*2 Before PARKER and NORTHCOTT, Circuit Judges, and GRONER, District Judge. PARKER, Judge. Circuit appeal This is an in an action at law in- by the stituted trustee in bankruptcy of the Kilby-Warren Company to alleged recover preferences given to the Citizens’ National Gastonia, N. C. The learned trial judge directed verdict in favor of the trus- tee, thereon the bank has appealed. Kirby-Warren Company, a mercan- corporation tile Gastonia, C.,N. in March, 1927, found itself in financial difficulties and pay unable to its creditors. It was indebted to the Citizens’ National Bank of Gastonia in sum $14,700, represented by notes of following amounts and $4,- maturities: 10th; March $1,500, 16th; March $5,- 500, April 8th; April $600, 14th; $2,- April 15th. All of these were indorsed Warren, Kirby, Jr., T. of- saw letter or M. F. and W. knew that it contained ’ corporation statement. and owners ficers liabilities stock, who were solvent. total Monday, On 14th, following the meet- $52,000. were in excess ing night *3 Saturday the 12th, on of the merchandise, Its of a stock of assets consisted $2,100 collected $4,500 on the note of ain financial fixtures, accounts, etc., valued - fell 10th, on and due took a renew February $61,723.73, but 1st at statement of $2,400 May al for note $2,100 9th. The April at by bankruptcy 5th appraisers in on approximately included what was the balance by short while trustee a $22,809,and sold company which the on at the . $19,977. afterwards for close 12th, of business on the the/exact bal- being had ance $611.15, $1,500 evidence that the and a of There is no Kirby of the which any following the financial difficulties under the notice of cir- Saturday, $1,- : night Kirby March cumstances company company owed the until applied night, Kirby met He and Warren to the bank for a loan to that 12th. On attorney pay this; agreed and the bank president of the bank their to make him and loan, but'only over the on condition that pro- and went bank, at the officeof ¿ffairs ceeds thereof company’s be company’s deter- note to to bank. He this mining what was ba done to- meet condition They gave and the bank pressing $1,500, had be- his note for claims of creditors. se- February proceeds cured collateral. financial of the loan fore them the statement-of deposited company be were 1st, showing company, assets to credit company’s and given $61,723.73 liabilities, exclusive check was to and present $44,649.43. All bank for the sum capital stock, $2,132, being $32 for to testify interest. meeting they that considered time; corporation solvent but it at that Following transaction, this company to an offer decided, nevertheless, submit April continued 1st, moneys business until compromise 25 to mercantile creditors of being taken it in the bank cent, (cid:127)per their claims. 15th the On March day day regular from to course of business attorney company, with accordance subject in an account check. In addition .to decision, wrote letter to such to cheek $2,132, for which we to have re- making offer, calling meeting checks, 27 ferred, aggregating the sum stating that, March 24th consider same and $1,381.76, paid and honored sale, at a forced the stock and fixtures of the leaving bank, $3,486.32. a bálanee of Ex- bring per cent., company would not over 33% cept in the ease postdated given of one check per 25 that in- cent., accounts not over and prior 12th, outstanding some March. solvency proceedings probably would result previously cheeks which had been dishonored, per less a dividend 25 cent. than given and some checks for merchandise testimony shipped D., C. O. president repre- is that none of cheeks payments sented into made to was called the 'conference because mercantile credi- sending On the Kirby, letter, he was a tors. brother-in-law of and out the at- torney company advised because and make fur- of his connection no part creditors; ther advising regard no mercantile it took but any sending letter; is not shown that officer of it is the bank had but clear of this during- that he informed notice advice. The as to the condition of only company slightly March larger and knew the month of proposing that a letter during compromise was than February, to be month of consid- sent. This letter the. erably during less than pend- contained a statement to the month of Janu- effect ary, practically ing meeting the same as the creditors the .assets year. preceding daily March of the fully protected pre- creditors, larger during than served in the balance was month of interest all February and any January, on the latter half of effort a creditor to larger during than any preference legal month of proceedings, obtain Decem- ber, January. the first half