Case Name: Robert C. Morris, as Receiver of Simon Lindau, Trading as S. Lindau & Company, Alleged Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents; William Henkel, Jr., as Trustee of Joseph Newman, Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1913-01-24
Citations: 154 A.D. 596
Docket Number: 
Parties: Robert C. Morris, as Receiver of Simon Lindau, Trading as S. Lindau & Company, Alleged Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents. William Henkel, Jr., as Trustee of Joseph Newman, Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 154
Pages: 596–603

Head Matter:
Robert C. Morris, as Receiver of Simon Lindau, Trading as S. Lindau & Company, Alleged Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents. William Henkel, Jr., as Trustee of Joseph Newman, Bankrupt, Appellant, v. Carnegie Trust Company and Others, Respondents.
First Department,
January 24, 1913.
Bankruptcy — deposits in State trust company by receiver or trustee — preference — moneys “brought into court ” within meaning of Banking Law.
A receiver or trustee in bankruptcy who, under order of the bankruptcy court, has deposited funds in a State trust company which has been designated by the State Comptroller and under the provisions of the Bankruptcy Law, is entitled to a preference over general creditors upon the dissolution of the trust company.
Moneys so deposited are moneys 1 ‘ brought into court ” within the meaning of the Banking Law.
Ingraham, P. J., dissented, with opinion.
Appeals by the plaintiffs, Robert 0. Morris, as receiver, etc., and William Henkel, Jr., as trustee, etc., respectively, from two judgments' of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 4th day of April, 1912, in each case upon the decision of the court, rendered after a trial at the New York Special Term, dismissing the complaint.
Wallace Macfarlane, for the appellants.
Frank M. Patterson, for the respondents.

Opinion:
Scott, J.:
These two appeals involve the question whether a receiver or trustee in bankruptcy who, under order of the bankruptcy court, has deposited funds in a State. trust company which has been designated by the State Comptroller and under the provisions of the Bankruptcy Law, is entitled to a preference Over general creditors. The question Was brought before the United States District Court in Matter of Bologh (185 Fed. Rep. 825), but the district judge refused to decide it, remitting the parties to the State courts.
In 1907, upon its own application, the Carnegie Trust Company was designated as a depository for the moneys of bankrupt estates under section 61 of the Bankruptcy Act (30 U. S. Stat. at Large, 562), which reads as follows:
"Sec. 61. Depositories for Money.—a Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, as convenient as may be to the residences of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking institutions, and may from time to time as occasion may require, by like order, increase the number of depositories or the amount of any bond or change such depositories."
Under the bankruptcy practice three classes of deposits are made in the designated depositories, to wit: (1) Deposits by receivers in bankruptcy subject to withdrawal by checks signed by the receiver. (2) Deposits by trustees in bankruptcy subject to checks signed by the trustee, countersigned by the referee in bankruptcy. (3) Deposits in composition matters to the credit of the judges of the United States District Courts.
The third class has been recognized by the Carnegie Trust Company and the Superintendent of Banks, as liquidator, as special deposits in trust entitled to a preference in payment.
The deposits in question here are of the first and second classes. The Carnegie Trust Company, when these payments were made to it, was also a depository designated by the State Comptroller under section 746 of the Code of Civil Procedure, as a depository of "all funds or moneys paid into court." Section 189 of the Banking Law (Consol. Laws, chap. 2; Laws of 1909, chap. 10), referring to designated depositories, provides as follows: " All moneys brought into court by order or judgment of any .court of record may be deposited with any such corporation, that has been designated by the Comptroller of the State of New York, as provided by the Code of Civil Procedure. " And section 190 of said act (as amd. by Laws of 1909, chap. 240) provides as follows: " If dissolved by the Legislature or the court, or otherwise, the debts due from the corporation as such executor, administrator, guardian, trustee, committee or depositary shall have the preference. The court or officer making such appointment may, upon proper application, require any corporation which shall have been so appointed, to give such security as to the court or officer shall seem proper, or upon failure of such corporation to give security as required, may remove such corporation from and revoke such appointment. Such court or officer may make orders respecting such trusts and require the corporation to render all accounts which such court or officer might lawfully require if such executor, administrator, guardian, trustee, receiver, committee or depositary were a natural person. Whenever any such corporation shall be designated by the Comptroller of the State of New York as a depositary for funds and moneys paid into court, before receiving any such deposit, it shall give to the People of the State a bond in the form and manner, as provided by section forty-four of this chapter."
