Opinion by
Mr. Justice Moore.
1. The record discloses that J. R. Bryson was appointed receiver at about three o’clock in the afternoon of June tenth, eighteen hundred and ninety-three, and that P. Avery received his check, drawn that day upon Hamilton, Job & Company, before that hour, but that he accepted it with knowledge that their bank had suspended payment, and the question is presented as to whether Avery is entitled to offset the said check against his debt. The rule appears to be well settled that an equitable interest in an insolvent debtor’s estate is vested in a receiver by his appointment, and that he takes the assets of the debtor as a trust fund for the equal benefit of all the creditors of the estate. The receiver can acquire no greater [584] interest than the debtor had in the estate, and hence choses in action pass to the receiver subject to the equitable right of set-off existing at the time of his appointment: Colt v. Brown, 12 Gray, 233; Hade v. McVay, 31 Ohio St. 231; State Bank v. Bank of New Brunswick, 3 N. J. Eq. 266. When a receiver is appointed the accounts of the insolvent debtor are closed, and no changes can thereafter be made by any assignment of credits against the estate, as this, if allowed, would injure the trust fund, and defeat the ratable distribution to which each creditor is entitled: Jackson v. Lahee, 114 Ill. 300, 2 N. E. 172; Clarke v. Hawkins, 5 R. I. 219; Van Dyck v. McQuade, 85 N. Y. 617.
2. In Northampton Bank v. Balliet, 8 Watts & S. 311, 42 Am. Dec. 297, it was held that “the important period to determine the right of the assignee and the defendants is not the time of the assignment, but the time the defendants had notice of it, and this principle applies as well in the case of set-off as payment.” This would seem to imply that the debtor of an insolvent might, until he had received notice of the insolvency, acquire claims against the insolvent estate to offset his indebtedness, upon the theory that he was an innocent purchaser, for a valuable consideration, without notice. Applying this rule to the facts in the case at bar, Avery could not be an innocent purchaser, because when he acquired the check he had knowledge of the suspension, and hence is not entitled to the offset claimed, though in fact he had the check a few hours before the appointment of the receiver. The other claimants are even less favorably situated, as they not only obtained their checks with knowledge of the suspension of said bank, but presumably after the appointment of the receiver, and are therefore not entitled to offset them against their several debts.
3. The appointment of a receiver in a suit to dissolve a partnership, does not, of necessity, preclude its debtors [585] from acquiring claims against it with which to offset their indebtedness. If the partners are solvent, their creditors are not bound to wait until the equities between their debtors have been adjusted. The assets in such cases are treated as still belonging to the firm, and subject, in the ordinary method, to the payment of the partnership debts. If the rule were otherwise, partners embarrassed by the scarcity of money, depression in business, or injury to their credit, could commence a suit to dissolve the partnership, and, by securing the appointment of a receiver, continue their business through him as their agent until ready to meet their obligations, when, by dismissing the suit, the receiver would be discharged, and they could resume business “at the old stand.” Equity will not sanction or tolerate such a rule, or permit a solvent firm to plead the appointment of a receiver in bar or abatement of an action for money due, when the real object sought by the appointment of the receiver is to settle the private differences of its members, or to hinder, delay, or defraud creditors. But in a suit to dissolve a partnership, and for the appointment of a receiver, when the order of the court making the appointment shows that it was done for the purpose of distributing the assets among the creditors, it must be treated as an equitable assignment for their benefit: Jackson v. Lahee, 114 Ill. 300, 2 N. E. 172; Ellicott v. United States Insurance Company, 7 Gill (Md.), 307; Holmes v. McDowell, 76 N. Y. 596. The order of the court in the case at bar appointing the receiver provided for the collection of the firm debts, and the application of the proceeds thereof to the payment of its liabilities, and hence must be treated as an equitable assignment for the benefit of the creditors. The receiver,—being an officer of the court,—having taken possession of the property of the firm, a lien attached thereto in his favor, and the court [586] through, him became its custodian for the benefit of all the creditors, and while this property remained in custodia legis it was impossible for any creditor to acquire a lien thereon, or. in any manner secure a preference over the other creditors, and, in the absence of any statement of fact, it is difficult to ascertain how an attachment could have been levied upon the assets in the hands of the receiver.
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Opinion by
Mr. Justice Moore.
1. The record discloses that J. R. Bryson was appointed receiver at about three o’clock in the afternoon of June tenth, eighteen hundred and ninety-three, and that P. Avery received his check, drawn that day upon Hamilton, Job & Company, before that hour, but that he accepted it with knowledge that their bank had suspended payment, and the question is presented as to whether Avery is entitled to offset the said check against his debt. The rule appears to be well settled that an equitable interest in an insolvent debtor’s estate is vested in a receiver by his appointment, and that he takes the assets of the debtor as a trust fund for the equal benefit of all the creditors of the estate. The receiver can acquire no greater [584] interest than the debtor had in the estate, and hence choses in action pass to the receiver subject to the equitable right of set-off existing at the time of his appointment: Colt v. Brown, 12 Gray, 233; Hade v. McVay, 31 Ohio St. 231; State Bank v. Bank of New Brunswick, 3 N. J. Eq. 266. When a receiver is appointed the accounts of the insolvent debtor are closed, and no changes can thereafter be made by any assignment of credits against the estate, as this, if allowed, would injure the trust fund, and defeat the ratable distribution to which each creditor is entitled: Jackson v. Lahee, 114 Ill. 300, 2 N. E. 172; Clarke v. Hawkins, 5 R. I. 219; Van Dyck v. McQuade, 85 N. Y. 617.
