Murray v. Corn Exchange Bank

• Citation: 31 F.2d 373
• Parties: MURRAY v. CORN EXCHANGE BANK.
• Decision Date: 30 November 1927
• Court: U.S. District Court — Southern District of New York

31 F.2d 373 (1927)

MURRAY v. CORN EXCHANGE BANK.

District Court, S. D. New York.

November 30, 1927.

Charles L. Apfel, of New York City, for plaintiff.

Laughlin, Gerard, Bowers & Halpin, of New York City, for defendant.

FRANK J. COLEMAN, District Judge.

This is an action by a trustee in bankruptcy to have certain payments to the defendant declared preferences in violation of the Bankruptcy Act (11 USCA), and to compel the defendant to pay over to the trustee the amounts involved.

The bankrupt, Peter H. Reilly & Bro. Company, Inc., was adjudicated such on December 17, 1925, the petition having been filed on December 4th. For a considerable period before that it had a regular deposit account with the defendant bank, and had borrowed from the bank on its demand promissory notes $3,425, secured by collateral supplied by persons not interested in bankrupt's business. On November 17, 1925, about two weeks before the filing of the petition in bankruptcy, the bankrupt drew its check on its regular deposit account with the defendant in the sum of $1,234.80, and delivered it to the defendant in payment of certain of the notes, with interest. Two days later, on November 19, it drew a second check in the sum of $1,700 and delivered it to the bank in part payment of the remaining note. Upon the delivery of these checks the insolvent received back most of the collateral, which its president thereupon delivered to the true owners, who happened to be his aunts. It is these two payments to the bank, aggregating $2,934.80, which the trustee seeks to have declared preferential.

There is no doubt but that the bankrupt was insolvent at the time of the payments, and furthermore I believe that the bank is chargeable with knowledge of that insolvency. The only question presented is whether or not the payments were preferences. The law is well settled, and the trustee in this case so concedes, that generally a bank may offset the amount of its loan against the deposit standing to the credit of an insolvent. It is further undisputed that if, instead of making a bookkeeping entry to show this offset, the bank accepts the check of the insolvent against his own account in payment of the loan, this mere change in form does not make the transaction a preference. The trustee's contention in the present case is that there was a purposeful accumulation of funds in the deposit account, made with the intent to pay the bank's claims, and that this, in view of the insolvency, made...