Donald Katz, Trustee in Bankruptcy of Oakland Foundry Company of Belleville, Illinois, Inc. v. The First National Bank of Glen Head

939, (9th Barber, incidental under the correct test. See Yanish (remand unnecessary findings 1956) Brennan v. South Community Hospi- Davis presents tal, 863-64; the record no insufficient are F.2d at Shultz v. fact) (quoting material issue of genuine Products, American Can Company-Dixie Co., 80 v. Lenkin Construction 356, (8th Burman go I could 125, 126, (1945)); App.D.C. on, but it unnecessary. consider The clean- Holtzoff, Federal Practice W. Barron & A. not, ing jobs law, do as a matter of fall (Wright at 570-71 and Procedure § outside the confines act. 1961) (same). ed. Firmly believing Judge Owen would I belaboring the issue think that Without give the facts a application different They are not сlear. cannot be the facts so he to have before him the correct test of compel cleaning the conclusion that said to my duly evoke, law that brethren I would hallways and lobbies “public” areas such let opportunity him have the to do so rather cleaning effort requires more overall than him sustain as a matter of law the offices, trafficked areas class- less dissent, facts. I therefore and would re- libraries, or or that heavier rooms verse and remand. job, former necessary for the equipment periods for infrequent which is either used janitors or is on readi- jointly wheels, requires greater overall

ly movable by janitors expended

effort. effort public clean areas fre- required are

who appear a wet would mop and to use

quently maids who balanced effort of

to be areas, KATZ, clean move furniture in Donald larger Trustee areas, Foundry Company vacuum, Belleville, hard-to-reach order clean Illinois, Inc., dust, Plaintiff-Appellant, wax furniture. As the wash notes, long as the ultimate majority “[s]o comparable, remains of exertion degree The FIRST NATIONAL BANK OF jobs call effort that two dif- mere fact HEAD, Defendant-Appellee. GLEN them un- kind will render ferent No. Docket Ante, 76-7577. equal.” at 959. two appear differences be- There United States of Appeals, janitors tween work of restroom Second Circuit. former a wet mop the maids: use Argued May 1977. push of them trash trucks out to and some weight the street. The minimal differen- Decided Oct. 1977. (two dry mops tial wet and between Certiorari Denied Feb. 1978. pounds compared one-quarter three See 98 S.Ct. 1250. hardly of substan- pound) requires finding effort, especially dry tial extra when the

mops large must be maneuvered around Similarly,

numbers seats and benches.6 eight' pushing of trash trucks for day is not

twenty minutes a so enormous a require

task as of substantial as a of law. In fact

difference matter these considered minor and

differences could be pails pound Furthermore, cleaning heavier water carried on carts. dollies the maids weight pounds carry lighter pails a total loaded their watеr hand. significantly different from the maids’ 111- Letvin,

David J. Louis, East (Joel St. Kunin, Carr, A. Cohn, Korein, Kunin & Brennan, Louis, 111.; East St. Murray S. ‍​‌​​‌​​​​​‌‌‌​‌​‌​‌‌​​‌‌​​​​‌‌‌‌‌​‌​‌‌‌​‌​​‌‌​​​‍Kazlow, Scarsdale, Lubitz, and Kazlow & Y., brief), plaintiff-appellant. N. on the Cook, (William Michael L. City New York Goldman, Gorman, M. Weil, Lenard H. Gotshal & Manges, City; New York Gold- man, Cherno, Mineóla, Y., Horowitz & N. brief), for defendant-appellee. Before and VAN TIMBERS GRAAFEI LAND, OWEN, Judges, Circuit District Judge.*

