Continental Nat. Bank v. Moore

GILBERT, Circuit Judge (after stating the facts as above). The evidence makes it clear and convincing beyond any doubt that the appellant, from and after the time when its officers visited the bankrupt’s store and investigated the condition of his business, was fully aware that he was insolvent and that the payment of its claims against him would effect a preference. ■ But the appellant sets up the defense that the $36,500 so deposited with it was received by it in the ordinary course of banking business, and that on July 20, 1921, there was due and owing from the bankrupt to the appellant $31,000, and that the appellant, as it might lawfully do, set off the bankrupt’s indebtedness to it against its indebtedness to the bankrupt, thereby reducing the appellant’s indebtedness to the bankrupt to the sum of $5,500. It is sufficient, in answer to this contention, to point to the fact that the $36,500 so held by the bank was not received in the ordinary course of business between the bank and the bankrupt. It was the deposit of a third party, and it *272 was received in trust. It was deposited with instructions to pay the same to the order of the bankrupt upon receipt by the depositor of the bill of sale of the bankrupt’s property, but with the following condition : “Should attachment suit or bankruptcy proceedings be filed, or claims aggregating more than $36,500 be filed with you against the said J. A. Magassin, prior to July 20, 1921, the foregoing sum of $36,500, if same has been paid to you, is to be returned to me at my option on demand.” The money so deposited and the debt due from the bankrupt to the bank were not in the nature of “mutual credits” and “debts,” within the meaning of section 68a of the Bankruptcy Act (Comp. St. § 9652). The right of set-off attaches upon the moneys of a customer deposited with a bank “in the usual course of busines's for advances which are supposed to be made upon their credit.” Michie, Banks and Banking, § 134. As to the fund which represented the proceeds of the bankrupt’s business, the relation between the appellant and the bankrupt was not that of banker and depositor, but that of bailee and bailor. The statute' of California (Civil Code, § 3054) relied upon by the appellant is but expressive of the law merchant, and does not affect the situation. As to the funds so placed in the control of the bank it is well settled that there was no right of set-off. Libby v. Hopkins, 104 U. S. 303 , 26 L. Ed. 769 ; Alvord v. Ryan, 212 Fed. 83 , 128 C. C. A. 539 ; Lehigh Valley Coal Sales Co. v. Maguire, 251 Fed. 581 , 163 C. C. A. 575 ; First Nat. Bank v. Harper, 254 Fed. 641 , 166 C. C A. 139. All the elements of a voidable preference are found here. There was a transfer to the appellant of the bankrupt’s money. A transfer includes every method of parting with property as a payment. Bankruptcy Act, § 1, subd. 25 (Comp. St. § 9585). In order to make a “transfer,” it is immaterial in what form the payment is made, whether by cash, or check, or order. Fox v. Gardner, 21 Wall. 475 , 22 L. Ed. 685 ; Mechanics’ Bank v. Ernst, 231 U. S. 60 , 34 Sup. Ct. 22, 58 L. Ed. 121 ; In re The Reader (D. C.) 190 Fed. 624 . Here it was accomplished by the appellant’s cashier’s check. It was done within four months prior to bankruptcy. At the time of the transfer the bankrupt was hopelessly insolvent. The transfer operated as a preference, whereby the bank would be enabled to obtain a greater percentage of its debt than other creditors of the same class would receive. The appellant and its officers, not only had reasonable cause to believe, but they had positive knowledge, that the enforcement of the transfer would effect a preference. The decree is affirmed."