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NORTH CHICAGO ROLLING MILL CO. V. ST. LOUIS STEEL CO., 152 U. S. 596 (1894)

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U.S. Supreme Court

North Chicago Rolling Mill Co. v. St. Louis Steel Co., 152 U.S. 596 (1894)

North Chicago Rolling Mill Company v.

St. Louis Ore and Steel Company

No. 197

Argued January 11, 1894

Decided April 9, 1894

152 U.S. 596

Syllabus

A garnishee who occupies the double position of debtor to the principal defendant in a definite or ascertained amount and also that of a creditor of such principal debtor by way of unliquidated damages arising out of the breach of a contract in existence when the garnishment proceedings were instituted can, after an order at law subjecting the defined indebtedness to the payment of the garnishor, invoke the aid of a court of equity to restrain the garnisheeing creditor from enforcing the payment of the amount due until the unliquidated damages can be ascertained and set off against such indebtedness on the ground that the principal debtor is insolvent and a nonresident of the state in which the garnishee resides and in which the garnishment proceedings are had.

Equity will entertain jurisdiction and afford relief against the collection of chanroblesvirtualawlibrary

Page 152 U. S. 597

a judgment where there is a meritorious, equitable defense thereto which could not have been set up at law or which the party was, without fault or negligence, prevented from interposing.

The adjustment of demands by counterclaim or setoff, rather than by independent suit, is favored and encouraged by the law, to avoid circuity of action and injustice.

The insolvency of the party against whom a setoff is claimed is a sufficient ground for equitable interference, and in Illinois and some other states, the nonresidence of the party against whom the setoff is asserted is also held to be sufficient ground therefor.

It is settled in England, where the law differs in no material respect from that of Illinois, that a garnishee order does not effect a transfer of the debt to the garnishor or create the relation of creditor and debtor between him and the garnishee.

It is a recognized principle that the rights of the garnishor do not rise above or extend beyond those of his debtor; that the garnishee shall not, by operation of the proceedings against him, be placed in any worse condition than he would have been in had the principal debtor's claim been enforced against him directly; that the liability, legal and equitable, of the garnishee to the principal debtor is a measure of his liability to the attaching creditor, who takes the shoes of the principal debtor and can assert only the rights of the latter.

The Court stated the case as follows:

The principal question presented by the record in this case is whether a garnishee who occupies the double position of debtor to the principal defendant in a definite or ascertained amount and also that of a creditor of such principal debtor by way of unliquidated damages arising out of the breach of contract in existence when the garnishment proceedings were instituted can, after an order at law subjecting the defined indebtedness to the payment of the garnishor, invoke the aid of a court of equity to restrain the garnisheeing creditor from enforcing the payment of the amount due until the unliquidated damages can be ascertained and set off against such indebtedness, on the ground that the principal debtor is insolvent and a nonresident of the State in which the garnishee resides, and in which the garnishment proceedings are had? In other words, is the insolvency and nonresidence of the principal debtor, to whom the garnishee is indebted in a certain definite amount and against whom he has a valid chanroblesvirtualawlibrary

Page 152 U. S. 598

claim for unliquidated damages growing out of a breach of contract between them -- in existence at the commencement of the garnishment proceedings -- a good ground for the exercise of equitable jurisdiction, after an order or judgment at law declaring the sum due the principal debtor applicable to the payment of the garnishor, to stay the enforcement of such order or judgment until the unliquidated damages due the garnishee can be ascertained and set off against the amount certain owing by him to the principal debtor?

The material facts and proceedings out of which this question arises are as follows:

In November, 1883, the St. Louis Ore and Steel Company, of St. Louis, Mo. (hereafter styled the "St. Louis Company") and the North Chicago Rolling Mill Company, of Chicago, Illinois (hereafter called the "Chicago Company"), were each engaged in the manufacture of steel rails for railroads. The St. Louis Company was also a miner of iron ore and the maker of pig metal. On November 6, 1883, the St. Louis Company entered into a contract with the Missouri Pacific Railroad Company for the sale and delivery to the railroad company of 24,000 tons of steel rails, in quantities of 2,000 tons per month from January to December, 1884, inclusive, for which the railroad company agreed to pay for each monthly delivery of rails, on receipt of bills of landing and invoice at the rate of $18 a ton cash, and one ton of old rails for each ton delivered.

On November 19, 1883, the St. Louis Company entered into another contract with the Missouri Pacific Railroad Company by which it agreed to sell to the railroad company the further quantity of 18,000 tons of steel rails, to be delivered at the rate of about 1,500 tons per month, commencing January 1, and ending in December, 1884, for which the purchaser was to pay, for each delivery of 1,500 tons at the rate of $37.50 a ton, in cash, on the 20th day of the month succeeding the delivery.

Having these engagements on its hands, the St. Louis Company, on December 1, 1883, entered into a written contract with the Chicago Company by which the latter agreed to furnish the former company 18,000 tons of No. 1 Bessemer chanroblesvirtualawlibrary

Page 152 U. S. 599

steel rails, to be delivered free on board the cars at Chicago, in about equal amounts (1,500 tons), during each month of the year 1884 at the rate of $35 per gross ton (2,240 pounds), to be paid by the St. Louis Company on the tenth day of each month for all rails delivered during the previous month. The contract specified that the rails to be furnished by the Chicago Company should weigh 52, 56, 59, or 63 pounds per lineal yard, as per templet to be furnished by the St. Louis Company, and were to be drilled for bolts at certain distances from the ends of the rails, according to their weight.

The rails were to be consigned as directed by the St. Louis Company, which was to furnish the cars for the prompt shipment thereof from Chicago,

"and in the absence of the furnishing of cars upon which to load said rails, enabling the said first party [the Chicago Company] to make their deliveries