In re First Nat. Bank

• Citation: 155 F. 100
• Decision Date: 17 June 1907
• Docket Number: 1,654,1,655.
• Parties: In re FIRST NAT. BANK OF LOUISVILLE, KY. v. HOLT. FIRST NAT. BANK OF LOUISVILLE, KY.,
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

155 F. 100

In re FIRST NAT. BANK OF LOUISVILLE, KY.

FIRST NAT. BANK OF LOUISVILLE, KY., v. HOLT.

Nos. 1,654, 1,655.

United States Court of Appeals, Sixth Circuit.

June 17, 1907

Lawrence S. Leopold, for First Nat. Bank.

Herman H. Nettelroth, for trustee.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

SEVERENS Circuit Judge.

This case comes here by two methods for review-- one by petition for review of an order made in the bankruptcy proceedings in Re R. M. martin Company, and the other by an appeal from the same order in the respect that it is a decree in an independent controversy arising in the course of a bankruptcy proceeding. The order complained of is one made by the referee and approved by the district judge setting aside an allowance of a secured claim of the First National Bank of Louisville, and requiring it to pay to the trustee $1,000 which, it was held, the bank had received from the bankrupt through an unlawful preference. The order was therefore one made in the bankruptcy proceedings proper, and not in an independent controversy arising in such proceedings, and is reviewable here upon the petition for review under section 24b of the Act of July 1, 1898 (30 Stat. 553, c. 541 (U.S Comp. St. 1901, p. 3432)). Accordingly the appeal is dismissed.

The secured claim of the bank was for the sum of $16,200, which of course, did not include the $1,000 in question. The facts as found by the referee and reported to the district judge for review are substantially as follows: In July, 1904, the bankrupt had become indebted to the bank to the amount of $10,000. It was not secured; and, being in want of more funds to continue its business, the bankrupt entered into an agreement with the bank to which one Johnson, the secretary of the bankrupt, was a third party, and which agreement after reciting the desire of the bankrupt to procure a loan for use in its business upon the security of its book accounts with its customers and the undertaking of the bank to make such loan, witnessed that:

'Said second party shall execute and deliver to the order of said bank its note of even date herewith, for the amount of such loan and advance, and interest thereon, payable after date thereof, and as security for the payment of said note, said second party hereby sells, assigns and transfers to said bank and its assigns, the following accounts now outstanding upon said second party's books, and all moneys due and to become due thereon.'

Here follows a list of accounts, giving names and addresses of debtors and the amounts and dates when due, and a receipt and agreement by Johnson as follows:

'Received of the First National Bank, Louisville, Ky., for collection, sundry, accounts receivable assigned to it by the R. M. Martin Company, Louisville, Ky., as per foregoing list.

'All collections of said accounts to be turned over to said bank as they are received by me.

'Charles L. A. Johnson.'

Then the agreement proceeds to stipulate that:

'Said third party agrees, upon request of said bank, to collect the amount of said accounts, or any of them, as the agent of said bank, without any charge against said bank for such collections, and all payments on such accounts shall be entered in said book, and said third party shall immediately pay over and deliver to said bank or its assignees, the amounts of such collections, to be applied to the extinguishment of said note, and all checks, drafts and moneys so collected by said third party shall be and remain the property of said bank until a sufficient amount has been collected, and paid over to pay the total amount of said note and interest, and any other indebtedness of said second party to said bank and after said note and all other indebtedness of said second party to said bank shall have been fully paid and extinguished, the remainder of said accounts, if any, shall revert to, and become the property of said second party.

'In case of the insolvency or bankruptcy of said second party before the payment of said note and interest, or, in the event of any breach of any of the provisions of this contract by either said second party or said third party, the agency, of said third party for the collection of such accounts shall at once cease and determine, without notice, and said bank shall then proceed to collect the remainder of such accounts so far as possible, and apply the proceeds thereof to the payment of said note and interest, to the payment of any other indebtedness of said second party to said bank, and after deducting the expense of collecting said accounts, shall hold the surplus, if any, subject to the order of said second party or its assigns.

'In witness whereof, the parties hereto have executed this agreement the day and year first above written.

'R. M. Martin Co., 'By R. M. Martin, President, 'C. L. A. Johnson, Treasurer.'

And from time to time thereafter, whenever the bankrupt required more funds, similar loans were made by the bank and upon like security and a like agreement with regard to the accounts of the bankrupt and the application of their proceeds. The particular advances by the bank were paid out of these proceeds and $4,000 of the old debt of $10,000 were also paid. Johnson kept an account in his own name with the bank of his deposits made from collections, but without any distinction of the particular accounts from which the deposits came. From time to time these deposits were turned over to the bank by check, the method being, as we understand, first by Johnson's check to the bankrupt and then by the check of the bankrupt to the bank.

During the four months preceding the filing of the petition in bankruptcy loans were made by the bank in this way to the amount of $16,200. One of these loans was of $2,000 made December 16, 1905. On the 13th of that month Johnson checked out of his account $1,000 to the bankrupt, and the bankrupt gave its check to the bank for that amount. The referee states the circumstances as follows:

'It was assumed by the bank that the remainder of the pledged accounts which were still uncollected would suffice to discharge the entire contemporaneously secured indebtedness, and it was then agreed that said Johnson, agent, should pay out of his deposit account the sum of $1,000 to the R. M. Martin Company, and that the R. M. Martin Company should thereupon pay $1,000 to said bank upon said old indebtedness aforesaid. The evidence shows that a check was drawn by Johnson, agent, for $1,000 payable to said bankrupt company. Said check was deposited by said company

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