Opinion
No. 353.
July 11, 1932.
Appeal from the District Court of the United States for the Southern District of New York.
Suit by Edward Morrison, as trustee in bankruptcy of Max M. Zalta, against the Bay Parkway National Bank and another, wherein plaintiff recovered a judgment against defendant bank. From a summary order, made upon plaintiff's application directing the Lafayette National Bank, as transferee of defendant bank, to pay the amount of the judgment to plaintiff, the Lafayette National Bank appeals.
Reversed, with directions.
On July 17, 1930, Max M. Zalta was adjudicated a voluntary bankrupt, and on July 21, 1930, Edward Morrison became trustee. Morrison, as trustee, began a suit in the District Court against the Bay Parkway National Bank to set aside a preference of $1,000 given by Zalta to the bank within four months prior to the filing of the petition in bankruptcy. In this suit the trustee was successful and recovered a judgment against the bank for $1,000, costs, and disbursements, amounting in the aggregate to $1,297. After the adjudication in bankruptcy, Lafayette National Bank made an agreement with Bay Parkway Bank to assume and pay all of the debts of the latter and to take as security its assets other than the banking premises, equipment, and supplies. These the Lafayette Bank agreed to purchase outright. In consideration of the foregoing, the Bay Parkway Bank agreed to pay the Lafayette Bank $1,087,598.51, for which it gave its note to the latter. It also warranted that it had no outstanding obligations other than those shown in a list attached to the contract which did not include the claim of the trustee of Zalta for the preferential payment of $1,000. Pursuant to agreement, Bay Parkway Bank assigned its assets to Lafayette Bank including $12,322.58 cash in bank. The object of the agreement between the banks was to liquidate the Bay Parkway Bank. The record indicates that the Lafayette Bank had no notice of the trustee's claim or of his pending suit against Bay Parkway Bank at the time when the contract was made and the assets were transferred to Lafayette Bank.
The Bay Parkway Bank failed to pay the judgment for $1,297 which the trustee recovered against it, whereupon the latter petitioned the District Court for a summary order directing Lafayette Bank, as transferee, to make payment. The Lafayette Bank as a defense set up its agreement with Bay Parkway Bank, alleged that it was an innocent holder for value of all the assets it had received from that bank and that its lien was superior to that of the trustee. It also denied that the court had jurisdiction to invoke a summary remedy and alleged that the trustee must proceed by a plenary suit. Upon the foregoing pleadings and facts set forth in affidavits, the District Court made a summary order directing the Lafayette Bank to pay $1,297 to the trustee, from which order this appeal has been taken.
Walter Jeffrey Carlin, of New York City (Walter Jeffrey Carlin and Paul C. Werner, both of New York City, of counsel), for appellant.
Charles B. Breslow, of Brooklyn (Harry Tabershaw, of New York City, of counsel), for appellee Edward Morrison, trustee in bankruptcy of Max M. Zalta.
Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
The question before us is whether the judgment to recover an unlawful preference which the trustee in bankruptcy obtained against the Bay Parkway Bank can be enforced in a summary proceeding against Lafayette Bank, the transferee of the former bank's assets.
It is suggested that the relief sought should be given because Lafayette Bank assumed the obligations of the Bay Parkway Bank. Even if it did assume the obligation on which the trustee is suing (though this is denied because his claim was not listed in the agreement between the banks), a trustee cannot enforce claims for a breach of contract in a summary proceeding, but must resort to a plenary suit.
If it be the theory of the trustee that, because there was a preferential payment by the bankrupt to Bay Parkway Bank, its transferee, the Lafayette Bank, must restore the money, the trustee's case can fare no better. There has been no showing that any specific fund has been traced into the hands of Lafayette Bank, nor that the latter had ever heard of the trustee's claim until long after it took over the assets. An unlawful preference is voidable only, and cannot be recovered from a bona fide purchaser without notice. Bennett v. Semmes (D.C.) 287 F. 745, at page 750; Gray v. Breslof (D.C.) 273 F. 526; Davis v. Hanover Savings Fund Society (C.C.A.) 210 F. 768, at page 774. See, also, Commercial National Bank v. Shriver (C.C.A.) 275 F. 12. The Lafayette Bank alleges that it was a bona fide purchaser of the assets of Bay Parkway Bank without notice of any claim on the part of the trustee. Whether or not this be so, it is plain that it has asserted an adverse claim which the foregoing decisions show to be at least not merely colorable, but of substance. It is entitled to have such a claim prosecuted in a plenary suit, and has from the outset insisted upon this right.
It is also argued, though we think with little apparent reason, that the decree of the trustee against Bay Parkway Bank was based on a transfer to hinder, delay, and defraud creditors. But, if that be so, the transfer to Lafayette Bank in good faith and for a present fair consideration, though after the bankruptcy of Zalta, would protect the transferee. In re Mullen (D.C.) 101 F. 413, at page 416; Paddock, Assignee, v. Fish (D.C.) 10 F. 125; Bush v. Export Storage Co. (C.C.) 136 F. 918. The defense that Lafayette Bank is a bona fide purchaser without notice is substantial and not sham, even if we assume that the transfer by Bay Parkway Bank was in fraud of creditors and fell within section 67e of the Bankruptcy Act, 11 USCA § 107(e). It is true that section 70 of the Bankruptcy Act (11 USCA § 110) vested the trustee with any property transferred by Zalta in fraud of creditors, but that fact neither would affect a bona fide purchaser for a fair consideration and without notice, nor would it determine the right to proceed in a summary proceeding because possession of the bankruptcy court, either actual or constructive, and not the passage of title, is made the test of the right to invoke its summary jurisdiction. Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 44 S. Ct. 396, 68 L. Ed. 770.
It has been argued that the filing of the petition in bankruptcy operated as an equitable attachment and gave the trustee all the rights of an attaching creditor. Mueller v. Nugent, 184 U.S. at page 14, 22 S. Ct. 269, 46 L. Ed. 405; International Bank v. Sherman, 101 U.S. at page 406, 25 L. Ed. 866. But the mere filing of that petition in the office of the clerk of the District Court was not notice to the Lafayette Bank that property standing in the name of Bay Parkway Bank belonged to the bankrupt. In re Mullen (D.C.) 101 F. 413, at page 417; Myers v. Hazzard (C.C.) 50 F. 155, at page 163; Paddock, Assignee, v. Fish (D.C.) 10 F. 125, 128; Bankruptcy Act, § 21e, 11 USCA § 44(e). The filing of the petition in any event could only give the trustee the rights of a creditor attaching assets of Zalta and not those of Bay Parkway Bank or Lafayette Bank. Zalta is not shown to have had any property in the hands of either Bay Parkway Bank or Lafayette Bank at the time when the petition in bankruptcy was filed, and the allegation in the petition of the trustee (fol. 20) that the Bay Parkway Bank never had title to the sum of $1,000 transferred by Zalta to it (fol. 20) is a mere statement of a legal conclusion unsupported by the allegation of any facts showing it to be correct.
The order is reversed, with directions to dismiss the petition.