Lyon v. Petty

California Supreme Court Jun 6, 1884 No. No. 6,976Published

Before: McKee

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Holding. The court held that the defendant's promissory notes could not be set off against the estate's mortgage claim because the demands were not mutual and co-existing causes of action at the commencement of the action, and the defendant's pleading was otherwise defective.

Issues

Whether cross-demands must be mutual and co-existing as enforceable causes of action at the commencement of an action to qualify as a statutory counter-claim under the Code of Civil Procedure.
Whether a defendant may set off claims against an estate without presenting them for allowance or rejection as required by law.

Disposition. reversed and remanded

Quotations verified verbatim against the opinion

“under the Code the two demands must be mutual, and co-exist as separate causes of action at the commencement of the action upon the principal demand.”

“it has been decided that in such a case the set-off cannot be pleaded as a counter-claim, but must be set up as an equitable defense”

“It follows that the answer as a pleading was defective, and the court should have sustained the demurrer to it.”

Synopsis

Cboss-Demands—Set-oee—Counteb-Claim—Mobtgage.—Cross-demands to be the subject of set-off, under section 438 of the Code of Civil Procedure, must be mutual, and co-exist as separate causes of action at the commencement of the action upon the principal demand; and where an action was brought by an administrator to foreclose a mortgage given to secure a note which matured after the death of the intestate, held, that a promissory note of the deceased, assigned to the mortgagor, and which was due aud payable at the time of the intestate’s death, but was not presented to the administrator for allowance, cannot be set off against the mortgage debt.

Id.—Nor can such cross-demand be set off against the mortgage debt if it is barred by the Statute of Limitations at the time of the commencement of the foreclosure suit.

Id.—Assignment—PBomssoBr Notes.—Promissory notes assigned before maturity may be pleaded as a counter-claim by the assignee, in an action by an administrator to recover a mortgage debt due the estate from the assignee, although the notes were not presented to the administrator for allowance, if an'aetion could have been maintained upon them at the commencement of the foreclosure suit; but if assigned after maturity, the assignee takes them subject to all existing equities between the maker and payee, and under such circumstances they would not be the subject of a counter-claim, and could not be pleaded as such under section 438 of the Code of Civil Procedure.

Id.—Pdeading.—An answer which sets forth facts which show that the defendant came into possession of the notes by assignment before the death of the intestate, but does not state whether before or after maturity of the notes, is insufficient.

McKee, J. On February 27, 1876, Kate Rodgers died intestate. At the time of her death she was owner and holder of a promissory note for three thousand dollars, dated December 20, 1875, and due and payable, with interest at ten per cent per annum, two years after date; payment of which was secured by mortgage upon real estate.

The note matured December 20, 1877, nearly twenty months after the death of its owner and holder; and the administrator of her estate, on March 29, 1879, commenced the action in hand for foreclosure of the mortgage to satisfy the same.

To the complaint in the action the defendant answered that, at the death of said intestate, he was the owner and holder of four promissory notes against her—one for the sum of two thousand dollars, due and payable January 13, 1875; another for the sum of one hundred and ninety-two dollars, due and payable May 1, 1875; another for the sum of one hundred and eighty dollars, due and payable August 1,1875; and the fourth for the sum of three hundred dollars, due and payable February 18, 1876; each bearing interest at the rate of one per cent per month from maturity until paid, except the note of two thousand dollars, which bore interest at the rate of one and a quarter per cent per month from its date, payable semi-annually, and he asked as relief that the said notes, as they existed on the day of her death, be set-off against his pote in suit, and that the two demands be compensated.

[324]The defense invoked by the answer is not founded upon the notes as claims against the estate; they have never been presented to the administrator of the estate for -allowance or rejection, as required by law for payment of debts due by the estate in the course of administration. But the right asserted is this: That the notes constituted demands against the intestate on the day of her death; and that without verifying and presenting them for allowance or rejection as claims against her estate, he, as the owner and holder of the same on that day, had the right to use them as compensation of the mortgage debt which he then owed to her. This right is claimed upon section 440 of the Code of Civil Procedure. The section provides:—

“Where cross-demands have existed between persons, Under such circumstances that if one had brought an action against the other, a counter-claim could have been set up, the two demands, so far as they equal each other, shall be compensated; and neither can be deprived of the benefit thereof by the assignment or death of the other.”

Lyon v. Petty

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