Thomas P. Nichols & Son Co. v. Nat'l City Bank of Lynn

• Decision Date: 30 March 1943
• Citation: 48 N.E.2d 49,313 Mass. 421
• Parties: THOMAS P. NICHOLS & SON CO. v. NATIONAL CITY BANK OF LYNN et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

313 Mass. 421

48 N.E.2d 49

THOMAS P. NICHOLS & SON CO.

v.NATIONAL CITY BANK OF LYNN et al.

Supreme Judicial Court of Massachusetts, Essex.

March 30, 1943.

Action by Thomas P. Nichols & Son Company against the National City Bank of Lynn, the Federal Deposit Insurance Corporation, the Essex Trust Company, and officers and directors of the National City Bank of Lynn to establish plaintiff's claim under an unsatisfied judgment against the National City Bank of Lynn and that the defendants or some of them be ordered to pay the judgment, that pledge of collateral security by the National City Bank of Lynn to the Federal Deposit Insurance Corporation be set aside, and for other relief. The bill was dismissed as to the officers and directors of the National City Bank of Lynn, and the plaintiff filed a discontinuance against the Essex Trust Company at the hearing on the merits. From an adverse decree, the plaintiff and the Federal Deposit Insurance Corporation appeal.

Decree affirmed.Appeal from Superior Court, Essex County; Hurley, Judge.

Before FIELD, C. J., and LUMMUS, DOLAN, COX, and RONAN, JJ.

W. G. Todd and W. Herbits, both of Boston, for plaintiff.

P. H. Ready, of Lowell, for defendant.

COX, Justice.

The plaintiff, on November 2, 1936, brought an action of contract or tort against the defendant The National City Bank of Lynn, hereinafter referred to as the bank, and on January 8, 1940, recovered judgment upon which execution was issued and has been returned wholly unsatisfied. Before that action came to trial, the bank entered into a voluntary liquidation on December 3, 1938, when it was not insolvent. On that date, the bank entered into an agreement with the Essex Trust Company, originally a party defendant to this suit, by the terms of which it sold and transferred to that company certain liquid assets in consideration of the trust company's agreement to assume ‘deposit liabilities,’ as distinguished from those that might be described as liabilities to general creditors. At the same time, the bank pledged all its other assets to the defendant Federal Deposit Insurance Corporation, hereinafter referred to as the corporation, as collateral security for a loan by the corporation to the bank. Pursuant to the loan agreement, the sum loaned was immediately transferred to the trust company as part of the assets of the bank. The agreement between the bank and the corporation is ‘incorporated within the terms of a document entitled ‘Loan Application, The National City Bank of Lynn, Lynn, Mass., and Schedule of Collateral Pledged.’'

The plaintiff brought this bill on April 24, 1940, after its execution against the bank had been returned unsatisfied. The allegations in brief were that the bank had sold or pledged its assets when it was insolvent; that the ‘conveyances' to the trust company and the corporation were made for the benefit of depositors and creditors alike, all of whom the ‘buyers' undertook to pay in full, but that by error, mistake or otherwise, the plaintiff's name as a creditor of the bank was omitted; that the bank undertook to inform the trust company and the corporation of the names of all its creditors, but that it intentionally, wilfully, negligently or fraudulently ‘omitted to include’ the plaintiff's name as a creditor in the certified list that was furnished; that the trust company and corporation knew, or should have known, of the bank's insolvency and of the omission of the plaintiff's name as a creditor; that the corporation undertook to and did insure the bank against claims of all depositors and creditors, or insured all depositors ‘and/or’ creditors against loss under the provisions of the ‘Federal Deposit Insurance Law’; that the ‘conveyances' to the trust company and corporation were in fraud of creditors, and that it holds an unsatisfied judgment against the bank. The plaintiff prayed that its claim be established and that the defendants, or some of them, be ordered to pay it; that the conveyance to the corporation be set aside; and for other relief. Officers and directors of the bank were joined as defendants, as to whom the bill appears to have been dismissed. The plaintiff states in its brief that, at the hearing on the merits, it filed a discontinuance against the Essex Trust Company and that the hearing proceeded against the other two defendants. After the judge of the Superior Court who heard the suit had filed his findings, rulings and order for decree, the plaintiff was allowed to amend its bill by reciting, among other things, that the bank was solvent when its assets were sold and pledged to the trust company and the corporation, and that the assets were pledged, assigned, sold and conveyed to the corporation for the purpose first of paying all of the depositors and creditors of the bank in full and thereafter an security for a loan or loans made by the corporation to the bank in connection with its liquidation.

