Opinion
December 3, 1936.
December 16, 1936.
Bankruptcy — Preferences — Application by bank of deposits against overdue notes — Circumstances attending upon deposits — Knowledge of bank of insolvency — Burden of proof — Act of July 1, 1898, c. 541, 30 U.S. Stat. 565.
1. The enforcement by a bank of its lien or right of set-off by applying deposits made in the ordinary course of business of the depositor, does not, although within four months of the bankruptcy of such depositor, constitute an unlawful preference under the Act of July 1, 1898, c. 541, 30 U.S. Stat. 565, as amended; and this is so whether or not application of the deposits against the matured obligations is made immediately before the act of bankruptcy. [16]
2. In a proceeding by a trustee in bankruptcy against a bank to recover deposits of a bankrupt applied by the bank against matured obligations of the bankrupt within four months of bankruptcy, on the ground that the bank had notice of the insolvency of the depositor and that it received a preference, the burden is on the plaintiff to show the circumstances amounting to a voidable preference. [16]
Practice — Demurrer — Amendment of statement of claim.
3. Where a statutory demurrer to a statement of claim is sustained, plaintiff must be given an opportunity to amend unless it is clear that the error cannot be cured. [16]
Before KEPHART, C. J., SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES, JJ.
Appeal, No. 381, Jan. T., 1936, by plaintiff, from judgment of C. P. Lancaster Co., April T., 1936, No. 50, in case of H. R. Seitz, trustee in bankruptcy of Lancaster Provision Company, v. The Fulton National Bank, of Lancaster. Judgment reversed.
Assumpsit.
The opinion of the Supreme Court states the facts.
Affidavit of defense raising questions of law sustained, and judgment entered for defendant, opinion by ATLEE, P. J. Plaintiff appealed.
Error assigned, among others, was judgment.
Jacques H. Geisenberger, with him J. Andrew Frantz, for appellant.
G. T. Hambright and John E. Malone, for appellee, were not heard.
Argued December 3, 1936.
A statutory demurrer to appellant's statement of claim having been filed, the court below directed judgment to be entered against him. The appellee is a banking house and the Lancaster Provision Company had on deposit a sum of money which the bank applied to the Company's overdue notes. This application was made two weeks before the Provision Company went bankrupt. It was alleged by appellant, the trustee in bankruptcy, that the funds on deposit were the proceeds of collections of accounts due the Provision Company while insolvent, and that their application to the overdue notes of the bank constituted an unlawful preference under the Bankruptcy Act. The court below correctly held that the statement of claim did not set up facts showing that the deposits in the bank were out of the ordinary or made under unusual circumstances, and hence the principle of law applies which sanctions the application by a bank of a bankrupt's account against his notes. See the Bankruptcy Act of July 1, 1898, c. 541, 30 U.S. Stat. 565, as amended. Whether this occurs immediately before the act of bankruptcy or not is immaterial ( Studley v. Boylston Nat. Bank, 229 U.S. 523, 527). The burden was on the bankrupt's representative to show circumstances amounting to a voidable preference. The statement of claim did not contain such averments. While the court was correct in sustaining the demurrer, it should have given appellant an opportunity to amend the statement of claim, if possible. When a demurrer to the statement of claim is sustained, the court must give plaintiff an opportunity to amend unless it is clear that the error cannot be cured: Greene County v. Center Twp., 305 Pa. 79; Winters v. Penna. R. R. Co., 304 Pa. 243; Stevens v. Doylestown B. L. Assn., 321 Pa. 173. On motion, the court below may consider the new statement of claim, if any is filed, and, if insufficient, order accordingly.
The judgment is reversed and appellant is given ten days after the record is returned within which to file an amended statement of claim; if none is filed in that time, judgment is directed to be entered for appellee, with costs.