otherwise, immediately would result in in- There is any solvency attorney agreement proceedings. The no evidence the de- who sent posits extinguish should the letter director of be made the bank and a indebt- they due the committee; member its finance edness should be but he sent representing piled up security against the bank repre- but as company, lien, senting assert its bankers’ not shown that should subject any president withdrawal at the other officer of the bank not be will way & Commercial 48 L. Continental Ed. differed or that depositor, Chicago Co. Title made Trust v. subject check ordinary deposits 1268; In re 33 S. 57 L. Ed. usual course business. Wright-Dana 2d)A. Hardware March meeting called creditors’ Tho no difference And it can make F. 397. request of one postponed at the 24th de merely charging off the that, instead of April 28th and then Marcli the creditors to posit crediting note, the same upon the insistence date, the latter 1st. On accepting and accomplished result was company he of the creditors one deposit. crediting a check drawn filed a receiver, it of a hands placed in the 523, 529, Studley Boylston Bank, 229 U. S. bankruptcy. Thereaft- voluntary petition in Drugan Ed. S. Ct. L. *4 deposit on on the balance bank credited er the Murray 115; (C. 4th) 299 F. Crabtree C. it held. which company’s notes F.(2d) (D. C.) 31 Exchange Bank v. Corn in North practice prevailing Under 375; 2d) F.(2d) 373, (C. C. A. affirmed jury, to the issues were submitted Carolina, (C. A. Guaranty Bank C. State Jandrew v. court, of the which, the direction under 2d) 530; C. A. 5th) 294 re Cross F. In follows: answered as 39; City Bank of Padu Toof v. Nat. F. in- Company Kirby-Warren “1. Was 250; 6th) Wilson Ky. (C. 206 F. cah, ad- date of 12, 1927 to from March solvent (D. 233 F. C.) Trust v. Citizens’ alleged in tho bankruptcy as judication of 223 Mass. Trust Putnam v. U. S. Yes. Answer: complaint? Citizens’ National 111 N. E. Wrenn v. or about the defendant on 122. “2. Did 114 A. Bank, 96 Conn. March, 1927,receive day of 14th $2,100 $1,500 embraced com- alleged in the by as law allowed by Kirby, payment represented a transaction Yes. Answer: plaint? upon $4,500 note was an indorser who of such so, was the amount If what “3. payment was credited. Whether whieh $2100.00. Answer: preference? by regarded payment as a this transaction he right, legal defendant, without Did the “4. had Kirby whieh he to hank on the note Kirby-Warren Company on funds seize on the debt indorsed, a credit for same adjudication it after deposit with company, or whether which he owed the Yes. Answer: bankruptcy? by him of his to payment debt regarded aas pro company upon condition that amount? Answer: so, in what If “5. applied note whieh he had in ceeds $3480.32.” same; did not is the for it the result dorsed, duly excepted the direction to any company asset avail from the withdraw jury answering issues, given as to Kirby general as creditors. indorser able to its own prayed the direction of a verdict in reimbursement on note entitled to requested a in- fa.vor, and number might any he company for amount from the bearing which, on in the law, structions upon pay by his in to reason of he called necessary ease, it is not wo take view any paid If, therefore, he dorsement. for us to consider. the amount note, was entitled to off he set company or paid against his due the issues, so debt and third which re On the second company which held account $2,100 transaction, to have the there late to the we think payment. £,J him credited with tho against question that the instruction com can be no regarded hand, payment be on the other plained of was erroneous. As heretofore by company, appears him represented as made stated, of this funds $600 amount upon express condition it was deposit the credit of the on to when partial extin proceeds bo that its first learned of its financial difficul tho bank obligation, which, if had only guishment of an he $600 Not ties. might upon pay, ho have set called to regular course of there is noth been but debt which he off owed ing in to-show that at the time of the record (D. In Dillon 100 F. company. C.) re bank had reason to- even solvency (C. 296 F. depositor. v. Wilkinson quesfion It Walker payment $1,500, him the past-due note com ox the time indorsed pany $4,500 application him, on note to credit though extinguishment compa his note, even debt to on may application therefore, notice ny, meantime have received tlm insolvency. properly company’s principle parties New York of set in such a Massey, 199, applicable U. S. S. Ct. case. Hughes, laid likely speaking through Mr. Justice thinking is Some confusion applicable debt down the think is rule we recognize that