MacDonald v. Guy

• Decision Date: 13 February 1933
• Docket Number: No. 2759.,2759.
• Citation: 63 F.2d 334
• Parties: MacDONALD v. GUY, Com'r of Banks.
• Court: U.S. Court of Appeals — First Circuit

63 F.2d 334 (1933)

MacDONALD v. GUY, Com'r of Banks.

No. 2759.

Circuit Court of Appeals, First Circuit.

February 13, 1933.

Robert A. B. Cook, of Boston, Mass. (Walter J. MacDonald, of Brockton, Mass., and Jonathan B. Rintels, of Boston, Mass., on the brief), for appellant.

Edmund R. Dewing, of Boston, Mass. (Warren F. Farr, of Boston, Mass., on the brief), for appellee.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

In June, 1929, the Craig, Reed & Emerson, Inc., a corporation engaged in the manufacture of shoes and hereinafter referred to as the Shoe Company, was undoubtedly insolvent. A meeting of its stockholders was held and the president of the Plymouth Trust Company (hereinafter referred to as the Trust Company), a state banking institution under the laws of Massachusetts, attended. At this meeting it was agreed by those present to allow the corporation to continue business three months longer. That a liquidation of its affairs was necessary was clearly apparent. The Shoe Company was then owing the Trust Company on unsecured notes on which no payment had been made since 1927, and which the referee in bankruptcy has described as a "frozen loan," $36,500.

The Shoe Company had one large customer, which paid its bills about the tenth of the month, of which the Trust Company had knowledge. The Shoe Company continued, after the meeting in June, to deposit with the Trust Company in the usual course of business, and the bank received its deposits up to July 11, 1929, with the understanding that they were subject to check.

On July 11 a check in the amount of $15,100.78 was sent to a branch of the Trust Company for deposit in the usual course, which, together with certain other funds then on deposit or thereafter received from the Shoe Company, totaling $20,476.79, the Trust Company applied on the notes of the Shoe Company, and demanded a payment of the balance of its loan, and an assignment to its cashier. The result was a petition in bankruptcy in September, 1929.

The trustee in bankruptcy filed a petition with the referee in bankruptcy to order the Trust Company to pay to the trustee the sums thus credited on its note. The referee in bankruptcy found that of the $20,476.79 so applied on its debt by the Trust Company, the application of $16,108.49 was misappropriated by the Trust Company and resulted in a preference, as it was not received in the usual course of business, but with knowledge of the insolvent condition of the bankrupt and with an intent to gain an advantage over other creditors.

The District Court on review of the referee's findings held that the total amount applied on the debt of the bankrupt, or $20,476.79, constituted a preference, and ordered the Trust Company to pay the entire sum to the trustee in bankruptcy. In re Craig, Reed & Emerson, 46 F.(2d) 811. On appeal, this court in Plymouth County Trust Co. v. MacDonald, 60 F. (2d) 94, on June 27, 1932, held that only so much as was received by the bank after July 11, and with the intent to apply it on its own debt, was a fraud upon other creditors, or $16,449.50, and remanded the case to the District Court for further proceedings in accordance with its opinion.

While the proceedings to determine whether the Trust Company was liable to the trustee for the alleged misapplication of these funds were pending, the commissioner of banks of Massachusetts on December 17, 1931, by virtue of the authority vested in him under sections 22 and 28 of chapter 167 of the General Laws of Massachusetts (Ter. Ed.) took possession of the assets of the Trust Company, and gave notice to all creditors to present their claims to him on or before September 1, 1932.

At some time after June 27, 1932, and prior to August 25, 1932, the appellant filed with the commissioner two proofs of debt in behalf of the bankrupt estate, each totaling $19,333.07, representing the amount found due to the trustee in bankruptcy from the bank, with interest and costs, one alleging that the trustee was entitled to priority of payment, and the other, that proof was filed subject to his right of priority of payment from the estate of the Trust Company.

On August 25, 1932, the trustee in bankruptcy was notified that the claims were rejected by the commissioner for the reason that he doubted the "justice and validity thereof." Section 28 of chapter 167, G. L. Mass. (Ter. Ed.).

On September 8, 1932, a petition was filed in the bankruptcy court to join the commissioner as a defendant, and setting forth substantially the above facts; and, in addition, that the commissioner did not intend to apply any assets of the Trust Company to the payment of the claim of the trustee in bankruptcy, but proposed to apply the notes of the Trust Company in set-off against the claim of the trustee in bankruptcy; and also alleging that the sum of $16,449.50, the amount determined by this court to constitute a preference, was unlawfully and improperly appropriated and converted by the Trust Company, and that the title to the money remained in the Shoe Company, and is now vested in the appellant as said trustee in bankruptcy; that said commissioner, since he is setting up a claim adverse to the trustee in bankruptcy, should be joined as a proper party to the petition in the bankruptcy court; whereupon the trustee prays that the assets and property of the Trust Company to the amount of $16,449.50, together with interest, be declared to be impressed with a trust in favor of the trustee in bankruptcy, and that the commissioner be ordered to deliver said sum to said trustee.

The court of bankruptcy has authority, we think, under section 70e of the act (11 USCA § 110 (e), to treat the petition as a petition in equity to enforce a trust, and hear the parties upon petition and answer. Whitney v. Wenman, 198 U. S. 539, 25 S. Ct. 778, 49 L. Ed. 1157; United States Fidelity & Guar. Co. v. Bray, 225 U.S. 205, 32 S. Ct. 620, 56 L. Ed. 1055.

The commissioner appeared specially and filed a motion to dismiss the petition on the ground that the issue should properly be submitted to the Supreme Court of Massachusetts for determination, and that the bankruptcy court is without jurisdiction. After hearing in the court of bankruptcy, the petition was dismissed and appeal taken to this court.

The commissioner contends that the case is ruled by the decision of this court in the case of People's Trust Co. v. United States, 23 F.(2d) 381; while the trustee in bankruptcy contends it is controlled by Allen, Bank Commissioner, v. United States (C. C. A.) 285 F. 678. The facts in this case, however, do not correspond exactly to the facts in either of these cases, though many questions involved here were decided therein.

In the case of People's Trust Co. v. United States, the deposits of post office funds were unlawfully received, the bank not being designated a depository for such funds. Under the New Hampshire statute the bank commissioner of that state, on application to the state court, was appointed a receiver of the assets of the bank, whereupon the United States presented its claim to the bank commissioner as receiver. This court, inasmuch as the state court had taken possession of the res, and the United States had presented its claim to the res before the receiver, held that the federal court had no jurisdiction over them, and ordered that the bill in equity brought by the United States to order the receiver to pay to the United States the funds so deposited, be dismissed for want of jurisdiction, and it was so ordered.

In the case of Allen v. United States, where there was the same unauthorized deposit of post office funds in a Massachusetts trust company, the commissioner of banks of Massachusetts took possession of the assets of the trust company by virtue of section 22, chap. 167, G. L. Mass., and not by any action of the state courts. The Supreme Court of Massachusetts has held that in so doing the commissioner of bank acts, not as a receiver appointed by the court, but purely as an administrative officer of the state. Cosmopolitan Trust Company v. Mitchell, 242 Mass. 95, 113, 136 N. E. 403, 405, in which case the court said:

"The powers conferred upon the commissioner of banks are not judicial but purely administrative. His decision to take possession is not a judicial adjudication. It binds nobody. It is subject to immediate judicial inquiry. The act of the commissioner of banks is designed primarily to conserve the property of the bank for the benefit of its creditors and its stockholders."

As further distinguished from the New Hampshire case, the United States in the Allen Case did not present its claim to the commissioner of banks of...