Bates v. Cosmopolitan Trust Co.
| Decision Date | 20 January 1922 |
| Citation | 240 Mass. 162,133 N.E. 758 |
| Parties | BATES et al. v. COSMOPOLITAN TRUST CO. et. at. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Report from Supreme Judicial Court, Suffolk County.
Suit by John K. Bates and another against the Cosmopolitan Trust Company and another. Reported by a single justice on the pleadings and agreed statement of facts for determination by the full court. Bill dismissed.
Plaintiffs were the makers of a note for the accommodation of the Portsmouth Cold Storage Company, and sued to obtain an equitable set-off of certificates of deposit issued by the trust company to the storage company and not yet due when the business and affairs of the trust company were taken over by the commissioner of banks for purposes of liquidation.
Under R. L. c. 174, ss 1, 3 (G. L. c. 232, ss 1, 3), relative to set-offs, persons making a note to a trust company for the accommodation of a storage company could not, when sued thereon, set off unpaid certificates of deposit issued by the trust company to the storage company as part of the consideration for the note, where the storage company had not transferred its title or possession to them.
Except under special circumstances and where the proofs are clear and the equity very strong, equity, following the law, will not allow a set-off in different rights then is allowed by the enacted statutes of set-off.
Where plaintiffs executed their note to a trust company for the accommodation of a storage company, whose note was deposited as collateral security, and in part consideration the trust company issued certificates of deposit to the storage company, which were not due when the business and affairs of the trust company were taken over by the commissioner of banks and have not been paid, but the storage company has property sufficient to pay, and stands ready to pay, whatever amount may be found due from it, the allowance of the certificates of deposit as an equitable set-off in favor of plaintiffs is not necessary to prevent irremediable injustice, especially where the object of their bill for an equitable set-off is not to save themselves from financial loss, but to enable the storage company indirectly to collect its full debt against the trust company.W. E. L. Dillaway, of Boston, for plaintiffs.
Henry O. Cushman and Daniel L. Smith, both of Boston, for defendants.
This suit in equity filed February 28, 1921, against the Cosmopolitan Trust Company and Joseph C. Allen, is before this court on the pleadings and agreed statement of facts, upon the report of a single justice. In substance the material facts are agreed to be as follows: July 31, 1920, the plaintiffs, for the accommodation of the Portsmouth Cold Storage Company, borrowed $30,000 of the defendant trust company and gave their promissory note therefor, payable November 30, 1920. At the same time, at the request of the defendant trust company, they gave the defendant trust company as collateral for their own note a joint and several note for $50,000 dated July 31, 1920, payable in four months after date to the order of the Cosmopolitan Trust Company, signed by the Portsmouth Cold Storage Company, John K. Bates, Walter B. Farmer, M. J. Palson, and Maj. A. White; the individuals signing the note being directors and constituting a majority of the board of directors of the Portsmouth Cold Storage Company. As the consideration for the $30,000 note the trust company agreed to give and did give the Portsmouth Cold Storage Company a credit of $10,000 against which its checks should be drawn; it also agreed to give and did give four certificates of deposit to the order of the Portsmouth Cold Storage Company for $5,000 each, of even date with said notes, two payable in September, 1920, one on October 25, 1920, and one on November 30, 1920. The said storage company drew all of the said $10,000 which had been placed to its credit on the books of said trust company except $597. The certificates of deposit maturing in September were duly paid.
September 25, 1920, the defendant Allen, as commissioner of banks of the commonwealth of Massachusetts, took possession of the property and business of the Cosmopolitan Trust Company under and in accordance with the provisions of chapter 399 of Statutes 1910, and acts in amendment thereof and in addition thereto, and under said statute is still in possession of such property and business and has proceeded and is proceeding to collect and liquidate. The business of the trust company has stopped and it has ceased honoring or paying any checks or certificates of deposit, and its debts exceed its collectible assets.
The certificates of deposit given the storage company payable October 25 and November 30, 1920, each for $5,000, were not paid when due; they have never been paid; the storage company has never parted with the ownership of these last-named certificates of deposit and was in possession of them on September 25, 1920. No part of the proceeds of the above transaction was ever received by the individual parties to the $30,000 note, but said Portsmouth Cold Storage Company alone received all the proceeds of said note. The plaintiffs who signed the $30,000 note and the plaintiffs and their associates who signed the $50,000 note acted entirely for the benefit of the Portsmouth Cold Storage Company, and as between themselves and the Portsmouth Cold Storage Company were sureties and guarantors for the payment of the debt of $30,000; and this fact was known to the president of the trust company.
The commissioner of banks through his liquidating agent made demand upon the plaintiffs for the payment of the $30,000 note. He also made demand upon the Portsmouth Cold Storage Company for the payment of its note on November 30, 1920. The plaintiffs did not pay their note and the Portsmouth Cold Storage Company did not pay its note in response to the demands, but the plaintiffs, acting for the Portsmouth Cold...
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