In re Mauch Chunk Brewing Co.

131 F.2d 48 | 3rd Cir. | 1942

GOODRICH, Circuit Judge.

On September 2, 1941, the Mauch Chunk Brewing Company filed a petition for reorganization under Chapter 10 of the Bankruptcy Act.¹ It then had on deposit in the Lehigh National Bank of Catasauqua, Pennsylvania, the appellant, $777.07. On September 4, 1941, P. J. Cummings who had been appointed trustee of the debtor’s estate, deposited additional sums raising the total to $1201.86. At the same time he informed the cashier of the bank of the reorganization proceedings and that he wished to have the account transferred to his name as trustee for the debtor. At the cashier’s direction, a check was drawn by the trustee, for the total sum on deposit, to the order of “Mauch Chunk Brewing Company, P. J. Cummings, Trustee” and delivered, unindorsed, to the teller who issued a deposit slip and book, showing credit for the full amount of the check, in the name of P. J. Cummings, Trustee for Mauch Chunk Brewing Company. On September 6, 1941 a check for $1201.86, drawn by the trustee to his order was presented for payment to the bank which refused to honor it and answered “Not sufficient funds on account of set off against indebtedness of Mauch Chunk Brewing Company”. This consisted of four notes of the debtor which were not due until the latter part of September and October of 1941. The trustee thereupon filed a petition for a turnover order which was resisted by tlie bank, on the ground that the matter of the bank’s set-off could not be adjudicated summarily.² The referee granted the trustee’s petition and the District Court affirmed the order.³ This appeal followed.

The appellant does not dispute the given facts. Nor does it deny that if its conduct has lost it the claim of set-off, the court had the requisite jurisdiction to issue the turnover order. This being a proceeding under Chapter 10 of the Bankruptcy Act and there being no allegation or proof of the debtor’s insolvency, it is questionable whether the bank could set off the debtor’s unmatured obligation against its deposit.⁴ However, that question need not be determined at present, for we believe that the bank lost whatever claim of set-off it may have had.

Section 68 of the Bankruptcy Act allows a creditor to set off, if certain conditions of that section are met, mutual debts existing between him and the debtor.⁵ This is a privilege which the creditor may or may not claim. If it is not asserted, it is lost.⁶ Likewise if the creditor’s conduct is inconsistent with a subsequent claim of set-off, he is held to have waived it. Thus, as between a bank and a bankrupt depositor, the former has been held to have lost its claim of set-off where, failing to claim it, it entered into an assignment for the benefit of creditors and changed the name of the account to that of the creditor’s committee,⁷ where it transferred the bankrupt’s account to his executrix prior to bankruptcy,⁸ and where it did not assert its set-off in an attachment proceeding nor in the subsequent bankruptcy proceedings when it filed its proof of claim.⁹ The same result obtained when a bank, after reorganization proceedings had been instituted, honored the debtor railroad’s checks and accepted its deposits, the court applying the “first in-first out” rule.¹⁰

In each of these cases the action of the creditor was considered tantamount to a renunciation of its privilege of set-off. The conduct in each instance amounted to a representation to other creditors and trustees that it did not choose to apply the funds on deposit with it to the debtor’s obligations. Having thus apparently surrendered its claim of set-off, it could not thereafter revive it. We think it clear this is what happened here. With full knowledge of the reorganization proceedings the appellant manifestly and without apparent reservation did all it possibly could have done to recognize that the trustee held the entire debtor’s deposit as trustee for the benefit of the debtor’s estate. This constituted a relinquishment of whatever set-off the bank may have had. Under such circumstances the court had summary jurisdiction to issue the turnover order against it.

The order of the District Court is affirmed.

1 11 U.S.O.A. § 501 et seep

2 By stipulation, $424.79, the sum deposited by the trustee after the initiation of the reorganization proceeding, was turned over by the bank to trustee without prejudice as to the balance of the funds.

3 D.C.M.D.Pa.1942, 43 E.Supp. 205.

4 See Finletler, The Law of Bankruptcy Eeorganization (1939) p. 303 et seq.; Lowden v. Northwestern National Bank & Trust Co., 1936, 298 U.S. 160, 56 S. Ct. 696, 80 L.Ed. 1114, and the same case upon remand to the Circuit Court, 8 Cir., 1936, 84 F.2d 847, certiorari denied, 1936, 299 U.S. 583, 57 S.Ct. 109, 81 L.Ed. 430.

5 11 U.S.C.A. § 108.

6 Cumberland Glass Manufacturing Company v. DeWitt and Company, 1915, 237 U.S. 447, 35 S.Ct. 636, 59 L.Ed. 1042.

7 May v. Henderson, 1925, 268 U.S. 111, 118, 45 S.Ct. 456, 69 L.Ed. 870; First Nat. Bank of Waco v. Sheehy, 5 Cir., 1928, 29 F.2d 400.

8 In re Tietje, D.C.E.D.N.Y.1920, 263 F. 917.

9 In re Brockton Shoe Mfg. Co., Inc., D.C.Mass.1934, 8 F.Supp. 959.

10 Lowdon v. Iowa-Des Moines Nat. Bank & Trust Co., D.C.S.D.Iowa 1935, 10 F.Supp. 430, affirmed, 8 Cir., 1936, 84 F.2d 856, certiorari denied. 1936, 299 U. S. 584, 57 S.Ct. 109, 81 L.Ed. 430.