arise from failure to different here. Said he: Kirby company was receivable, that, from its accounts method “It is not form or the mere he was paper, company’s as indorser on the condemns, but the transaction act due the debt against his set off entitled to debtor of appropriation by the insolvent might be he company any amount payment of portion property of his his endorse upon pay by reason called thereby claim, estate a creditor’s so company became When the ment. ad- depleted an and the creditor obtains ordinary account of an the transfer vantage ‘accounts over creditors. The other but, as to preference; well have constituted a amounts debtor, is, receivable’ of liability Kirby, insolvency meant that course, owing open are, him account, inevitably be en on his indorsement disposition as susceptible as com debt to the forced, that, far as his property; debtor other an insolvent if extinguish concerned, might pany through arranges pay creditor favored company’s liabil by setting off it the disposition account, de- of such in ity him reason of pletion regarded his estate, it must be *5 therefore, in paying debt, In the dorser. equally preference, procures the a whether he way payment would be by payment the on behalf to be made his indorsed, with he had paper which he in to constitute account, debtor the same the which general no asset drew from pajment a of the latter’s in whole or and the otherwise, they might have reached pays it debt, collects and or he the amount might otherwise nothing which received implies directly. to his creditor over This well settled that gone It is to creditors. have that, case, in the former debtor in the the the estate which do not diminish account, preferential preferences bankrupt are unlawful the acting payment, representative of as the Bankruptcy Act. meaning the within insolvent, complying with simply and the Her Newport National Bank of v. National paying the mon- directions latter in the 178, Bank, 32 S. County 225 U. S. Ct. kimer ey his creditor. 1042; Continental & 635, 56 L. 633, Ed. by “But, unless the virtue creditor takes Chicago Title v. & Trust Co. Commercial by disposition the insolvent debtor 435, 829, 33 S. supra, Ct. 229 U. S. Trust property benefit, his for the creditor’s 1268; Wilkinson, v. L. Ed. Walker 831, 57 thereby estate the the debtor is di Atchison, T. & F. Hough S. R. v. supra; minished, charged the creditor with cannot be 240; Root F.(2d) 238, 34 (C. C. receiving by Western transfer. 7th) 219 (C. A. F. Mfg. Johnson Co. v. 502, Tie & Timber 196 Brown, U. S. Co. v. Sagor 2d)A. 121 F. (C. C. In re 509, 339, 571, 25 S. L. Rec 49 Ed. 726, 1st) F. 55 111 In Dickson re City Deposit 405, Bank, 419, tor 200 v. U. S. L. R. 349. 289, 50 527, 26 S. Ct. L. Ed. 532. ‘These property, amounting prefer transfers of Newport ease National Bank v. contemplate parting bank ences, the with the County Bank, supra, Herkimer is in National property for rupt’s the benefit of the cred brought by point. In case the suit consequent itor, the diminution the bankruptcy Newport Knit-' trustee bankrupt’s Bank v. County estate.’ N. Y. Company Herkimer ting to recover 199, 147, 192 24 Massey, 138, S. S. Ct. U. pay- County alleged preferential Bank 380, ours.) 384.” (Italics 48 Ed. L. by payment This been ment. had Company, which had indorsed Sheard Continental Commercial Trust Co. Titus In knitting company and discount- Chicago Co., supra, ap- Title & paper of the v. Trust Titus Com- the bank. The Sheard what is peared id it with known as brokers’ certifi- knitting company pany by was indebted to the cates, e., i. certificates of issued insolvency latter, it took upon deposit margin and, form for as indorsed and paper by which had dis- up purchases had been issued stock, against company Upon and set it off to one Prince. counted Prince’s trust company. knitting will be becoming rights its debt under certain broker, case, bar, this ease by- were taken over another noted that'in contracts by was made indorser certificates issued therewith connection against by a debt paid was set off having value to his estate under the con- amount no- holding bankrupt. In prevailing. indorser the market then dition of preference, court, constitute a handled contracts in such manner did not this broker pany learned notes, been on its we think that which certificates recover the jury judge directing trial was in error thci’ewith, connection trustee. liability answer in favor un- issues these against its trust set nothing than a A more balance is Prince which debt der certificates owing depositor; and debt it was trustee, Prince’s it. suit On owed against a debt debt to set off such preference, did not constitute owing by .expressly given bankrupt is