Brennan v. Holden

• Decision Date: 17 July 1933
• Docket Number: No. 3773.,3773.
• Citation: 4 F. Supp. 285
• Parties: BRENNAN v. HOLDEN et al.
• Court: U.S. District Court — District of Massachusetts

4 F. Supp. 285

BRENNAN v. HOLDEN et al.

No. 3773.

District Court, D. Massachusetts.

July 17, 1933.

Sawyer, Hardy, Stone & Morrison and Kenneth C. Parker, all of Boston, Mass., for plaintiff.

Raymond M. Sullivan and Edward R. Hale, all of Boston, Mass., for defendants Arthur Guy, Joshua B. Holden, and others.

Scaife, Robbins, Fullerton & Noyes, E. Dwight Fullerton, Parkman, Coughlin & Hannon, and John C. Coughlin, all of Boston, Mass., for defendant Herbert Pearson.

BREWSTER, District Judge.

In this bill of complaint the plaintiff seeks to enjoin the defendant Pearson, as receiver of the Federal National Bank (hereinafter referred to as the bank), from prosecuting an action at law upon a check for $2,554.50 drawn by other defendants, copartners doing business as Lapham, Potter & Holden (hereinafter referred to as the brokers). There is no diversity of citizenship between plaintiff and the defendants other than Pearson, consequently this court has jurisdiction only so far as the controversy is involved in the winding up of the affairs of a national bank. It cannot in this proceeding adjudicate the equities between the plaintiff and the drawers of the check. The receiver in a law action pending in this court has sued to recover from the brokers the amount of the check. Both the law action and this equity suit were tried together; the parties consenting that this controversy may be disposed of in this proceeding. If I find and rule that the plaintiff is entitled to an injunction enjoining the receiver from asserting any rights in the check, it will necessarily follow that the receiver must fail in his law action, and, in that event, I understand that Lapham, Potter & Holden stand ready to satisfy the plaintiff's claim. If, on the other hand, the receiver is entitled to judgment against the brokers in the action at law, this bill is to be dismissed. The single question, therefore, which calls for decision is whether Pearson, as receiver of the bank, is entitled to recover upon the check, and I proceed to a consideration of that issue.

Statement of Facts.

(1) The plaintiff requested the Lawrence Trust Company (hereinafter called the trust company) to sell for him certain shares of stock, and to that end delivered certificates representing the stock to the trust company which, in turn, forwarded them to the brokers, doing business in Boston, with instructions to sell the shares and credit the trust company's "Commercial Department Account in the Federal National Bank of Boston, covering proceeds." The plaintiff had nothing to do with selecting the broker, nor did he authorize any instructions to the broker respecting transmission of the proceeds of the sale.

(2) In accordance with these instructions, the brokers sold the shares and drew their check, dated December 14, 1931, for $2,554.50, the amount of the net proceeds of the sale, payable to the "Federal National Bank of Boston A/C Lawrence Trust Co. Commercial Account." On the morning of the same day, the check was taken to the bank and deposited to the account of "Lawrence Trust Co. Comm'l Acct." The deposit slip accompanying the check contained the following terms: "In receiving items for deposit or collection, this bank acts only as depositor's collecting agent and assumes no responsibility beyond the exercise of due care. All items are credited subject to final payment, in cash or solvent credits. * * * This Bank * * * may send items, directly or indirectly, to any bank, * * * and accept its draft or credit as conditional payment in lieu of cash: It may charge back any item at any time before final payment, whether returned or not. * * *" The deposit slip was one of those generally used by depositors in the bank, and was furnished by the bank to its customers. At the time of the deposit nothing occurred which would modify or operate as a waiver of any of the above terms.

(3) Upon receipt of the deposit, the bank at once entered it as a credit upon the commercial account of the trust company, upon which the trust company drew its checks in excess of all sums deposited that day. The books of the bank show that on December 14 there was deposited $24,820.28, including the brokers' check in question. On the same day it charged to the commercial account of the trust company $28,026.47, paid to the Federal Reserve Bank of Boston to cover checks drawn upon that account which were cleared through the Federal Reserve Bank. The commercial account of the trust company had also been debited with other checks presented and paid, totalling over $44,000. The transactions on December 14, after the check of brokers had been deposited, involved debits in excess of the credits.

(4) Since early in December, 1931, the commercial department account of the trust company in the bank was overdrawn, and on December 10, 1931, the overdraft was nearly $84,000, when on that day the bank loaned to the trust company $100,000. Two days later the commercial account was again overdrawn, and on December 14 the overdraft before the close of the banking hours had increased to over $58,000. There was other indebtedness owing by the trust company to the bank, but it is not necessary to state the exact amount due.

(5) On the morning of December 15, 1931, the Federal National Bank did not open for business, and on the same day the defendant Pearson was appointed receiver by the Comptroller of Currency, and since that time the bank has been in the process of liquidation.

(6) I find that the Federal National Bank did not at any time change its position in reliance upon or upon the faith of the check in question. No credits were given or advances made on the faith or expectation that the check of the brokers would be paid. The bank would have extended to the trust company all the credits in fact extended by it on December 14, regardless of the deposit of the check.

(7) The check in question was drawn on the National Rockland Bank of Boston, and, when presented, payment was refused, the makers in the meantime having stopped payment.

Conclusions of Law.

The equities of the case are strongly in favor of the plaintiff. He had intrusted his shares of stock with the trust company which had undertaken to sell them and account to him for the proceeds. The stock was sold and, before the proceeds had been received by the plaintiff, the bank which had received the brokers' check had ceased to do business, and payment of the check had been stopped. The proceeds are now in the hands of the brokers, who are ready to pay them to the...