Evening star., 1933-11-22
Holds Seeker Must Be Own
er. Not Agent Acting in
Fiduciary Capacity.
DECISION IMPORTANT
TO INSTITUTIONS HERE
Doctrine Repudiates That Laid
Down by Various Lesser Courts
Throughout U. S.

OF importance to depositors and
creditors of insolvent banks OF the Dis
trict of Columbia and the country at
large is the recent decision by the
United States Supreme Court defining
more clearly the meaning of "set-off, :"
also sometimes called offset"
Repudlating the doctrine laid down BY
many district courts and some circuit
courts. the highest tribunal held that
in order for an offset to be available.
the party seeking to obtain the benefit
of the offset must be the real owner of
the claim or demand. 1t follows from
this that demands held in a fiduciary
capacity may not be set-off
Those familiar with the insolvent
bank situation in the District estimated
that settlement Of many claims in local
banks will be directly governed by this
decision.
Case Arises in Florida.
Under the decision, it is held not only
that obligations held in a fiduciary
capacity are not proper subject for
set-of but that in order for set-of to
be available to parties litigant, the
cross demands of the parties must be
Of the same quality-that is each must
claim from the other in the same right
The case arose in Florida. Action
was instituted by the receiver of the
First National Bank of ST. Petersburg
against the Peoples Bank of Clear
water. the latter State bank.
The pleadings disclosed that certain
checks or drafts deposited for collec-
ton in the Clearwater bank and for
warded by that bank to the st. Peters
burg bank were deposited under an
agency contract which existed when the
St. Petersburg bank closed its doors.
In this situation. beneficial ownership
of four drafts drawn by the st. Peters
burg bank on the Chase National Bank
of New York to the order of the Peo-
piles Bank of Clearwater, in an at
tempted payment of the collection items
forwarded to it. vested in the de-
positors of the Clearwater bank-not
in the bank itself.
Clearwater Bank Held Agent.
The Clearwater Bank. which was In
liquidation, was the agent of its GUS
toners. not the owner of the items de-
posted. which agency relationship, the
court held, continued to the moment
of the insolvency Of the st. Petersburg
Bank. at which time the rights Of all
parties to the transaction became fixed.
upon the ground that the right to setof
is governed by the state of things ex-
isting at the moment of insolvency and
suspension, not by conditions there
after.
An interesting feature of the case was
the situation presented by the forward
ing of its draft by the st. Petersburg
Bank to the Clearwater Bank as pay
ment. The court considered that the
depositors of the Clearwater Bank had
an election either to sue the st. Peters
burg Bank for want of due diligence
or to treat the drafts as payment ana
hold the Clearwater Bank as their
debtor, but that the record did not
disclose an exercise of such election
prior to the St. Petersburg Banks in
solvency.
The decision is of vital Importance in
liquidation of failed banks. lnasmuch
as number of district courts have re-
Gently held that the right to bring an
action gives the right to set-off. which
view has been sustained by the circuit
courts Of appeal for several circuits.
Doctrine Is Repudiated.
The majority view of the Supreme
Court of the United States, from which
Justice Stone dissented. repudiates this
doctrine and establishes the rule that
mutuality of right in set-off is not cir
cumScrlbed by the right 10 Drlng an
action. The real question is. to whom
does the money or claim which is pro-
posed to be used as set-off belong;
that in order for offset to be available
the party seeking to obtain benefit of
the offset must be the real owner of
the claim or demand. 1t follows from
this that demands held in flduciary
capacity may not be set-otf.
Generally speaking SetOff according
to many adjudicated cases, is the SIM
pie balancing of debts and credits be-
tween parties. In this country, fol-
lowing the English rule, the statutes
and decisions uniformly require that
the demands for which Setof is as
serted must be mutual
The Supreme Court decision was a
victory for the Treasury Department,
which was represented by George B.
Springston. and for the st. Petersburg
Bank, represented by Don C. McMullen.