Summary
In Zimmerman v. Home Insurance Co., 175 S.C. 18, 177 S.E. 896 (1935), the court stated that rent to be earned and to accrue in the future is not an existing debt, but a contingent liability which is not to be allowed, upon principle, as a set-off.
Summary of this case from In re J.A.G., Inc.Opinion
13971
January 10, 1935.
Before TOWNSEND, J., Richland, January, 1934. Affirmed, and appeal dismissed.
Action by S.J. Zimmerman and another, as conservator-receivers of the Central Union Bank of South Carolina, against the Home Insurance Company and others, associated in business as the Cotton, Fire Marine Underwriters, which filed a counterclaim. Judgment for plaintiffs, and defendants appeal.
The order of Judge Townsend is as follows:
This case was heard by me upon notice on behalf of the plaintiffs to strike out the answer, defense, and alleged counterclaim set up by defendants as irrelevant, sham, and frivolous, and not constituting a defense or counterclaim to the cause of action set forth in the complaint, and upon a demurrer raising substantially the same issue. It was conceded by counsel for the defendants that the sole question in the case was whether or not the defendants had the right to set off their deposit in the Central Union Bank of South Carolina against the defendants' liability to pay the rent accruing to the conservator-receivers of the said bank. There was no issue of fact between the parties; it being conceded that the bank closed on 6th of March, 1933, upon the bank holiday being ordered, that during said month a conservator was placed in charge of said bank, and that the same is insolvent and in liquidation by the conservator-receivers pursuant to law. The defendants had on deposit in the Central Union Bank of South Carolina at the time it closed an amount in excess of $4,000.00, and were occupying as tenants of the bank certain offices in its building under lease from the bank dated 15th of October, 1931, under which the lessees convenanted to pay a monthly rental in advance on the 1st of each month of $359.55 (less certain immaterial deductions). There was no rent past due at the time the bank closed, and the claim of the plaintiffs is for rent, all of which fell due after the closing of the bank and appointment of the conservator; that is, for the ten months beginning with April, 1933, and extending through January, 1934, when the action was begun. The defendants claim that they continued to issue checks monthly against their account in the closed bank to cover the monthly installments of rent (which checks were returned unpaid), and that they should be allowed to set off the rent as it became due against their deposit.
I do not think this right of set-off should be allowed. In theory, the right of set-off is allowed in such cases on the ground that the real sum owing, or asset of the insolvent, is the balance owing as between mutual debts, and hence that by striking such balance no preference is granted as against the other creditors entitled to the ratable distribution of the estate. So the right of set-off against an insolvent is governed by the state of things existing at the time of the adjudication of insolvency, for then it is that the rights of creditors are fixed. Bank of Anderson v. Allen, 146 S.C. 167, 143 S.E., 646, 60 A.L.R., 580. It is generally held that rent to be earned and accrue in the future is not an existing debt, but a mere contingent liability which may arise in the future. 24 Cyc., 1137. Such a contingent right is not a provable claim in bankruptcy, is not a debt which can be made a basis of an action for attachment ( Skalowski v. Joe Fisher, Inc., 152 S.C. 122, 149 S.E., 340, 65 A.L.R., 1427), and, not being ascertained at the adjudication of the insolvency, but its existence and amount depending upon uncertain future events, should not upon principle be allowed as a set-off. Moreover, upon appointment of the conservator, the leased property and the reversion passed to him as the agent or arm of the Court, carrying with it the right to rent thereafter to accrue, and it follows that the subsequently accruing rent was owing to the conservator-receiver as officer of the Court and as trustee for the creditors. Peurifoy, Receiver, v. Gamble, Receiver, 145 S.C. 1, 142 S.E., 788, 71 A.L.R., 783. This rent, being an asset in equity of the general creditors, should not properly be offset by the debt from or deposit in the defunct bank. I can perceive in such case no ground to depart from the rule that demands to be set off must be mutual and accrue in the same rights.
I therefore hold that the alleged defense and counterclaim by the defendants should be stricken out and the demurrer thereto sustained, and it is so ordered.
And it is further ordered and adjudged that the plaintiffs recover and have judgment against the defendants jointly and severally for the sum of $3,109.00 (being the amount of rent owing at the time of the commencement of this action), with legal interest on the several installments from the respective dates they fell due, as alleged in the complaint, and have leave to enter up judgment therefor accordingly, together with the cost of this action.
