Court Opinion

ID: 9639415
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:16:49.259591+00
Date Added: 2024-06-11T17:16:09.682144
License: Public Domain

NORTHCOTT, Circuit Judge
(dissenting).
I cannot concur in the foregoing opinion. It seems to me that the admitted circumstances of this ease load to the conclusion that there was what amounted to at least a legal fraud. The president of the appellant bank was a brother-in-law of Kirby, one of the officers of the bankrupt company. The president of the bank, together with the attorney for the bankrupt company, which attorney was also a director of the hank and a member of its finance committee, were called into-*532conference with the officers of the bankrupt company with regard to the financial difficulties of the bankrupt. At this conference a certain course of action was agreed on. With the knowledge of what occurred at this conference the bank is certainly chargeable. The president was present and an attorney, on its board of directors and a member of the financial committee, participated and advised.
As a result of that conference a letter was sent to all the creditors of the bankrupt, and in that letter a direct promise was made that, pending the negotiations for settlement, assets of the bankrupt company would be fully protected and‘preserved in the interest of all creditors. I do not see how the bank can escape being charged with knowledge of this letter, and particularly of this promise.
On the advice of the attorney, the same attorney connected with the bank as above set out, business of the bankrupt was carried on, pending settlement, and deposits made in the appellant bank, but nothing paid out, except that which was absolutely necessary to carry on the business. No payments were made to creditors. In this way the deposits in the bank grew as to balance, abnormally with regard to the business. The deposits may perhaps be said to have been made in due course, but the account in the bank certainly was not handled in due course.
The appellant bank was fully protected on all its debts owed it by the bankrupt company by indorsement of Kirby and Warren, officers of the bankrupt company, who were personally solvent. The result of the seizure of the deposits in the bank, when negotiations for a settlement failed, was undoubtedly a preference to these solvent indorsers and not to the bank. The promise made to the creditors in letter of March 15, to which promise Kirby and Warren were parties, and as to which the bank, as I see it, would necessarily be charged with knowledge, was not carried out. The result was that assets of the bankrupt company were used to pay debts for which Kirby and Warren were liable, and the assets of the bankrupt were diminished in that amount. With regard to the $1,500 payment, it seems to me that the way the transaction was handled resulted in. Kirby securing payment of the amount the •company owed him in full, when he should have only participated as creditor, as to the amount of his debt, and that there, 'as in the case of the deposit seized, the assets of the bankrupt were diminished in the sum of $1,-500, and the transaction amounted to an illegal preference to Kirby.
For these reasons I am of the opinion that deposits made in the bank were not deposits made in .the regular course of business, but were really payments made on a debt upon which Kirby and Warren, officers of the bankrupt, who, in view of all the circumstances, especially in view of the letter of March 15, stood in a trust-relationship to the-creditors, were liable as indorsers. The whole transaction was apparently used as a cloak to cover what was, at least, a legal fraud, the result of which was to give a preference to the officers of the bankrupt company over the other creditors. I am of the opinion that the charge of the court below was in every respect correct, and that the judgment should be affirmed.