Opinion
December Term, 1850.
1. It is the settled law in this State that a debt due by an assignor of a bond or note at the date of the assignment may be pleaded as a set-off to an action by an assignee after maturity; but this departure from the statute, Rev. St., ch. 31, sec. 80, is put on the ground that a liberal construction is necessary to prevent evasion and injustice.
2. Where it is shown this injustice will not result, the rule is different. As when the assignor, at the date of the assignment, had an account against the defendant in the action, larger in amount than that which is attempted to be set off: Held, that the defendant could not avail himself of his account, as a set-off, in an action by an assignee on a note or bond assigned after maturity.
APPEAL from the Superior Court of Law of GUILFORD, at Fall Term, 1850, Manly, J., presiding.
H. W. Miller for plaintiff.
Mendenhall and Morehead for defendant.
This was an action in case upon a promissory note. Hogg and Lindsay assigned the note sued on to the plaintiff, after maturity. The defendant relied on an account against Hogg and Lindsay, which he held at the date of the assignment, as a set-off. The plaintiff opposed this set-off by proof that, at the time of the assignment, Hogg and Lindsay, besides the note, held an account against the defendant of an amount greater than his account.
It was decided in the court below that this proof defeated the set-off. After a verdict and judgment against him, the defendant appealed.
(506) We think there is no error.
At common law, if a bill of exchange was assigned Before maturity, the assignee took it subject only to indorsed credits; if after maturity, he took it subject to any legal defense that might have been made to it in the hands of the assignor at the date of the assignment, for it was dishonored, and the assignor was not allowed to evade the defense by transferring it to a third person. The Statute of Anne puts promissory notes and our statute notes under seal on the same footing with bills of exchange. In the meantime the statute in regard to set-offs created a new legal defense; and the question was presented whether this new defense existing against the assignor at the time of the assignment was available against the assignee.
It is settled in England, after much hesitation, Burrough v. Moss, 10 B. and C., 558, that this new defense is not available, and that the suit of the assignee can only be met by a defense existing against the assignor at the date of the assignment, which was connected with the bill, as a payment; but that a set-off of a debt against the assignor, being a thing collateral and unconnected with the bill, is not a defense at law, although the bill was assigned after maturity, because the words of the statute embrace only a mutual debt which the defendant holds against the plaintiff, and does not extend to a debt which he holds against the plaintiff's assignor.
It is settled in this State that this new defense is available, and that the principle of the common law applies so as to bring it within the meaning of the statute of set-offs. Haywood v. McNair, 14 N.C. 231; s. c., 19 N.C. 283.
It is unjust to attempt to evade a defense by making a transfer of a bill or note after maturity, and the principle applies as forcibly to a defense given by statute as to (507) one existing at common law. To allow any defense to be thus evaded would be a violation of the maxim, "no man shall take advantage of his own wrong," which is as fully recognized in courts of law as in equity. It is true, the set-off is not connected with the bill or note, and is collateral and may or may not be pleaded, as the defendant chooses; but what right has the holder to deprive him of this election? and is not a liberal construction of the statute to be adopted, when it is necessary to prevent an evasion of its enactments and a manifest wrong?
It seems to us our court has taken the true view of the subject, and that the English judges have fallen into the error, "haeret in litera, haeret in cortice." Indeed, their decisions are not reconcilable. When a factor sells goods without disclosing his principal, in an action by the principal the purchaser may make any defense that he could have made if sued by the factor. He may plead, as a set-off to the action of the principal, a debt due by the factor. "The principle is, the purchaser shall not be defrauded of a legal defense by the introduction of a third person to whom he is a stranger." George v. Clagett, 7 Term, 355. Barrington on Set-off, 44. This is a departure from the words of the statute to prevent evasion and injustice, and the reasoning would seem to call for it with much force, so as to allow, as a set-off to the action of the assignee after maturity, a debt due by the assignor. It is true, the English cases take a distinction between mutual credits and mutual debts. The distinction is not substantial when both debts are at maturity and nothing remains to be done but to make application of one in satisfaction of the other. If a departure from the words of the statute is justified in the former case, it must be so in the latter, where transfer is made after maturity to evade a legal defense.
(508) Be this as it may, it is settled in this State that a debt due by the assignor at the date of the assignment may be pleaded as a set-off to the action by the assignee after maturity; and this departure from the words of the statute is put on the ground that a liberal construction is made necessary to prevent evasion and injustice. And the question presented in the case under consideration is whether this necessity is not met and removed by proof that, at the date of the assignment, the assignors had an account. We think this fact removes the ground for making a departure from the words of the statute, because the reason ceases. The assignors did no wrong, for they had an account to which the set-off might be applied, and there was, consequently, no attempt to evade a legal defense.
But it is said the defendant is deprived of his right to apply his set-off to the note or the account, as he might elect. This is true, but his legal defense is not evaded; and at the most he loses only the right of making a capricious application of his debt as a set-off, supposing him to have it. No injustice is done, for it can make no difference to him whether he pays the note or applies his account as a set-off to the account of the assignors, or applies his set-off to the note and pays the account. There is no evasion of his legal defense and no injustice done to him by refusing to allow his set-off to the note, or the contrary. The negotiability of the note is not unnecessarily trammeled, by which means the assignors are enabled to raise by a transfer the money which he ought to have paid, and the policy of the statute, which seeks to avoid a multiplicity of actions, is subserved; for, if the set-off is allowed, the assignee must sue the assignors, and they must sue the defendant, making two additional actions necessary, instead of one. The defendant's right to apply his debt to the note, or to hold it back for the account, if the suit was in the name of the assignors, is (509) assumed; but, as above remarked, it would be a capricious application, and he can take no benefit from it, if the assignors choose to include both causes of action in the same declaration.
Upon the same reasoning it is held in the English cases of a sale by a factor, that if, before all the goods are delivered, the purchaser has notice of the principal, then his set-off of a debt due by the factor will not avail, for the reason ceases; and he has no right to complain that he is defrauded of a legal defense. "Justice is on the other side," and there is in such cases no ground to depart from the words of the statute. Babington on Set-off, 45, and the cases there cited.
PER CURIAM. Judgment affirmed.
Cited: Hurdle v. Hanner, 50 N.C. 361; Neal v. Lea, 64 N.C. 680.