Steinhardt v. National Park Bank

Blanchard, J. When the petition in bankruptcy was filed against the bankrupt, whose trustee is the plaintiff herein, the defendant owed the bankrupt $491.50 on a deposit account. The defendant also held demand notes of the bankrupt to the amount of $8,160 secured by stock at that time worth $10,013.75. About seventeen months later, the defendant sold the stock held as security, pursuant to the terms of the demand notes, for $7,007.50. The present action was brought about seven months after, the petition in bankruptcy was filed for the recovery of the amount of the deposit account. The defendant in its answer pleaded as set-off the debt stated by the demand notes. Section 68b of the Bankruptcy Act provides that a set-off “ shall not be allowed in favor of any debtor of the bankrupt which is not [465] provable against the estate.” The time at which the alleged set-off shall be considered, with a view of determining whether the claim is provable against the estate, is the time of filing the petition. Matter of Garlington, 8 Am. Bank. Rep. 602; Matter of Adams, 12 id. 368; Matter of Bingham, 2 id. 223. Considering the alleged set-off as at the time of filing the petition, it is to be noted that the security then exceeded in value the amount of the claim. Section 57e of the Bankruptcy Act provides that, for the purpose of participation in creditors’ meetings, a secured claim “ shall be allowed for such sums only as to the court seems to be owing over and above the value of the securities.” Although section 57h provides that the value of such securities may be determined “ by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors,” it cannot be contended, in view of the authorities above cited and the obvious justice of the situation, that a secured creditor should be allowed to delay converting securities, which were ample security for the claim when the petition was filed, until seventeen months later, when they had so depreciated as to be inadequate. The alleged set-off must he regarded as not a provable claim; and, accordingly, the judgment for the plaintiff must be affirmed. Gtedersleeve, J., concurs.