110 Tenn. 239 | Tenn. | 1903
delivered the opinion of the Court.
Harris, as trustee in bankruptcy of Rosa D. Prewitt, exhibited this bill against the Second National Bank of
It. appears from the record that prior to the 18th of September, 1900, Mrs. Rosa D. Prewitt had been conducting a dry goods business in the city of Jackson, under the firm name' and style of J. J.’ Prewitt &' Co. Mrs. Rosa D. Prewitt alone constituted the firm, although her husband, J. J. Prewitt, was her active business manager. The business had been carried on in Jackson for at least 2% years before the firm was adjudged bankrupt. Mrs. Prewitt transacted her banking business with the Second National Bank, and became indebted to said bank in the sum of $3,500 by note, on which J. T. Rushing, J. T. Jones, and R. E. Prewitt were- sureties. Mrs. Prewitt was also allowed the privilege of overchecking her account to the amount of $500 at the date of these transactions, and, in addition to the note already stated, she was indebted to the bank by overcheck in the sum of about $600, and also by note for $.795, indorsed by J. T. Rushing. It appears that in the summer of 1900 a payment of $1,000 was made on the $3,500 note, reducing it to $2,500.’ In .July or August of that year Mrs. Prewitt, through her husband, made application to the bank' to increase her'line of overcheck
Section 60b of the bankrupt law (Act July 1, 1898, 30 Stat. 562, c. 541 [U. S. Comp. St. 1901, p. 3445] provides if the bankrupt shall have given a preference within four months before the filing of the petition, or after the filing of the petition and before the adjudication,, and the person receiving it or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and
It is insisted on bebalf of tbe bank that there is no evidence in tbe record showing that tbe bank or any of its officers knew or bad reasonable cause to believe' that Prewitt & Oo. were insolvent at tbe time tbe note and overcheck were made.
We are constrained to believe from tbe proof that tbe cashier, at tbe time be received tbe payment, was fully aware of tbe insolvency of this debtor, and that tbe money received from tbe sale of tbe stock of merchandise constituted tbe entire assets belonging to tbe bankrupt. Tbe record shows that tbe cashier bad been consulted by Prewitt with reference to obtaining an extension of time from tbe creditors of Prewitt & Co. living in St. Louis and Louisville. Tbe cashier was also aware that Mrs. Prewitt bad asked an extension of time and additional line of overcbeck with tbe Second National Bank, which that bank, on instruction of tbe finance committee, bad declined to grant. Tbe proof further shows that, after Mrs. Prewitt bad failed to get an additional line of credit from tbe bank, that she offered to sell tbe stock of goods to tbe bank, but that it declined to buy, and tbe cashier admits that, when tbe bank declined to make a further advance, be said to Mr. Prewitt: “I believe it would be best to make a general assignment and get matters settled up.” Surely, in view of all these facts, tbe bank bad, in tbe
It is argued, however, that the bank was constrained to accept payment of the balance due on the $3,500 noté, or thereby release the sureties. The argument is that, the note due the bank being amply secured by personal indorsers, the bank was not the party to be benefited within the meaning of said section, but that the trustee ought to have brought this suit against J. T. Jones, J. T. Rushing, and R. E. Prewitt, the sureties on said note, as the parties who had been benefited. Section 60b of the bankrupt law provides that a recovery may be had by the trustee from the party receiving the preference or to be benefited thereby. The question now made was before the supreme court of the United States, under the act of 1868 (15 Stat. 227, c. 258), in the case of Bartholow v. Bean, 18 Wall., 635, 21 L. Ed., 866.
It was argued in that case that the bank was not benefited by the payment, because it was secured by a solvent indorser, and that it was constrained to receive the payment when tendered, else the sureties would have been discharged. Mr. Justice Miller, in delivering the opinion of the court, said, in part, as follows: “Does the fact that Wilcox, the indorser, was solvent, and was liable, change the rule as to payment as a preference?
“The statute in express terms forbids such preference, not only to an ordinary creditor of the bankrupt, but to any person who is under any liability for him and it not only forbids payment, but it forbids any transfer or
“Under these circumstances, whatever might have been the right of the indorser, in the absence of the bankrupt law, to set up a tender by the debtor, and a refusal of
“We are of opinion, therefore, notwithstanding the hardship of the case, which is more apparent than real, that the payment must be held to be a preference within the bankrupt law, and that the judgment of- the court below, that the assignee should recover it, must be affirmed.”
The third assignment of error is that the court should also have adjudged that, inasmuch as Prewitt & Co. were insolvent, the bank had the equitable right of .mutual offset, and the trustee could not recover this amount from the bank while the bankrupt was indebted to it for a larger amount. This assignment of error is based upon section 68 of the bankrupt law (30 Stat. 565, c. 541 [U. S. Comp. St. 1901, p. 3450]), as follows: “(a) In all cases of mutual debts or mutual credits between the estate of the bankrupt and the creditor, an account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.
We are of opinion, however, that this record does not present a case of mutual debts and credits, within the meaning of the sections referred to. The fact is the estate of the bankrupt herein is not indebted to the bank, that indebtedness having been paid off and discharged.
As said in Loveland on Bankruptcy, sec. 127: “Under the mutual credit clause, a creditor having a preference cannot set off an individual debt in a suit by the trustee to set aside such preference. The reason is that the debts are not mutual nor in the same right. The preference which is being avoided is a debt between the preferred creditor and the general creditors — not the bankrupt. The individual debt is between .the preferred creditor and the bankrupt. The trustee holds one of the debts' as the representative of the general creditors, and the other as the representative of the bankrupt.” The only set-off provided by the bankrupt law in such cases is as follows: “If a creditor has been preferred, and afterwards in good faith gives the debtor further credit without security of any kind for property which has become a part of the debtor’s estate, the amount of such new credit remaining unpaid at the time of the ad
The mutual debit and credit clause invoked by defendant’s counsel herein has reference to a case where the third party is indebted to the bankrupt, and the bankrupt is indebted to that third party. Now, before the third party can be called on to account for its indebtedness to the bankrupt, a balance of mutual debits and credits must be struck, and, if there is a balance due the bankrupt, then the third party becomes liable for its payment.
The cases cited, Re Little (D. C.), 110 Fed., 621, and Re Myers (D. C.), 99 Fed., 691, are not applicable in the present instance. It appeared in that case that the bankrupt, at the time the petition was filed, had money on deposit in the bank. He was also indebted to the bank.
It is well settled that the relation of the bank to the depositor is that of debtor and creditor, and the bank is the debtor of the depositor. In that case, the trustee undertook to recover from the bank the amount on deposit in the bankrupt’s name as a debt owing by the bank to the bankrupt’s estate, and the bank claimed the right to set off against the deposit the amount the bankrupt owed it, and it was allowed.
This is not a case in which there were mutual debits and credits between the bankrupt and the bank. This is simply a case in which the bank
Moreover, debts or credits, in order to be set off, must .be such claims as are provable in bankruptcy. The au-thorises are that the claim of a creditor who has received a preference is not provable in bankruptcy unless , the preference be surrendered. Section 57g of the bankrupt act (30 Stat. 560, c. 541 [U. S. Comp. St. 1901, p. 3443]) provides as follows: “The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preference.” The rule applies even though the preference was innocently received. Pirie, Scott & Co. v. Chicago Title & Trust Co., 182 U. S., 438, 21 Sup. Ct., 906, 45 L. Ed., 1171.
The result is, the decree of the chancellor is affirmed.