* Owen, Hon. Richard United Judge, States District York, Southern sitting District New by designation. TIMBERS, we Judge: fully shall discuss more In re- below. Circuit versing remanding we are mindful of Katz, bankruptcy trustee Donald the traditional rule that order to Belle- Company of Foundry preference voidable the trustee must show Illinois, The First ville, (Oakland), sued Inc. complicity understanding Bank) in (the Head Bank of Glen long the bank. This is in accordance with a recov- New York to the Eastern District that a authority line of bank is entitled to alleged $108,732.07 the trustee er deposits which were accepted under set off a voidable constituted Act, U.S.C. faith in the 60 of court, Pratt, George C. (1970).1 This rule turn bank’s business. Judge, opinion in an filed October District practical premised commercial considera- sum- 19,1976 granted bank’s motion for tions; time; and, it has survived the test of judgment and dismissed the trustee’s mary compelling so, reasons for doing absent ac- judgment entered From the complaint. should be disturbed. Within this 22, 1976, the trustee cordingly on October framework, we hold that district appealed. has misinterpreted erroneously the law and ap- court, in granting plied interpretation its to the allegations of judgment, for summary for assumed motion complaint, foreclosing jury’s thus res- of the motion purposes of such critical issues olution of fact as depos- the time of the was insolvent at fact whether, in view the build-up and real set-offs, and that the bank had and later its account, nature of Glen Head the bank believe it to be insol- cause to reasonable accepting acted faith in of the court holding Thus the narrow vent. whether account in fact gener- or was a that, had obtained was since bank below al account. To resolve these and setting off bankrupt by funds issues of we reverse other fact and remand. with the bank in money conformity bankrupt’s checking I. 108(a),2 was 68(a), 11 U.S.C. § with § transfer, and, no “transfer” absent no which The course of events lead to the by the could be avoided preference that right exercise of its asserted of set- bank’s trustee. January began off 1969 when the $125,000 loan trial in bank to Oakland. and remand for We reverse by which This loan was obtained for Oakland to resolve certain issues of fact order ., statutory absolutely Throughout opinion all cita- sion thereof . . or condi- stated, tions, tionally, voluntarily involuntarily, sections . unless are to or otherwise Act, sale, conveyance, assignment, payment, Title 11 of the United aas Code, lien, encumbrance, 1970 revision. gift, States pledge, mortgage, se- 60(a)(1), example, curity 11 U.S.C. here § For or otherwise.” 96(a)(1), provides: 96(b), 60(b), § authorizes a trustee § U.S.C. transfer, preference “A is a as defined bankruptcy avoid a “if the title, any property to or of a debtor thereby receiving it or to be benefited creditor account a creditor for or on benefit of has, at the time when the transfer debt, by an made or suffered antecedent made, reasonable cause believe four debtor while insolvent and within is insolvent.” debtor filing against him of or months before proceeding petition initiating a under this 108(a), provides: 68(a), 11 U.S.C. § 2. § title, be to which transfer will the effect of debts or mutual cred- all cases mutual “In per- greater to оbtain a enable such creditor bankrupt and a of a its between the estate centage of other creditor his debt some and one shall stated creditor account of the same class.” other, against off debt shall be set is defined in relevant term “transfer” paid.” or shall be allowed the balance 1(30), 1(30), 11 as follows: U.S.C. “ Supreme approved bank’s has every include ‘Transfer’ shall the sale Boylston Studley right indirect, of set-off in mode, direct or different (1913), and in New York 229 U.S. 523 parting property disposing with of or (1904). Massey, County posses- Bank v. therein with interest officer, Her- dent сhief executive and the officer president primarily concerned wholly-owned was a loan, Brede. Oakland man with the Oakland was aware of Oak- Cabinets, Inc., all subsidiary of Electronic land’s financial worsening condition by Brede was owned and his whose stock that he was aware that the Glen Head to the bank wife. Oakland’s indebtedness being was in anticipation Bredes, by the guaranteed personally was impending of Oakland’s bankruptcy, thus required by the and was secured be available set-off by for a On bank. the Bredes’ pledge of all stock in June 1971 Brede called Fаmighetti Cabinets, Inc. and all of their Electronic apprise him of Oakland’s difficulties. Bre- wholly company in another owned stock Famighetti de told that he try would Bredes. When Oakland’s indebtedness work something out Oakland’s credi- the bank later was converted to a de- tors. Famighetti immediately placed a gave note in June the Bredes mand freeze on Oakland’s account. On June 30 security in the bank additional form of applied executed set-off and on their home. Pursu- mortgage a second against $125,000 the outstanding loan. On practice, ant to the bank’s usual Oakland July 15 an involuntary petition bankrupt- checking account opened general cy was filed in the Eastern District Illi- when the was first made. loan nois adjudicated having Oakland had been financial diffi- a bankrupt on August 18. obtained the culties even before it loan purposes For of the bank’s motion for the bank. Its financial conditiondeter- summary judgment the district cor- court virtually doing until it ceased iorated busi- rectly accepted undisputed the essential By in March June 1971 ness Oakland facts summarized above to the extent that making signif- either ceased had reduced they by were assertеd bank in support icantly factory payroll. office and of its motion and admitted the trustee in proceedings In the district court the trus- his answering On papers. the basis sought deposits to show that Oakland’s tee undisputed facts the court concluded that its Glen

