Sec 1011

Agreements for mutual set-offs are common in certain classes of contracts, and this is generally the case with contracts of partnership.1 In contracts of service, also, it is frequently provided that damage done by breakage or otherwise to the employer's property by the employee shall be set off against the wages.2 In building contracts, also, it is frequently stipulated that from the contract price is to be deducted any loss accruing to the employer by the contractor's laches.3 And a reciprocal understanding as to mutual credit will be sustained by a court of equity in the face of intermediate insolvency of one of the parties.4

Sec 1012

In England, the right of set-off in all cases of mutual debts was established by the statute 2 Geo. II. c. 22, s. 13, and was extended by the statute 8 Geo. II. c. 24, s. 4, to cover mutual debts "of a different nature," "unless in cases where either of the said debts shall accrue by reason of a penalty contained in any bond or specialty, and in all cases where either the debt for which the action shall be brought or the debt intended to be set off against the same shall accrue by reason of any such penalty, the debt intended to be set off shall be pleaded in bar, in which plea shall be shown how much is truly and justly due on either side; and, in case the plaintiff shall recover in any such action or suit, judgment shall be entered for no more than shall appear to be truly and justly due to the plaintiff, after one debt being set against the other as aforesaid."5 Statutes authorizing set-offs exist in all jurisdictions in the United States, though usually without the limitation as to penalties, which with us would be applied without specific statutory prescription.6 - Under the English statute the defendant is entitled to plead a set-off though he contracted to sell for ready money.1 - In this country the party for whose benefit a suit is brought is made in several states subject to set-off by statute; and the equitable ownership of debts is thus made subject to claims specifically applicable to it.2

Set-off may be specially stipulated.

By statute 6et-off extended to all mutual debts.

1 Kinnersley V. Hossack, 2 Taunt. 170.

2 Le Noir V. Bristow, 4 Camp. 134; Cleworth V. Pickford, 7 M. & W. 314.

3 Jones V. St. John's Coll., L. R. 6 Q. B. 115.

4 Greene V. Darling, 5 Mason, 201;.

Hurlburt V. Ins. Co., 2 Sumn. 471. See supra, sec 1010.

5 Leake, 2d ed. 1003.

6 As to set-offs in suits by the United States, see Schaumburg V. U. S., 103 U. S. 667.

Sec 1013

Under the older English practice an injunction could be granted to restrain a suit to which there was an equitable set-off.3 At present, under the recent judicature act, the exclusive mode of taking advantage of an equitable set-off as a defence is by plea.4 This is the usual practice in this country.5 We have an illustration of this rule in a Pennsylvania case,6 in which it was held that in an action for the price of cattle, the defendant may give in evidence damage sustained by him by reason of the plaintiff" not having delivered to him certain sheep purchased by him in the same transaction of the plaintiff'.7 - It has been held in Alabama that a mortgagor of personal property, after there has been default in payment of the debt for which the mortgage has been given, may, on producing evidence of a debt from the mortgagee to a third party purchased by him (the mortgagor), enjoin the foreclosure of the mortgage, the mortgagee being insolvent.1

Equitable claims may be set off.

1 Leake, 2d ed. 1005; Eland V. Karr, 1 East, 375; Clarke V. Fell, 4 B. & Ad. 404; see Fletcher ex parte, L. R. 6 C. D. 350.

2 Sheldon V. Kendall, 7 Cush. 217; Com. V. Bank, 11 Metc. 129; Wolf V. Beales, 6 S. & R. 244; Ward V. Martin, 3 Monr. 18; Nickerson V. Gilliam, 29 Mo. 456; see Devine V. Edwards, 101 Ill. 138. Payment by A. of the debt of B., without B.'s consent, cannot be allowed as a set-off in a suit by B. against A. Patillo V. Smith, 61 Ga. 265. See supra, sec 942, 1008.

3 Leake, 2d ed. 1004; Kingsford V. Swinford, 28 L. J. C. 413; Gumpertz V. Pooley, 4 Drew. 448.

4 Kemp V. Tucker, L. R. 8 Ch. 369.

5 Hannay V. Pell, 3 E. D. Smith, 432; Black V. Whitall, 1 Stockt. 572; Wray V. Furniss, 27 Ala. 471; Graves V.

Hull, 27 Miss. 419. But courts of equity will be governed by the rules as to mutuality, which, as we will presently see, are imposed by courts of law. 2 Smith, L. C. 7th Am. ed. 315; Duncan V. Lyon, 3 Johns. Ch. 351; King V. Diehl, 9 S. & R. 409; Lehr V. Taylor, 91 Penn. St. 381; Gibbs V. Cunningham, 4 Md. Ch. 322; Cincinnati Bk. V. Hemingray, 34 Oh. St. 381; Lockwood V. Beckwith, 6 Mich. 168; Tuscumbia R. R. V. Rhodes, 8 Ala. 206; McKinley V. Winston, 19 Ala. 301; Cave V. Webb, 22 Ala. 588; Simmons V. Williams, 27 Ala. 507.

6 Shaw V. Badger, 12 S. & R. 275.

7 That in Pennsylvania the doctrines of courts of equity, in respect to set-off, have been adopted in common law practice, see Troubat & Haly's Prac. (Brightly's ed.) sec 47.