Wright v. Seaboard Steel & Manganese Corporation

• Decision Date: 23 February 1921
• Docket Number: 174.
• Citation: 272 F. 807
• Parties: WRIGHT v. SEABOARD STEEL & MANGANESE CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

272 F. 807

WRIGHT v. SEABOARD STEEL & MANGANESE CORPORATION.

No. 174.

United States Court of Appeals, Second Circuit.

February 23, 1921

Baker &amp Obermeier, of New York City (Irving Lachenbruch, of New York City, of counsel), for appellant.

Williams E. Sims, of New York City, for appellee.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS Circuit Judge.

This is an appeal from an order denying motion of the receiver of the Seaboard Steel & Manganese Corporation, hereafter referred to as the Seaboard, for an order requiring the Merchants' National Bank of the City of New York, hereafter referred to as the bank, to turn over and pay to him the sum of $5,324.83 alleged to be unlawfully withheld by it.

It appears that the petition of the receiver sets up his appointment on August 13, 1919, and alleges that on December 30, 1918, the Merchants' National Bank loaned defendant $200,000 on its promissory note, secured by the deposit of certain ores with trustees; that the amount of said note was from time to time reduced by the sale of portions of the pledged ore, and was subsequently renewed at a reduced amount, the new note coming due on September 29, 1919; that on the date of the receiver's appointment, August 13 1919, defendant had on deposit with the bank $5,324.83, which sum on August 15, 1919, and after due notice of the receiver's appointment and service of the order upon it the bank applied in part payment of the note.

The answer of the Merchants' Bank in general admits the allegations of the petition, but denies, inter alia, that the note had not become due and payable on August 13, 1919. In addition, three separate defenses are interposed. The first defense alleges a loan of $18,000 made by the bank to defendant on July 21, 1919, secured by defendant's note for that amount of even date and payable in 90 days, that the said note by its terms gave the bank a lien upon all moneys of the defendant deposited with it for the payment of all claims of the bank against defendant then existing or thereafter arising, and further gave the bank the right at its option to apply such deposits to the extinguishment of any or all notes or other obligations, and expressly provided that in the event of insolvency or on the occurrence of anything evidencing the insolvency of defendant, all notes, claims, and liabilities should become and be immediately due and payable without notice or demand of payment; that at the time the $18,000 note was executed the bank was and still is the holder of the note described in the petition; that there is still due thereon an amount in excess of $5,324.83; that on August 12, 1919, defendant was and ever since has been insolvent; that such insolvency is alleged in the bill of complaint and admitted in the answer; and that on August 12, 1919, defendant had on deposit with the bank $5,324.83, which sum on August 15, 1919, the bank applied upon the note described in the petition. The second defense is similar to the first, except that the note is counted on as an agreement, and the third defense is similar to the second, except that the allegations regarding defendant's insolvency are omitted.

The court below held that by the terms of the note of $18,000 executed on July 21, 1919, that note together with all notes, claims, and liabilities held by the bank against the debtor became immediately due and payable, and that the bank had a lien upon the balance of any account of the debtor, and had the right to apply the same upon account of any of the notes. It accordingly denied the motion of the receiver that the bank be required to turn over the sum of $5,324.83, which it was claimed the bank had appropriated to its own use in violation of the order made by the court when the receiver was appointed and which enjoined all persons from doing any act whatsoever to interfere in any way with the possession and management by the receiver of the property assets and effects of the Seaboard.

The note for $18,000 dated July 21, 1919, by its terms among other things provided that the bank should thereby be given a lien upon the balance of any account of the Seaboard with the bank, for the payment of the note and of all other claims or liabilities owned by the bank against said corporation which then existed or which thereafter might exist or arise in the bank's favor; that the bank or its president or cashier might at any time at its or his option apply to the extinguishment of the note and of any or all other notes, claims, or liabilities of or against said corporation owned by the bank any moneys on deposit to the credit of said corporation with the bank; and that in the event of insolvency, or on the occurrence of anything evidencing the insolvency of the corporation all such notes, claims, or liabilities should become and be immediately due and payable without notice or demand of payment.

At the time that note was executed and at all times thereafter the bank has been the owner of that note, and there is now due and owing thereon an amount largely in excess of $5,324.83. The receiver was appointed late in the day on August 13, 1919. On the following day, August 14, 1919, the bank was served with a copy of the order appointing him including the injunction provisions. On the day of the receiver's appointment neither the note dated June 30, 1919, for $176,325.62, nor the note dated July 21, 1919, for $18,000 had matured. On August 15, 1919, the bank applied the balance in its hands to the credit of the Seaboard, amounting to $5,324.83 for payment on the note dated on June 30, 1919, which by its terms was to mature on September 29, 1919.

It is claimed that no right of offset existed in the bank until the note matured. This court in Fifth National Bank of City of New York v. Lyttle, 250 F. 361, 162 C.C.A. 431, held that a bank has no lien on the general deposit of a customer for an unmatured indebtedness to it. The doctrine...