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IN RE SUSQUEHANNA CHEM. CORP.

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF PENNSYLVANIA


October 13, 1948

In re SUSQUEHANNA CHEMICAL CORPORATION

The opinion of the court was delivered by: GOURLEY

The Susquehanna Chemical Corporation is in reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. ยงยง 501, 676. The matter now before the Court relates to the petition of the Trustees to compel the Producers Bank and Trust Company, Bradford, Pennsylvania, hereinafter identified as the 'Bank' to surrender to the Trustees certain funds of the debtor which were on deposit with the Bank when the petition for reorganization was filed. The Bank has filed an answer in which it admits the essential allegations of the petition, but disputes the right of the Trustees to the funds, asserting a right of set-off under Section 68, sub. a of the said Act, 11 U.S.C.Section 108, sub. a and Chapter X. Section 200, 11 U.S.C.A. 600.

On the 30th day of July, 1948, the debtor company through corporate action filed its petition for reorganization in which it was set forth, inter alia, that said company was unable to pay its debts as they matured although said company was not insolvent. Said petition being filed in good faith, approval was given by the Court and trustees appointed.

 Since the organization of said company in 1946, business was continuously carried on with the Bank. At the close of the business of the Bank and the debtor on July 30, 1948, there was a balance on four separate accounts to the credit of the company, said accounts being --

 Special Account . . . . . . $ 2,320.42

 Payroll Account . . . . . . $ 5,592.26

 Impressed Fund Account . . . $ 658.42

 General Account . . . . . .$ 12,204.98

 Total . . . . . . . . . . . $ 20,776.08

 The above were demand checking accounts of the debtor, and it was intended by both parties that the funds deposited would be used by the debtor in its regular course of business, and the funds had no relationship to the debtor's note held by the Bank. Although the officers of the Bank stated that said checking accounts were considered by the Bank as security for the indebtedness owed by the company, said fact was never communicated to or discussed with any representative of the company.

 At the close of business of the Bank and debtor company on July 30, 1948, the Bank was the owner and holder for value of a certain promissory note in the amount of $ 39,000, which contained a clause for confession of judgment, executed under seal by the President and Treasurer of the company, dated July 9, 1947, payable on demand, with interest at six percent (6%) per annum. As a result of sundry payments made on the interest and principal of said note, as of July 30, 1948 the principal of said note was reduced to $ 27,000 and interest was owed thereon from July 15, 1948; said note was unsecured.

 The Bank had not notice or knowledge of the petition for reorganization being filed on July 30, 1948. On July 31, 1948, one of the Trustees informed an executive officer of the Bank of the filing and approval by the Court of the company's petition in reorganization. Said Bank was not open for business on July 31, 1948. On August 2, 1948, the Bank charged the four accounts of the debtor with sums equal to the balance in said accounts, and credited the total amounts thus charged to the note of the company owed to the Bank.

 On July 30, 1948, there was outstanding a great number of checks drawn against the accounts of the company. On and after August 2, 1948 payment of all checks drawn against the accounts of the company was refused by the Bank and all checks were returned. On August 3, 1948, the Trustees presented checks payable to themselves, drawn on the accounts of the debtor company, in the amounts of the balances in said accounts; payment of the said checks of the said Trustees was refused by the Bank for the reason stated in the rider thereto attached, to wit, 'No Funds.'

 On June 30, 1948, a month previous to the filing of the petition in reorganization, the book value of the assets of the company was $ 1,241,927.34, including current assets of $ 433,464.53; the liabilities of said company on said date were $ 566,564.19. At the date of the filing of the petition for reorganization on July 30, 1948, the ratio of assets to liabilities was substantially the same as the month previous.

 The four separate accounts which were carried in the Bank were individually identified, as a matter of business expediency, as follows:

 Special Account -- To be used in payment of secretary and executive salaries; checks to be signed by a representative of the company at Bradford, Pennsylvania, and by an executive of the company at his office in the City of New York, New York.

 General Account -- To be used in payment of vendors and wood suppliers as invoices were submitted for materials furnished; checks to be signed by a representative of the company at Bradford, Pennsylvania, and by an executive officer in the City of New York, New York.

  Payroll Account -- To be used in payment of services rendered by all persons to the company who were employed on an hourly or weekly rate; checks to be signed only by a representative of the company at Bradford, Pennsylvania.

 Impressed Fund Account -- To be used in payment of freight and trucking services as invoices were presented; checks to be signed by a representative of the company at Bradford, Pennsylvania.

 The company originally borrowed money from the Bank on October 9, 1946, at which time a loan of $ 40,000 was extended, payable on demand. This obligation was refinanced on July 9, 1947, on which date a note was executed in the amount of $ 39,000, and is the same note on which there was a balance due on July 30, 1948 of $ 27,000, with interest from July 15, 1948.

 On February 13, 1948, a representative of the Bank advised the company that since the ratio of their loans to the outstanding capital of the Bank was not in excess of five to one, it would be necessary for the company to refinance said indebtedness. No answer was received by the Bank, and on March 8, 1948 a similar request was made to the company. The company advised the Bank that arrangements were being made to refinance said indebtedness. On June 4, 1948 an additional request was made by the Bank to the company relative to the refinancing of said indebtedness. On June 10, 1948 the company advised the Bank that the efforts which were being extended to refinance said indebtedness had not as yet materialized but the matter would soon be given attention. Although said loan of July 9, 1947 was granted by the Bank on an unsecured basis, it is contended by the Bank that since moneys were to be paid from the respective checking accounts on a demand basis, the Bank considered said checking accounts as an obligation on their part to pay to the company in the same category as the obligation of the company to pay the Bank the amount of the note obligation. In short, the Bank considered it had a banker's lien against the four accounts, with the right of set-off against the demand note obligation. This theory or thought was never communicated by the Bank to any officer or representative of the company, and the company, therefore, drew on said four accounts as the circumstances arose in order that payment of obligations could be made by the company which arose in its regular course of business. The company, therefore, did not consider the deposits in said accounts as having any relationship to the note of the company held by the Bank. The amount of deposits in the respective accounts during the period commencing on July 9, 1947 and terminating on July 30, 1948, was as follows: General Payroll Impressed Special Date Acct. Acct. Acct. Acct. Total 7/ 9/47 43,297.61 12,956.49 1,332.54 308.43 $ 57,895.07 7/31/47 103,062.62 1,823.74 2,261.67 7,786.94 114,934.97 8/31/47 70,943.34 27,012.35 967.96 8,883.65 107,807.30 9/30/47 66,046.21 23,996.77 2,786.80 9,558.16 102,387.94 10/30/47 39,308.67 12,954.38 2,075.10 8,348.88 62,687.03 11/30/47 55,422.15 12,217.37 1,197.69 9,322.63 78,159.84 12/31/47 21,041.28 14,374.74 1,613.52 9,213.04 46,242.56 1/31/48 37,980.62 17,512.43 2,461.70 125.45 58,080.20 2/28/48 21,428.56 8,842.30 747.79 8,558.98 39,577.63 3/31/48 42,690.98 14,008.75 703.98 8,801.83 66,205.54 4/30/48 14,580.06 7,149.37 2,300.00 31.23 24,060.66 5/31/48 3,672.34 5,367.84 539.44 8,478.71 18,058.33 6/30/48 18,893.11 6,804.08 67.03 66.65 25,830.87 7/30/48 12,204.98 5,592.26 658.42 2,320.42 20,776.08

19481013

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