70 72 depositor at the time of making the set-off does not invalidate such set-off. A bank is entitled to set off certain demand notes of a bankrupt where an action is brought by the trustee to recover moneys on deposit." There is no general right of set-off against money placed in a bank as a special deposit for a certain purpose. A response by a bank to an order of a referee to show cause why it should not pay over to the trustee moneys deposited with it by the bankrupt three days before the filing of the petition in bankruptcy, that the money was deposited without solicitation or agreement and that at the time of the deposit the bankrupt owed the bank on an overdraft and on past-due notes a certain amount which it claims to off-set against its liability to the bankrupt and the trustee, states an adverse claim and a good plea to the jurisdiction of the referee and the district court summarily to determine the validity of that claim under § 23-b of the bankruptcy law." 73 h. Waiver of set-off. If a creditor proves his debt without claiming set-off, he will generally be deemed to have waived it." And if he accepts dividends on composition without invoking his right of set-off, he will not be permitted to set up his claim as a defense.75 At the same time, inadvertence or mistake is usually a sufficient excuse for leave to withdraw and amend.76 ness, the transaction became a voidable preference. Where a bank after it had discounted a note for a depositor, with knowledge of the latter's insolvency, accumulated deposits and allowed other notes to be protested, until two days before the bankruptcy of the depositor, when the deposit being sufficient a check was drawn to the order of the bank for the amount of the note, a preference was effected. Matter of National Lumber Co. (C. C. A., 3d Cir.), 32 Am. B. R. 389, 212 Fed. 928. Check given same day petition filed held invalid and therefore right of setoff allowed. Matter of Cross (C. C. A., 2d Cir.), 46 Am. B. R. 727, 273 Fed. 39, revg. 45 Am. B. R. 695, 265 Fed. 769. 70. New York County Bank v. Massey, 192 U. S. 138, 11 Am. B. R. 42; Continental Trust Co. v. Chicago Title Co., 229 U. S. 435, 30 Am. B. R. 624; Fourth National Bank of Wichita v. Smith (C. C. A., 8th Cir.), 38 Am. B. R. 771, 240 Fed. 19; Dunlap v. Seattle Nat. Bank (Wash. Sup. Ct.), 38 Am. B. R. 937, 161 Pac. 364; Matter of Wright Dana Hardware Co. (C. C. A., 2d Cir.), 31 Am. B. R. 816, 212 Fed. 397, modg. 31 Am. B. R. 192, 207 Fed. 636. 71. Steinhardt v. Nat. Park Bank, 19 Am. B. R. 72, 120 N. Y. App. Div. 255, 105 N. Y. Supp. 23, revg. 18 Am. B. R. 86. 72. Turkington v. First Nat. Bank of New Milford (Conn. Sup. Ct.), 48 Am. B. R. 176, 116 Atl. 241. Compare Matter of Cross (C. C. A., 2d Cir.), 46 Am. B. R. 727, 273 Fed. 39, revg 45 Am. B. R. 695, 265 Fed. 769. 73. In re Gill (C. C. A., 8th Cir.), 26 Am. B. R. 883, 190 Fed. 706. 74. Russell v. Owen, 61 Mo. 185. 75. Cumberland Glass Mfg. Co. v. De Witt, 263 U. S. 288, 34 Am. B. R. 723, 59 L. Ed. 583, 35 Sup. Ct. 377. 76. Cases under the law of 1876 are: i. Practice. This section seems to contemplate that, if a creditor's claim against the bankrupt is greater than the bankrupt's claim against him, he shall only prove for the balance; and if the creditor's claim is less than the bankrupt's claim against him, the time for a set-off would seem to be when the creditor is sued, and the place the forum in which the suit is brought." Where a creditor files a proof of claim, the burden of proof is upon the trustee to establish a counterclaim thereto.78 II. WHEN NOT ALLOWED 79 a. Not provable against the estate.— Subdivision 1 of subsection b requires the debt sought to be set off or counterclaimed, to be provable against the bankrupt's estate. There is a difference between the former and the present law here, which has given rise to some speculation. Formerly, to entitle to set-off, a debt must have been 80 Hunt v. Holmes, Fed. Cas. 6,890; Brown v. Farmers' Bank, 6 Bush (Ky.), 198; Standard Oil Co. V. Hawkins, 74 Fed. 395. 