Blake v. Langdon

The opinion of the court was delivered by Bedfield, J.

This is a case where there has been considerable controversy, whether the court should regard the contract, or contracts, between Blake and Hart, under which they carried on their business, as so far binding, in equity, as to form the proper basis upon which to decree a set-off in the present case.

1. Without going at all into the nature of that contract, — which seems to have been understandingly made and voluntarily executed *491 upon both sides, — it will be sufficient, for the present purpose, to say, that the nature and binding force of that contract is not in issue in the present case. If Hart wished to be relieved from the effect of that contract, he should have filed his cross bill, stating the grounds upon which he claimed the relief, and thus had the accounts properly settled between the partners, if there should appear to be any just cause for the court of chancery to interfere in the matter. But to ask the court to thus take a leap in the dark, and declare the contract unconcionable, unequal and oppressive upon the mere inspection of the contract, is certainly not warranted by the precedents of procedings in equity. Had the case been illegal upon the face of it, possibly the subject might merit a different consideration. But it is to be considered, that it is not every inequality in a contract, which will justify a court of equity in setting it aside, — because that would require them to set aside almost all contracts, in these speculating times; and that, for any thing we can positively know, this contract might not have been unequal, (although we make no doubt it was,) for it is possible, that the profits might even have exceeded those which were insured by Hart. But at all events we now know no more upon that subject, than Hart knew at the time he entered into the contract; and should we proceed in a summary manner to set it aside, it must be upon the ground, that Hart should have had more circumspection, than to have entered into it; for there does not appear in proof any stress of circumstances, even, by which he was driven into the contract.

2. We do not see how Langdon can stand in any better position than Hart; for this being executed, and all the rights accrued, before the repeal of the proviso of the old statute in regard to promisory notes, all equitable defences, as well as those at law, are expressly reserved to the makers of the note.

3. The only remaining question is, whether the orators have made out a proper case for the interference of this court. Upon this point we need only refer to the case of Downer v. Dana et al., 17 Vt. 518 . That case is an authority, to the full extent, for the present. The debts here, as well as there, are substantially mutual, unless we regard the rights of McIntyre as defeating the mutuality,— ¡which need not be taken into the account, as he, himself, asks for *492 the set-off. The note, then, was due to Hart and from Blake and McIntyre. The account was due from Hart, — that is, it was ultimately his debt to pay; — so also, of the other notes. The case of Ferris v. Burton, 1 Vt. 439 , is, also, a full authority for this decision.

The only difficulty, which this case has ever seemed to present, has arisen from the repeated declarations of judges and elementary writers, that, in regard to set-off, courts of equity follow the same rules as courts of law, and no more in the one case, than the other, can joint and separate debts be set-off against each other. To prevent future misapprehension and the necessity of going over this whole ground at every successive application of this kind, it may be proper to examine this subject somewhat more at length, than would otherwise seem necessary.

1. It is, I suppose, admitted on all hands, that courts of equity did exercise a jurisdiction upon this subject, before the statutes of set-off existed ; and consequently the jurisdiction is not based upon any statutes of set-off, and would exist as well without any such statutes as it now does, and would not be in any sense affected by the repeal of those statutes. Ex parte Stephens, 11 Ves. 24. Ex parte Blagden, 19 Ves. 465. Hawkins v. Freeman, 2 Eq. Cas. Abr. 10, pl. 10.

2. The writers upon English law seem to admit, — and that seems to be the sound reason, resulting from inference and presumption,— that the English statutes of set-off, the 2d of Geo. II and 5th of Geo. II, in relation to bankrupts, and some subsequent statutes, were passed mainly to obviate the necessity of a resort to chancery in every case of mutual independent claims upon both sides. 14 Petersd. Ab. (417) 301, and note. The general statute of set-off of 2 Geo. II is restricted to mutual debts ; while that in regard to bankrupts extends to mutual credits. In regard to the latter statute, the administration of which is almost altogether under the supervision of the court of chancery, they have exercised both an equitable and legal jurisdiction. That we will examine.

3. If the court of chancery in England continued to exercise any jurisdiction, in regard to this subject, after the passing of the statute, it is reasonable to suppose they would only interfere in those cases, *493 which did not properly come within the powers of the courts of law. How much they would go beyond the limits, which courts of law had prescribed for themselves, would, as in other cases, depend upon their own discretion; and this discretion would, as in other cases, also depend a good deal upon the special circumstances of particular cases. Such, upon examination, we find to be the fact in regard to the set-off which the English chancery has allowed in bankrupt cases.