in Head account constituted Oakland’s Glen Head not were by comparing activity ences that made in the course of Oakland’s checking activity account with the in Oak- business. The court nevertheless dismissed checking accounts in an land’s Illinois bank. complaint ground that test “[t]he sought prove prac- The trustee also determining whether a ‘deposit’ really [for tically banking all of activity Oakland’s was is a is not whether ‘transfer’] through two accounts in carried the Illi- were depositor’s made in the regular course bank, while Glen nois Head account business, instead, but whether they were substantially remained inactive from July accepted by the bank in its regular course During until period March 1971. this of business.” a few Oakland withdrawals from the Glen Head account We legal ‍​‌​​‌​​​​​‌‌‌​‌​‌​‌‌​​‌‌​​​​‌‌‌‌‌​‌​‌‌‌​‌​​‌‌​​​‍hold that the ar standard $5,800. rose balance never above ticulated the district court was erron Beginning April pattern 1971 this eоus. that, We further hold whether under changed April markedly. From 20 to June standard articulated the district balance in 30 Oakland built its Glen court or standard, under the correct $100,000. account from to over Head $865.09 bank’s summary motion for judgment During period no withdrawals were should have been denied because there re The in the made. first reduction balance fact, mained including triable issues of on June when the bank set off occurred was bank aware of Oakland’s $108,783.91against $125,000 sum of build-up intentional of its re account as the loan. which Oakland owed on acceptance flected in the bank’s de sought prove posits

The trustee also other bank’s Anthony Famighetti, presi- D. course of business. It is well settled that