77. In re Lesher & Son (D. C., Pa.), 25 Am. B. R. 218, 176 Fed. 650, citing Collier on Bankruptcy (7th ed.), p. 796. If the trustee enters a waiver with respect to the excess and the right to proceed further against the creditor, the referee has jurisdiction to enter upon the consideration of the entire counterclaim, merely for the purpose of determining whether or not the amount actually due thereon is sufficient to off-set, in whole or in part, the claim actually allowed in favor of the creditor. Matter of Continental Producing Co. (D. C., Cal.), 44 Am. B. R. 216, 261 Fed. 627, citing Collier on Bankruptcy (11th ed.), 1099. 78. In re Harper (D. C., N. Y.), 23 Am. B. R. 918, 175 Fed. 412. 79. Debt must be provable.-In re Harper (D. C., N. Y.), 23 Am. B. R. 918, 931, 175 Fed. 412, the judge said: "This is not a limitation or restriction on the right of the trustee to set up, prove, and use any claim he has and which he may enforce against a creditor of the bankrupt presenting a claim against the estate he represents, provided it be a 'debt' owing by such creditor to the bankrupt estate within the meaning of section 68-a. The plainly disclosed policy of the Act is that where a person is indebted to the bankrupt estate, and the trustee seeks to enforce the indebtedness, the debtor to the estate may set up as an off-set or counterclaim only such just demands as he has against the estate which are provable in bankruptcy as a claim against the estate . . . The debtor is limited to claims provable in bankruptcy. There is no provision or suggestion in the Act that a claim against a creditor of the bankrupt in the hands of the trustee, and which came to him by operation of law on his appointment, cannot be used as an off-set to or counterclaim against the claim of such creditor of the bankrupt estate, unless such claim in the hands of the trustee be one of a character provable in bankruptcy in case the one liable thereon had been adjudicated a bankrupt." 80. See In re Dillon (D. C., Mass.), 4 Am. B. R. 63, 100 Fed. 627, in which case the court said: "The language of the different statutes of bankruptcy doubtless differs, and the provision of section 68-b of the act of 1898, that a set-off, to be allowed, must be provable against the estate, is not found in all bankrupt acts, and apparently was "provable in its nature;" now, it must be "provable.' Under the law of 1867, it was held that a debtor of the estate holding a claim on which he had attempted to secure a preference might still use it as a set-off, because it was provable in its nature.81 The distinction seems rather tenuous. Thus, under the present law, which denies allowance to claims whose owners have been preferred, the word "provable" was held to mean the same as "provable in its nature" and, the case being one of mutual credit, the set-off was allowed, in spite of a preference making it technically not provable.82 Subject, however, to exceptions based on equitable principles like those applied in Morgan v. Wordell, supra, the general rule is that no claims tainted with a preference may be asserted by way of set-off, except those within the terms of § 60-e. The latter is new. It has already been discussed.83 b. Purchased after bankruptcy or within four months before.(1) IN GENERAL.— Subdivision 2 of subsection b prevents the set-off or counterclaim of a claim which was acquired after the filing of the petition, or within four months before such filing, "with a view to such use and with knowledge or notice that such bankrupt was insolvent, or had committed an act of bankruptcy." This clause differs from that in the law of 1867 only in denying set-off to claims purchased within the four months' period; this that law did not do. The necessity of the rule is apparent. The doctrine of set-off would foster preferences of the worst kind, if a well-informed debtor of an insolvent could buy up claims against him either within four months of the bankruptcy or after the filing of the petition. For instance, if property was sold by the bankrupt within the four months' period to one of his creditors, partly for cash and partly on credit, the amount due on the sale should not be offset against the creditor's claim against the estate. This provision prevents the set-off, against the amount due by a bankrupt to a creditor, of orders issued by employees of such creditor within the four months' period directing the payment of a part of the wages earned by them on account of supplies furnished by the bankrupt.85 not the law under the Act of 1800 The right of set-off, however, may not depend altogether upon the form required in proving the debt. debt provable only in the name of A may perhaps be availed of in set-off by B." A 81. Clark v. Iselin, 21 Wall. 360. Ct.), 6 Am. B. R. 167, 78 Mass. 350. Compare In re Kingsley, Fed. Cas. 7,819. 