At law, it is well understood, the parties upon the record, only, will be regarded in allowing a set-off; and the nominal parties must, consequently, be the same. But equity regards the real parties,— the parties ultimately to be affected by the decree. In the case of Ex parte Quinten, 3 Ves. 248, it seems to me the court go farther, than what a proper regard to the embarrassments attending similar inquiries in many cases would require or justify. But the case was evidently decided upon its particular equity. In that case a debt was actually divided, and a portion of it set off, according to the equitable rights of the parties. That is farther than courts of equity have often gone, I admit; but I confess, that, under similar circumstances, I should be inclined to adopt the reasoning of Lord Lough-borough in this case. He goes upon the ground, that “ The right is manifest, the equity is a clear and a strong one.” Courts of equity interfere, in cases of set-off, upon analogous grounds to those upon which their whole preventive jurisdiction is based, — that is, to prevent irremediable injustice. It is upon this ground, that one will be restrained by injunction from doing mischief to mines, shade trees, monuments, and in many such like cases, where compensation in damages is no adequate remedy. So, too, when one is pursuing an action at law, against which he has himself given a bond of indemnity, he will, to prevent circuity of action, be restrained by injunction.

It is upon these grounds, that I think, when the debts are in reality mutual, or to that extent, even, when the debt must be apporr tioned, and the party, attempting to enforce his claims at law in the name of some other party but nominally interested, is himself insolvent a, court of equity should and will interfere to prevent the injustice by decreeing the set-off. Such, as I Understand, is the uniform *494 course under the English bankrupt laws; — which are not broader than the statutes of set-off in this state.

The case of James v. Kynnier, 5 Ves. 108, is a full authority to the very point for which I contend. There was no pretence here, that there was any mutuality in the debts at law. Upon the most favorable view, it was setting off a separate debt against a joint debt, Lord Loughborough says, “ I have not a particle of doubt upon this case, which is the clearest I ever heard.” The only equity, upon which the case rested, was, that the debts were in reality mutual and an intervening insolvency. Ex parte Stephens, 11 Ves. 24, is clearly a case of equitable set-off, “where there could be none at law," as is said in the marginal note to the case. The note appended to the case of James v. Kynnier in Summer’s edition of Vesey, states the rule upon this subject very fairly ; — “ The doctrine of set-off, under the statute, must be the same at law as in equity; but the equitable jurisdiction on this subject prevailed long before the statute of Geo. II. And this difference seems established, namely, that a set-off, at law,must be founded on a strict case of mutual debt, or mutual credit; but that a more extended construction may be made in equity.” Ex parte Blanden, 19 Ves. 467. Ex parte Flint, 1 Swanst. 34. Taylor v. Okey, 13 Ves. 181. The case of Hanson ex parte, 12 Ves. 345-6, is the very case of setting off a separate debt against a joint debt, and upon equitable grounds merely.

The general rule undoubtedly is, in equity as well as at law, that jjoint and separate debts cannot be set-off against each other. Such :is the language of all the cases and of all the writers upon the subject. But they almost all allow of a sweeping exception, and nearly in ¡the same words, — “ under particular circumstances; ” Ld. Eldon, in 3 Meriv. 618, quoted with approbation by Chancellor Kent in Dale v. Cooke, 4 Johns. Ch. R. 13; Story on Part., § 395 ; 2 Story’s Eq. Jur., § 1432 et seq. The difficulty of defining these circumstances is hinted at by Justice Story, § 1437, thus, — “These are so various as to admit of no comprehensive enumeration.” These inquiries might be pursued very much farther. But when it is remembered, ¡that, in almost all the cases where courts of equity have interfered to go beyond the statutes of set-off, it has been where there had inlervened the insolvency of one or more of the parties, and that these *495 are almost the only cases where the interference is of any importance, and that the cases thus far furnish no other ground for interfering, it is made sufficiently obvious, that these peculiar circumstances do not ordinarily occur, except in cases of insolvency. But beyond this, courts of equity have not generally gone.

But in looking into the subject of set-off, or compensation, as it existed in the civil law, where, upon suit being brought, all matters in dispute between the parties were to be adjusted, as much as in the case of a general submission to arbitrators, — I mean all matters of contract, whether liquidated we consider this, and how beneficial such a cour^ordtoJ®3%^|^fei-the parties, at least, one cannot but wonder at®ne^reat circumspection and reserve made, use of in courts of equity \pon remarks of Mr. Justice Story, in 2 Eq. Jur. iki] are just ®d forcible; — “The general equity and reasona^lenes^^-^i^^}&^|es, upon which the Roman superstructure is fWtilfeu, make itjifatter of regret, that they have not been transferred^6*® — Sh^iull extent, into our system of equity jurisprudence.”

Enough has been said, I trust, to show that the present case comes clearly within the principles of equity, upon which this branch of equity law rests, and also far within the range of the decided cases, and to satisfy all, that courts of equity need not feel over-solicitous to restrict this portion of their remedial jurisdiction, which is so just and salutary in its operation, and so impossible of being' abused, and which so universally obtains in all countries, whose jurisprudence is founded upon the Roman civil law.

Decree of the chancellor affirmed.