11 A.2d 466 | Md. | 1940
The single question presented by this appeal is whether appellants, trustees of the Montvale Lumber Company, are entitled to set off the sum of $8587.79 admittedly owing by them to appellee as receiver of the Baltimore Trust Company on account of its distributive share of the lumber company's assets, 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 $8587.91, answered that inquiry in the negative and the appeal is from that order.
During the year 1926, before the 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 17th, 1927, being insolvent, made an assignment for the benefit of its creditors to appellants and The Baltimore Trust Company as trustees. On February 25th, 1933, the trust company became insolvent, and on January 5th, 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 26th, 1932, a certificate of deposit for $40,000, bearing interest at the rate of three per cent *83 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 25th, 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 $3941.56 in pursuance of the plan of reorganization 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 *84
set-off, and (3) that set-off is prohibited under the Emergency Banking Act (section 71B of chapter 46, Acts 1933), and cites the decisions of this court in Perring v. Baltimore Trust Corp.,
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, Pl. Pr., sec. 613; 24 R.C.L., page 858, sec. 62;Fidelity Deposit Co. v. Poe,
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 25th, 1933, prior to the passage of chapter 46, Acts of 1933. However, on February 25th, 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 inGhinger v. Fanseen, supra, would require a holding that the right of set-off was determinable as of February 25th, 1933, when the trust company became insolvent. See, also, Morse on Banksand Banking, sec. 338, note; United States Brick Co. v.Middletown Shale Brick Co.,
Appellee's arguments 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 it is insisted that the latter did not owe the bank until the ratification of the first distribution on August 11th, 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 $8587.79, 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,
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, against the receiver of the American *86
Bank Trust Company of Columbia, S.C., on account of its distributive share of the assets of the latter bank, 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 under facts similar to those before us, is certainly not universal. It has never been followed in the federal courts since the decision in Gardner v.Chicago Title Trust Co.,
Hood v. Brownlee,
Judge Parker, who delivered the opinion for the Circuit Court of Appeals, 62 Fed. page 676, said: "The question that next arises is whether the trustee in bankruptcy may set off the liability of the bank for the balance of the deposit against dividends to which the bank may become entitled on its claim allowed against the bankrupt estate, which is what the order appealed from virtually allows. As above indicated, we think that he may. The deposit is due by the bank to the trustee as representative of the estate of the bankrupt. Dividends are payable by him in the same capacity. The debts arising out of the deposit and the liability for dividends are, therefore, mutual and in the same right; and there is no reason for denying to the trustee the right of set-off. To look at the matter in another way, the bank received funds of the estate when the deposit was made. Now, when its insolvency has precluded the trustee from recovering these funds, it should not receive additional funds by way of dividends until other creditors of the estate have shared on a pro rata basis to an equal extent."
In that opinion the Gardner case, supra, was referred to as being in point, and the majority opinion in Peurifoy v. Gamble,supra, was disapproved, while the dissenting opinion in that case was referred to with approval. See, *89
also, in Re Wingert (D.C.),
Since, on February 25th, 1933, the date upon which the trust company became insolvent, there was due from it to appellants the sum of $23,186.21, and at the same time there was due the trust company from appellants $8587.79, as its distributive share of the lumber company's assets, those debts were mutual, being of the same kind and quality.
2. It is insisted that set-off is precluded by the terms of the deed of assignment under which the trustees were to apply the proceeds of sales and collections after payment of expenses "to the payment in full of all debts due and owing by the said Montvale Lumber Company without preference or priority, except as by law provided * * *," etc. The contention is that the Montvale Trustees are bound by that provision, and that to recognize the rights they are here claiming would have the effect of creating a preference in favor of the other creditors of the lumber company over the claim of The Baltimore Trust Company which is also a creditor. A sufficient answer to that contention *90 is that if the asserted right or preference exists by law, the case is within the exception and cannot be affected by the provision in the deed of assignment.
3. Finally, we reach appellee's argument that by the terms of section 71B of the Emergency Banking Act set-off is prohibited by reason of the provision therein contained, that "* * * no debtor shall have the right to set-off any credit extended or deposit made before the passage of this Act against any obligations arising after the passage of this Act, and no deposit in or claim against any banking institution at the time of the passage of this Act shall be assigned to any debtor of such institution so as to create a right of set-off against his indebtedness thereto." Since we have already held that the right of set-off became fixed as of February 25th, 1933, prior to the date upon which the Emergency Banking Act took effect, it must follow that the quoted limitation with reference to set-off can have no application in the present case.
This view in no sense conflicts with anything which was said by us in Perring et al. v. Baltimore Trust Corp., and Baltimorev. Baltimore Trust Corp., supra. In the first of those cases the decision was placed upon the ground that the right of set-off did not exist because the debts were lacking in mutuality; while in the second, because the indebtedness of the city on account of the surplus of the proceeds of the bonds held by it as collateral security for its deposit with the trust company originated after the passage of the act and, therefore, the limitation upon the right of set-off applied, and hence there was no right of set-off.
Assuming, as we are required to do, the truth of the allegations contained in the petition of appellants, it follows, for the reasons given, that, if sustained by proof, they are sufficient to entitle appellants to have their indebtedness for the trust company's distributive share of the lumber company's assets set off against the indebtedness due by the trust company to them. It must, therefore, be held that the chancellor erred in sustaining the *91 demurrer to that petition, for which reason the order appealed from must be reversed.
Order reversed, with costs, and cause remanded for furtherproceedings not inconsistent with the views herein expressed.