Opinion ID: 576265
Heading Depth: 4
Heading Rank: 3

Heading: Bankruptcy cases

Text: 38 Our holding is also buttressed by analogy to a line of bankruptcy cases involving payments to creditors of insolvent estates by third parties. 10 These cases establish that payment to a creditor of an insolvent estate by a source other than the estate does not create a preference, and any equal treatment required is based upon the creditors' share of the estate, not on benefits received from the collateral source. This proposition was established in two early Supreme Court cases. See National Bank of Newport v. National Herkimer Co. Bank, 225 U.S. 178, 32 S.Ct. 633, 56 L.Ed. 1042 (1912); Continental & Commercial Trust & Sav. Bank v. Chicago Title & Trust Co., 229 U.S. 435, 33 S.Ct. 829, 57 L.Ed. 1268 (1913). In National Herkimer, the Court noted that unless the creditor takes by virtue of a disposition by the insolvent debtor of his property for the creditor's benefit, so that the estate of the debtor is thereby diminished, the creditor cannot be charged with receiving a preference by transfer. 32 S.Ct. at 635. 39 Federal courts have expounded on this basic principle. In Virginia Nat'l Bank v. Woodson, the court noted that the test of whether a preference has occurred is not what the creditor receives but what the bankrupt's estate has lost because [i]t is the diminution of the bankrupt's estate, not the unequal payment to creditors, which is the evil sought to be remedied by the avoidance of a preferential transfer. 329 F.2d 836, 840 (4th Cir.1964). The Eighth Circuit has held, under this principle, that payments made to a debtor's creditors by an endorser, surety, guarantor, or payor in a business relationship with the debtor are not preferences because there is no transfer and resulting diminution of the debtor's estate. See Brown v. First Nat'l Bank of Little Rock, Ark., 748 F.2d 490 (8th Cir.1984); DeAngio v. DeAngio, 554 F.2d 863 (8th Cir.1977). 40 We find similar reasoning persuasive here. FDIC Receiver, on the insolvency of a bank, succeeds to the bank's estate and stands in the shoes of the debtor. See Downriver Comm. Fed. Credit Union v. Penn Square Bank, 879 F.2d 754 (10th Cir.1989) (noting that the FDIC takes control of an insolvent bank subject to the rights and equities existing prior to insolvency), cert. denied 493 U.S. 1070, 110 S.Ct. 1112, 107 L.Ed.2d 1019 (1990). Just as a payment to a creditor by an individual acting as surety or guarantor of a debtor does not constitute a preference, neither does payment to a creditor by the FDIC in its corporate capacity. 11 Therefore, FDIC Corporate's contributions of $900 million to TAB Fort Worth and other TAB subsidiary banks that enabled some creditors to receive 100% of their claims are not preferential transfers that the plaintiff TAB banks can avoid and claim as assets to be distributed by FDIC Receiver.