The agreement between the bank and the corporation, which, as the trial judge found, is incorporated within the terms of the loan application, provides for the loan that was made and recites that its proceeds will be paid over to the trust company ‘as part of the consideration for the agreement of . . . [the trust company] to assume the deposit liabilities of’ the bank. Although the nature and extent of the liquidating operations do not appear, there is a finding that the bank still holds an equity of redemption in the assets pledged to the corporation, the book value of which exceeds the amount of the loan by more than $500,000.

The findings of the trial judge, which were voluntary, recite that the negotiations between the bank and corporation began in the spring of 1938 for the purpose of arranging satisfactory terms upon which the voluntary liquidation of the bank could be brought about; that when the transactions were accomplished, and at all times prior thereto, it was the intention of the bank to satisfy all outstanding obligations to general creditors and depositors alike; and that on December 3, 1938, when the agreements were executed, the officials of the bank, because of information they had received from counsel, ‘would have been justified in being under the impression that the plaintiff's case had no merit and that ultimately it would result in judgment for the Bank. The advice which they received from their counsel, however, was misinterpreted, so that actually they believed that the plaintiff's case had been concluded, that ‘it was dead’ and was no longer before the court.' Further findings are that the corporation was informed of the plaintiff's action against the bank prior to December 3, 1938, and that, by the exercise of reasonable care and diligence, the corporation should have known of the status of the plaintiff's claim for a reasonable period of time prior to that date.

It was specifically found that there was no fraud in the transactions of December 3, 1938, that the transfers and conveyances were made upon a fair consideration, and that none of the parties was actuated by bad faith. The ultimate conclusion of the trial judge was that the plaintiff had acquired no rights under the agreement between the bank and the corporation, and could not reach any assets in the corporation's hands. The final decree dismissed the bill as to the corporation, adjudged the amount due the plaintiff from the bank, and ordered the bank of pay the plaintiff the sum due from any assets in its possession or which might thereafter be received by it, subject only to such right, title and interest as the corporation might have in and to them under the terms of its agreement, and the bank and its liquidating agent or agents were appropriately enjoined in order to safeguard the plaintiff's claim against the bank, subject to the rights of the corporation under its agreement. The plaintiff appealed.

The plaintiff contends that the findings of the trial judge do not support his ultimate conclusion, but that, on the contrary, an agreement or understanding is disclosed between the bank and the corporation to pay the plaintiff's claim, or that the corporation subordinated its rights under the loan agreement to the claims of depositors and creditors.

The evidence is not reported, and it does not appear that a report of material facts was made under G.L.(Ter.Ed.) c. 214, § 23. We are of opinion, however, that the plaintiff's contentions cannot be sustained whether we deal with the findings of the judge as containing all the material facts or not. See Birnbaum v. Pamoukis, 301 Mass. 559, 561, 562, 17 N.E.2d 885, and cases cited.

The corporation derives its power to make the agreement in question under section 12B(N)(4) of the Federal Reserve Act, as amended (see c. 614, 49 U.S.Sts. at Large, 699; c. 489, 52 U.S.Sts. at Large, 767, U.S.C.A. Title 12, § 264[N][4]), which provides, as far as material, as follows. ‘Whenever in the judgment of the board of directors such action will reduce the risk or avert a threatened loss to the Corporation and will facilitate a merger or consolidation of an insured bank with another insured bank, or will facilitate the sale of the assets of an open or closed insured bank to and assumption of its liabilities by another insured bank, the Corporation may, upon such terms and conditions as it may determine, make loans secured in whole or in part by assets of an open or closed insured bank, which loans may be in subordination to the rights of depositors and other creditors * * *.’ The bank and trust company were ‘insured’ banks within the meaning of the act. The provision that loans may be in subordination to the rights of depositors and other creditors is not...