278 F. 509 | 7th Cir. | 1922
(after stating the facts as above). Only questions of law are involved, which we will dispose of without determining the question of appellate procedure. The primary and controlling question is: Was there at the time the bank suspended a right of set-off as between these demands ? Section 68 provides that—
“In all eases of mutual debts or mutual credits between the estate of the bankrupt and the creditor the account shall be stated and one debt set off against the other and the balance only shall be allowed or paid.”
We are met upon the threshold with the condition that .the deposits were not made by the bankrupt, which, but for the bankruptcy, would presumably have had the right to determine whether or not it would select as its depository the bank to which it was at the same time indebted, and which it knew had a right to apply the deposit upon any debt due the bank. The deposit here was made by the trustee in bankruptcy, an officer of the court, in a bank which was by the court and under the law designated as a depository for funds of bankrupt estates, not of this bankrupt alone, but of any bankrupt. Indeed, under the pleadings here, it does not appear that at the time these deposits were made the trustee in bankruptcy was aware that the bank held any such claim against the bankrupt, for it appears that only after the bank suspended was the claim of the bank exhibited in the O’Gara bankruptcy proceedings. This fact may not in strictness affect the question of the right of set-off, but it serves to show the doubtless unintended result which might flow from holding the bank and trustee in bankruptcy to be in such relation toward each other that the respective claims might be considered “mutual debts.”
The relation between a bank and its patron, under which the latter .borrows from the bank and carries there a checking account, of itself suggests that mutuality which is a proper subject for the set-o'ff of
While here it is the depositor who is undertaking to have the claims set off as mutual debts, in order to succeed the mutuality must be such that at the time of the insolvency they may be the subject of set-off. In this case it would be the time of the suspension of the bank. If at that time each debtor had not a right of set-off against the other, neither had such right. But it is hardly conceivable that prior to the suspension of the bank it was within its right and power to have applied the deposit made by the trustee in bankruptcy upon the bank’s claim against the bankrupt. If a bank had the right so to do, no legal representative of a bankrupt estate could safely deposit funds of the estate in any bank, for it may be that without the knowledge of the depositor, the bank may hold a claim against the bankrupt, by virtue of which the bank could appropriate the deposit and apply it upon the bank’s claim, to the detriment of other creditors of the bankrupt. Such legal .representative, if so minded, might deliberately deposit with a creditor bank the funds of the estate with the very purpose of putting it in the bank’s power to appropriate such funds upon the claim of the bank, and thus under sanction of the law prefer the bank. It seems too plain for argument that this cannot properly be done. If, prior to the suspension of the bank, it could not properly have seized upon and applied the trustee’s deposit, it could not properly be done by the bank’s trustee after the suspension.
The fact that this bank was a depository which under the law the court had designated as such also militates against the proposition of mutuality of debt. To the extent that legally authorized depositories are less than the whole number of banks, the choice of the trustee is narrowed to such banks as have been duly authorized. Had there been but one, the trustee would have only “Hobson’s choice.” Surely it could not have been intended that, in limiting the number of depositories in which such funds may be placed, there be incurred even remotely the risk of the lawful appropriation of funds to which normally all creditors are entitled to the claim of one creditor whose legal or equitable standing was not different from the others, save only in the fortuitous circumstance that the court’s officer happened to deposit there iunds of the bankrupt estate.
The right to set-off of the bankrupt estate as against the insolvent bank and its creditors is not different from the right of set-off of the insolvent bank as against the bankrupt and its creditors. There are not here such “mutual debts” as in law or in equity may properly be set off. In re United Grocery Co. (D. C.) 253 Fed. 267, considers a situation
We find that claim of the receiver of the bank and that of the trustee in bankruptcy were not properly the subject of set-off, and direct that the order or decree entered in the District Court be set aside, and that the petition to set off the claims be dismissed.