nothing had lost estate of since the Prince Act, 11 Bankruptcy 68a of USCA section com- transaction the trust which 108(a) provides: which § court, speaking pany had benefited. The through for the traders sions of the benefit of the fact that plicable provisions of the ried out his meaning the benefit estate of bank to sirpra.” What was have the certificates hold Prince stated Now rangement made, York constitute a rity to be Trade. derson tion of the tial element diminution ready payable deals preference, is not U. S. 384; Newport their securities for those of Trade. parting “This ease must certain meaning certificates fourth and for Prince’s Coming, they thereby York had no value to the estate. paid upon which 178, 184, upon creditor, and ** apply It therefore bankrupt was It to the Mr. Justice what was done Prince, Company, with the to County done did Prince, is principles, without the obligations, shows of a situation, preferential transfer within the Board of then, the further evident court, National holding Bank Herkimer bankruptcy fifth party bankruptcy administration, dealings upon Anderson & became otherwise available to deposit creditor, Prince S. Ct. to National Bank S. Ct. enough, any obligation unless bankruptcy bo dealt bankrupt’s bankrupt’s estate—is appears issues, Day, who took statement and, rules of the Board holding these them established the certificates would worked determining co-operation thereby a sense in fact diminish the bankruptcy act. To 199, 48 balance payable to Prince. they under the Trade, substituted said: act unless the estate carrying out the Prince, and car certificates 56 L. Ed. that this essen notes, transfer within from the facts bound, Company wanting. The there must them as the Board property for estate. to act—diminu the right Massey, 192 of facts al gave L. diminished. involved consequent By the benefit Bank, to have by deci place terms of *6 required Ed. Massey, of An cleared the others, him a secu light com- took New had ap the ar in or tual credits between one debt shall be set off and a creditor the account is not a “transfer” within four months before the items a forcement of of section 60a of the ment, pledge, ing given preference if, being insolvent, Act, er transfer before section. is withdrawable be which any a favor of other of ment, A provides the exchange in CA erty, does not Transfer’ of business. stance, equity, Of course petition, [5] in the essential payment greater deposit and different mode of to enable “(a) “(a) In An balance results some The trustee § 11 USCA property, absolutely pledge, mortgage, gift, 96(a), may his giving of checks, will treat ordinary deposit which looks corresponding such as used or after property, A deplete any other Section shall include in a bank is not property, percentage adjudication, only person all eases of mutual debts any be checked transfers universal use A deposit substituting depositor with such creditors person, mortgage, be entered transaction, drafts, deposit resulted or its contends one of his creditors to obtain at or shall § the estate of security; and 1(25) within or the act as follows: 1(25), shall be deemed to provides: conditionally, filing and the effect transaction Bankruptcy may through the or made within the of his debt than the possession, credit with the will of and other bankable estate of disposing procured in a allowed against, of the possession the the same class.” gift, shall sale funds differs from defines the word particular a such as or transfer will meaning made the cloak the medium of bank, however, the transaction sale or currency, form a balance, be stated filing* security. according petition Bankruptcy Act, transfer of prohibition or suffered and which of or himself in as a as a other, depositor, depositor. security.” paid.” payment to sub- parting the en- that it “(25) prop- bank, part- pay- pay- mu- case has, oth- any this US to It deposit real- nothing But if the is in were insolvent, real nature. but there is ity findings sub- g-ood such, made in faith to deposit, deposit creat- show depositor, and ject ed other than withdrawal of relation between or other bank and its depositor. made as a cloak for check of depositor it not a transfer transaction, deposit forbidden after this honored Bankruptcy made, Act meaning aught Stege and for appears within even prefereptial, required Brothers cannot attacked as have the amount though may when the de- the objection have entire account been without though notwithstanding positor bank, and even their financial * * * may set-off, have condition. by applying it as percentage which greater on debt obtained a seen, deposit money “As we have depositor than against it holds its insolvent one’s