II. account, checking made in unrestricted 60(a) defines Section business, course of do not con Only one is key elements.3 of six terms stitute transfers within meaning court assumed here. The district concern County Act. New Bank York 60(a) were (2)-(6) of § elements (1904); v. Massey, Jensen the trus We likewise assume present. Allison, v. State Bank of 518 F.2d trial, opportunity tee, afforded the (8 1975); Julian, Cir. Farmers (2) (6) in Oakland’s elements prove could — (8 Cir.), denied, cert. Head its Glen account. series (1967); Jоseph F. Hughes & Co. v. requirement issue is the only remaining Machen, (4 1947), 164 F.2d 983 Cir. (1) that there be “transfer”4 of element (1948); 333 U.S. 881 Cusick property.5 the debtor’s 150, 151-52 Second National 115 F.2d concluded that district court (D.C.Cir.1940); Frankford Trust Co. v. because Oakland de- no transfer had been Comber, 1933); 68 F.2d ordinary checking its funds in an posited Citizens’ National Bank of Gastonia v. Line it could make with- from which berger, 526-27 drawals, imposed until the bank the freeze of these theory cases is that a factor, 29, 1971. In view of on June creates owed to depositor by a debt concluded that because court bank not parting and does constitute a any agreement or nоt could trustee depositor. property by As the court (Brede) and between Oakland complicity Lineberger, said in 527: building up regard “A in a bank does the rela- concluded the estate deplete depositor, and the bank did between tionship substituting currency, but results ordinary from an debtor-creditor not differ notes, checks, drafts, predicate This for its relationship. items a corresponding bankable credit that Oakland’s conclusion meaning within the 60.6 checked transfers Accord, statute, supra, Newport that Bank of note 1 states 3. The Herkimer Bank, statutory only (1912). if six elements are exists all 225 U.S. 184 ence present: district court focused on the set-off itself “(1) transfer of the There debtor’s inquired and whether it constituted a transfer. (2) property, to for the benefit of a credi- explicitly The district court did not consider tor, (3) of an for or on account antecedent deposits whether amounted to transfers debt; (4) be suf- the transfer must made or meaning Bankruptcy within the Act. insolvent, (5) is within fered while debtor analysis We shall include in our (6) bankruptcy; and months of the ef- four transfers, deposits were have most of the be to the transfer must enable fect of courts cases. in similar percentage greater of his to obtain a creditor of creditor the same than another debt agree 6. We with the trustee’s subordinate con- Co., Mayo Bank & Trust v. Pioneer class.” appeal, as an tention on alternative to his main 1959); (5 834-35 3 Collier 270 F.2d applied that the court contention an erroneous 60.02, (Moore at 758-59 ed. test, legal should not have been granted summary judgment even under test statute, supra, defines “transfer” by allega- note 1 4. The the court. articulated The trustee’s preclude ingenious broadly. Famighetti’s knowledge It meant tions abоut continuous of circumvention: accelerating methods of the course of Oakland’s finan- cial and his difficulties communications with technicality meaning of and narrowness “All Brede, satisfy requirement proven, would precluded. is used in most The word legal sense, of the district court’s test that there be comprehensive and is to in- intended dealings regular every outside course and manner means clude property complicity pass ownership bank’s business or between Brede can from allegations another, These the bank. raised suffi- possession re- which the summary judg- quеstion cient of fact to make be accom- forbidden the statute sult Chicago inappropriate ment even under plished. Pirie v. Title & Co., (1901). court’s test. A deposit .... funds bank’s normal procedures, or the usual payment the essential of dealings depositor differs from course between the that it withdrawable at the particular then an inference can be depositor.” will drawn that were not ordinary deposits but served to the deposi- transfer of the courts have relied All property tor’s to the bank. By limiting its relationship on a between debtor-creditor inquiry to regular course bank’s preclude bank and business, the district court below failed to emphasized have transfer take into “a may be requirement funds withdraw- cloak some transaction, for will able at the but also the payment such as or the giving security; requirement be made in equity, case which looks See, e. g., course of business. through substance, form to will treat Co., Mayo supra, v. Pioneer Bank & Trust according transaction to its real nature.” irregularities 836. Various Citizens’ National Bank of Gastonia v. Line- might presumption defeat the berger, supra, at 527-28. ordinarily do not have the effect of dimin ishing bankrupt’s estate and therefore bank insists here that a Certainly with transfers. will constitute a transfer 60(a)(1), under § permitted drawals are not con only if the trustee can payment, they stitute cannot be said in, to, complicity agreement or conscious be in business of, build-up awareness in the account in mere establish a debtor-creditor relation anticipation of set-off. That is ‍​‌​​‌​​​​​‌‌‌​‌​‌​‌‌​​‌‌​​​​‌‌‌‌‌​‌​‌‌‌​‌​​‌‌​​​‍not the ship between the bank and the depositor. were, If it equity precluded law. would be g.,E. Mechanics’ and Metals National Bank looking through form to substance— Ernst, (1913). U.S. But in a even case blatant a permitted fact that withdrawals are does alleged by transfer as that the trustee here. opposite not make mandatory the conclu many In cases a bank has been held to be sion that the cannot be considered privy building up depositor-debt- of a transfers. See Merrimack National Bank v. or’s account and therefore not have ac Bailey, (1 Cir.), denied, F. cert. cepted or received the in the regu (1923).7 263 U.S. 704 lar course of business. E. g., Mayo v. Pio deciding

