Bankruptcy, Set-off. Words, "Mutual debts," "Mutual credits."
A defendant in a suit in equity by a trustee in bankruptcy of a corporation to compel the payment of damages which had resulted to the corporation by reason of fraud of the defendant as its director and president, wherein a final decree has been entered ordering a payment of a certain amount of money to the plaintiff, is not entitled to maintain a cross bill to have set off against the amount named in the decree certain indebtedness owed to the defendant by the corporation, the claim of the trustee set out in his suit in equity not being a debt, nor in the nature of a debt, claim or demand springing from the obligation of an express or implied contract or arising from implication of law, and the case, therefore, not being one of "mutual debts" or "mutual credits" under § 68a of the national bankruptcy act.
BRALEY, J.
The defendant — after the decision in Putnam v. Handy, 247 Mass. 406, where it was held that he must pay to the plaintiff, the trustee in bankruptcy of the United States Leatheroid and Rubber Company, damages which the corporation suffered through his fraudulent acts as director and president of the corporation — was given leave to file a cross bill to have set off certain indebtedness, due to him from the company, which was more than sufficient to cover the damages. The trial court having dismissed the cross bill, we are asked to reverse the decree.
The law is plain: "In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid." U.S. St. 1898, c. 541, § 68a. See § 1 (11). Morgan v. Wordell, 178 Mass. 350, 353. The claim of the trustee established under the original bill rested on Handy's violation of a fiduciary duty. It was not a debt, nor in the nature of a debt, claim or demand springing from the obligation of an express or implied contract or arising from implication of law. Gray v. Bennett, 3 Met. 522, 526. Morris v. Windsor Trust Co. 213 N.Y. 27. The terms "mutual debts" and "mutual credits" are correlative, and to authorize a set-off on the record the element of mutuality of obligation between debtor and creditor in the same right is necessary. It is absent, and the decree is affirmed with costs. Libby v. Hopkins, 104 U.S. 303. Carr v. Hamilton, 129 U.S. 252. Western Tie Timber Co. v. Brown, 196 U.S. 502. See G.L.c. 232, § 1.
Ordered accordingly.