The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918. Page: 366
xv, 1025 p. ; 23 cm.View a full description of this legislative document.
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250 FEDERAL REPORTER
the bank and its depositors on September 20th was still that of debtor
and creditor, and on that day it had no lien on the funds deposited
for debts not yet matured. Jordan v. National Shoe & Leather Bank,
74 N. Y. 467, 472, 473, 30 Am. Rep. 319. The above case shows that
such is the law of the state of New York, and the validity of the lien
on the property of the bankrupt is to be determined according to the
local law. Black on Bankruptcy, p. 717; Collier on Bankruptcy (9th
Ed.) pp. 908 (b), 912 (c); Remington on Bankruptcy (2d Ed.) vol. 2,
1459. There being no lien in favor of the bank on September 20th,
no reason existed to prevent the Wills & Marvin Company from with-
drawing on that day the whole of its deposit.
The right of withdrawal existed, for on that day the bank could not
have exercised a right of set-off, any more than it could have asserted
a lien. The bank has called our attention to the decisions of the Su-
preme Court recognizing the right of a bank to set off a balance due
from it against notes of the bankrupt held by it. But in New York
County National Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48
L. Ed. 380, the right of set-off was exercised by the bank after the
petition in bankruptcy was filed. And in Studley v. Boylston Bank,
229 U. S. 523, 33 Sup. Ct. 806, 57 L. Ed. 1313, the bank, a few months
prior to the adjudication in bankruptcy had charged against the de-
positor's account certain notes as they had matured, which had been
made by the depositor and held by the bank. The deposits had been
made in good faith, in the usual course of business, and with no pur-
pose of enabling the bank to secure the right of set-off. The court, in
sustaining the right of the bank to do what it did, said:
"If this set-off of mutual debts has been lawfully made by the parties be-
fore the petition is filed, there is no necessity of the trustee doing so. If it
has not been done by the parties, then, under command of the statute, it
must be done by the trustee. But there is nothing in section 68a which pre-
vents the parties from voluntarily doing, before the petition is filed, what the
law itself requires to be done after proceedings in bankruptcy are instituted."
These cases differ from the case at bar, and it is now argued that
the right of set-off existed at a date when the notes which the bank
held had not matured and prior to the adjudication of bankruptcy.
We are not aware that any such application of the doctrine is supported
by any Supreme Court decision. We think it is not the law. The bank
had no right to set off the unmatured notes until after the bankruptcy
proceedings were commenced. Heyman v. Third National Bank (D.
C.) 216 Fed. 685, 687; In re Starkweather and Albert (D. C.) 206
Fed. 797. There was no error, therefore, in the referee's conclusion
that no right of set-off existed under the facts of this case.
There remains the question as to the right of the defendant bank
to participate in dividends. The defendant asserts in its brief that it is
entitled to retain its dividends from and out of any recovery by the
trustee. The right of defendant to participate in dividends is not
challenged by the plaintiff, and the matter can be safely left to the
bankruptcy court, to dispose of in accordance with the established
rules.
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The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918., legislative document, 1918; Saint Paul, Minnesota. (https://digital.library.unt.edu/ark:/67531/metadc38821/m1/381/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.