192 U.S. 138
NEW YORK COUNTY NATIONAL BANK, Appt.,
ALBERT P. MASSEY, Trustee in Bankruptcy of George H. Stege and Frederick H. Stege.
Argued December 11, 1903.
Decided January 4, 1904.
Messrs. Latham G. Reed, John M. Bowers, and Bowers & Sands for appellant.[ New York County Nat Bank v. Massey 192 U.S. 138 (1904) ]
Mr. Justice Day delivered the opinion of the court:
This is an appeal from the judgment of the circuit court of appeals for the second circuit, reversing the order of the [192 U.S. 138, 142] district court affirming the order of the referee in bankruptcy, allowing a claim against the estate of Stege & Brother. This claim was allowed against the contention of the trustee of the bankrupt, that it could not be proved until the bank should surrender a certain alleged preference given to them in contravention of the bankrupt act. The circuit court of appeals reversed the order of the district court, holding that the bank must first surrender the preference before it could be allowed to prove its claim. 54 C. C. A. 116, 116 Fed. 342. The circuit court of appeals made the following findings of fact:
As a conclusion of law, the court of appeals held that the deposit would amount to a transfer enabling the bank to obtain a greater percentage of the debt due to it than other creditors of the same class, and that allowance of the claim should be refused unless the preference was surrendered. This case requires an examination of certain provisions of the bankrupt law. Section 68 of that law provides:
Section 60 provides (prior to the amendment of February 5, 1903):
Section 57g provides (prior to amendment of February 5, 1903): 'Claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences.' [30 Stat. at L. 560, chap. 541, U. S. Comp. Stat. 1901, p. 3443.] [192 U.S. 138, 145] Considering, for the moment, 68, apart from the other sections, subdivisionsa contemplates a set-off of mutual debts or credits between the estate of the bankrupt and the creditor, with an account to be stated and the balance only to be allowed and paid. Subdivision b makes certain specific exceptions to this allowance of set-off, and provides that it shall not be allowed in favor of the debtor of the bankrupt upon an unproved claim or one transferred to the debtor after the filing of the petition in bankruptcy, or within four months before the filing thereof, with a view to its use for the purpose of set-off, with knowledge or notice that the bankrupt was insolvent or had committed an act of bankruptcy. Obviously, the present case does not come within the exceptions to the general rule made by subdivision b. It cannot be doubted that, except under special circumstances, or where there is a statute to the contrary, a deposit of money upon general account with a bank creates the relation of debtor and creditor. The money deposited becomes a part of the general fund of the bank, to be dealt with by it as other moneys, to be lent to customers, and parted with at the will of the bank, and the right of the depositor is to have this debt repaid in whole or in part by honoring checks drawn against the deposits. It creates an ordinary debt, not a privilege or right of a fiduciary character. National Bank v. Millard, 10 Wall. 152, 19 L. ed. 897. Or, as defined by Mr. Justice White, in the case of Davis v. Elmira Sav. Bank, 161 U.S. 288 , 40 L. ed. 702, 16 Sup. Ct. Rep. 505: 'The deposit of money by a customer with his banker is one of loan, with the superadded obligation that the money is to be paid, when demanded, by a check.' Scammon v. Kimball, 92 U.S. 369 , 23 L. ed. 485. It is true that the findings of fact in this case establish that at the time these deposits were made the assets of the depositors were considerably less than their liabilities, and that they were insolvent, but there is nothing in the findings to show that the deposit created other than the ordinary relation between the bank and its depositor. The check of the depositor was honored after this deposit was made, and for aught that appears Stege Brothers [192 U.S. 138, 146] might have required the amount of the entire account without objection from the bank, notwithstanding their financial condition.
We are to interpret statutes, not to make them. Unless other sections of the law are controlling, or, in order to give a harmonious construction to the whole act, a different interpretation is required, it would seem clear that the parties stood in the relation defined in 68a, with the right to set off mutual debts, the creditor being allowed to prove but the balance of the debt.
Section 68a of the bankruptcy act of 1898 is almost a literal reproduction of 20 of the act of 1867. [14 Stat. at L. 526, chap. 176.] So far as we have been able to discover the holdings were uniform under that act that set-off should be allowed as between a bank and a depositor becoming bankrupt. Re Petrie, 7 Nat. Bankr. Reg. 332, 5 Ben. 110, Fed. Cas. No. 11,040; Blair v. Allen, 3 Dill. 101, Fed. Cas. No. 1,483; Scammon v. Kimball, 92 U.S. 362 , 23 L. ed. 483. In Traders' Nat. Bank v. Campbell, 14 Wall. 87, 20 L. ed. 832, the right of set-off was not relied upon, but a deposit was seized on a judgment which was a preference.
