The referee in bankruptcy, in determining that the payment in question was not preferential, predicated his determination on a finding that there had been no resultant diminution of the bankrupt estate. This factual basis, although narrow, is not without foundation. The payment had been advanced by the Bankrupt on the assurance by William H. Reusch that he would replenish the estate to the extent of the payment; and, immediately after the payment had been made the said William H. Reusch, pursuant to his agreement, made further loans to the Bankrupt in the total amount of $6,500.00. These loans were used in the payment of debts then due to other general creditors. The first payment is, to a limited degree, similar to the second payment hereinafter discussed.
The second payment, that of April 15, 1940, although made at a time when the bankrupt was insolvent, was not a preference within the meaning of the Bankruptcy Act, § 60, sub. a, 11 U.S.C.A. § 96, sub. a. This payment was made from funds which had been advanced by William H. Reusch to the Bankrupt for the specific purpose of reducing the indebtedness on the notes on which he was secondarily liable as endorser. The transaction lacked the essential elements of a preference, to wit, transfer of the debtor's property and depletion of the debtor's estate. National Bank of Newport v. National Herkimer County Bank of Little Falls, 225 U.S. 178, 32 S. Ct. 633, 56 L. Ed. 1042; Grubb v. General Contract Purchase Corporation, D.C., 18 F.Supp. 680, affirmed 2 Cir., 94 F.2d 70; In re Zaferis Brothers & Co., Itd., 9 Cir., 67 F.2d 140; First National Bank of Danville v. Phalen, 7 Cir., 62 F.2d 21, 88 A.L.R. 75; Citizens' National Bank of Gastonia v. Lineberger, 4 Cir., 45 F.2d 522.
The third payment, that of June 7, 1940, presents a very narrow question of fact. On the said date, when it was apparent that the Bankrupt was hopelessly insolvent and that bankruptcy was inevitable, the Bank appropriated the funds then on deposit to the account of the Bankrupt and applied them to the reduction of the existing debt. The Bankrupt prior thereto, to wit, on June 3 and 4, 1940, had made deposits of $3,331.31 and $335.73, respectively, against which it issued sixty-six checks, of which thirty-one, in the total amount of $1,851.47 were honored, and of which twenty-five, in the total amount of $681.28 were dishonored. It is asserted by the Bank, but controverted by the trustee in bankruptcy, that the deposits had been made in the usual course of business, without intent to effect a preference, and were, therefore, subject to setoff under the Bankruptcy Act, § 68, 11 U.S.C.A. § 108.
It is well established that a bank deposit made in the usual course of business, subject to withdrawal by the depositor, is not a transfer of property within the meaning of the Bankruptcy Act, and is not, therefore, a preference, even though made when the depositor was insolvent. Such deposits may, upon the bankruptcy of the depositor, or prior thereto, be appropriated by the bank and applied to the payment of an existing debt of the depositor. Studley v. Boylston National Bank, supra; Continental & Commercial Trust & Savings Bank v. Chicago Title & Trust Co., 229 U.S. 435, 33 S. Ct. 829, 57 L. Ed. 1268; New York County National Bank v. Massey, 192 U.S. 138, 139, 24 S. Ct. 199, 48 L. Ed. 380; Cusick v. Second National Bank, Widetzky v. Pilgrim Trust Co., Citizens' National Bank of Gastonia v. Lineberger, all supra; Doggett v. Chelsea Trust Co., 1 Cir., 73 F.2d 614. It is equally well established, however, that a deposit made, not in the usual course of business, but with the intent that the same be applied to the payment of an existing debt, is a transfer of property within the meaning of the Bankruptcy Act, and is, therefore, a preference. First National Bank of Negaunee v. Fox, 6 Cir., 111 F.2d 810; First Wisconsin National Bank of Milwaukee v. Charness, 7 Cir., 73 F.2d 730; Twentieth Street Bank v. Gilmore, 4 Cir., 71 F.2d 594; Frankford Trust Co. v. Comber et al., 3 Cir., 68 F.2d 471; Matters v. Manufacturers' Trust Co., 2 Cir., 54 F.2d 1010; In re Almond-Jones Co., Inc., D.C., 13 F.2d 152, affirmed Union Trust Co. of Maryland v. Peck, 4 Cir., 16 F.2d 986; Bank of California v. Brainard, 9 Cir., 3 F.2d 3. The reported decisions are distinguishable on their peculiar facts.
It is the opinion of the Court, after careful consideration of the entire record, that the deposits in question had been made in the usual course of business and without intent to effect a preference. It necessarily follows, therefore, that the asserted right of set-off was properly enforceable against the funds.
The order of the referee in bankruptcy is affirmed.
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