Court Opinion

ID: 5237390
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:17:07.113747+00
Date Added: 2024-06-11T08:27:45.238887
License: Public Domain

Scott, J.:
The plaintiffs appeal from an order overruling a demurrer to the second separate defense contained in the answer. The plaintiffs are the ■ trustees in bankruptcy of the New York Commercial' Company, a Virginia corporation. They "sue to recover a balance of $46,062.33 which, said corporation had on deposit with defendant. at the; time, of the bankruptcy. The sum represents a part of the proceeds of five notes for $1-0,000 *527each which had been discounted by defendant in December, 1912, and which are now held by the defendant, and all of which, save one, had matured when the Commercial Company became bankrupt. By the defense demurred to the defendant seeks to offset the amount of these notes against its indebtedness upon the deposit account. It is conceded that under the Federal Bankruptcy Act, unmatured as well as matured claims are provable against a bankrupt’s estate, and may be offset by a bank in a case like the present. (Frank v. Mercantile National Bank, 182 N. Y. 264.) The plaintiffs claim, however, that this rule is not applicable to the present case because of an action which had been instituted against the Commercial Oorqpany before it became a bankrupt. On February 15, 1913, a creditor’s action was commenced against the Commercial Company in Virginia by a general creditor for the benefit of himself and others creditors similarly situated. In this action a receiver of the assets of the Commercial Company was appointed in Virginia and an ancillary receiver in this State. The receiver made a demand on defendant for the amount due to the Commercial Company, but brought no suit, and on April 12, 1913, less than four months after the appointment of the receiver, the Commercial Company went into bankruptcy and plaintiffs were appointed trustees. None of the notes now sought to be set off had matured when the receiver was appointed in the action in Virginia, and the plaintiff’s claim is that by the institution of the action in Virginia and the appointment of a receiver therein, the creditors represented by such receiver acquired a specific hen upon all of the bankrupt’s property which passed to the trustees in bankruptcy under subdivisions c and f of section 67 of the Bankruptcy Act (30 U. S. Stat. at Large, 564, 565), and that with that lien there also passed to the trustees in bankruptcy the immunity against the offset of unmatured claims, which, as it is said, is provided by the law of this State. (See Fera v. Wickham, 135 N. Y. 223.) The section-of the Bankruptcy Act thus relied upon read as follows: “ Sec. 67. Liens.— * * * “c. A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was *528begun against a person within four months before the filing; of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt, if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant, was insolvent and in contemplation of bankruptcy, or (3) that, such lien was sought and permitted in fraud of the provisions, of this act; or if the dissolution of such lien would militate, against the best interests of the estate of such person the same, shall not be dissolved, but the trustee of the estate of such person, for the benefit of the estáte, shall Ije subrogated to the, rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened. * * *
“f. That all levies, judgments, attachments, or other liens,, obtained through legal proceedings against a person who is. insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same,, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right: under such levy, judgment,' attachment, or other lien shall be. preserved for the benefit of the estate; and thereupon the same, may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect: Provided, That nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without, notice or reasonable cause for inquiry.” ■
In our opinion this section has no applicability to the case presented on this appeal. The receiver took no title to- the.-, assets of the Commercial Company. His sole function was to, *529collect them and to hold them subject to the disposition of the court by which he was appointed. Therefore, he had no title to convey to the trustees in bankruptcy, and the conveyance which he made to them under the order of the Bankruptcy Court carried nothing and added nothing to the title which the trustees already had by virtue of their appointment. The provision in the Bankruptcy Act for transferring a lien to the trustees in bankruptcy for the benefit of the estate was intended to meet a case where such a transfer would perfect the trustees’ title. In the present case nothing of the sort was necessary because the trustees already had all the title, and any claim the creditors might have acquired by the institution of their suit was in no sense antagonistic to the title of the trustees.
Furthermore, while it is sometimes loosely said that the institution of a general creditors’ suit and the appointment of a receiver therein creates a lien upon the debtor’s estate, this, as we consider, is not strictly accurate. Certainly no specific lien is established thereby such as is referred to in the section of the Bankruptcy Act above quoted.
The order appealed from must be affirmed, with ten dollars costs and disbursements, with leave to plaintiffs to withdraw the demurrer and reply to the counterclaim contained in the answer, upon payment of costs in this court and in the court below.
Ingraham, P. J., Clarke and Dowling, JJ., concurred.