McDaniel Nat. Bank v. Bridwell

• Decision Date: 30 November 1934
• Docket Number: No. 9910,9931.,9910
• Citation: 74 F.2d 331
• Parties: McDANIEL NAT. BANK v. BRIDWELL (two cases).
• Court: U.S. Court of Appeals — Eighth Circuit

74 F.2d 331 (1934)

McDANIEL NAT. BANK v. BRIDWELL (two cases).

Nos. 9910, 9931.

Circuit Court of Appeals, Eighth Circuit.

November 30, 1934.

William D. Tatlow, of Springfield, Mo. (Arch A. Johnson, of Springfield, Mo., on the brief), for appellant.

Frank B. Williams, of Springfield, Mo. (Farrington & Curtis, of Springfield, Mo., J. E. Haymes, of Marshfield, Mo., and Williams & Stone, Guy D. Kirby, and Charles M. Farrington, all of Springfield, Mo., on the brief), for appellee.

Before STONE and GARDNER, Circuit Judges, and JOYCE, District Judge.

JOYCE, District Judge.

There are two appeals in this matter, one of which was allowed by the court below as a plenary appeal in equity in a controversy arising in bankruptcy between the appellant and appellee. (No. 9931), and the other, allowed by this court, as to a question of law arising in the bankruptcy proceeding (No. 9910). The purpose of the two appeals was merely precautionary, as the parties were doubtful whether the matter was a controversy in bankruptcy or a proceeding in bankruptcy. We are of the view that it is a proceeding in bankruptcy, since it involves the allowance of a claim, and the appeal in No. 9931 will therefore be dismissed.

An involuntary petition in bankruptcy was filed against John H. Case in the Southern division of the Western district of Missouri on the 8th day of July, 1927. He was adjudged a bankrupt August 3, 1927. On the 8th day of August, 1927, the appellant bank filed in the bankruptcy court a general claim based upon a promissory note, by the terms of which Case was indebted to the bank at the date of the filing of the petition in the sum of $3,837.50. The claim was filed as an unsecured claim. At the time of filing the petition in bankruptcy there was on deposit in the bank the sum of $6,361.60, evidenced by three certificates of deposit issued to Mrs. Hattie Winslow. The trustee in bankruptcy brought a plenary suit against Mrs. Winslow and the bank to recover them as an asset of the estate, on the ground that the money with which they were purchased was transferred to Hattie Winslow by the bankrupt in fraud of creditors. The bank took the position of a mere stakeholder and asserted no right in the deposit. In its amended answer in that action it alleged, among other things:

"That defendant bank is not interested in the controversy between the plaintiff herein and the defendant Hattie Winslow, as to the ownership of the proceeds of said time certificates of deposit or of the fund represented thereby but is merely a stakeholder of said fund and is willing to pay the same to the person or persons lawfully entitled thereto, but has been advised that it cannot do so with safety to itself so long as the rival and conflicting claims of the plaintiff and the defendant Hattie Winslow are undetermined.

"That defendant desires to interpose this its amended answer in the matter of the bill of interpleader and avers that same is not filed out of collusion with either of said claimants but in good faith for the sole purpose of being released from the danger of being made liable for the same debt to different parties asserting rival and conflicting claims thereto."

and prayed that it be allowed to pay the money into court, and thereby be discharged of all liability to any one for the money.

The trustee prevailed in this litigation, the court finding the asset belonged to the bankrupt's estate. There was no appeal from the decree entered October 17, 1930. The decree adjudged that neither the appellant nor Hattie Winslow had any right, title, or interest in the money, and that the plaintiff trustee have and recover the sum of $6,361.60 on deposit with the bank, less $500 allowed the bank for its attorney. The bank paid the entire sum into court July 1, 1931. On December 3, 1930, the bank obtained an order staying execution in this equity suit, to enable it to set off the debt owing by the bankrupt to the bank against the fund of $6,361.60. As ancillary to this suit, the bank filed an equity pleading, reciting the foregoing matters in detail, and prayed that it be allowed to set off the indebtedness owed by the bankrupt against the fund then on deposit with the plaintiff bank. The court dismissed this bill on the ground that jurisdiction to determine the rights of the bank in the deposit rested in the court of bankruptcy. This holding was affirmed by this court, McDaniel National Bank v. Bridwell, 65 F.(2d) 428. On June 28, 1933, appellant paid to appellee the sum of $1,069.54 representing accrued interest on the judgment and part of the costs. Later it filed in the bankruptcy court a petition asking for the right of set-off as it had in the ancillary bill. The referee denied the appellant relief on the matter of set-off and allowed its claim as a general, unsecured claim for the amount of the note, taking the position that Mrs. Winslow stood in the position of trustee for the bankrupt's creditors, and that there was no debt owing by the bank to Case. On petition for review the District Court affirmed the referee. The appeals as aforesaid have followed.

One question presents itself: May a bank, receiving a deposit in good faith from one determined to be a constructive trustee for a trustee in bankruptcy, set off the amount of that deposit against a claim it possesses against the bankrupt, especially when it has failed to assert any right in said deposit in an original suit brought by the trustee against it and the nominal depositor?

Section 68 of the Bankruptcy Act (U. S. C. title 11, § 108 11 USCA § 108) in part provides: "(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."

From the wording of this subsection it is evident that, before a creditor may enjoy the use of the set-off principle against the bankrupt's estate, two essential elements must be established: (1) Two debts must exist, one of the creditor and one of the bankrupt's estate. (2) These debts must be mutual, i. e., the creditor's debt must be owed to the estate of the bankrupt, and the estate's debt must be owed to this creditor. When these conditions are fulfilled, the statute applies with full force and may be taken advantage of. New York County National Bank v. Massey, 192...