Adams v. Champion - 294 U.S. 231 (1935)
U.S. Supreme Court
Adams v. Champion, 294 U.S. 231 (1935)
Adams v. Champion
Argued January 17, 1935
Decided February 4, 1935
294 U.S. 231
1. A suit by a trustee in bankruptcy to recover, under § 60(b) of the Bankruptcy Act, property, or the value of property, which the debtor transferred to a creditor, is maintainable at law, but, if prosecuted in equity without objection, the same relief may be decreed. P. 294 U. S. 234.
2. A national bank accepted a pledge of securities as collateral for an existing debt with reasonable cause to believe that a preference would be effected within the meaning of § 60(b) of the Bankruptcy Act. The debtor became a bankrupt within four months, and, while the bankruptcy proceedings were pending but before the trustee had made any demand upon it based on § 60(b), the bank disposed of the securities for fair value to some of its depositors, receiving payment not in cash, but by accepting their checks drawn on itself and charging them against their accounts. Some months later, the trustee sued the bank to avoid the preferences, and, after a protracted litigation, he obtained a decree for the value of the securities. Although the bank had become insolvent and was placed in the hands of a receiver six months before the decree was entered, the receiver had not been made a party. Afterwards, the trustee sought an order requiring the receiver to pay the amount claimed, as a preferred charge upon the bank's assets.
(1) That the acceptance of the securities and their subsequent disposition for fair value, before the trustee in bankruptcy had
elected to avoid the preferences, were not wrongful acts on the part of the bank, and the bank was not chargeable as a trustee ex maleficio. P. 294 U. S. 235.
(2) The bank, when it accepted payment for the securities by cancelling to an equivalent extent debts due by it to the depositors who acquired them, was under no preset duty to set up a trust of the proceeds, and as it had then a solvent, going business, and made the transfer without fraudulent or obstructive purpose, there is no reason why the transaction should be treated retrospectively as something other than it was meant to be. P. 294 U. S. 236.
(3) When the transfer was avoided, the bank became chargeable like any common law debtor with a duty of restitution to the extent of the value of the property disposed of. P. 294 U. S. 237.
(4) The assets of the bank in the hands of the receiver are not subject to a trust in favor of the trustee in bankruptcy. P. 294 U. S. 238.
70 F.2d 956 reversed.
Certiorari, 293 U.S. 547, to review the affirmance of a decree imposing a trust on the funds of an insolvent national bank at the suit of a trustee in bankruptcy.