In whether a set- bank’s neer Bank & Trust 270 F.2d at “transfer”, 834; off is a a court must determine Hatcher, of Commerce v. from all the 1931); circumstances whether the de 719 Cir. Blue v. Herkimer Nation posits were made in the course of al 1929), F.2d 256 purpose business. In view of the (1930); Elliotte v. inquiry, it does not make sense to consider Savings Co., American Bank & Trust 18 460, only the bank’s course the (6 1927); of business. If 462 F.2d Bank of Califor deposits Brainard, somehow are out of the 3, nia v. (9 1925); 3 F.2d 4 Cir. In business, the depositor’s Co., course of re 152, Almond-Jones 13 F.2d 156 Merrimack, 470, supra, 7. In 289 F.2d subject at exactly creditors are rejected arguments First preferences Circuit same rule of as law to and set-off which were similar to of the in the those as are merchandise and other creditors. The instant casе: arising different relations out of the fact that commonly a bank depositor creditor also is a analysis, “On claim little falls [bank’s] may require debtor a somewhat different as- contending creditor-depositor a short of application creditor, sessment of the preferred evidential bank cannot become a be- preference by may facts. But in all such cases of deposits cause it honor on the checks question accept set-off the fundamental proposition. . . is one . . We of cannot fact . . .” The that such fact bank crеditors honor deposits checks on such does not control. In case, deposits checks to cover these paid were not drawn and ....

971 Co. those to be distinguishable Trust We find cases sub nom. Union aff’d (D.Md.1926), Cir.), controlling from and therefore not (4 Peck, 16 F.2d 986 v. presented by issue the instant case. v. Frank (1927); cf. Goldstein 767 Bank, 393 107 F.2d National Square lin alleged Here the trustee facts factfinding 1939) (case remanded (2 Cir. which it could be inferred that accepting deposits intent to the bank’s as bankrupt deposits did not make in its depositor’s insol of the knowledge its faith; Head Glen account remand, F.Suрp. (E.D.N.Y. 66 vency), deposits were depos intent set off 1940) (findings of no business, of its which already course had cause to no reasonable debt and practically functioning, ceased see Merri insolvent). A bank’s depositor was believe Bailey, National supra, ma ck Bank v. 289 F. however, build-up, participation 470; Brooklyn v. Cardozo to a prerequisite 333, 1915); deposits F. question The has been been transfer. has were unusual in the course dealings be account of the bank as posed bank; tween Oakland and and that understanding “with the rupt was Brede intended the to serve as v. Bаnk of Clinton Bank”. Farmers payment company’s of his indebtedness to (8 Cir.), cert. de Julian, the bank. The bank’s contention that (1967); v. nied, see Jensen U.S. 1021 depositor of the intent irrelevant misses Allison, 4 Cir. Bank of State If point.8 all six prefer elements of a in each of those cases query exist, 60(a) under ence will was no because there to dictum despite amounted found lack of intent on the part accepted funds were evidence bankrupt preference. of the to effect a bankrupt oth deposited Here, bank or depositor the intent of the is relevаnt in the of business 60(a) proving prefer er one element of a § Jensen, upon In both Julian were either. ence —that transfers — relied, showing never to with Brede intended active long-standing, depositor fully in draw the funds. If accounts accounts; Eighth case the Circuit in each tends to leave the in the set-off, they was no intent on pay that there available for constitute emphasized alone or the let of an antecedent debt ments them, to use whether or not at the time the are agreement between it.9 payment of a debt. made the bank knows as a cloak for signifi- recognized trustee, Supreme purposes 60(a). has transfers for of § 8. course, making prove the intent of such a state of affairs or cance mind, challenged just he must which later the existence statutory pref- National See Metals each of the Mechanics’ elements of a ences. Ernst, Julian, Studley (1913); erence. See Farmers Bank v. Bank v. Bank, supra, Boylston F.2d at 324. U.S. at National 529. In Cusick Second The bank’s insistence here that there can be Bank, supra, court stated implicated no transfer unless the bank in or deposit may transfer that a separаte build-up aware confounds [depositor] at the time “either requirements 60(a) 60(b). distinct deposits, operate them intended different because These sections have elements ” payment rule as . The the notes they have different functions in the scheme of Mayo v. in Cusick was reaffirmed stated preference, Act: both with a are concerned Co., supra, F.2d at Trust Pioneer & (a) but defines what shall consti- “[subdivision 836. (b) consequence tute it and states a subdivision question gives remedy against true of the nature a Pirie v. Chi- it.” it — query Co., a cago supra, there is mind whether to the Title & 182 U.S. at 446. calls Trust (of Knowledge part recip- a falls in a forest oak[es] when tree notice of the sound enough timbers) preferential just alleged to no one near of an ient transfer is an Fortunately purposes 60(b), supra, the Bank- the see note but not of § it. element hear Pirie, point practical 60(a). supra, ruptcy the conclusion 182 U.S. at 446. § Act to depositor Co., intends not to withdraw when a that Matters Manufacturers’ Trust ‍​‌​​‌​​​​​‌‌‌​‌​‌​‌‌​​‌‌​​​​‌‌‌‌‌​‌​‌‌‌​‌​​‌‌​​​‍treated 1931), contrary. should be those not to III. VAN GRAAFEILAND, Circuit Judge,