83. See under section 60 of this work. 84. In re White (C. C. A., 7th Cir.), 24 Am. B. R. 197, 177 Fed. 194. 85. Western Tie & Timber Co. v. Brown, 196 U. S. 502, 13 Am. B. R. (2) "WITH A VIEW TO SUCH USE AND WITH KNOWLEDGE," ETC.The words here were not in the original law of 1867.86 The idea expressed by the words "with a view to such use" was incorporated by the amendatory act of 1874, but only as to involuntary cases; the words "with knowledge or notice," etc., to the end of the subsection, are new. The use of the conjunction "and" should be noted; those opposing a claim to set-off on the ground specified in subdivision 2 must show, not only its purchase within the time specified, but that such purchase was with a view to its use as a set-off and with knowledge or notice that the bankrupt was insolvent, or had committed an act of bankruptcy.87 Such proof will not be difficult if the purchase antedates the bankruptcy; it may, if within the four months' period. The cases under the former law should be read with the date of the amendatory act of 1874 carefully in mind.8 447, 49 L. Ed. 571, 25 Sup. Ct. 339, revg. 12 Am. B. R. 111, 129 Fed. 728. 86. In re City Bank, Fed. Cas. 2,742. Compare Hitchcock v. Rollo, Fed. Cas. 6,535. 87. See Tomlinson v. Bank of Lexington (C. C. A., 4th Cir.), 16 Am. B. R. 632, 145 Fed. 824; Mason v. Herkimer Co. Bank (C. C. A., 2d Cir.), 22 Am. B. R. 733, 172 Fed. 529, revg. 21 Am. B. R. 98. Burden of proof.- Where a claim made up and based upon a certificate of deposit issued by the bankrupts, engaged in the business of private bankers, payable to the order of the claimant's wife and assigned to him, is sought to be used as an off-set against his indebtedness to the bank when it closed its doors, the burden of showing that the certificate was transferred before the bank suspended payment and without knowledge of its insolvency is upon the claimant. In re Shults (D. C., N. Y.), 14 Am. B. R. 278, 135 Fed. 623. 88. Hovey v. Insurance Co., Fed. Cas. 6,743; Hunt v. Holmes, Fed. Cas. 6,890; In re Perkins, Fed. Cas. 10,982; Bashore v. Rhodes, 16 N. B. R. 72. Compare also Smith v. Hill, 8 Gray, 572; Smith v. Brinkerhoff, 6 N. Y. 305; also the numerous English cases on the same subject. SECTION SIXTY-NINE POSSESSION OF PROPERTY § 69. Possession of Property.—a A judge may, upon satisfactory proof, by affidavit, that a bankrupt against whom an involuntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neglecting, or is about to so neglect his property that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value, issue a warrant to the marshal to seize and hold it subject to further orders. Before such warrant is issued the petitioners applying therefor shall enter into a bond in such an amount as the judge shall fix, with such sureties as he shall approve, conditioned to indemnify such bankrupt for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained. Such property shall be released, if such bankrupt shall give bond in a sum which shall be fixed by the judge, with such sureties, as he shall approve, conditioned to turn over such property, or pay the value thereof in money to the trustee, in the event he is adjudged a bankrupt pursuant to such petition. Analogous provisions: In U. S.: Act of 1867, § 40, R. S., § 5024. In Eng.: Act of 1883, none. In Can.: None. Cross-references: To the law: Jurisdiction of court to appoint marshal to take custody of property, § 2(3). Bond to be filed upon application to take possession of property, § 3-e. Referee to exercise power of judge in respect to taking possession of property, 38-a (3). Compensation of marshal when acting as receiver, § 40. To the General Orders: Indemnity for expenses of marshal, X. Accounts of marshals, with vouchers, XIX. To the Forms: (See Vol. III, post.) Special warrant to marshal to take possession of property, No. 8. Bond of petitioning creditor, No. 9; bond to marshal, No. 10. |