New York County National Bank v. Albert Massey

• Decision Date: 04 January 1904
• Docket Number: No. 90,90
• Citation: 48 L.Ed. 380,24 S.Ct. 199,192 U.S. 138
• Parties: NEW YORK COUNTY NATIONAL BANK, Appt. , v. ALBERT P. MASSEY, Trustee in Bankruptcy of George H. Stege and Frederick H. Stege
• Court: U.S. Supreme Court

192 U.S. 138

24 S.Ct. 199

48 L.Ed. 380

NEW YORK COUNTY NATIONAL BANK, Appt.,

v ALBERT P. MASSEY, Trustee in Bankruptcy of George H. Stege and Frederick H. Stege.

No. 90.

Argued December 11, 1903.

Decided January 4, 1904.

Messrs. Latham G. Reed, John M. Bowers, and Bowers & Sands for appellant.

[Argument of Counsel from pages 138-140 intentionally omitted] Messrs.Louis Sturcke,Albert P. Massey, and Hill, Sturcke, & Andrews for appellee.

Mr. Justice Day delivered the opinion of the court:

This is an appeal from the judgment of the circuit court of appeals for the second circuit, reversing the order of the district court affirming the order of the referee in bankruptcy, allowing a claim against the estate of Stege & Brother. This claim was allowed against the contention of the trustee of the bankrupt, that it could not be proved until the bank should surrender a certain alleged preference given to them in contravention of the bankrupt act. The circuit court of appeals reversed the order of the district court, holding that the bank must first surrender the preference before it could be allowed to prove its claim. 54 C. C. A. 116, 116 Fed. 342. The circuit court of appeals made the following findings of fact:

'For a number of years past the bankrupts, George H. Stege and Frederick H. Stege, were engaged, in the city and county of New York, in the business of dealing in butter, eggs, etc., at wholesale, under the firm name and style of Stege & Brother. On January 27, 1900, they filed a voluntary petition of bankruptcy in the district court, with liabilities of $67,232.49 and assets of $20,729.66, and upon the same day were duly adjudicated bankrupts. Among their liabilities there was an indebtedness of $40,000 to the New York County National Bank for money loaned upon four promissory notes for $10,000 each. The money was loaned to the bankrupts and the notes were originally given as follows:

'April 26, 1899, $10,000, 6 months, due October 26, 1899.

'April 26, 1899, $10,000, 7 months, due November 26, 1899.

'June 26, 1899, $10,000, 4 months, due October 26, 1899.

'August 2, 1899, $10,000, 4 months, due December 2, 1899.

'None of these notes were paid when they fell due, but were all renewed as follows:

'October 26, 1899, $10,000, 3 months, due January 26, 1900.

'November 26, 1899, $10,000, 75 days, due February 9, 1900.

'October 26, 1899, $10,000, 3 months, due January 26, 1900.

'December 2, 1899, $10,000, 69 days, due February 9, 1900.

'On January 23, 1900, in the morning, the bankrupts went to the New York County National Bank and asked the officers to have the two notes of $10,000 each, which fell due on January 26, extended. The bankrupts at that time informed the bank officers that they were unable to pay the notes then about to fall due. In the afternoon of the same day, January 23, 1900, the bankrupts again called upon the bank officers, and at that time they delivered to them a statement of their assets and liabilities, which statement was not delivered until after the deposit of $3,884.47 had been made on that day. This statement as of January 22, 1900, showed their assets to be $19,095.67 and their liabilities $65,864.61.

'The bankrupts kept their bank account in the New York County National Bank since May 6, 1899. On January 22, 1900, their balance in the bank was $218.50. On the same day they deposited in that account $536.83; on January 23, 1900, $3,884.47; on January 25, 1900, $1,803.95, making a total of $6,225.25 deposited in the three days mentioned. Of this amount there was left in the bank account on the day of the adjudication in bankruptcy, January 27, 1900, the sum of $6,209.25, the bank having honored a check of Stege Brothers after the date of all these deposits.

'At the first meeting of creditors, February 9, 1900, the New York County National Bank filed its claim for $33,790.25.

'In its proof of claim the bank credited upon one of the notes which became due on January 26, 1900, the deposit of $6,209.25. The claim was allowed by the referee in the sum of $33,750.25, being $40,000 less the amount on deposit in bank ($6,209.25) and a small rebate of interest on the unmatured notes. Some of the creditors at this meeting reserved the right to move to reconsider the claim of the New York County National Bank; the referee granted this request. Afterwards the trustee, as the representative of the creditors, moved before the referee to disallow and to expunge from his list of claims the claim of the New York County National Bank unless it surrendered the amount of the deposit, namely, $6,209.25, which had been credited by the bank upon one of the notes. The referee denied that motion, and an appropriate order was made and entered. The trustee thereupon duly filed his petition to have the question certified to the District Judge. The District Judge on the 25th day of November, 1901, made an order affirming the order of the referee. From that order an appeal was duly taken by the trustee to the circuit court of appeals. The deposits were made in the usual course of business; at the time they were made Stege Brothers were insolvent.'

As a conclusion of law, the court of appeals held that the deposit would amount to a transfer enabling the bank to obtain a greater percentage of the debt due to it than other creditors of the same class, and that allowance of the claim should be refused unless the preference was surrendered. This case requires an examination of certain provisions of the bankrupt law. Section 68 of that law provides:

'Sec. 68. Set-offs and counterclaims:

'(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.

'(b.) A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate, or (2) was purchased by or transferred to him after the filing of the petition or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy.'

Section 60 provides (prior to the amendment of February 5, 1903):

'Sec. 60. Preferred creditors: a. A person shall be deemed to have given a preference if, being insolvent, he has . . . made a transfer of any of his property, and the effect of the . . . transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.'

Section 57g provides (prior to amendment of February 5, 1903): 'Claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences.' [30 Stat. at L. 560, chap. 541, U. S. Comp. Stat. 1901, p. 3443.]

Considering, for the moment, § 68, apart from the other sections, subdivisionsa contemplates a set-off of mutual debts or credits between the estate of the bankrupt and the creditor, with an account to be stated and the balance only to be allowed and paid. Subdivision b makes certain specific exceptions to this allowance of set-off, and provides that it shall not be allowed in favor of the debtor of the bankrupt upon an unproved claim or one transferred to the debtor after the filing of the petition in bankruptcy, or within four months before the filing thereof, with a view to its use for the purpose of set-off, with knowledge or notice that the bankrupt was insolvent or had committed an act of bankruptcy. Obviously, the present case does not come within the exceptions to the general rule made by subdivision b. It cannot be doubted that, except under special circumstances, or where there is a statute to the contrary, a deposit of money upon general account with a bank creates the relation of debtor and creditor. The money deposited becomes a part of the general fund of the bank, to be dealt with by it as other moneys, to be lent to customers, and parted with at the will of the bank, and the right of the depositor is to have this debt repaid in whole or in part by honoring checks drawn against the deposits. It creates an ordinary debt, not a privilege or right of a fiduciary...