the case of Lindsay v.

Jackson & McJimpseij there were mutual credits which would have formed proper subjects of set-off in bankruptcy, or under the insolvent acts. (Ex parte Prescott, 1 Atk. Rep. 230. Atkinson v.

Elliott, 7 Term Rep. 378.) But, in a case similar to the one now under consideration, Lord Rosslyn decided that the endorser of a bill of exchange which was accepted by the bankrupt, and which had been taken up and paid by the endorser, subsequent to the act of bankruptcy, could not be set-off against a debt due from him to the bankrupt at the time of the issuing of the commission. (See Ex parte Hall, 3 Vesey’s Rep. 804.) The decree of the vice chancellor must therefore be affirmed, with costs; but without prejudice to the complainant’s right of set-off at law, if the assignment was not in fact made, and accepted by Smyth, before the note endorsed by the complainant was paid and taken up by him as such endorser.