Cockey v. Hospelhorn
| Decision Date | 05 March 1940 |
| Docket Number | 29. |
| Citation | 11 A.2d 466,178 Md. 80 |
| Parties | COCKEY et al. v. HOSPELHORN. |
| Court | Maryland Court of Appeals |
Appeal from Circuit Court No. 2 of Baltimore City; Eugene O'Dunne, Judge.
Suit by Charles E. Cockey and another, trustees of the Montvale Lumber Company, against John D. Hospelhorn, receiver of the Baltimore Trust Company, to set off a sum owing by plaintiffs against an amount owing from defendant, wherein defendant filed a demurrer. From an order sustaining the demurrer plaintiffs appeal.
Reversed and remanded.
Theodore R. Dankmeyer, of Baltimore (Niles, Barton Morrow & Yost, of Baltimore, on the brief), for appellants.
J Purdon Wright and Arthur W. Machen, both of Baltimore, for appellee.
Argued before BOND, C.J., and OFFUTT, PARKE, SLOAN MITCHELL, JOHNSON, and DELAPLAINE, JJ.
The single question presented by this appeal is whether appellants are entitled to set off the sum of $8,587.79 admittedly owing by them to appellee against an amount of $23,186.21, representing a balance due them upon two certificates of indebtedness issued by The Baltimore Trust Company prior to the appointment of appellee as receiver of that corporation. Without filing an opinion, the chancellor by sustaining appellee's demurrer to appellants' petition to require appellee to credit such certificates of indebtedness with the sum of $8,587.91 answered that inquiry in the negative and the appeal is from that order.
During the year 1926, before Montvale Lumber Company encountered financial difficulties, it had, in the usual course of business, borrowed from The Baltimore Trust Company upon notes certain sums of money aggregating $31,250 in addition to interest, but the lumber company on February 17, 1927 being insolvent, made an assignment for the benefit of its creditors to appellants and The Baltimore Trust Company as trustees. On February 25, 1933, the trust company became insolvent, and on January 5, 1935, John D. Hospelhorn was by the Circuit Court No. 2 of Baltimore City appointed receiver therefor.
The Montvale Lumber Company Trustees, after qualifying as such, liquidated a large portion of the assets of their assignor, whose creditors, by two dividends, have been paid the full amounts of their claims, exclusive of interest. On May 26, 1932, a certificate of deposit for $40,000, bearing interest at the rate of 3% per annum and payable four months after date, was by the trust company issued to the trustees and represented funds received by the trustees during the course of liquidation and deposited by them with the trust company, which at that time was one of the Montvale Trustees. The funds were used by the trustees for the certificate of deposit, in order that some interest could be earned thereon. Those funds had been accounted for in the 'Banking Department' of the trust company along with other funds identified as 'Corporate Trust Department, Baltimore Trust Company, Baltimore, Md.', and the accounts segregating the total funds of the Trust Department as between the owners and beneficiaries thereof were kept only in that department. No check book or pass book was used in connection with the account, and withdrawals were made therefrom upon checks signed by the officers of the trust company without requiring the signatures of its co-trustees, but with their authority and approval. The certificate of deposit was issued to 'Baltimore Trust Company, a/c Trustees Montvale Lumber Company', address, 'c/o Trust Department', and at the time of the bank holiday, February 25, 1933, the Montvale Trustees held a renewal of the certificate of deposit in the face amount of $40,000. Subsequently, partial payments were made and pursuant to the plan of reorganization of the trust company a certificate of indebtedness was issued in the name of 'Baltimore Trust Company a/c Trustees Montvale Lumber Company, Baltimore, Maryland,' in the face amount of $34,702.14, the balance due thereon.
The other certificate of indebtedness was issued to the Montvale Trustees subsequent to the appointment of the receiver for $3,941.56 in pursuance of the plan of re-organization and represented funds theretofore retained by the trustees for ordinary receipts and expenses.
Appellee in support of an affirmance of the order appealed from urges: (1) That the claims under consideration are not mutual, (2) that the terms of the deed of assignment from Montvale Lumber Company preclude set-off, and (3) that set-off is prohibited under the Emergency Banking Act (Sec. 71B of Chap. 46, Acts 1933), and cites the decisions of this court in Perring v. Baltimore Trust Corp., 171 Md. 618, 190 A. 516, and Baltimore v. Baltimore Trust Corp., 175 Md. 457, 2 A.2d 441, as sustaining its position.