in a operate credit bank does can other creditors obtain. depositor, diminish estate of the for when parts money he with the at the creates subject leading, is New ease on the time, obliga- same on the Massey, York pay tion as soon amount we 24 S. L. Ed. which depositor may as the fit to a check see draw previously In that ease de referred. against property it. It is not a transfer of posits bankrupts after payment, mortgage, gift, pledge, or secu- after a statement insolvent and become rity. which, debt, that it creates true showing insolvency had been furnished their may if the creditor set it under § adjudication After bank bank. permitting class amounts to a creditor of .that balance, ruptcy, bankrupt’s estate obtain more from the deposits, *7 set-off enforced of quote it at for reason we shall from bankrupt law, the as of creditor the length. court said: subject to holding against the estate a claim that, except under “It cannot be doubted the of due reduction to full amount a debt circumstances, a or where there is bankrupt a in the receives money contrary, deposit of statute a to set-off, he is that, to extent of fact upon general a account with bank creates * * * paid in full. money relation of debtor and creditor. findings show nothing is in the to “There general deposited part a fund becomes of fraud collusion between and. by be with as other bank, to dealt a create a with view to customers, parted moneys, be lent to and to bankrupt’s property to the transfer of right and the of with at the will showing we in the absence and depositor repaid is to have this in debt homing regard deposit other cannot ef- by honoring whole or cheeks drawn in. bankrupt, cmd create debt to than to fect deposits. It creates an (Italics not diminution estate.” right fiduciary debt, privilege of a not a ours.) Republic Millard, Bank of v. character. Trust Co. & Commercial In Continental 152, Or, L. 10 19 Ed. 897. as defined Wall. quoted which we Chicago Title v. by White, in the case Davis v. Mr. Justice merely involved, not there above, Bank, 161 S. 16 S. Ct. Elmira Sav. certificates, general de also but brokers’ deposit money 505, 40 702: ‘The Ed. L. deposit bal posit This balance of $575.79. loan, one by his banker customer deposits after result made was the ance obligation superadded the mon
with the his loans after had become Prince demanded, by ey paid, when cheek.’ to by bank, and after called been Kimball, 92 23 L. Ed. v. U. S. Scammon salary agreed pay certain and bank had findings in this 485. It is true fact deposits checks, if he -would make pay roll deposits at the time these establish that case this, court said: purpose. As to for the depositors the assets of the were were right think $575.79, we liabilities, “As to less their and considerably than1 preference. deny right prin- to secure a by the off But is established set many in this, set-off cases in Natl. like would York ciples laid down in New a cases make banks cheeks hesitate to honor Here there Massey, supra. v. Bank given precipitate to third by persons, bank- would subject out tho be checked bankruptcy, money and so interfere with course specific rupt purposes. for giving produce of business as to evils and placed serious view to far-reaching consequence.” indirectly, benefit, except because it a check, subject Prince’s deposit. It was Supremo These decisions of the Court checked all of it have been out questioned. been have never On overruled or purposes tho intended.” contrary, they as de been Boylston Bank, Studley In 229 U. rights fining respect tho of banks with 806, 808, S. Ct. 57 L. Ed. deposits insolvents, principles laid first we discussion of the referred in down them have been followed and appeared deposits point, long among eases, line of which aro Dru insolvency after the knew the gan (C. 4th) 115; v. Crabtree 299 F. C. A. depositor, payments were made Rupp v. Commerce Guardian Trust & Sav deposits, these and that cheek from ings (C. 234; Bank 6th) F.(2d) C. A. them. -maturing charged against notes were Murray Corn Exchange (D. C.) Bank 31 F. upholding right In of set in such 373; Id. (C. 2d) 375; (2d) F.(2d) C. A. tho case, court, remarking after Ingram Cottage v. Bank of (C. Grove A.C. Bankruptcy prevent insol Act does not 9th) (2d) 86; F. American Trust continuing trade, depositing vent from (C. 5th) 845; v. Morris 16 F.