Error from the Common Pleas of Philadelphia County. On the trial
of the cause below, (See ant. 226) a bill of exceptions was taken
to the opinion of the Court in the following words: 'Trespass sur
le Case, in the Common Pleas, Philadelphia County: And now the 6th
day of February 1788, upon the trial of this cause, the Council for
the Defendant, under the Pleas of Non Assumpsit, payment, and
defalcation, and, in order to maintain the same issue, offered to
give in evidence a certain bond, or obligation, of the said Ludwig
Kuhn (prout obligation) assigned (prout assignment) entered into by
the said Plaintiff, before his discharge under the Insolvent Act,
and prayed, that the monies thereon
Page 1 U.S.
452, 453
due might be defalked against the said Ludwig Kuhn's demand,
which it was argued, had commenced after his said discharge. To
this the Counsel for the Plaintiff objected, and prayed the Court
not to admit the same obligation and assignment thereof in
evidence; to which the Court assented, and over-ruled the
testimony. Whereupon the said Counsel for the defendant, did, then
and there, on behalf of the said defendant, except to the said
opinion of the Court, and did then and there request of the said
Court to put their seals to this bill of exceptions, which was
granted accordingly.' To the bill of exceptions a memorandum was
subjoined by the Counsel, on both sides, stating, that the
Plaintiff below had notice of the bond and assignment before the
suit brought, but not before the sale and delivery of the goods by
him to the defendant. The refusal of the Court of Common Pleas to
permit the bond and assignment, to be given in evidence, was the
error now alledged; and, on the 26th of September, the case was
argued by Levy, for the Plaintiff in Error, and Sergeant, for the
defendant. Levy. Before the acts of assembly are particularly
examined, it may be proper to consider some of the inconveniencies
that existed, in such cases, at common law. Goods delivered in part
might, perhaps, be given in evidence in an action of Assumpsit, by
way of mitigating the damages, but not under a plea of payment to a
specialty; nor could the defendant discount any note, bill, bond,
recognizance, or judgment entered into by, or obtained against, the
Plaintiff. This necessarily multiplied suits and costs; and, it
often happened, that a Plaintiff, in desperate circumstances,
recovered against a defendant to whom he was, in fact, indebted in
a greater firm. If, indeed, by accidental circumstances, his action
was brought to a conclusion, earlier than the defendant's cross
action, he might receive the money, and for his larger debt, become
utterly insolvent, by the time the defendant had obtained a
judgment. Inconveniencies of this kind have been perceived by the
Legislature, or judicial power, of the most enlightened nations,
and a remedy, in a greater of less degree, provided. See Lord Kaim.
Prin. of Eq. 201. 2. 3. 4: 5. and, in England, even before the
statutes had given relief in the Courts of Common Law, the Courts
of Equity endeavoured to provide for such cases. Show Ca. in Parl.
17. 1 Vern. 121. 2. 2 Vern. 428. 9. Case 390. 2 P. Will. 128. In
Pennsylvania there are two Acts of Assembly that treat of this
subject. 1 State Laws 48. and Ibid. 165. It is observable that the
first general provision by the former act, passed in 1705, was
twenty-two years previous to the first general provision of the
same nature in England, which was not till the 2 Geo. 2. c. 22.
sect. 13. The latter Act of Assembly, however, is copied, almost
verbatim, from the 2 Geo. 2. c. 22. and is posterior in point of
time. These two Acts of Assembly, made in pari materia, are, then,
to be considered as remedial laws, and must receive a liberal
construction:
Page 1 U.S.
452, 454
And, as they declare, that where two are indebted to each other,
they may set off their demands, it only remains to investigate the
objections which are urged against the defalcation contended for,
on behalf of the Plaintiff in error.
The Plaintiff below, in effect, says, that he has obtained the
benefit of the insolvent act; and, if he is compelled to pay, or
allow, this bond in discount, his property is taken away to pay his
old debts. This is true; but, it is to be answered, by remarking,
that the very insolvent act, on which he relies for the protection
of his person, makes his future effects liable for debts preceding
his discharge; and herein consists the well known distinction
between bankruptcy and insolvency. See 1 State Laws 164. sect. 7.
Jenk. Cent. 256. Case 49, This was the condition upon which he
obtained his liberty; and, having obtained it, shall he be thus
allowed to evade the condition? As, upon an execution against him,
his effects would be liable, it can make no odds to him, in point
of justice, whether his creditor abtains payment by a cross suit,
or by defalcation. By the former mode, indeed, he might have an
opportunity of secreting his effects the moment that they were
recovered in the action brought by him, and thus prevent his
creditor from deriving any benefit by a subsequent judgment and
execution. Such practices, however, have been too frequent to
escape notice, and are too flagrant to be countenanced and
supported in a Court of Law. Besides, the right of set-off is far
more material against an insolvent debtor than any other person;
for, it is contrary to conscience that he should recover against
those to whom he is, in truth, indebted in an equal, or larger sum.
