The opinion of the court was delivered by: BYERS
The plaintiff trustee in bankruptcy of Saul Finkelstein was so constituted on June 7, 1938.He sues to recover two alleged preferential payments of $500.00 each, on December 20th and 27th, 1937, respectively, consisting of the deductions of those amounts from the bankrupt's bank account carried by the defendant.
It is asserted by the plaintiff that the right to set-off recognized by Section 68, Paragraph 1, of the Bankruptcy Act, 11 U.S.C.A. § 108, did not exist, because of the exception created by clause (2) of Paragraph b, which reads:
"b. A set-off * * * shall not be allowed in favor of any debtor [i.e., this defendant bank] of the bankrupt which * * * was purchased by * * * him [it] * * * within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent * * *."
The facts are that the bankrupt was insolvent on December 1, 1937, and filed a debtor petition under the them Section 74, 11 U.S.C.A. § 202, on January 26, 1938, and was adjudicated June 7, 1938, because of the failure of an attempted composition or extension.
The bankrupt had conducted a retail shoe store in Franklin Square, Nassau County, New York, for upwards of three years prior to December, 1937, and had maintained a commercial bank account with the defendant since April of 1935.
He had borrowed from the defendant on his unsecured notes, during most or all of that time, to a limit of $1000.00.
On November 1, 1937, he owed the bank $500.00 on a note (dated October 16, 1937) which was payable on the 15th, and borrowed another $500.00 on a note payable December 31, 1937. On November 15th, he paid the former, and two days later sought another loan of $500.00. He was told that, to accomplish that purpose, he would have to agree to move forward the due date of his then only extant note by sixteen days, from December 31st to the 15th.
He so agreed, and appropriate pencil notation was made on the face of the paper.
Then the loan of $500.00 was negotiated, which was payable on December 20, 1937.
Those notes were paid by the said deductions, as to the first on December 20th, five days after the due date; and as to the second on the 27th, or seven days after payment was due.
Those deductions constitute the transactions here challenged.
The statute which has been quoted lays upon the plaintiff the burden of proving that the notes were purchased with a view to their use as a set-off, ...