First Nat. Bank of Negaunee v. Fox

• Citation: 111 F.2d 810
• Decision Date: 13 May 1940
• Docket Number: No. 8410.,8410.
• Parties: FIRST NAT. BANK OF NEGAUNEE v. FOX.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

111 F.2d 810 (1940)

FIRST NAT. BANK OF NEGAUNEE v. FOX.

No. 8410.

Circuit Court of Appeals, Sixth Circuit.

May 13, 1940.

Clarence E. Lott, of Phoenix, Ariz., for appellant.

Ellis B. Merry, of Detroit, Mich. (Bulkley, Ledyard, Dickinson & Wright, of Detroit, Mich., on the brief), for appellee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is an appeal from a summary order in bankruptcy holding that appellant had received a voidable preference of $2,677.30 (11 U.S.C.A. § 96; 52 Stat. 869) and ordering its payment to the appellee, Abbott M. Fox, temporary trustee of the Weidman Lumber Company, debtor.

The facts are substantially as follows: On December 21, 1937, the debtor owed to the appellant, a national banking association, two promissory notes totalling $4,000 payable in full on or before January 1, 1938, and thereafter, the date not shown in the record, the notes were consolidated and renewed. Prior to January 18, 1938, appellant received from the debtor for collection, a check for $673.63, with the debtor as payee and the Consolidated Fuel and Lumber Company of Ishpeming, Michigan, payor, and on January 27, 1938, it appropriated this check to its own use by crediting it on the note of the debtor. Thereafter appellant accepted a renewal note of the debtor for $3,341.04, the difference between the credit and the original $4,000.

On February 24, 1938, the debtor sold to the Consolidated Fuel & Lumber Company, 100,000 feet of lumber for future delivery and on February 28 and March 4, 1938, respectively, it made two shipments on this order and mailed to appellant invoices of $317.54 and $318.75, respectively, the gross selling price, and in its letter of transmittal stated, "In the future we will mail you duplicate of all invoices to Consolidated which are to be applied against our note to your bank."

It is alleged in the petition of the trustee that this was done because appellant had advised the debtor it would appropriate and credit on its note all checks that came into its possession with the debtor as payee and the Consolidated Fuel & Lumber Company as payor.

On March 16 and 29, 1938, respectively, checks came into the possession of the bank in payment of the above invoices for the aggregate sum of $629.94 and appellant appropriated them to its own use and credited them on the debtor's note. The debtor was then, and thereafter remained, insolvent, all of which was known to the appellant. About this time, a meeting of the creditors of the debtor was held in which appellant's representatives participated and because of its insolvency, on April 1, 1938, they caused George L. Conners to be appointed equity receiver in an action instituted by them in the state court of Michigan.

On April 18, 1938, the receiver consulted with the cashier of appellant about completing the contract with Consolidated, who insisted if it were done, the sums realized from the sale would have to be applied to the liquidation of the bank's indebtedness because, as he contended, the original contract was conditioned on the sums received under it being paid to the bank until its note was paid.

The lumber necessary to fill the remainder of the order had been processed theretofore and on April 23, 1938, was placed in the custody of an independent warehouseman and his receipts pledged to the Citizens State Bank of Ontonagon, Michigan, and Merchants State Bank of Rhinelander, Wisconsin, as collateral security for indebtedness of the debtor to these banks. On or about April 23, 1938, the banks delivered these receipts to the receiver under an agreement that he would pay their debts out of the proceeds.

On April 22, 1938, the court approved the answer of the debtor filed in these proceedings instituted against it under Section 77B of the National Bankruptcy Act, 11 U.S.C. A. § 207, and appointed appellee temporary trustee and referred the cause to a Special Master. The receiver delivered the warehouse receipts to the appellee, who, under the court's orders, completed the sale and delivery to the Consolidated, the proceeds being deposited with the appellant, out of which it retained $2,047.36, the remainder being paid to the holders of the warehouse receipts.

On June 12, 1939, the Special Master granted an order ex parte which was served on appellant, directing it to show cause why it should not pay over to the trustee $629.94 received by it March 29, 1938, and the $2,047.36 which it was withholding, to which appellant filed no response and thereupon the Special Master fixed a date for taking proof, due notice of which was served on appellant. Proof was heard without it being present or represented and the Master made a report in which he separately stated the law and facts and filed it with the court. The facts so found are substantially as heretofore related. Appellant duly filed exceptions in which it requested that the report be vacated and overruled because (1) the court lacked jurisdiction to try a claim of voidable preference in a summary proceeding without the consent of the respondent, (2) the court was without jurisdiction to deal summarily with funds adversely claimed, (3) it lacked jurisdiction to deal summarily with funds out of the possession of the bankruptcy court.

The court overruled appellant's exceptions and entered an order directing it to pay to appellee $2,677.30 from which order this appeal is prosecuted. Two questions are presented: (1) whether appellant consented to the jurisdiction of the court, and (2) whether the court, without its consent, had jurisdiction to enter the order.

A trustee in bankruptcy seeking to set aside a preference is subject to the rule of pleading that his complaint, declaration or petition must allege each of the requirements for recoverable preference and the burden rests on him of making out a case by proving the essential elements of or facts constituting a voidable preference and if the proceedings be summary, the burden rests on him of both alleging and proving facts supporting the jurisdiction of the court to thus proceed. Buss v. Long Island Storage...