Cosmopolitan Trust Co. v. Lyons

Rugg, C. J. This is an action of contract by the indorsee before maturity and holder for value of a negotiable promissory note against the makers. The note fell due on October 1,1920, and was payable to one Swartz, who indorsed it in blank. The genuineness of all signatures was admitted or proved. It was agreed that the commissioner of banks took possession of the plaintiff trust company on September 25, 1920, and had no authority on October 1, 1920, from any Justice of the Supreme Judicial Court [120] authorizing the compromise of any claims against the trust company, and that his representative had the same authority which the commissioner would have had concerning the transaction with Swartz now to be narrated. Swartz, the payee, testified that, in a conversation with the representative of the bank commissioner two or three days after possession had been taken, he called attention to the note, stated that the defendants as makers were not prepared to pay it and that he as indorser was going to take it up; that agreement was made whereby his account in the trust company at its face value was to be used toward payment of the note and the balance paid in cash; that, pursuant to this arrangement, on the due date of the note, he handed his check on the trust company for the face of his balance on deposit and cash for the amount due on the note above that balance, the representative of the commissioner saying that that would constitute payment of the note, which would be returned to him “in the usual time,” and giving him a receipt acknowledging “ set off of $3,906.44 to apply note . . . and that he had never received the check or the note from the plaintiff. This action is brought to recover the balance on the note after deducting the cash payment made by Swartz. This record does not present questions which would arise in an action by the commissioner against Swartz as indorser, and with them we are not now concerned. The arrangement between Swartz and the commissioner does not afford a defence to the defendants as makers upon the facts here revealed. The payee and indorser of the note, Swartz, did not have an absolute right to set off the balance to his credit as depositor in payment of the note. His liability on it was as indorser. The makers were primarily liable. The liability of the makers constituted a security for the indebtedness represented by the note in addition to the liability of Swartz as indorser. Prudential Realty Co. v. Commissioner of Banks, 241 Mass. 277. Bachrach v. Commissioner of Banks, 239 Mass. 272. That liability of the makers was an asset of the trust company. The commissioner of his own volition had no right to release it except for full value. The conversation and that which was done between Swartz and the representative of the commissioner did not constitute payment of the note. The commissioner was a public officer having no [121] power except such as was conferred on him by law. Swartz knew that he was dealing with the representative of the commissioner. Therefore he was bound to take notice of the extent and limitations of the power of the commissioner as a public officer. Boston Electric Co. v. Cambridge, 163 Mass. 64, 68. Simpson v. Marlborough, 236 Mass. 210, 213. The commissioner had no authority to compromise the note here in suit or to accept anything except cash or its equivalent in payment of it. He was not empowered gratuitously to extinguish liability of the makers of the note. G. L. c. 167, § 24. The check of Swartz was drawn on an insolvent bank which was not meeting its obligations and whose affairs were in liquidation. Hence it could not constitute payment of the note. Taylor v. Wilson, 11 Met. 44, 51. Bergman v. Granstein, 235 Mass. 378, 380. Feinberg v. Levine, 237 Mass. 185. The form of the receipt was such as to be open to explanation. It was not conclusive upon the commissioner. Macdonald v. Dana, 154 Mass. 152. Hudson v. Baker, 185 Mass. 122, 124. Squires v. Amherst, 145 Mass. 192, 194. Way v. Greer, 196 Mass. 237, 245. Brouillard v. Stimpson, 201 Mass. 236, 238. The transaction between the commissioner and Swartz does not release the defendants from their obligation. Barnett v. Rosen, 235 Mass. 244, 248. Rowland v. Hackel, 243 Mass. 160. The numerous requests for rulings made by the defendants and not granted were denied rightly either as unsound in law or as inapplicable to the evidence. The substantial rights of the defendants were not injuriously affected by the admission in evidence of the letter of the assistant bank examiner. Exceptions overruled.