2 P. Will. 129.
But, the Plaintiff below may also urge, that the Plaintiff in
Error is an assignee with whom he never dealt. See 1 State Laws 48.
and, endeavour to establish an analogy between his case, and that
of a debt due to a man in right of his wife, which cannot be set
off in an action against the husband on his own bond. Bull. N. P.
179. The reason, however, is essentially different. What is due to
a husband in right of his wife, he must sue for in the name of
himself and wife; and, as discount is in the nature of a suit, to
permit the setoff in the case alluded to, would be adding a party
to the suit, that is the wife, who was not named in the writ.
Besides, debts due to the wife are not absolutely vested in the
husband; for, if he does not reduce them into possession, they
survive to her, and do not go to his executors.
But the second Act of Assembly, does not say anything with
respect to the party's dealing together; and even if there were any
force in an objection grounded on those words, the answer would be
easy, that the assignee of a negotiable, or assignable instrument,
is as much contracted with by the words of the obligation, 'and his
assigns,' as the original obligee; and, under the Act of Assembly
he is equally the 'creditor' of the obligor. See 1 State Laws
165.
Page 1 U.S.
452, 455
To illustrate this argument, suppose that C gives his bond to D,
which D assigns to A: A gives his bond to E, which E assigns to C.
A then sues C. They are both assignees: What motive of policy, what
principle of construction, could in this case, preclude a discount?
It is the object of law to put an end to strifes; and the Courts of
Justice are ever anxious to prevent an unnecessary circuity of
action. Under the statute of 2 Geo. 2. which is in the same words
with the acts of Pennsylvania, the Judges of England have permitted
an indorsement after the suit brought to be discounted; the
practise requiring only that it shall be proved to have been made
'before plea pleaded.' Cromp. Pract. 161. And the case in 2 Strange
1234, makes no question, whether an assignee may discount, but
merely turns upon the time of indorsement.
The objection, that the allowance of such accounts would be the
means of preventing insolvent debtors from obtaining a subsistance,
goes much too deep: it is considering inconveniencies arising on a
question which clear and positive law has determined; for, the Act
of Assembly says that the future effects of an insolvent debtor
shall be liable to the payment of his old debts; and the Judges of
the Courts of Common Law have extended the principle of discount,
by a most liberal equity, far beyond the words of the statute in
England. 2 Bl. Rep. 869.
Sergeant, for the Defendant in Error, contended, that the
attempt to pay for goods, by the bond of an insolvent debtor,
purchased at five shillings in the pound, or, perhaps obtained
without any consideration, was in itself an act against conscience;
that no case could be shown of a discount allowed upon an
indorsement made after the action brought; for, Cromp. 161. is not
a sufficient authority; that the rule of retaining, where there are
mutual debts, did not apply; and that a set off must be of a demand
in the Defendants own right. He cited 8 Vin. 557. Bro. (Debt) pl.
172. Ibid. (Condition) pl. 181. S. C. I State Laws 48. 3 Black.
304. 2 Geo. 2. c. 22. 8 Geo. 2. c. 24. Bull. N. P. 179.
[455-Continued.]
On the 3rd of October the Chief Justice, after stating the case,
delivered the opinion of the Court to the following effect:
M'Kean, Chief Justice.
As a discharge under the insolvent laws, while it exempts the
person from future molestation leaves the effects of the Defendant
for ever liable to the demands of his creditors, the discharge
obtained by the Defendant in Error, can have no operation in the
decision of this cause.
A question has been made, whether the Plaintiff in Error might
have defalked his bond under the English statutes; the first of
which takes notice of mutual debts, &c. The Judges there were,
indeed, of opinion, that only debts of the same dignity could be
set off; but for this, I can discover no good and satisfactory
reason; and a remedy was afterwards provided by a subsequent
statute, which declares, that debts of different natures may be
defalked.
The true ground, however, for the decision of this cause, arises
from the construction of the several Acts of Assembly for the
relief
Page 1 U.S.
452, 456
of insolvent debtors, for the assigning of bonds, and for
defalcation: And the last of these Acts says, that 'if two or more,
dealing together (which words are not to be found in either of the
English statutes) be indebted to each other upon bonds, &c.'
when an action is commenced, the Defendant may plead payment, and
give his bond, &c. in evidence against the Plaintiff's
demand.
If then, the obligee could have defalked the bond in question,
(of which, we think, no doubt can reasonably be entertained) and he
has legally assigned all his right and interest in it to the
Plaintiff in Error, why should not the assignee be entitled to the
same advantage, since the Act for the assignment of bonds has
placed him on the same footing?
There is another clause in the Defalcation Act, which provides,
that where a Plaintiff and Defendant have accounts to produce one
against another, they may refer them, and the report of the
referrees shall have the effect of a verdict: Now, although the
words are confined to the case of accounts, yet the construction of
the Act has liberally extended the right and benefit of such a
referrence, to every other cause of action.
For the sake of Justice, and to prevent an odious multiplication
of suits, we think, that the same liberality should be exercised in
the case before us; and are unanimously of opinion, that the
Judgment of the Court below ought to be reversed.
Judgment reversed.
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