Cosmopolitan Trust Co. v. Suffolk Knitting Mills 

• Decision Date: 29 February 1924
• Citation: 143 N.E. 138,247 Mass. 530
• Parties: COSMOPOLITAN TRUST CO. v. SUFFOLK KNITTING MILLS et al. SUFFOLK KNITTING MILLS v. COSMOPOLITAN TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

247 Mass. 530

143 N.E. 138

COSMOPOLITAN TRUST CO.

v.SUFFOLK KNITTING MILLS et al.

SUFFOLK KNITTING MILLS

v.COSMOPOLITAN TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Feb. 29, 1924.

Report from Superior Court, Suffolk County; Stanley E. Qua, Judge.

Actions at law by the Cosmopolitan Trust Company against the Suffolk Knitting Mills and trustee, to recover on a note made to its order, and by the Suffolk Knitting Mills against the Cosmopolitan Trust Company and trustees to recover the amount due on its checking account in the commercial department of the trust company. On report from the superior court after findings for plaintiff in each action. Judgment for plaintiff in first action and for defendant in the second action, without prejudice to the rights of the knitting mills under its proof of claim to share proportionately in the assets of the trust company.S. M. Child, of Boston, for Cosmopolitan Trust Co.

M. Witte, of Boston, for Suffolk Knitting Mills.

RUGG, C. J.

These are two actions at law. The first is brought by the Cosmopolitan Trust Company to recover on a note made to its order by the knitting mills, first discounted in its commercial department but later sold to its savings department and paid for at face value with funds of that department. No question is made as to the liability of the knitting mills on its note. Confessedly judgment ought to be entered for the trust company for the full amount due on the note.

[1] The commissioner of banks on September 25, 1920, took possession of the property and business of the trust company by virtue of the power conferred on him by the statute, has ever since retained such possession, and is now liquidating its affairs. There is nothing in this record concerning the state of the assets and liabilities of this trust company. If and so far as that is of any consequence, other proceedings have shown with seeming conclusiveness that it is hopelessly insolvent. See, for example, Bates v. Cosmopolitan Trust Co., 240 Mass. 162, 164, 133 N. E. 758;Commonwealth v. Commissioner of Banks, 240 Mass. 244, 133 N. E. 625; Commissioner of Banks v. Thurston (In re Prudential Trust Co.) 244 Mass. 64, 72, 138 N. E. 702;Cosmopolitan Trust Co. v. Lyons, 244 Mass. 115, 121, 138 N. E. 325. It would be closing our eyes to the obvious to proceed on any other footing.

The second action is a cross-action brought by the knitting mills to recover the amount due on its checking account in the commercial department of the trust company on the date when the commissioner of banks took possession of its property and business. There is no controversy as to the amount of this claim. The knitting mills duly proved its claim for this same debt to the commissioner of banks under G. L. c. 167, § 28. That claim was allowed in full by the commissioner who issued to the knitting mills certificate of proof, stamping thereon. ‘Subject to rights of set-off to be hereafter determined.’ The knitting mills has not in fact received or demanded its share of the dividend already paid to creditors of the trust company. If it had demanded such share, the commissioner would have withheld payment because of the claim of the trust company against it on its note. The knitting mills has not asked to expunge or withdraw that claim.

The question presented is whether on these facts the knitting mills is entitled to prosecute its claim to judgment in the cross-action.

No question of set-off is now involved, since that contention is not made by the knitting mills. Hence Bailey v. Commissioner of Banks, 244 Mass. 499, 501, 138 N. E. 915, and cases there cited, are not directly controlling. It is stated in the report that ‘it is no doubt the hope of the knitting mills that it may later set off its execution against the trust company's execution under G. L. c. 235, § 27.’

There is nothing further in the record, either in the pleadings of the knitting mills or elsewhere, to indicate the purpose, or to disclose a special justification for the maintenance, of the cross-action. The commissioner of banks is representing and acting for the trust company in each action.

[2] The provisions of G. L. c. 167, §§ 21-36, as to the liquidation of a ‘bank,’ which by definition of chapter 167, § 1, includes a trust company, are not complete and explicit. Much is left to implication and inference. It already has been held that thereby--

‘the General Court has dealt comprehensively with the subject of liquidation of banks and trust companies. * * * It is a general principle that, when legislation covers the entire field, previous provisions of either the common or statutory law in conflict therewith become no longer operative.’ Commonwealth v. Commissioner of Banks, 240 Mass. 244, 250, 133 N. E. 625, 627.

Those words were used with specific reference to an alleged preference sought to be established with respect to a deposit by the commonwealth in a trust company in liquidation, but they are equally applicable to the question of methods of establishment of claims against a trust company in liquidation.