concurring in part and dissenting in part: the bank’s other ar- We have considered I concur with the majority that granting summary judgment find them to bе without mer- was error guments and that this matter must be remanded for it.10 a full development of the facts on trial. opinion is intended to Nothing in However, I agree cannot majori- imply any views on the express or ty’s exposition of the law to be applied by respect to the result to be district court on Court with remand. by the district court on remand. reached The issue in this case is a simple one: is that the trustee we hold is entitled to viz., All were in its Oakland checking day opportunity in court and an to account his “transfers” within the meaning 1(30) § can, Bankruptcy preferential transfer Aсt? prove, if he 1(30). U.S.C. § The majority holds that Bankruptcy Act in 60 of accord- under § a unilateral decision not to legal correct standard as ance with the stat- right exercise his to draw checks against his opinion. ed bank, transforms without its knowledge and remanded for trial. Reversed from a debtor to a transferee.1 prove way There, prefer- outside holding to a bank Corporation prove Law § N.Y. Stock ence under course of business is to that “the Judge Hand that the New York being Learned stated bank must understand that the account is Bankruptcy federal up statute diffеred proper so built as to be available at time “charge[s] the transferee Act in that latter for seizure.” Id. transferor; privity . . . example, 10. For whether the bank had reasona- recovery, if to be a there is ble cause to believe that was insolvent being that the account is so understand as to be zure.” something that trustee must proper at the time sei- available question jury. trial and for the at 1013. Aside from.the fact that Id. Brede, The bank also contends that was holding since the this statement was dictum was based on New York preference. not the who received a Even law alone not on guarantor if Act, Brede of Oakland’s re- interpretation note § 60 of the preference, necessarily ceived a preclude that not does law is consistent with what we federal knowledge that Judge the bank received one. hold here. In Citizens’ National Bank Hand was the “reasonable cause to of Gastonia v. Line- adverted requirement 60(b), supra, berger, Joseph Hughes which then § believe” and in F. & Co. Machen, phrased require transferee the Fourth held that Circuit “have reasonable cause believe that . . . there had bеen “transfer” be- no banks preference.” Bankrupt- effect a accepted transfer would cause the had been made and 25, 1910, 60(b), cy as amended June §Act in the reasoned, of business. The court by Judge fortiori, Stat. 842. This is confirmed Hand’s that there had no been Kolkman citation to v. Manufacturers’ guarantors transfers 1928), 27 F.2d 659 another case depositors’ responded notes. to the Corporation under N.Y. Stock Law where arguments trustees’ there had been of the bank to be the Court held innocence guarantors by saying perhaps ences to the 15. The innocence of the irrelevant under that would be the case if funds had been bank that in terms which indicated was described deposited in the accounts with the intent to had in mind the “reasonable preference. effect a These cases do not hold 60(b); cause to believe” standard “[The that in such a situation the banks would was received check] insolvent’s course of business case, preferences. have received In the instant , acting can, prove, the trustee is entitled to if he throughout faith and without knowl- preferred the bank and Brede have been deposi- edge of the financial difficulties of bankrupt’s have diminished the assets of tor.” id. 660. estate, to the detriment of the other creditors. Furthermore, Judge Hand’s comments in majority 1. The de- does state whether the was one keep Matters assumed positor can “untransfer” the transferred funds “over which means to full changes case, he his mind and decides to draw F.2d at In such control”. 54 we have above, only practical checks his account. discussed

