Source: https://casetext.com/case/florida-trailer-and-equipment-company-v-deal
Timestamp: 2020-04-08 15:46:44
Document Index: 717536978

Matched Legal Cases: ['§ 27', '§ 27', '§ 50', '§ 60', '§ 96', '§ 27', '§ 50', '§ 27', '§ 27', '§ 27', '§ 27', '§ 68', '§ 108', '§ 68']

Florida Trailer and Equipment Company v. Deal, 284 F.2d 567 | Casetext Search + Citator
Florida Trailer and Equipment Company v. Deal
Matter of Jackson Brewing Co.
We must remember that compromises are "a normal part of the process of reorganization," Case v. Los Angeles…
); Ashbach v. Kirtley, 289 F.2d 159 (8th Cir. 1961) (following the factors in Drexel v. Loomis); 2A Collier…
Full title:FLORIDA TRAILER AND EQUIPMENT COMPANY, Appellant, v. Wiley R. DEAL, as…
Date published: Nov 23, 1960
284 F.2d 567 (5th Cir. 1960)
affirming approval of bankruptcy settlement under § 27
Summary of this case from Matter of Jackson Brewing Co.
Truman Hobbs, Montgomery, Ala., Douglas Brown, Ozark, Ala., Brown Steagall, Henry B. Steagall, II, Ozark, Ala., Hugh R. Dowling, Jacksonville, Fla., for appellant.
J. Robert Ramsey, W.G. Hardwick, G.M. Harrison, Dothan, Ala., for appellees.
This matter started as a formal application by the Trustee under § 27 of the Bankruptcy Act, 11 U.S.C.A. § 50, for leave to settle all controversies (save one specifically excepted) between the Bankruptcy Estate and the City National Bank of Dothan, Alabama. The application recited that there was then pending in the same Federal District Court the Trustee's plenary suit against the Bank. The application annexed copies of that complaint which in turn incorporated a series of chattel mortgages by the Bankrupt to the Bank and assignments of installment sales, chattel mortgages presumably executed by purchasers of trucks or trailers from the Bankrupt. It set forth that within four months of bankruptcy the Bank received one payment in cash ($6,000) and took possession of specified vehicles on which it claimed to be the mortgagee or assignee under the chattel mortgages. The theory of the Trustee's plenary suit was that by failure of the Bankrupt properly to record the mortgages they were not perfected under applicable state law and were therefore deemed to have been perfected immediately before the filing of the involuntary bankruptcy petition. This, it was asserted, on familiar principles would constitute the payment of an antecedent debt and a voidable preference under § 60, 11 U.S.C.A. § 96, because of the known insolvency of the Bankrupt. The suit sought recovery of the cash payment and in effect cancellation of the mortgages and the restoration of the property (or payments) held by the Bank as a secured creditor. The Trustee's § 27 application sought approval of a tentative settlement reached between the Estate and the Bank. The substance of it was that the Bank would restore the $6,000 payment to the Bankrupt and the Bank would withdraw its claim as a secured creditor thus effectually restoring to the Estate the value of the accounts receivable (or the security) represented by the assigned chattel mortgage installment sales contracts.
"The receiver or trustee may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interest of the estate." 11 U.S.C.A. § 50.
As we stated in the beginning, the gauge was accepted on the basis of this objection. The battle lines were drawn on it. Almost all of the evidence bore solely on it. Whatever deficiency there might have been in the Trustee's § 27 application occasioned by the omission of a specific reference to any such potential claim was either waived, 2 Collier, Bankruptcy § 27.03 at 1088 (14th ed. 1956), or more properly the issues were expanded by implied consent. F.R. Civ.P. 15(b), 28 U.S.C.A.; General Order 37; Bixby v. First National Bank of Elwood, 7 Cir., 1958, 250 F.2d 713, certiorari denied 356 U.S. 958, 78 S.Ct. 994, 2 L.Ed.2d 1065. It is likewise immaterial that — as now urged by appellant — the Trustee's underlying plenary suit did not assert any such claim against the Bank since the implied evaluation of this asserted potential claim became the principal subject of the hearing. The right and power of the Trustee to settle subject to court approval extends to controversies and not merely those involved in pending suits. 2 Collier, Bankruptcy § 27.02 at 1083 (14th ed. 1956); Matter of Towers Magazines, Inc., D.C.Pa. 1939, 27 F. Supp. 693.
The proof offered to sustain this was largely an accountant's analysis of the Bankrupt's checking account over a period of about six months. Neither the Bank's ledger nor the Bankrupt's bank statements showing daily withdrawals and deposits ever reflected an overdraft as such. But this analysis did show that on many days large amounts of checks would be presented to the Bank through clearing house channels for payment. Frequently the opening balance of the Bankrupt was nominal so the checks could not be honored. Checks in excess of the Bankrupt's balance would either be held or returned. The "held" checks would simply be held from periods of one to two days, but not in excess of the time allowed under the Federal Reserve rules. The Bankrupt would then make a deposit of checks of third persons in sufficient amount to cover the "held" checks whereupon they would be accepted and honored. The Bank made a charge of $1.00 for each of the checks returned or held.