2. In Northampton Bank v. Balliet, 8 Watts & S. 311, 42 Am. Dec. 297, it was held that “the important period to determine the right of the assignee and the defendants is not the time of the assignment, but the time the defendants had notice of it, and this principle applies as well in the case of set-off as payment.” This would seem to imply that the debtor of an insolvent might, until he had received notice of the insolvency, acquire claims against the insolvent estate to offset his indebtedness, upon the theory that he was an innocent purchaser, for a valuable consideration, without notice. Applying this rule to the facts in the case at bar, Avery could not be an innocent purchaser, because when he acquired the check he had knowledge of the suspension, and hence is not entitled to the offset claimed, though in fact he had the check a few hours before the appointment of the receiver. The other claimants are even less favorably situated, as they not only obtained their checks with knowledge of the suspension of said bank, but presumably after the appointment of the receiver, and are therefore not entitled to offset them against their several debts.
3. The appointment of a receiver in a suit to dissolve a partnership, does not, of necessity, preclude its debtors [585] from acquiring claims against it with which to offset their indebtedness. If the partners are solvent, their creditors are not bound to wait until the equities between their debtors have been adjusted. The assets in such cases are treated as still belonging to the firm, and subject, in the ordinary method, to the payment of the partnership debts. If the rule were otherwise, partners embarrassed by the scarcity of money, depression in business, or injury to their credit, could commence a suit to dissolve the partnership, and, by securing the appointment of a receiver, continue their business through him as their agent until ready to meet their obligations, when, by dismissing the suit, the receiver would be discharged, and they could resume business “at the old stand.” Equity will not sanction or tolerate such a rule, or permit a solvent firm to plead the appointment of a receiver in bar or abatement of an action for money due, when the real object sought by the appointment of the receiver is to settle the private differences of its members, or to hinder, delay, or defraud creditors. But in a suit to dissolve a partnership, and for the appointment of a receiver, when the order of the court making the appointment shows that it was done for the purpose of distributing the assets among the creditors, it must be treated as an equitable assignment for their benefit: Jackson v. Lahee, 114 Ill. 300, 2 N. E. 172; Ellicott v. United States Insurance Company, 7 Gill (Md.), 307; Holmes v. McDowell, 76 N. Y. 596. The order of the court in the case at bar appointing the receiver provided for the collection of the firm debts, and the application of the proceeds thereof to the payment of its liabilities, and hence must be treated as an equitable assignment for the benefit of the creditors. The receiver,—being an officer of the court,—having taken possession of the property of the firm, a lien attached thereto in his favor, and the court [586] through, him became its custodian for the benefit of all the creditors, and while this property remained in custodia legis it was impossible for any creditor to acquire a lien thereon, or. in any manner secure a preference over the other creditors, and, in the absence of any statement of fact, it is difficult to ascertain how an attachment could have been levied upon the assets in the hands of the receiver.
4. It is contended that the assignment made by Hamilton, Job & Company, discharged the equitable lien upon the assets of said firm created by the appointment of the receiver, and that the several appellants, having acquired their credits prior to the assignment, may offset them against their respective debts; and in support of this contention the appellants insist that the appointment of a receiver constituted an equitable attachment (Bump’s Bankruptcy [8th ed.j, 489, 490), and that, no judgment having been rendered therein, the lien created by the appointment of the receiver was discharged by the assignment of the debtors for the benefit of their creditors: Hill’s Code, § 3173. The manifest object of this section of the statute is to place the assets of the insolvent debtor in the hands of the assignee for the benefit of all the creditors in proportion to their respective claims, and to prevent any creditor from acquiring a lien upon the debtor’s property, or the fund arising from its sale. If the appointment of the receiver creating an equitable lien upon the assets of the firm had been for the benefit of a favored few, there would be just reason for holding that the assignment discharged such equitable lien; but when it is remembered that the receiver took an equitable interest in the assets as a trust fund for the benefit of all the creditors, and that the assignee now holds the legal title thereto for the same purpose and persons, we see no just reason for holding that the receiver’s lien was discharged by the appoint[587] ment of the assignee, when the only effect of the proceeding was to merge an equitable into a legal lien for the benefit of all the creditors. All the creditors, under the receivership, had an equitable lien upon the assets of the firm, and under the assignment they have a legal lien upon the fund arising from the sale thereof. To admit that the equitable lien was discharged by the assignment, and that the appellants, having acquired their claims against the insolvent’s estate subsequent to the appointment of the receiver, but prior to the assignment, could thereby offset them against their debts would be to give the statute a construction never contemplated, and contrary to its manifest object. To adopt the appellants’ construction would be equivalent to holding that they had acquired a lien upon the fund, or the right to offset their claims against their debts, in spite of the statute which provides that such fund must be preserved for the benefit of all the creditors. There being no error in the judgment it follows that it must be affirmed, and it is so ordered.
Affirmed.