973 pressed “traditional way, with the another the accord test is the This does not “[w]as at the correctly set forth acсount of the bankrupt up, the rule” which e., “that i. of majority opinion; understanding Bank, the the for purpose outset the allowing a voidable of Bank to it as in order use an offset complicity or under- and thereby preference?” show obtain a trustee must Farm Julian, 314, part Bank v. 383 standing (8th on the of bank.” ers F.2d 324 Cir.), 1021, 389 U.S. 88 S.Ct. County York leading case of New In 593, (1967). 19 L.Ed.2d 662 138, 147, Massey, v. National Bank 201, (1904), 199, L.Ed. Although majority’s attempt 380 S.Ct. to do money equity penalize only “a of to one’s will deposit held that the bank in the Court case, operate a instant the burden of the which credit in bank does dimin rule lay he we now down will fall in the dеpositor, long for when run ish the estate of upon depositor. A not simply he bank is a parts money creates at funds; time, bank, it is repository an of a source of credit. part same on such, of financial facts life how- pay the amount of the obligation to ever, seeking that the businessman credit is depositor may see fit draw soon most it likely secure at bank where against it.” the bank acts to a Until check Justman, depositor. he is a H. Comments to write right restrict Right on Bank’s Setoff under on against money checks 1973, Proposed Act Bankruptcy 31 Bus. property deposi remains (1976). Law. & 1616 n. 54 This against it. may he draw United tor and bank not has the use of the deposited & Sterling v. National Bank States funds; right it also has the Jen- setoff. 1974). (2d Cir. Bank, son v. State (8th F.2d n. 6 court held that the ab- Massey 1975). Cir. The maintenance of an ade- showing of fraud or collusion sence quate balance in his demand account bene- and the bank aimed bankrupt between the bank, fits the well as the be- transfer of the creating cause right the bank’s encourages setoff deposits which he bankrupt’s property, it to might continue credit it in- be part indebtedness on create an makes duced otherwise to call loans. If a busi- do not diminish bank- nessman’s efforts to create and maintain an holding requires, at the This estate. rupt’s are, adequate standing alone, balance to be participation or least, there be some construed as transfers of the funds in- be- of the bank understanding volved, an inducement the bank to work ordinary deposit can be considered an fore along financially troubled entre- transfer, generally accepted this encourage It was to preneur is removed. Bankruptcy, on 68.16 4 Collier rule. right cooperation 919-21; Remington Bankruptcy on preserved when the setoff (J. rev. 1474.4 at 472 Henderson Law the Chandler Act was amended accordingly have stated that where We Bankruptcy, 68.- 1938. See Collier accepts deposit with the intention of 01(3). right Congress A has refused preexisting it claim applying eliminated to eliminate should holding subject depositor rather than in its Court stead. withdrawal, right his why I see no reason the district preference. Wells voidable See Miller depart from the rule should be directed to Corp., International Fargo Goldstein, supra, laid down (2d 1976) (citing Goldstein Miller, year supra. approved only last Square Franklin test, 1939)). (2d as set Goldstein, forth

receiving deposits, apply intends ‍​‌​​‌​​​​​‌‌‌​‌​‌​‌‌​​‌‌​​​​‌‌‌‌‌​‌​‌‌‌​‌​​‌‌​​​‍payment or setoff of outstand-

them depositor. Ex- indebtedness of

ing

Case Details

Case Name: Donald Katz, Trustee in Bankruptcy of Oakland Foundry Company of Belleville, Illinois, Inc. v. The First National Bank of Glen Head

Court Name: Court of Appeals for the First Circuit

Date Published: Feb 21, 1978

Citation: 568 F.2d 964

Docket Number: 982, Docket 76-7577

Court Abbreviation: 1st Cir.