For example, the "held" checks for the period December 17, 1957-December 31, 1957, totaled $544,032.68. For ten banking business days this was an average of $54,403.27. Those for January totaled $646,981.04 or an average for twenty-four banking days of $26,957.54.
"Any check which the Federal Reserve Bank or agent thereof presents to drawee bank for payment or sends to the drawee bank for collection, and for which remittance or settlement is made by drawee bank on the day which it receives³ such check, may be returned for credit or refund at any time prior to midnight of the drawee's next business day following such day of receipt, or prior to the time provided by applicable clearing house rules, or special collection agreement, whichever is earlier, except this paragraph shall not apply to checks presented over the counter.
It was the Bank's theory that there is no overdraft until a check has been paid, that is, accepted. American Surety Co. of New York v. First National Bank, D.C.N.D.W.Va. 1943, 50 F. Supp. 180, at page 183; State v. Jackson, 21 S.D. 494, 113 N.W. 880; 7 Am.Jur. 442. Holding a check for a limited time until the drawer's account would be sufficiently replenished by deposits to permit its being honored would not constitute payment. Consequently, it asserted, since the Bank had not yet honored the check and it would not have any liability as drawee thereon until it was accepted, there was no extension of credit and hence no debtor-creditor relationship. The Objecting Creditor, on the other hand, insisted that while normally acceptance by the drawee bank is required to constitute an overdraft, this total course of dealing showed irrevocably that the Bank was extending credit almost daily by the repeated holding of checks until, by a questionable, if not spurious, practice the Bankrupt would ostensibly replenish his account by checks which were known to be kited or swapped. Regardless of the form, then, this was the equivalent of an acceptance constituting an overdraft which would give rise to a debtor-creditor relation. Hennessy Bros. Evans Co. v. Memphis National Bank, 6 Cir., 1904, 129 F. 557; Becker v. Fuller, 1917, 99 Misc. 672, 164 N.Y.S. 495; City of Pittsburg v. First National Bank, 1911, 230 Pa. 176, 79 A. 406; Vandagrift v. Masonic Home, 1912, 242 Mo. 138, 145 S.W. 448.
To effectuate this statutory and general policy, it is not surprising that the underlying principle is so simply and universally stated. "The decision of the referee in bankruptcy as to the approval or disapproval of a compromise agreement rests upon his sound discretion. Such a decision is reviewable by the district judge, but will normally not be set aside except where there is a plain error or abuse of discretion." 2 Collier, Bankruptcy § 27.05 at 1091 (14th ed. 1956); Drexel v. Loomis, 8 Cir., 1929, 35 F.2d 800. And after affirmance of the Referee's approval by the District Court that order will not "be reversed by the circuit court of appeals unless discretion has been abused." Ibid. Scott v. Jones, 10 Cir., 1941, 118 F.2d 30, 32; In re California Associated Products Co., 9 Cir., 1950, 183 F.2d 946; Connecticut Railway Lighting Co. v. New York, N.H. H.R. Co., 2 Cir., 1951, 190 F.2d 305; Hair v. Byars, 5 Cir., 1937, 92 F.2d 684, 686; In re Prudence Co., 2 Cir., 1938, 98 F.2d 559; S.F. Bros. Co. v. Wiseman, 6 Cir., 1957, 244 F.2d 73.
Moreover, the uncertainty in law and fact was not confined to the basic novel issue without which there would be no bank liability whatsoever. Assuming the Trustee would have been successful in establishing a debtor-creditor relation because of these repeated vicarious "overdrafts," the Bank nevertheless had the formidable advantage of claiming a § 68, sub. a, 11 U.S.C.A. § 108, sub. a, setoff. It has been pointed out that "the result is that the bank fares better than other creditors of the Bankrupt not similarly situated. * * *" 4 Collier, Bankruptcy § 68.16 at 760 (14th ed. 1942). To be sure such deposits must be made in good faith and in the regular course of business. Merely to state that standard is to recognize the inescapable uncertainty inherent in facts relating to it. If the deposit is not made in good faith or in the regular course of business, the right of setoff is not available. Elliotte v. American Savings Bank Trust Company, 6 Cir., 1927, 18 F.2d 460. But if the facts ultimately satisfy this standard, then deposits may be properly used to apply on any debts due the Bank. Here the Referee found that Banks generally notify their customers of deficiencies and frequently retain checks for the time permitted under the rules to enable the customer to make deposits out of which payment can be made.
Continental Commercial Trust Savings Bank v. Chicago Title Trust Co., 1913, 229 U.S. 435, 33 S.Ct. 829, 57 L.Ed. 1268; Gruenwald v. Moir Hotel Co., 7 Cir., 1938, 96 F.2d 932, certiorari denied 305 U.S. 615, 59 S.Ct. 74, 83 L.Ed. 392; Joseph F. Hughes Co. v. Machen, 4 Cir., 1947, 164 F.2d 983; Ribaudo v. Citizens National Bank of Orlando, 5 Cir., 1958, 261 F.2d 929, 933.
explaining that it is "the policy of the law generally to encourage settlements"
Summary of this case from 1818 Farms, LLC v. Plum Island Soap Co.
noting that Congress "infused" the trustee with settlement authority to avoid wasteful litigation and expense
Summary of this case from In re Harbour East Dev., Ltd.