(2d) Co. C. A. money drawing paying in bank, checks and (C. In re 2d) 39; Cross A. 273 F. C. Fourth debts, said: (C. Nat. Bank of Wichita v. Smith C. A. * * * 8th) 19; 240 F. German-American State “We pass the consideration right light (C. find- Bank v. Larimer 8th) set-off C. A. F. ing Wright-Dana referee, judge, In (C. district re Hardware C. appeals, the court of 2d) Savings 212 F. Germania Bank v. honestly business, course of made, (C. 6th) Loeb 188 F. In re prefer without intent to the bank. George Hill Co. 130 F. M. R. A. 66 L. money “The proceeds was the large party sale tickets course, are Of where not made tourists, round-the-world put regular in the course of as where bank, not purpose preferring it, fraudulently collusively are made expectation being car- but used for giving prefer bank a rying on the business the future as ence, reality deposits or where are past. Indeed, were made with all, payments, are set-off expect statement exist, they may does recovered *8 the bank to discount other find notes. We preferential. Thus in Union Trust Co. v. nothing in the record to indicate de- that the (C. 4th) F.(2d) 986, reported Peck C. A. 16 posits purpose enabling were made for of F.(2d) below In re Almond-Jones 13 preference by tbo bank to secure exer- deposits made in 152, the were not tho ordi right of case, cise of set-off. The there- of nary business, course but were made to fore, directly comes within the in decision up tbo so that ap build account it York Massey, New Bank v. Natl. 192 payment plied in of the bank’s claim. See 138, 199, S. 24 48 380, S. L. Ed. where pages 156 F.(2d) 13 at and 357. In Blue v. deposited by $3,884 an customer, insolvent (C. National Bank C. A. 2d) Herkimer 30 good days faith, in filing before the four appeared moneys it F.(2d) that were petition against him tho was allowed to tho deposited and purpose collected by way on of set-off *9 knowledge deprives that such the bank of its co-operation was created of the bank deposits right pending to set off made con bankrupt in its creation far im offer; of sideration and the Circuit pressed estop it with trust as to the bank Appeals of of least Courts two circuits asserting right of from set-off. recently upheld right of have set off un An examination of the cases in the cited Ingram der such circumstances. v. Bank of preceding paragraph prin- will disclose (C. Cottage F.(2d) Grove C. A. 86; ciples upon which right the bank’s to a set- Murray Exchange v. Corn (D. C.) 31 off denied. In has been case it will be (C. affirmed A. F.(2d) 2d) 31 F.(2d) deposits found that the made for were 375. purpose effecting payment and as means of argued precluded It is that bank is they deposits or that were not setting ordinary from reason of made in the course of business and subject creditors, that, in the letter depositor, as statement to withdrawal meeting, the creditors’ suspended pending where the had the assets of business the officer insolvent pre- corporation of an cannot protected be company would fcho prefer himself or make a transfer of the creditors, cor- of all in the interest served porate security assets as for a debt to which any creditor to on the any effort that surety indorser; in relation of stands or in insolven- preference would result obtain hut, above, deposits as wo have seen a bank in cy think We do not so. proceedings. ordinary business, in course of in the absence making party to bank was not a fraud, showing of collusion or or some is not statement, Myers, president, they giving made for the purpose were made. known shown to have that it security effecting preference, or it, are-not to made bankrupt’s attorney, who true though corpo- transfers. is he deemed Even bank; bank but the a director ration be it knowledge dons not lose the which the chargeable with the doing ordinary way business acquired attorney in the transaction bank, nor bank doing does a Burgwyn, business with clients. Bank business of his relinquish any it rights of its ordinary or 14 E. 17 L. R. N. C. showing remedies. there wore Thompson Corpora- L. If R. C. deposits fraudulently If, however, made tions, 1757-1759. §§ collusively, or cloak for letter, to the notice of the had had contents security, a means giving de- have made no difference. The it would avoid trustee could them under the Bank- money ordinary posit in the bank in course Act, ruptcy without agree- resort to the trust fund was no business violation doctrine, if were shown to have been protect preserve and the assets ment to party collusion, fraud or to the or to have creditors, nor, interest all as we have deposits obtaining as a means of soon, was it a transfer. If there security. between had been collusion the officers company and the or other circumstance suggested It is officers showing deposits were not made in corporation insolvent should allowed would course to benefit the bank. precluded asserting set-off been have however, is a This, matter which cannot af respect deposits, irrespective rights of the fect the bank. If could be letter; circum- the absence of such the officers shown that stances, promise was not the letter fraudulently, purjiose for the preferring violated. themselves, placing or for the corporation they assets of the where would carefully considered the trust We secure its debts which the officers urged by learned theories counsel fund liable,- the trustee ain suit offi trustee, we do not think recover from could them the cers IE had applicable. the letter to creditors are thereby. obtained Goldman v. moneys promised that collected should be 1st) Cohen 261 F. Walker segregated and should be in a kept (C. C. 5th) F.