245 F. 312 | 9th Cir. | 1917
(after stating the facts as above). There is little conflict in the testimony, and the facts are substantially as follows: Mitchell & Co., a partnership, consisting of Thomas Mitchell, J. J. Fallon, and H. Fawcett, had an account with the bank for some weeks before July 31, 1913. By June 9, 1913, the firm owed about $1,500, besides a debt of about $400 to the bank. The first clean-up, on July 3, 1913, amounted to $1,904. This was turned into the bank, where the overdraft was then $1,400, and was credited to the firm. Checks were drawn against it, and again overdraft was made. The second clean-up, on July 16th, realized $2,280, and was also put in the bank to the credit of the firm, and checks were honored. The third clean-up was on July 30th, and was made subsequent to a telephone message from Brunning, cashier of the bank, advising the firm that it had no money and that notes and overdrafts were due, and that he (Brunning) had deposited his note for $500 to meet checks to reduce the overdraft. On the evening of July 31st, about 5 o’clock, after regular banking hours, Fallon, who had charge of the books and accounts, went to the bank with gold dust worth $3,750.14. The firm then owed over $13,000, of which it owed the bank, on notes and overdraft $4,096.14; the debt being for labor account checks, merchandise, and other things paid for by the bank between July 16th and 31st.
The evidence showed that between June 11, 1913, when the firm commenced to do business with the bank, and July 31, 1913, the bank honored the checks of the firm and paid out for them $9,683.35, and received and credited gold dust from them amounting to $7,934. On the evening of July 31st a garnishment was levied upon the bank in an action brought by certain creditors against the firm, but these proceedings were all subsequent to the delivery of the gold dust to the bank. Brunning, the cashier, testified that the credit of the proceeds of the dust was made July 31st; that the books were balanced as on that day and that a deposit slip, which was introduced in evidence, showing the advance of $3,734.12 was made that day, but that the entries in the individual ledger carrying the credit and showing the charges were not made by the bookkeeper until August 1st and 2d; that, in accordance with the usual custom of the bank, the
Without statement of more of the evidence, we think it clearly shows that the gold dust was sold to the bank on July 31st in due and customary course of business; that the value was at once ascertained and credited by teller’s slips, July 31st, to the account of firm, and at once offset against the notes and debts of the firm to the bank; that the bank acted in good faith, and had no knowledge, when it received the gold dust and credited the firm account, that the firm was insolvent, or that any unlawful preference would be given to the bank. The law which must control can be briefly stated:
The deposit of the proceeds of the gold dust to the credit of the firm in the bank did not operate to diminish the estate of the mining firm. The deposit was not a transfer of money as a payment or security. New York County National Bank v. Massey, 192 U.S. 138, 24 S.Ct. 199, 48 L.Ed. 380; Continental Trust Co. v. Chicago Title Co., 229 U.S. 435, 33 S.Ct. 829, 57 L.Ed. 1268. The transaction established the relationship of debtor and creditor. There having been a general deposit in course of business when the credit was made, the bank had a right to set off the notes and to dismiss the overdraft. Cumberland Glass Co. v. De Witt, 237 U.S. 447, 35 S.Ct. 636, 59 L.Ed. 1042; In re Wright-Dana Hardware Co., 212 F. 397, 129 C.C.A. 73.
The fact that the books of the bank do not show the entry of the credit until August 1st does not change the character of the transaction, for the time the dust was delivered to the bank and credit therefor was actually given
Counsel for the firm rely upon Mechanics’ & Metals National Bank v. Ernst, 231 U.S. 60, 34 S.Ct. 22, 58 L.Ed. 121. But in the Ernst Case the deposits were not received in the usual course of business, and were really intended to be payments to give a preference. German-American State Bank v. Larimer, 235 F. 501, 149 C.C.A. 47. In Fourth National Bank v. Smith, 240 F. 19, 153 C.C.A. 55, the Court of Appeals of the Eighth Circuit, reviewing the more recent decisions by the Supreme Court, holds, as is undoubtedly the law, that, if a bank to which a depositor owes money had knowledge of the depositor’s insolvency, but, prior to bankruptcy proceedings, sets off against the debt of the depositor the amount of the deposits made by the depositor in the usual course of business, the transaction is valid as a set-off under section 68a of the Bankruptcy Act (11 U.S.C.A. § 108(a), and is not a preference under section 60a of the Bankruptcy Act (11 U.S.C.A. § 96(a), inasmuch as the making of the deposit merely creates a relation of debtor and creditor between the bank and the depositor, and the application of the deposits to the indebtedness involves no transfer of the property.
It follows, from what we have said, that upon the established facts the court should have granted the motion for