But it is urged that under 60a this transaction amounts to giving a preference to the bank, by enabling it to receive a greater precentage of its debts than other creditors of the same class. A transfer is defined in 1(25) of the act to include the sale and every other and different method of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security. While these sections are not to be narrowly construed so as to defeat their purpose, no more can they be enlarged by judicial construction to include transactions not within the scope and purpose of the act. This section, 1(25), read with 57g and 60a, requires the surrender of preferences having the effect of transfers of property 'as payment, pledge, mortgage, gift, or security which operate to diminish the estate of the bankrupt and prefer one creditor over another.' [192 U.S. 138, 147] The law requires the surrender of such preferences given to the creditor within the time limited in the act before he can prove his claim. These transfers of property, amounting to preferences, contemplate the parting with the bankrupt's property for the benefit of the creditor, and the consequent diminution of the bankrupt's estate. It is such transactions, operating to defeat the purposes of the act, which, under its terms, are preferences.
As we have seen, 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. It is not a transfer of property as a payment, pledge, mortgage, gift, or security. It is true that it creates a debt, which, if the creditor may set it off under 68, amounts to permitting a creditor of that class to obtain more from the bankrupt's estate than creditors who are not in the same situation, and do not hold any debts of the bankrupt subject to set-off. But this does not, in our opinion, operate to enlarge the scope of the statute defining preferences so as to prevent set-off in cases coming within the terms of 68a. If this argument were to prevail, it would, in cases of insolvency, defeat the right of set-off recognized and enforced in the law, as every creditor of the bankrupt holding a claim against the estate subject to reduction to the full amount of a debt due the bankrupt receives a preference in the fact that, to the extent of the set-off, he is paid in full.
It is insisted that this court in the case of Pirie v. Chicago Title & T. Co. 182 U.S. 438 , 48 L. ed. 1171, 21 Sup. Ct. Rep. 906, held a payment of money to be a transfer of property within the terms of the bankrupt act, and when made by an insolvent within four months of the filing of the petition in bankruptcy, to amount to a preference, and that case is claimed to be decisive of this. In the Pirie Case the turning question was whether the payment of money was a transfer within the meaning of the law, and it was held [192 U.S. 138, 148] that it was. There the payment of the money within the time named in the bankrupt law was a parting with so much of the bankrupt's estate, for which he received no obligation of the debtor but a credit for the amount on his debt. This was held to be a transfer of property within the meaning of the law. It is not necessary to depart from the ruling made in that case, that such payment was within the operation of the law, while a deposit of money upon an open account subject to check, not amounting to a payment, but creating an obligation upon the part of the bank to repay upon the order of the depositor, would not be. Of the case of Pirie v. Chicago Title & T. Co., it was said in Jaquith v. Alden, 189 U.S. 78, 82 , 47 S. L. ed. 717, 719, 23 Sup. Ct. Rep. 649, 650: 'The judgment below was affirmed by this court, and it was held that a payment of money was a transfer of property, and when made on an antecedent debt by an insolvent was a preference within 60a, although the creditor was ignorant of the insolvency, and had no reasonable cause to believe that a preference was intended. The estate of the insolvent, as it existed at the date of the insolvency, was diminished by the payment, and the creditor who received it was enabled to obtain a greater precentage of his debt than any other of the creditors of the same class.'
In other words, the Pirie Case, under the facts stated, shows a transfer of property to be applied upon the debt, made at the time of insolvency of the debtor, creating a preference under the terms of the bankrupt law. That case turned upon entirely different facts, and is not decisive of the one now before us. It is true, as we have seen, that in a sense the bank is permitted to obtain a greater percentage of its claim against the bankrupt than other creditors of the same class, but this indirect result is not brought about by the transfer of property within the meaning of the law. There is nothing in the findings to show fraud or collusion between the bankrupt and the bank with a view to create a preferential transfer of the bankrupt's property to the bank, and in the absence of such showing we cannot regard the deposit as having other effect than [192 U.S. 138, 149] to create a debt to the bankrupt, and not a diminution of his estate.
In our opinion the referee and the district court were right in holding that the amount of the deposit could be set off against the claim of the bank, allowing it to prove for the balance, and the circuit court of appeals, in holding that this deposit amounted to a preference, to be surrendered before proving the debt, committed error.
Judgment of the Circuit Court of Appeals reversed, and that of the District Court affirmed; cause remanded to latter court.
Mr. Justice McKenna dissents.