The plaintiffs' claim is: (a) That the preference given by section 190 of the Banking Law on the failure of a designated depositary of "moneys paid into court," deposited with it, is not confined to those cases only of moneys paid into court which are expressly provided for in the Code of Civil Procedure; (b) that the Federal courts within the State of New York come within the words "any court of record" in section 189 of the Banking Law; (c) that bankruptcy funds deposited in a State trust company are " moneys paid into court " within the meaning of those words as used in section 186 of the Banking Law, or "moneys brought into court by order or judgment of any court of record," as provided in section 189 of the Banking Law; (d) if these three points are established, then the plaintiffs are entitled to the preference given to such funds by the provisions of section 190 of the Banking Law.
As to the words " as provided by the Code of Civil Procedure," it is claimed by plaintiffs and conceded by defendant that they do not affect the question now under consideration, and are to be taken merely as qualifying the designation by the Comptroller.- If these moneys would have been entitled to a preference in payment if deposited in the trust company by a receiver or trustee appointed by a State court, and in obedience to an order of such court, I think it must follow that they are equally entitled to a preference when deposited under an order of the bankruptcy court, for the District Courts of the United States are unquestionably courts of record, and, therefore, within the letter of section 189 of the Banking Law. No doubt it was competent for the Bankruptcy Court to designate as depositories State institutions which had not been designated by the State Comptroller under the provisions of the Code of Civil Procedure, but that is not this case, and it is not unreasonable to assume that the Carnegie Trust Company was designated as a depository in bankruptcy because it had been designated by the State Comptroller and, therefore, presumably, fell under the provisions of the State Banking Law as to preferential payment of trust deposits.
A question has arisen whether moneys received by a trustee or receiver under authority of a court, whether Federal or State, are moneys "paid into court" or moneys "brought into court." I think they clearly are. The words "moneys paid into court " mean nothing different from moneys which have come by operation of law into custodia legis, and it does not matter, in my opinion, whether the moneys have actually come into the custody of the court itself, or of its clerk or of any other officer of the court, which trustees and receivers in bankruptcy undoubtedly are. The question arose in Ex parte Prescott (19 Fed. Cas. 1283) wherein a ship had been captured and sold as a prize, and the proceeds deposited by the marshal in a bank designated by the court. The clerk of the court claimed a fee by virtue of an act allowing him a percentage on all "moneys deposited in court." The court, per Story, J., held: " ' Money 'deposited in court ' cannot mean money brought in and deposited sedente curia, in the actual manual possession of the court. Such a construction would be against all practice as well as all legal reasoning. It must, therefore, mean money which is deposited subject to the order of the court, be it in whose actual possession it may, whether of a barde or of an officer of the court. In such a case the bank or officer acts as the mere fiduciary or depositary of the court, and, in legal contemplation the money is in the custody of the court." •
Trustees and receivers in bankruptcy are expressly declared to be officers of the District Court (Bankruptcy Law [30 IT. S. Stat. at Large, 544], § 1, subd. 18), and it has been held repeatedly that upon an adjudication of bankruptcy, title to the bankrupt's property becomes at once vested, in the trustee, and. placed in the custody of the bankruptcy court. (Mueller v. Nugent, 184 U. S. 1, 14; Murphy v. Hofman Co., 211 id. 564; Whitney v. Wenman, 198 id. 539, 552; White v. Schloerb, 178 id. 542. It seems to' me to be quite clear, therefore, that the moneys deposited in the Carnegie Trust Company by the appellants were " moneys paid into court" as those words are used in the Banking Law. If so I see no reason for making a distinction between State court funds and Federal court funds. They are both within the strict letter of the statute, and, as I think, within its spirit and intention.
The judgments appealed from should, therefore, be reversed and judgments awarded to the appellants as prayed for in their complaints, with costs in both courts.
McLaughlin, Laughlin and Clarke, JJ., concurred; Ingraham, P. J., dissented.