Court Opinion

ID: 6857678
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:44:22.29491+00
Date Added: 2024-06-11T16:05:11.379365
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(concurring).
While I agree with the result reached in the opinion of Judge CHASE, my reasons are different.
The $30,000 which Sparler obtained from the Mount Vernon Trust Company through the use of his own funds was represented by a draft drawn to his order and indorsed over by bim to the bank. I think it was plainly transferred with the single object of relieving himself to that extent from liability on the notes held by the bank which he had indorsed. Whether or not his indorsement resulted in placing a legal title in the bankrupt is, in my opinion, quite immaterial. Even if such was its effect, the title would be a bare legal title charged with a fiduciary obligation on the part of the bankrupt to Sparler to employ the cheek only in liquidation pro tanto of notes on which Sparler was liable as indorser. In First National Bank of Danville v. Phalen, 62 F.(2d) 21, the Circuit Court of Appeals of the Seventh Circuit dealt with a situation just like the present. There the trustee in bankruptcy of Adam P. Eaton sued a bank to recover an alleged preferential payment of $3,000 made to the bank within four months of bankruptcy. The hank held Adam Eaton’s note for $7,500, whereon his brother Bert Eaton and one Pugh were sureties. Adam and Bert came to the hank when the note was due and produced ehecks aggregating $3,000 derived from Bert Eaton’s own funds which he had drawn to the order of Adam Eaton and which the latter indorsed over to the bank. There was evidence that Adam was insolvent at the time of the payment and that such insolvency was known to the bank. Judge Alsehuler, writing for the court, said:
“From this record it is not supposablc that Bert raised this money to let Adam have it as general assets in his hands to which his general creditors might resort. It is perfectly plain that he raised the money to he paid on this note to the bank, thus relieving himself to that extent from liability, and for no other purpose whatever.
“What difference then does it make whether the cheeks were handed directly to the hank, or that they went through the form of having Adam indorse the insurance company’s check, as well as Bert’s own cheek which had been drawn payable to Adam ? The thing to be effected was the payment to the bank, to apply upon .the note, of money which came from Bert, and whereby Bert was to that extent to be relieved from his liability to the bank. The form is immaterial.”
In Citizens’ Nat. Bank of Gastonia v. Lineberger, 45 F.(2d) 522, the Circuit Court of Appeals of the Fourth Circuit under circumstances almost identical with the present likewise reached the conclusion that there was no unlawful preference and no depletion of the assets of the bankrupt.
We may test this by assuming that Spar-ler did not raise funds through the Mount Vernon Trust Company to settle his indebtedness, hut had been sued upon the notes and compelled to pay them to the extent of $30,-000. He would then have been subrogated to the causes of action that the bank held against the bankrupt and could have set off bis pay*726ment of $30,000 against his general indebtedness of $121,191.50, leaving a net indebtedness of $91,191.50 as in the present case. In other words, he has not purchased any claim in order to obtain a set-off, but he has been compelled to take it up by virtue of his obligation as indorser.