The Assets Realization Company, Respondent, v. The City of Buffalo, Appellant

The Assets Realization Company, Respondent, v. The City of Buffalo, Appellant. ¡Fourth Department, March 20, 1907. Set-off in equity — assignment of unmatured claim by insolvent — when assignee'takes subject to set-off. Where an insolvent assigns a claim not yet due, the debtor may offset against the assignee a claim against the assignor due at the time of the assignment. In equity- the fact that the claim of the insolvent is not due when he makes the assignment does not prevent a set-off, for it is only the difference between mutual debts that the court regards as owing by or to the insolvent. Although the claim of the insolvent was for damages against a city for injury to real estate by the change of a grade crossing, which claim the municipality had by statute discretionary power to allow, the municipality having actually allowed the claim, may set off against the claimant’s assignee a prior claim in its favor against the assignor. It is no objection to such set-off that the assignee took the claim from the receiver of the claimant on its insolvency. McLennan, P. J., and Bobson, J., dissented. Appeal by the defendant, The City of Buffalo, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the 15th day of November, 1906, upon the decision .of the court, rendered after a trial at the Erie Special Term, sustaining the plaintiff’s demurrer to the defendant’s answer. It appears from the plaintiff’s complaint that the German Bank of Buffalo was the owner of certain premises situate in that city from about September 24, 1902, until on or about the 1st day of August, 1903, when it sold the saíne, reserving to itself, however, all rights and claims for damages or injury to the premises by reason of any grade crossing or change of street grade, or work whereby the ■ property hadLeen in jured or damaged ; that, the premises had been theretofore damaged by grade-crossing improvements, and that the defendant,"the City of Buffalo-, in and during the year 1901, caused to be built a viaduct in Babcock street in the'vicinity of the premises, causing damage thereto in an amount exceeding $980:70; that, by an act of the Legislature of the State, passed April 28, 190#, discretionary power and authority was conferred upon the common council of the city of Buffalo, subject to the approval of the mayor, to audit, adjust and allow, in whole or in part,, certain claims and demands, among others, the said claim- of the German Bank; that' thereafter arid on or about June 12,1905, the common council, with the approval of the mayor,, did audit and allow-said claim at the sum of $980.70., The German Bank was declared insolvent by a- judgment of the Supreme Court on the 22d day of December, 1904, . and a receiver was appointed of all its assets, .and property. There..aftér, and on the 8th day of June, 1906, the receiver assigned the said claim and certain other assets arid property to -the plaintiff, By the defendant’s answer it appears that at the time the German • Bank was adjudged insolvent and a receiver appointed'of its prop-erty and assets, there was due and owing from the German Bank to. the city of Buffalo, the defendant,, the. sum of $114,822,85 on , account of certain deposits theretofore-made by the city with said bank under certain terms and conditions which need not be-referred . to at length here. Ro part thereof- had been paid except the sum of $57,411.42,. leaving due and owing to the city .the sum of $57,411.43. These facts were embodied in the defendant’s answer • . as .a counterclaim, the-defendant demanding «. judgment that-so much thereof be-set off against the plain tiff’s-claim'as was necessary to-extinguish the plaintiff’s cause-of action. To this counterclaim' the plaintiff demurred and the.demurrer, was sustained at. Special Term. Louis E.. Eesbecker, Corporation Counsel, and John W. Ryan " ' ' fof the appellant. • Ercmk M. Spitzmiller, for the respondent. ■ -See Faw.s of 19.04, chap. 473.^-[Rep,- [MAJORITY — Kruse, J.:] Kruse, J.: We agree to the general proposition that claims or demands sought to be set off must not only be mutual to the extent that they are owing by each to the other, but must also be due and payable. But this rule is not without its exceptions. And one of the. exceptions is that where an insolvent makes an assignment owing a debt • due at the time of the assignment, and also holding a claim not then due against the creditor whom he so owes, the creditor may offset his claim against the claim held by the assignee of the insolvent. In such a case the rule of equitable set-off may be invoked, and' the fact that the debt owing to the insolvent is not due when he makes an assignment does not prevent the set-off in equity. For it is only the difference in the mutual debts which the court in such case will regard as the sum owing by or to the insolvent. (Matter of Hatch, 155 N. Y. 401.) We think the case oí.Fera v. Wickham (135 H...Y. 223) and kindred cases not inconsistent with this view. In the Fera case neither claim was due at the time of the assignment, and the offset was there refused. But there is nothing in that case which holds that if the demand of the creditor of the insolvent had been due at the time of the assignment, the set-off could not be allowed against the claim of the insolvent, although not duo at the time of the assignment. The reason it was not'allowed in that case was-because the claim of the. creditor was not due at the time of the insolvency and 'assignment. This distinction is pointed out in the Hatch case, and is again recognized in the case of He Ga-mjp v.. Thomson (159 FT. Y. 444", 448). It is contended, however, on the part of the plaintiff that at the time of the bank’s insolvency the bank in fact had no claim against the city, it being entirely optional with the common council and the mayor to audit the claim or any part of it; that had the city officers seen fit not to have allowed the claim, the bank would have been entirely remediless; that at most it was only based upon a moral consideration and that its legal inception was long, after the bank became insolvent and passed into the hands of a receiver, and even after the assignment' by the receiver to the plaintiff. However that may be, a sufficient answer to that suggestion is that the city officers did not take that view of the claim presented by the bank. They recognized its validity and made an award therefor, and whatever substance there is to the claim, which is now sought to be enforced against the city by the plaintiffs as assignees of the receiver of the bank, is based upon the recognized obligation of the city to pay the dámages for injuries to the land belonging to the German" Bank. It matters'not whether the claim is. founded upon equitable considerations or legal liability, or a mere moral obligation on the part of the city, the plaintiff’s right is founded entirely upon this claim made by the bank against the city and- transferred by the receiver of the bank to the plaintiff. It may be said in .passing that if this award is to be regarded as having no substantial foundation, but is a mere gratuity, it is difficult to see bow there is any enforcible claim against the city by the German Bank or its receiver, much less by the plaintiff. There is certainly no shadow of a claim against the city in favor of "the plaintiff, other than that which the plaintiff has acquired through this assignment from the receiver of the bank. Ror is it an objection to the set-off that when the bank became insolvent and its assets passed into the hands of a receiver, the claim. against the city was unliquidated and in an inchoate and dormant state, since it passed to the receiver and from the .receiver to the plaintiff as an asset burdened with the right of an equitable set-off which the city had. As soon as the claim of the bank was adjusted and the award made, the right to set off the claim of the city against the bank, which had been due since the receivership began, attached and became effective and wdpe'd out the claim of the bank represented by this award, the award being less than the amount owing to the bank. - We think the demurrer was improperly sustained. The interlocutory judgment should, therefore, be reversed and the demurrer overruled, with costs of this appeal and in the court below, with leave, however, to the' plaintiff to plead over upon payment 'of costs. All concurred, except McLennan, P. J., and Robson, J., who dissented. Interlocutory judgment reversed, with costs, and demurrer overruled, with costs, with leave to the plaintiff to plead over upon payment of the costs of the demurrer and of this appeal. ■ •