Hunter v. Henning , 64 Pa. Super. 366 ( 1916 )

Opinion by

Kepi-iart, J.,

This appeal, from the argument, presents but a single question: May a defendant, sued in his own right, by the receiver of an insolvent bank, on a note due the bank, use as an equitable defense or set-off deposit accounts standing in his name in the bank, one as trustee for J. Dorothy Henning, and the other as executor of E. O. Anderson?

Set-off originally was an equitable defense and it is not entirely controlled by the Act of 1705, but applying equitable principles, cross-demands or defenses not within the statute may be allowed: Frantz v. Brown, 1 Penrose & Watts 257. The foundation of set-off or equitable defense is the prevention of circuity of action, and the general rule is that cross-demands must be between the same persons in the same right, so that actions may be maintained thereon against each other: Hibert v. Lang, 165 Pa. 439. There must be mutuality of demand, both as regards the quality of the right and the identity of the parties: Stuart v. Commonwealth, 8 Watts 74. In not every instance where the right of action exists may it be said that the right of set-off will be allowed. The quality of the matter proposed to be set off, may be of such character as to be sustainable only by separate action'. Then, the matter proposed. to be set pff may not be wholly within the control of the party desiring to use it, as in the cáse of the set-off of a partnership claim in a suit against a partner, or by one of the two parties to a bond. The consent of the parties interested, if the rights of third parties are not injured, will nevertheless permit the use of such actions or demands as a set-off, though they have all the elements of trust property or fund.

The fact that funds are held in possession by virtue 'of a fiduciary relation will not prevent the legal custodian from claiming a set-off on account thereof, unless it would be prejudicial to the interest of third persons. The law has confided to the trustee the custody and control of such funds. It is assumed that the funds are best protected in his possession. When they are reduced to possession, he is, as against every one except the persons beneficially interested, the absolute owner, and he may sue for them in his own right. Thus, in Wilmarth v. Mountford, 8 S. & R. 124, the trustees of an insolvent debtor sued to recover the price of trust property. It was later said by Judge Gibson that the suit was legally in their own right, and because it was in their own right the court refused to permit a creditor of the insolvent' estate to' set off his claim against the estate. His débt was a debt due from the insolvent estate. The trustee, though suing for the price of the property of the insolvent estate, was suing for his own property. There was not perfect mutuality of right, and in Worfersberger v. Bucher, 10 S. & R. 10, where the assets of an estate were reduced to possession, the executor in suing for them or their price sues in his own right. Naming himself as executor is merely surplusage. As against third persons-he is the absolute owner: Stephens v. Cotterall, 99 Pa. 188. In Wolf v. Beales, 6 S. & R. 241, it is stated “that the person having the right of action may set off a debt due to him as trustee, against a debt due by him in his own right.......” Thus the debt to the party as trustee of a certain given trust may be set off in an action against either. This doctrine was again considered in Solliday v. Bissey, 12 Pa. 347, where an administrator claimed to set off a debt due him as administrator against a claim owned iby him personally. The set-off was allowed, and the principle has since been favorably quoted in Cochran v. Cutter, 18 Pa. Superior Ct. 282, and followed in Jack v. Klepser, 196 Pa. 187. “Neither is it any objection to the set-offs being allowed, that the party seeking to have it, has only an equitable right to the claim which he wished to have defalcated from or set off against the plaintiff’s demand. The right to the debt or demand on either side may be either legal or equitable; and it is no objection to a set-off or defalcation being claimed and allowed, provided the parties claiming against each other, claim each in his own right”: Hugg v. Brown, 6 Wharton 468.

In determining the question of mutuality in quality of right and character of the parties in allowing a set-off, the primary consideration is the protection of those beneficially interested in the thing attempted to be set off, if such interest is presently within the grasp of the litigation. Having the right of possession and the legal title, where both the claim sued on and the one proposed to be set off are due, in what manner- is the interest of third parties prejudiced by the allowance óf the set-off? If this weré a legal set-off, when the receiver was appointed, the rights of creditors, as they then existed, would rise no higher by reason of the appointment of the receiver. And as to persons beneficially interested, they are not here protesting nor are they brought on the record further than the entry of the deposit accounts. When the set-off is allowed the funds are again in the possession of the legal custodian, whose liability therefor is fixed. The beneficiary’s right is thus secured instead of awaiting a possible dividend from an insolvent institution, or, as stated in Stuart v. Commonwealth, supra, this possible injury “is no greater* however, than what is incurred from every set-off against a trustee; and the foundation of the right seems to be the inconvenience, if not impracticability, of going into a calculation of chances so remote as those of his eventual ability to make good the amount of the trust.” The argument that the trustee would thereby pay his own debt from trust funds does not meet the question presented. That is a matter for future settlement between the trustee and his cestui que trustents. In Commonwealth v. Tradesmen’s Trust Co., 250 Pa. 372, the application of the rule with respect to set-off was enforced, and while the court permitted the set-off because the trust funds had become mingled with the general fund, the general principle here discussed was recognized. This case is not in conflict with Laubach v. Leibert, 87 Pa. 55. The opinion of the Supreme Court in that case puts the case squarely on the facts as presented.

The judgment of the court below is reversed, and is here entered for the defendant.