JL Hudson Co. v. Thomas

• Decision Date: 24 May 1934
• Docket Number: 6108.,No. 6107,6107
• Citation: 6 F. Supp. 857
• Parties: J. L. HUDSON CO. v. THOMAS. SAME v. SCHRAM.
• Court: U.S. District Court — Western District of Michigan

6 F. Supp. 857

J. L. HUDSON CO. v. THOMAS.

SAME v. SCHRAM.

Nos. 6107, 6108.

District Court, E. D. Michigan, S. D.

May 24, 1934.

Beaumont, Smith & Harris, of Detroit, Mich., for plaintiff.

Robert S. Marx, Lewis Levy, Frank E. Wood, and Wm. C. Kelly, all of Cincinnati, Ohio, for receivers.

LINDLEY, District Judge.

These two cases grow out of similar facts and the issues are substantially the same. Consequently the court disposes of both in one memorandum.

Plaintiff issued its serial 5 per cent. notes to the extent of $10,000,000. Simultaneously it executed an indenture by virtue of which certain rights and obligations were imposed upon the trustee therein named for the note-holders. Action to recover upon the notes, prior to their maturity, in case of default, was thereby vested in the trustee, unless after such default and demand upon the trustee for action by it made by holders of 25 per cent. of the principal amount of notes then outstanding, the trustee should fail to act. In such case, upon filing indemnity, the holders were vested with the right to sue.

The banks, now represented by defendant receivers, prior to their closing under the Michigan moratorium in late February, 1933, had purchased and owned parts of these notes as follows: The First National Bank, $252,000 of principal amount, and Guardian National Bank, $296,000. This ownership remained unchanged when, shortly afterward, the comptroller, because of insolvency of the two respective banks, appointed the receivers. At the time of closing of the two institutions, plaintiff had on deposit at the First National, payable to it, $3,353,782.08, and at the Guardian, $195,038.40.

Plaintiff now seeks in the one case a decree applying upon its deposits by way of set-off the amount due upon the notes held by the First National, thereby working a payment and discharge of the notes and a reduction of the credit to it in the form of the deposit by an equal amount. In the other case plaintiff seeks to have a decree setting off as against its deposit such part of the sums due from it upon notes held by the Guardian National as is equal to the amount of said deposit, thereby paying and discharging so much of said notes, wiping out the credit due it in the form of said deposit, and leaving plaintiff liable upon the balance of said notes not discharged by such set-off.

Inasmuch as none of these notes had matured when the banks closed, it is first questioned whether they can be set off as against the deposit account, which was payable on demand. I do not understand that the right to set off mutual cross-demands in equity is defeated by the fact that some part thereof has not matured. The postponement of date of payment here was intended for the benefit of plaintiff. Such privilege of paying later, being for its own advantage, may be waived, inasmuch as no damage accrues to defendants as a result thereof. The assertion of the right of one to waive something belonging to him requires no argument in support thereof. The rule is quite generally recognized in this country. Thompson v. Union Trust Company, 130 Mich. 512, 90 N. W. 294, 97 Am. St. Rep. 494; Searle v. Crampton, 118 Conn. 42, 170 A. 480. In State ex rel. Gray v. Alward, 44 Ohio App. 281, 185 N. E. 560, 562, the court said: "The depositor might have had a time certificate of deposit not yet due at time of insolvency. He could not sue to recover it until due, but to say he had not a legal demand would be absurd."

Nor do I consider the fact that under the terms of the indenture rights of action upon the notes are, under certain circumstances, confined to action by the trustee, sufficient to defeat the right of set-off. The notes, payable to bearer, are the property of the banks and due to them from plaintiff. The deposit accounts are owing by the banks to plaintiff. Though in the indenture the right to sue is limited as hereinbefore observed, such limitation was manifestly intended as a protection to the common body of noteholders so that one or more might not pursue suits in attachment or segregation of assets upon execution ahead of and to the detriment of other holders who did not rush in with similar multitudinous, disruptive proceedings. It was not intended to serve as a weapon to be turned against noteholders and thus to bring about inability to secure cancellation or discharge of notes, when such discharge would result to the benefit of all other noteholders.

That such was the intent of the covenants is apparent from the clauses giving noteholders the right to sue when and if the...