Court Opinion

ID: 9464461
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:33:47.803724+00
Date Added: 2024-06-11T17:38:38.351036
License: Public Domain

VAN GRAAFEILAND, Circuit Judge,
concurring in part and dissenting in part:
I concur with the majority that the granting of summary judgment was error and that this matter must be remanded for a full development of the facts on trial. However, I cannot agree with the majority’s exposition of the law to be applied by the district court on remand.
The issue in this case is a simple one: viz., were the deposits by Oakland in its checking account “transfers” within the meaning of § 1(30) of the Bankruptcy Act? 11 U.S.C. § 1(30). The majority holds that a unilateral decision by a depositor not to exercise his right to draw checks against his account transforms the bank, without its knowledge from a debtor to a transferee.1 *973This does not accord with the “traditional rule” which is correctly set forth at the outset of the majority opinion; i. e., “that in order to prove a voidable preference the trustee must show complicity or understanding on the part of the bank.”
In the leading case of New York County National Bank v. Massey, 192 U.S. 138, 147, 24 S.Ct. 199, 201, 48 L.Ed. 380 (1904), the Court held that “a deposit of money to one’s credit in a bank does not operate to diminish the estate of the depositor, for when he parts with the money he creates at the same time, on the part of the bank, an obligation to pay the amount of the deposit as soon as the depositor may see fit to draw a check against it.” Until the bank acts to restrict the right of the depositor to write checks against the account, the money on deposit remains the property of the depositor and he may draw against it. United States v. Sterling National Bank & Trust Co., 494 F.2d 919, 922 (2d Cir. 1974).
The Massey court held that in the absence of a showing of fraud or collusion between the bankrupt and the bank aimed at creating a preferential transfer of the bankrupt’s property, the deposits which he makes create an indebtedness on the part of the bank and do not diminish the bankrupt’s estate. This holding requires, at the least, that there be some participation or understanding on the part of the bank before an ordinary deposit can be considered a transfer, and this is the generally accepted rule. 4 Collier on Bankruptcy, § 68.16 at 919-21; 3 Remington on Bankruptcy § 1474.4 at 472 (J. Henderson rev. 1957). We have accordingly stated that where a bank accepts a deposit with the intention of applying it on a preexisting claim against the depositor rather than holding it subject to his right of withdrawal, there may be a voidable preference. See Miller v. Wells Fargo Bank International Corp., 540 F.2d 548, 557 (2d Cir. 1976) (citing Goldstein v. Franklin Square National Bank, 107 F.2d 393, 394 (2d Cir. 1939)). The test, as set forth in Goldstein, is whether the bank, in receiving the deposits, intends to apply them in payment or setoff of an outstanding indebtedness of the depositor. Expressed another way, the test is “[w]as the account of the bankrupt built up, with the understanding of the Bank, for the purpose of allowing the Bank to use it as an offset and thereby obtain a preference?” Farmers Bank v. Julian, 383 F.2d 314, 324 (8th Cir.), cert. denied, 389 U.S. 1021, 88 S.Ct. 593, 19 L.Ed.2d 662 (1967).
Although the majority’s attempt to do equity will penalize only the bank in the instant case, the burden of the rule which we now lay down will fall in the long run upon the depositor. A bank is not simply a repository of funds; it is a source of credit. The facts of financial life are such, however, that the businessman seeking credit is most likely to secure it at the bank where he is a depositor. H. Justman, Comments on the Bank’s Right of Setoff under the Proposed Bankruptcy Act of 1973, 31 Bus. Law. 1607, 1611, & 1616 n. 54 (1976). This bank not only has the use of the deposited funds; it also has the right of setoff. Jenson v. State Bank, 518 F.2d 1, 4 n. 6 (8th Cir. 1975). The maintenance of an adequate balance in his demand account benefits the depositor as well as the bank, because the bank’s right of setoff encourages it to continue credit when it might be induced otherwise to call its loans. If a businessman’s efforts to create and maintain an adequate balance are, standing alone, to be construed as transfers of the funds involved, an inducement for the bank to work along with the financially troubled entrepreneur is removed. It was to encourage such cooperation that the bank’s right of setoff was preserved when the Bankruptcy Law was amended by the Chandler Act in 1938. See 4 Collier on Bankruptcy, § 68.-01(3). A right which Congress has refused to eliminate should not be eliminated by this Court in its stead.
I see no reason why the district court should be directed to depart from the rule laid down by this Court in Goldstein, supra, and approved only last year in Miller, supra.

. The majority does not state whether the depositor can “untransfer” the transferred funds if he changes his mind and decides to draw checks against his account.