1. It is undisputed that set-off is confined to mutual debts between the parties, that is, debts of the same kind and quality. 1 Poe's Pleading and Practice, Sec. 613; 24 R.C.L., page 858, Sec. 62; Fidelity & Deposit Co. v. Poe, 147 Md. 502, 128 A. 465; Ghingher v. Fanseen, 166 Md. 519, 172 A. 75; Hagerstown Bank & Trust Co. v. Trustees of College of St. James, 167 Md. 646, 176 A. 276; Perring v. Baltimore Trust Corp., supra.
But some consideration must be given as to the date to be used in determining the question of set-off, inasmuch as it may have an important bearing upon the mutuality of the claims. At the time it made the assignment for the benefit of its creditors, the Montvale Lumber Company owed money to the trust company, but the latter then owed nothing to the lumber company. Therefore, no question of set-off could then have arisen and during the period the Montvale Trustees were administering their trust prior to the insolvency of the trust company no question of set-off arose because the latter was then able to pay its indebtedness to the Montvale Trustees and continued able to pay until February 25, 1933, prior to the passage of Chapter 46, Acts of 1933. However, on February 25, 1933, when the trust company became insolvent, the Montvale Trustees owed the trust company a distribution on account of its claim, while the trust company owed the Montvale Trustees by reason of the deposit of funds with which they were chargeable. To apply the rule announced in Ghingher v. Fanseen, supra, would require a holding that the right of set-off was determinable as of February 25, 1933, when the trust company became insolvent. See, also, Morse on Banks and Banking, Sec. 338, note; United States Brick Co. v. Middletown Shale Brick Co., 228 Pa.
81, 77 A. 395; Gordon v. Anthracite Trust Co., 315 Pa. 1, 172 A. 114, 93 A.L.R. 1160; Williams v. Coleman, 190 N.C. 368, 129 S.E. 818; Anno. 71 A.L.R. 807, and authorities there cited; 7 C.J. 'Banks and Banking', Sec. 536, page 746; Friedman v. Commissioner of Banks, 291 Mass. 108, 196 N.E. 264; Braver on Liquidation of Financial Institutions, Sec. 908, page 1060.
Appellee's argument against the right of set-off runs in this fashion: Set-off can only be allowed where the claims are mutual, that is, where the opposite party could have set off his claim if sued by the party invoking the set-off; that the trust company could not have set off its claim against the lumber company if sued by the trustees of the latter; therefore, set-off cannot be allowed. It is admitted that a debt was owing from the lumber company to the bank, also that the bank owed a debt to the trustees, but insisted that the latter did not owe the bank until the ratification of the first distribution on August 11, 1938, after the appointment of the receiver for the bank. But, in our judgment, it would be equally logical to argue that the trust company, as a bank, owed the three trustees of the lumber company the sum of $23,186.21, also that the Montvale Trustees owed the trust company, as a bank, the sum of $8,587.79, and that the right to set off one debt against the other arose when the trust company became insolvent, inasmuch as the cross-demands were mutual and arose out of the same right and both claims were liquidated.
To support his contention that the debts were not mutual, appellee cites the following authorities: Peurifoy v. Gamble, 145 S.C. 1, 142 S.E. 788, 71 A.L.R. 783; Allen v. Holleman, 159 S.C. 200, 156 S.E. 446; Akin v. Williamson, Tenn.Ch., 35 S.W. 569; Rochester Tumbler Works v. Mitchell Woodbury Co., 215 Mass. 194, 102 N.E. 438.
Of these authorities, that of Peurifoy v. Gamble, supra, perhaps as well as any other supports the view contended for. In that case, it was held that a claim by the Home Bank of Barnwell for its deposit account against the receiver of the American Bank & Trust Company of Columbia, S. C., and that of the receiver of the last-named institution for assets collected by him and deposited in the former bank before its insolvency were not mutual and could not be set off against each other. In so holding, the decree from which the appeal was taken, which allowed set-off, was reversed. The decision seems to have been based largely upon the view that the receiver was an officer of the court, through whom the court took possession of the assets of the insolvent bank to prevent waste or destruction and to secure their ratable distribution among those entitled thereto; that the property in the hands of the receiver was in the possession of the court of his appointment, and being merely an agency of the court, he had no personal interest in the dividends declared except that of faithfully performing his duty as directed. The majority opinion conceded that the circumstances of the case were peculiar and that the decisions in other jurisdictions were not in accord. But the holding in Peurifoy v. Gamble, supra, and the authorities cited as disallowing set-off underfacts similar to those before us is certainly not universal. It...
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