(2d) Wilkinson creditors, account for the benefit express stated, that, up- trust have arisen which reasons For the we think if record, have been enforced hank could evidence should verdict letter, notice of defendant; the trust. The it had directed have been however, promised merely that the assets below will accord- court protected pre would be reversed. ingly pending interest of served Reversed. compromise, offer of consideration language far short of falls neces NORTHCOTT, Judge (dissent- Circuit fact, a trust. As a sary create matter ing). nothing except what the law re promised foregoing opinion. cannot concur I promise. absence quired to me that the admitted circum- It seems this ease load to that the assets of an insol It is true stances conclusion *10 legal what amounted to least a corporation suspended which has busi there was at vent president appellant fraud. The trust fund for the benefit constitute ness Kirby, creditors; in the one of the but ease at bar the com was a brother-in-law bankrupt pres- suspend company. The April officers pany business until did together attorney bank, deposits with the had been ident 1st, after attorney bankrupt company, which and after set-off on the made, and a mem- true, a director the hank accrued. was also part of the committee, finance were called into- law under the of North Carolina ber of its also, bankrupt 500, and with officers of the il- conference transaction amounted to an legal Kirby. difficul- regard to the financial with At bankrupt. ties of the this conference For opinion these reasons I am agreed was on. With certain course of action deposits made in the bank de- were not knowledge occurred at this con- of what posits regular made in .the course of chargeable. certainly ference the bank is really payments but were up- aon debt attorney, president present The and an was on which Kirby Warren, officers of the and a member of its board of directors bankrupt, who, view of all the circum- committee, participated and ad- the financial stances, especially in view of the letter vised. March trust-relationship stood in the- creditors, were as liable indorsers. The conference letter As result of that whole apparently transaction was used as bankrupt, all the was sent to creditors cloak was, to cover least, legal what promise was made that letter a direct fraud, the give pref- result of which was settlement, that, pending negotiations for erence to the bankrupt officers of the com- bankrupt company would assets of the pany over the other creditors. I am of the fully and‘preserved in protected the interest opinion charge the court below not see of all creditors. I do how the bank was in respect correct, charged knowledge and that escape being with can judgment should be letter, promise. affirmed. particularly attorney, On the advice of the same attorney connected with as above out, bankrupt was carried set business on, settlement, deposits pending made in appellant nothing paid out, bank, ex- * KILMER et al. NORFOLK & W. RY. CO. necessary absolutely cept that carry No No. 2961. business. were way deposits made to creditors. In this Appeals, Circuit Court of Fourth Circuit. balance, grew abnormally Nov. regard business. may perhaps to have be said been made in course, account in the but the bank cer- tainly in due course. handled fully appellant protected bank was bankrupt on all its debts owed com- pany Kirby Warren, indorsement bankrupt company, officers of the who were personally solvent. result the seizure negotia- when failed, tions for a settlement was undoubted- ly preference solvent these indorsers and promise not to the bank. The made to the letter March to which promise Kirby Warren parties, and as to it, which the as I see would necessarily charged knowledge, result not carried out. The was that assets bankrupt company pay were used to Kirby and debts for which Warren were lia- ble, and the the bankrupt assets of were di- regard minished in amount. With $1,500 payment, it seems me way the transaction handled in. resulted Kirby securing payment of the amount the (cid:127)company full, owed him in when he should only participated creditor, as to the amount his debt, there, and that 'as in the case of deposit seized, the assets of the $1,- in the sum diminished
