Gray v. Rollo - 85 U.S. 629 (1873)
U.S. Supreme Court
Gray v. Rollo, 85 U.S. 18 Wall. 629 629 (1873)
Gray v. Rollo
85 U.S. (18 Wall.) 629
1. Setoff is enforced in equity only where there are mutual debts or mutual credits, or where there exists some equitable consideration or agreement between the parties which would render it unjust not to allow a setoff.
2. Where a bankrupt owes a debt to two persons jointly, and holds a joint note given by one of them and a third person, the two claims are not subject to setoff under the Bankrupt Act, being neither mutual debts nor (without more) mutual credits.
3. Where one of two joint debtors becomes bankrupt, it seems that the creditor may setoff the debt against his separate indebtedness to the bankrupt, because each joint debtor is liable to him in solido for the whole debt; but if this be conceded, it does not follow that if one of two joint creditors becomes bankrupt, the common debtor may setoff against the debt a separate claim which he has against the bankrupt, for this would be unjust to the other joint creditor.
4. A. and B. were joint makers of certain notes which were transferred to an insurance company. B. and C. held policies in this company which became due in consequence of loss by fire. The company being bankrupt, its assignee claimed the full amount of the notes from A. and B. B. sought to setoff against his half of the liability the claim due to him and C. on the policies of insurance, the latter consenting thereto. Held that this was not a case for setoff within the Bankrupt Act, the two obligations having been contracted without any reference to each other.
The Bankrupt Act enacts: [Footnote 1]
"That in all cases of mutual debts or mutual credits between the parties, the account between them shall be stated, and one
debt set off against the other, and the balance only shall be allowed or paid."
And a statute of Illinois [Footnote 2] enacts that:
"All joint obligations shall be taken and held to be joint and several obligations."
These statutes being in force, Moses Gray filed a bill in the court below against William Rollo, assignee in bankruptcy of the estate of the Merchants' Insurance Company of Chicago, to compel a setoff of alleged mutual debts. The insurance company had become bankrupt by the great fire at Chicago, and at that time held two promissory notes for $5,555 each, made by the complainant, Gray jointly with one Gaylord, which the company had received from the payee in the regular course of business. By the fire referred to, Moses Gray the complainant, and his brother, Franklin Gray doing business under the firm of Gray Brothers, suffered in the destruction of buildings, and these being insured by the said insurance company for $30,000 on three several policies, the company became indebted to them in the sum named. The complainant alleged in his bill that his just share of liability on the two notes was one-half of the amount, and he desired to have that half extinguished by a setoff of the like amount due on the policies. The money due on the policies was confessedly not due to him alone, but to Gray Brothers. But he alleged that his brother assented to and authorized such appropriation.
The insurance company demurred, and the demurrer being sustained, the court dismissed the bill. From its action herein Gray took this appeal.
Mr. J. S. Norton, for the appellant, argued that under the statute of Illinois the whole debt, under both notes, which Moses Gray owed to the assignee in bankruptcy, was a several debt; that while it would be inequitable that Gaylord's debt should be paid by the application of a policy of insurance
in which he had no interest, the reverse was true in regard to the share of the notes which Moses Gray owed. The counsel cited Tucker v. Oxley, [Footnote 3] in this Court, as much in point and binding, a case which he observed was supported by Wrenshall v. Cook, in the Supreme Court of Pennsylvania, [Footnote 4] ever more in point, and by other cases in that tribunal. [Footnote 5]