Toof v. City Nat. Bank of Paducah, Ky.

• Decision Date: 03 June 1913
• Docket Number: 2,305.
• Citation: 206 F. 250
• Parties: TOOF v. CITY NAT. BANK OF PADUCAH, KY.
• Court: U.S. Court of Appeals — Sixth Circuit

206 F. 250

TOOF v. CITY NAT. BANK OF PADUCAH, KY.

No. 2,305.

United States Court of Appeals, Sixth Circuit.

June 3, 1913

Bradshaw & Bradshaw, of Paducah, Ky., for appellant.

Wheeler & Hughes, of Paducah, Ky., for appellee.

On July 29, 1909, the bankrupt borrowed from the bank on its demand note $2,285 for the purpose of taking up a draft, then in the bank for collection, attached to a bill of lading for three automobiles which had been shipped to Paducah, with instructions to deliver to bankrupt on surrender of bill of lading. On the back of the note was the following indorsement, signed by the bankrupt: 'The within note is secured by the pledge and deposit of the following securities, to wit: three Ford motor cars, as per bill of sale attached. ' The invoice for the cars was at the same time delivered to the bank and attached to the note, and at the foot of the invoice the bankrupt wrote and signed 'We hereby transfer and assign the above cars to the City National Bank. ' Thereupon the bank delivered the bill of lading to the bankrupt, and the latter took the cars from the railroad station to its own place of business.

On August 23d it had sold two of the cars and deposited the proceeds in its general bank account, mingled with other funds. On that day it sold the third car for $850, but the purchaser's check therefor had not been deposited with the bank when, on August 24th, before banking hours involuntary petition in bankruptcy was filed at Louisville 150 miles from Paducah.

At the close of business on August 23d, the amount of the bankrupt's general deposit in the bank was $1,293. Shortly after the opening for business on August 24th, the bankrupt deposited the $850 check, and also $406 of miscellaneous receipts, making a total credit of $2,549. Thereupon it gave the bank its check in full payment of the note of July 29th.

August 26th an adjudication in bankruptcy was made. The trustee later filed his petition seeking to recover from the bank the $2,285 so paid. The petition was dismissed by the referee and the District Court, on petition to review, affirmed this action. The trustee brings the matter here upon appeal.

Before WARRINGTON, KNAPPEN and DENISON, Circuit Judges.

DENISON Circuit Judge (after stating the facts as above).

1. So far as concerns interests of the class here involved, when a trustee is appointed, his title is fixed, by relation, as of the time of filing the petition, and not merely as of the date of adjudication. This is made clear by Supreme Court decisions rendered since the making of the order now under review. Acme Co. v. Beekman Co., 222 U.S., [206 F. 252] 300, 32 Sup.Ct. 96, 56 L.Ed. 208; Everett v. Judson, 228 U.S. 474, 33 Sup.Ct. 568, 57 L.Ed. . . ., April 28, 1913.

2. Payment of such a debt as this by the bankrupt after filing of petition, is unauthorized, and the trustee is ordinarily entitled to recover the amount so paid. However, if the payment is one to which the creditor was entitled as against the trustee, and which the court would have directed the trustee to make, it would be a useless formality to compel its refunding to the trustee and then direct him to pay it back to the creditor. In such case, it is a proper exercise of discretion to refuse the trustee's petition.

3. At the time the petition in bankruptcy was filed, the bank was entitled to set off the $1,293 deposit against the depositor's demand note. Bank v. Massey, 192 U.S. 138, 24 Sup.Ct. 199, 48 L.Ed. 380; Bank v. Loeb (C.C.A. 6) 188 F. 285, 110 C.C.A. 263. The bank did not lose this right by accepting the depositor's check against the same account. This was not such a recognition of the depositor's general right of disposition as to be inconsistent with the lien or right to set-off which was thereby carried into effect, but was only a convenient and customary method of making the application. Walsh v. Bank (C.C.A. 6) 201 F. 522. See, also, Studley v. Bank, decided by Supreme Court June 9, 1913, 229 U.S. 523, 33 Sup.Ct. 806, 57 L.Ed. . . . .

4. It is clear that the indorsement on the note and the assignment at the foot of the invoice constituted, as between the parties, a valid contract lien upon, or pledge of, these cars and their proceeds, as security for the money then presently loaned; and that, at the moment of bankruptcy, the bank was, as between the parties, and pursuant to this lien, rightfully entitled to the $850.

However it is said that this pledge or lien cannot be enforced against the bankruptcy trustee by reason of section 1908 of the Kentucky Statutes, quoted in the margin. ^[1] This statute is as to the present question substantially equivalent to section 496. The meaning and effect of this latter section have been more than once under consideration by this court, the last time in Crucible Steel Co. v. Holt, 174 F. 127, 98 C.C.A. 101 (and see In re Martin, 193 F. 841, 113...