Messrs. Elliott, McLain, Wardlaw Elliott, for appellants, cite: Right to offset: 134 S.E., 275; 145 S.C. 1; 142 S.E., 788; 146 S.C. 167; 143 S.E., 646; 146 U.S. 499; 36 F.2d 646; 54 F., 9 2d 917; 51 F., 506; 218 F., 898; 136 S.C. 111; 134 S.E., 275; 48 F., 9 2d 169; 152 U.S. 596; 174 S.E., 266.
Messrs. Melton Belser, for respondents, cite: Right to set-off must exist at moment of insolvency: 14 R.C.L., 655; 146 S.C. 167; 165 S.C. 448; 155 N.Y., 404; 146 U.S. 499; 36 L.Ed., 1059; 13 S.Ct., 148; 161 U.S. 275; 40 L.Ed., 700; 16 S.Ct., 502; 290 U.S. 148; 152 S.C. 122. Assets become trust fund: 145 S.C. 1; 142 S.E., 788; 77 S.C. 305; 136 S.C. 514. Demands must be mutual: 23 R.C.L., 57; 172 S.C. 276; 290 U.S. 143; 50 A.L.R., 526; 56 A., 1053; 12 F.2d 809; 246 P., 445; 155 N.W., 155; 218 N.W., 825; 14 Pa., 162; 98 N.W., 290; 57 F., 257. Rent is incident passing with property: 24 Cyc., 1172; 24 Cyc., 1173; 42 S.C. 392; 36 Cyc., 288, 364. Rent to accrue not a debt: 24 Cyc., 1137; 245 U.S. 597; 38 S.Ct., 211; 62 L.Ed., 497; 152 S.C. 122; 181 F., 667; 31 L.R.A. (N.S.), 270; 136 S.C. 111.
January 10, 1935.
The opinion of the Court was delivered by
The Central Union Bank of South Carolina, with its principal place of business at Columbia, S.C. suspended business and closed its doors the 6th day of March, 1933, and the plaintiffs were appointed conservator-receivers, and are still engaged, as such, in the business of liquidating the assets of the defunct corporation. The defendant association, under date of October 15, 1931, leased from the Central Union Bank of South Carolina certain offices, in its bank building in Columbia, S.C. at a fixed rental which was payable monthly in advance on the 1st day of each month. The rent was regularly and duly paid up to the date of the closing of the bank on March 6, 1933; since that time there has accumulated as rent the sum due each month, as set forth in the complaint in this action.
At the date of the closing of the bank, the defendant had on deposit in the bank a sum of, approximately, $4,000.00. Claiming the right to offset the sums due by it for rent against its deposit, it has each month tendered to the plaintiffs a check, drawn on its deposit in the Central Union Bank of South Carolina, for the sum of the monthly rent, which tenders have been regularly refused.
Action to recover the rent was begun January 26, 1934. To the complaint defendant answered, setting up the claim of right to offset the rent due by it with the amount due to it on its deposit account, to the amount of its indebtedness for rent; and, by way of counterclaim, demanded that the balance of their deposit be allowed them as an open and general creditor of the bank and dividends paid thereon.
To the answer and counterclaim the plaintiffs interposed a demurrer, a motion to strike out, and a motion for judgment on the pleadings.
Argument on the demurrer and the motions was heard by the late distinguished jurist, Hon. W.H. Townsend, Judge of the Fifth Circuit. On the 17th day of May, 1934, he rendered his decision in a decree which so plainly states and so correctly determines the questions involved that it would be a work of supererogation to attempt to add to it.
It appears that the appellants rely to some extent upon Mather-James Co. v. Wilson, 172 S.C. 387, 174 S.E., 265. That decision, however, lends no aid to their contention. The Court was there considering the law of distress in relation to other statutory provisions, notably the recording acts, and the condition named has a bearing only upon the question involved in that case; namely, a determination of the respective rights of a landlord and a mortgagee arising under the peculiar facts mentioned.
The decree of Judge Townsend, which will be reported, is affirmed, and the appeal is dismissed.
MESSRS. JUSTICES STABLER and CARTER and MESSRS. ACTING ASSOCIATE JUSTICES J. HENRY JOHNSON and C.J. RAMAGE concur.