* Certiorari —, 75 L. Ed. —. denied 51 these notes included than creditors who same situa- are not proved bankrupts, and held do not debts of the bank- hold tion, notes. This claim for the balance rupt not, in subject does set-off. But up application deposit balance was operate enlarge scope of opinion, our Supreme con Court pre- defining preferences as to statute prefer constituted a tention that it voidable coming within the terms vent set-off eases ence. was said court in that What argument prevail, 68a. If were to § think, we con completely, ease answers would, insolvency, in cases defeat bar; tention the trustee in the ease recognized and
Notes
notes the bank- maturing being on applied notes of the rupt held it. In Kolkman bankrupt. v. Manufacturers’ bankruptcy recognizes “Tbo act right, (C. 27 2d) F.(2d) 659, Trust Co. C. A. it away by cannot deposits and it be taken appeared that tho were made construction possibility may exercis-, bank, by because in order bo that the remedy against abused. The ing set-off, might pref evil is its obtain a in found that the payment. the fact trustee author- In Elliotte is erential v. American Savings (C. ized to sue and if: A. 18 6th) F.(2d) 460; recover shown that Bank C. aft- insolvency money deposited Harper er was Bank of El (C. for First Nat. Centro tho enabling (D. a bank 254 In re 9th) or other A. F. and Kellar creditor C. 530 deposits 348, deposits pay in and C.) being 110 were were made from col- F. overdrafts, lections under supervision ment of and it was held creditors’ of a subject committee, ordinary or deposits were not course some other cir- there was check, reality payments were in cumstance that stripped them of the char- ordinary pre-existing deposits In & Metals’ acteristics of debts. Mechanics’ course, Ernst, 60, 34 S. Ct. Nat. Bank v. 231 U. where the bank had instructed that 121, deposit 58 after cheeks drawn depositor L. Ed. was made should not be pay the bank honored. There officers of had forbidden are none of these circum- cheeks; depositor’s surrounding deposits ment of it was held stances and here. There reality no deposit any agreement that for reason the evidence whatever of or .deposit understanding payment, course. not between the officers of the bankrupt company Trust Rupp depos- In v. Commerce Guardian and (C. 6th) Savings F.(2d) piled its were to up payment 32 for security depositor had been closed account bank. There is no evidence deposits were were not withdrawn to be application for on the indebtedness of de time that saw company fit cheek payments. positor were held to be against mere them.. them, Its cheeks as a (C. In Bank of v. Brainard C. A. California fact, paid; matter there is noth- 3, bankrupt 9th) F.(2d) 3 checks ing upon which to an base even inference given collection, for immediate credit check withdrawing that a deposit entire same, for drew a check the de up would not have been honored until the bank; posit of a note due the very day filing petition in bank- and was that this was evidence ruptcy. company suspended jury reality the1 transaction was business, but was doing business the usual deposit. preferential payment way, depositing proceeds and was Bailey (C. In Merrimack Nat. Bank v. C. sales and collections in accordance with its (D. 1st) C.) Id. F. F. custom. usual deposits regular were not made in course is true that the bank had notice that factory of but after the bank financial difficulties and rupt com had been closed the creditors’ making compromise that it offer mittee, represented, on which bank was creditors, but we do not think that this business, following an had taken over the deposits the nature pre affected agreement of all creditors for a six months’ the bank applying cluded In First extension credit. Gates v. Nat. against the balance notes which it held. We F.(2d) (D. C.) Bank of Richmond already knowledge seen that bank’s suspension op after insolvency depositor does not bankrupt company and erations while effect, and is no have this there reason in law being investigated its affairs were cred logic why or in the added element knowl president itors’ of which the committee vice edge compromise the offer so; should do of the bank was member. In Union Bank knowledge does show collusion & Trust v. Loble F. .for company, between nor does (D. C.) F.(2d) 116, (2d) Id. distinguishing it rob char proceeds made were of a being subject acteristic to the control sale, advice held on the to raise depositor and withdrawable at his will. funds Eastern creditors. It was held been able We have to find no case which holds circumstances under this fund