212 F. 397 | 2d Cir. | 1914
(after stating the facts as above). The question involved in this case is as to the effect of the bankruptcy of a depositor in a bank upon the bank's' right to set off sums due from it to the bankrupt against sums due from the bankrupt to it.
The bankruptcy act in section 68 contains the following provisions on the subject of set-offs and counterclaims:
“a. In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.”
“b. A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate; or (2) was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such usé and with knowledge or notice that such bankrupt was insolvent, or had committed an act of bankruptcy.”
In section 60 the act contains the provision relating to preferences. It provides in part as follows:
“a. A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after*400 the filing of the petition and before the adjudication, * * * made a transfer of any of his property, and the effect of the * * * transfer will be to enable ony one of his creditors to obtain a greater percentage of his debt than any other such creditors of the same class.”
And in subdivision “b” of the same section it is provided:
“If .a bankrupt shall have * * * made a transfer of any of his property, * * * being within four months before the filing of the petition in bankruptcy, or after the filing thereof and before the adjudication, the bankrupt be insolvent and the * * * transfer then operate as a' preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such * * * transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person.”
And in section 57, subdivision “g,” as amended by Act Feb. 5, 1903, c. 487, § 12, 32 Stat. 799 (U. S. Comp. St. Supp. 1911, p. 1504), it is provided as follows:
“The claims of creditors who have received preferences, voidable under section sixty, subdivision “b,” or to whom * * * transfers * * * void or voidable under section sixty-seven," subdivision “e,” have been made or given, shall not be allowed unless such creditors shall surrender such preferences. * * * ”
In considering the facts in the present case it is necessary to keep in mind the foregoing provisions of the bankruptcy act. It is also necessary to remember that the petition in bankruptcy was filed on January 17, 1912, and that the adjudication followed on February 5, 1912.
The evidence shows that between October 7 and December 26, 1911, the bank charged off various sums for principal and interest, aggregating the sum of $1,231.29. During the whole of that period .the relation of debtor and creditor existed between the bank and the company, and at the various times when the bank charged off the several set-offs, the company was indebted to the bank on promissory notes. The several transactions were done in the due, regular, and usual course of business, and at'a time when the company’s business was being conducted in the usual manner; there being no evidence to show that the company contemplated bankruptcy prior to January 1, 1912.
The claim of the trustee is that the items aggregating $1,231.29, which the bank charged off prior to January 1, 1912, were preferential payments or transfers'to the Utica City National Bank, not because that sum of money had been deposited in the bank by the Wright-Dana Company, but becasue they were payments or transfers made within four months of the filing of the petition in bankruptcy, at times when the Wright-Dana Company was insolvent and when the Utica City National Bank had reasonable cause .to believe that the enforcement of the transfer would effect a preference in its favor.
The right of a bank to a set-off as against a bankrupt depositor was passed upon by the Supreme Court of the United States in New York County National Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48 L. Ed. 380, a case which went up from this'circuit, and which was decided in 1903. The bank in that case, as in this, had exercised a right of set-off, and it was claimed that the transaction amounted
“It is true that it creates a debt, which, if the creditor may set it off under section 68, amounts to permitting a creditor of that class to obtain more from the bankrupt’s estate than creditors who are not in the same situation, and do not hold any debts of the bankrupt subject to set-off. But this does not, in our opinion, operate to enlarge the scope of the statute defining preferences so as to prevent set-off in cases coming within the terms of sec tion 68a. If this argument were to prevail, it would, in cases of insolvency, defeat the right of set-off recognized and enforced in the law, as every creditor of the bankrupt holding a claim against the estate subject to reduction to the full amount of the debt due the bankrupt receives a preference in the fact that to the extent of the set-off he is paid in full.”
The question came before the Supreme Court again in Studley v. Boylston National Bank, 229 U. S. 523, 33 Sup. Ct. 806, 57 L. Ed. 1313, decided in 1913, where it was held that nothing in the bankruptcy act deprives a bank with which the insolvent is doing business of the rights of any other creditor taking money without reasonable cause to believe that a preference will result; and, it being found that the deposits and payments of notes were not made to enable the bank to secure a preference by the right of set-off, the bank had a right to set off the deposits against the notes within four months of the bankruptcy.
“There is nothing in the statute which deprives a bank, with whom an insolvent is doing business, of tire rights of any other creditor taking money without reasonable cause to believe that a preference will result from the payment. The bankruptcy act contemplates that by remaining in business and at work an insolvent may become able to pay off his debts. It does not prevent him from continuing to trade, depositing money in bank, drawing checks, and paying debts as they mature, either to his own bank or any other creditor. It does provide, however, that if bankruptcy ensues, all payments*402 thus made, within the four-months period, may be recovered by the trustee,if the creditor had reasonable cause to believe that a preference would be thereby effected.”
As to the set-offs made by the bank after January 1st, and after the bank had reasonable grounds for believing that the set-offs thereafter made might effect a preference, they were properly disallowed by the court below. Indeed the bank did not insist upon this appeal that any error had been made by the court below as respects' the set-offs made after January 1, 1912. The transfers made after that date must be regarded as preferences. The total amount of preferences the bank had improperly received amounted to $2,282.77.
“Now that this litigation has come to an end, and the defendant has been ■compelled to surrender the preference which he received, he is entitled to*403 prove Us claim and to receive a dividend on it upon an equality with other creditors. Keppel v. Tiffin Savings Bank, 197 U. S. 356 [25 Sup. Ct. 443, 49 L. Ed. 790].”
In all other respects than that just mentioned we affirm the decree, and we reverse the case and remand it to the District Court for no-other purpose than to enable that court to modify its decree in the particular above mentioned.
Decree reversed.