The appellant, Manchester Premium Budget Corporation (Premium), seeks a set-off on an admitted debt owing to a sister corporation. The United States District Court for the Eastern District of Missouri1 denied Premium any set-off in this diversity suit brought by Harry Jump, conservator of Manchester Insurance and Indemnity Company, to recover monies owed on a promissory note. We affirm.
Manchester Insurance and Indemnity Company (Manchester) is an Ohio-chartered corporation whose principal place of business is located in St. Louis, Missouri. Prior to September 23, 1975, Manchester engaged in issuing general liability and auto insurance policies through its agents in Alabama, Illinois, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, and Ohio. On the latter date, Harry Jump, a citizen of Ohio and Superintendent of Insurance for the State of Ohio, was appointed conservator of Manchester under Ohio Rev.Code Ann. §§ 3903 et seq. (Page 1971)2 for the purpose of rehabilitating or liquidating the financially troubled insurance company. The officers, agents and employees of Manchester were also enjoined from carrying on any further business.
On January 7, 1977, Manchester, through ' Jump and the Ohio Department of Insur-anee, demanded payment from Manchester’ Premium Budget Corporation of a subordinated promissory note executed by Premium on December 31, 1974, in the principal amount of $700,000, payable to Manchester on December 31, 1976. Premium, after making two interest payments, refused any further payment on the note obligation.
Premium is a Missouri corporation whose principal place of business is located in St. Louis, Missouri, and is a sister corporation of Manchester.3 Premium was primarily engaged in the business of financing insurance premiums on policies written by Manchester. Premium had borrowed the money from Manchester in order to obtain funds to continue financing Manchester’s policies. This type of transaction between Manchester and Premium had been utilized previously in order to fund Premium’s financing operations.
On January 12, 1977, Manchester, through the conservator, Jump, filed suit in the District Court against Premium for nonpayment on the note obligation. Diversity jurisdiction was established.4 Premium answered Manchester’s complaint and asserted a set-off on the note obligation, claiming a lien upon any and all unearned premiums under policies financed by Premium that Manchester had cancelled as a re-*391suit of the conservatorship.5 From September 23, 1975, to March 14, 1976, Manchester cancelled numerous policies. On March 14, 1976, by order of the Court of Common Pleas of Franklin County, Ohio, the remaining policies were cancelled.
The case was tried before the District Court without a jury. On March 12, 1979, the court entered a memorandum decision denying Premium any right of set-off and entering judgment in favor of Manchester for the full amount then due on the note, $889,000.6 Premium filed a timely notice of appeal.
The District Court held that the law of the State of Ohio applied and concluded that regardless of which state law is applied, the result would be the same. The court went on to find that under Ohio law set-offs of mutual debts and mutual credits were permissible but that the debts and credits involved herein were not mutual because they were not in the same right and between the same parties standing in the same capacity. The court further noted that debts or credits that are “acquired collaterally as by purchase or assignment” do not fulfill the requirement of mutuality, citing United States ex rel. Kirby v. John A. Johnson & Sons, Inc., 111 F.Supp. 785, 787 (E.D.Tenn.1953), and also noted that the determination of the propriety of a set-off must be based on the right of the parties at the time of insolvency. Dakin v. Bayly, 290 U.S. 143, 148, 54 S.Ct. 113, 78 L.Ed. 229 (1933). Although the District Court pointed out that there was some question about the validity of the assignments of the rights under the insurance policies issued in this case to Premium,7 it did not base its decision on that apparent defect, but rather predicated its decision on the lack of mutuality of the debts and credits herein involved.
At the outset it should be noted that all of the policyholders whose policies were cancelled would be entitled to a return of the unearned premium paid to the insurer Manchester, which would also include any policies properly assigned to Premium. However, to permit Premium to receive one hundred percent credit on its cancelled policy premiums would operate as a clear and distinct preference to it over the other policyholders who did not finance their insurance premiums through Premium. Thus the inequity of allowing a set-off in this situation was very persuasive to the District Court and is one which we also feel is entitled to grave consideration.
We apply Ohio law to the resolution of the set-off issue.8 Under Ohio law, a *392set-off is allowed in insurance liquidation procedures only in “cases of mutual debts or credits between the company and another person, such credits and debts shall be set off and the balance only shall be allowed or paid, * * *Ohio Rev.Code Ann. § 3903.19 (Page 1971). Ohio law clearly requires mutuality in order for a set-off to be allowed. The District Court found the required mutuality to be lacking. We agree.
Under Ohio case law, “a set-off, whether legal or equitable, must relate to cross-demands in the same right, and when there is mutuality of obligation.” Witham v. South Side Building & Loan Association of Lima, Ohio, 133 Ohio St. 560, 562, 15 N.E.2d 149, 150 (1938); Andrews v. State ex rel. Blair, 124 Ohio St. 348, 178 N.E. 581, 582 (1931). The Supreme Court of Ohio has defined mutuality of parties to be “an essential condition of a valid set-off or counterclaim. That is, the debts must be to and from the same persons and in the same capacity.” Nichols v. Metropolitan Life Insurance Co., 137 Ohio St. 542, 545, 31 N.E.2d 224, 225 (1941). Accord, United States v. Greenwich Mill & Elevator Co., 291 F.Supp. 609, 614 (N.D.Ohio 1968). No mutuality exists between the assigned unearned premiums held by Premium and the note owing to Manchester. The assignment or tendering of an interest to one who had a liability on a promissory note does not fulfill the mutuality requirement under Ohio law. See Witham, supra, 133 Ohio St. 560, 561, 15 N.E.2d 149, 150 (1938). A set-off cannot be allowed under these circumstances, as Premium, at best, stands in the shoes of the policyholders it financed. Premium is thus placed on the same plane and in the same category as the other policyholders whose policies were cancelled. Any other result would be inequitable to the other creditors of the insolvent insurer and to the other cancelled policyholders.
Affirmed.