[3][4] It is manifest from analysis of the relevant sections of the statute that it was the general purpose of the Legislature that all ‘claims' against a trust company in liquidation should be established by and before the commissioner of banks in possession of the property and business for purposes of litigation. That is the express provision of section 28. A claim presented to and rejected by him must be put in action within six months after service of notice of rejection. Section 28. The actions of American Express Co. v. Cosmopolitan Trust Co., 239 Mass. 249, 132 N. E. 26, and Foreign Trade Banking Corporation v. Cosmopolitan Trust Co., 240 Mass. 413, 134 N. E. 403, were brought pursuant to this provision of the statute. Lists of all claims presented to the commissioner and of all these rejected by him, must be filed at specified times in his own office and with the clerk of the Supreme Judicial Court of the county where the principal office of the trust company is located. Section 29. Dividends can be paid upon ‘claims' allowed by the commissioner, without objection by any person in interest, and upon claims, which have been allowed by the commissioner but to which objection is made by any party in interest, when established by the judgment of a court of competent jurisdiction. Section 31. Those are the only classes of claims expressly mentioned in section 31, which relates to dividends. But by implication there is included such ‘claims' rejected by the commissioner under section 28 as are established in a court of competent jurisdiction pursuant to the action authorized by that section upon such rejected claims. Of course, claims so established ought immediately to be scheduled by the commissioner among claims allowed. See Beecher v. Cosmopolitan Trust Co., 239 Mass. at page 52, 131 N. E. 338. Rights of set-off may be adjudicated in proceedings instituted by or in behalf of the Trust Company, as is shown in Bailey v. Commissioner of Banks, 244 Mass. 499, 501, 138 N. E. 915, and cases there collected. Equitable rights and obligations may be adjudicated under section 36 in all cases where required in order to do justice. See, for example, Beecher v. Cosmopolitan Trust Co., 239 Mass. 48, 131 N. E. 338;Steele v. Commissioner of Banks, 240 Mass. 394, 134 N. E. 401, 20 A. L. R. 1203;Hecker-Jones-Jewell Milling Co. v. Cosmopolitan Trust Co., 242 Mass. 181, 136 N. E. 333, 24 A. L. R. 1148. There is also right of action by a creditor against a trust company for the purpose of enabling the liability of stockholders for the ‘contracts, debts and engagements' of the trust company to be enforced. G. L. c. 172, § 24; c. 167, § 24; c. 158, § 49. That right, although not conferred by the express words of the statute, arises by necessary implication from that clause of G. L. c. 167, § 24, authorizing the commissioner of banks in possession of a trust company for purposes of liquidation to enforce the liability of stockholders under the conditions set forth in chapter 172, § 24, and chapter 158, § 49. Cosmopolitan Trust Co. v. Cohen, 244 Mass. 128, 138 N. E. 711;Commissioner of Banks v. Cosmopolitan Trust Co., 247 Mass. 334, 142 N. E. 100. Thus no arbitrary power is conferred upon the commissioner of banks in the liquidation of a trust company. Ample opportunity is afforded to all creditors whose claims are not fully allowed by the commissioner, to establish their claims and enforce their rights to dividends according to recognized principles of law in courts of justice. No judicial powers are conferred upon the commissioner of banks, who is a purely administrative officer. Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 116, 117, 118, 136 N. E. 403. Every creditor of a trust company in process of liquidation, so far as necessary to protect his rights and secure full recognition of his just claims, may enforce all his rights in the courts by forms of procedure which are expeditious and which will not offer means for undue delay in the final settlement and distribution of the assets among the many entitled to share.

There is under our statutes no general right of election by creditors of an insolvent trust company in the possession of the commissioner of banks for purposes of liquidation, either (1) to prove their claims before the commissioner of banks or (2) to institute actions at law. That election is afforded by the express terms of the National Bank Act (U. S. Rev. Sts. § 5236 [U. S. Comp. St. § 9823]). Bank of Bethel v. Pahquioque Bank, 14 Wall. 383, 401, 402, 20 L. Ed. 840;Kennedy v. Gibson, 8 Wall. 498, 506, 19 L. Ed. 476;Chemical National Bank v. Hartford Deposit Co., 161 U. S. 7, 16 Sup. Ct. 439, 40 L. Ed. 595;Rankin v. Emigh, 218 U. S. 27, 30 Sup. Ct. 672, 54 L. Ed. 915. The terms of our statute, although following in many respects the National Bank Act (Cosmopolitan Trust Co. v. Mitchell, 242 Mass....