First National Bank v. Luther

This appeal requires us to determine another controversy arising in the course of the Garden Grain & Seed Company bankruptcy proceeding.The First National Bank in Wichita, Kansas, filed in the proceeding a petition in reclamation. It was pleaded in such petition that the bank made a loan of $50,000 to the bankrupt and took therefor a promissory note in that amount and a pledge by warehouse receipt of 62,000 bushels of milo maize.The bank sought to reclaim the grain pledged to it, and in the event reclamation could not be had then the allowance of a secured claim. The referee denied reclamation, denied a secured claim, and allowed a common claim for the full amount of the note together with interest. Thereafter, the bank filed in the proceeding a second, separate and distinct petition. By that pleading, it sought to impress a constructive trust upon a certain fund. It was alleged in such petition that the bankrupt borrowed from the bank $50,000 and executed therefor its note in that amount; that as security for such loan, the bankrupt pledged to the bank 62,000 bushels of milo maize; that the loan was obtained through fraud and misrepresentation on the part of the bankrupt in respect to its ownership of the grain pledged and in respect to its financial condition; that the purpose for which the bankrupt borrowed the money was to repay to the Interstate National Bank of Kansas City, Missouri, a loan evidenced by a then past due promissory note; that immediately after receiving the money, the bankrupt used it to pay the debt due the Interstate National Bank; that at the time it made the loan, the petitioning bank did not know that the money was to be used for such purpose; that subsequent to the filing of the original petition and claim, the trustee filed in the proceeding a pleading in which it was charged that the payment to the Interstate National Bank constituted a voidable preference; that a hearing was had on such claim of the trustee; and that the referee thereafter determined that such payment did constitute a voidable preference and that the trustee should recover from Interstate National Bank the amount thereof. And it was further pleaded that such sum of $50,000 recovered by the trustee constituted a trust fund for the benefit of the bank; that to permit the trustee to retain such fund would constitute unjust enrichment of the bankrupt estate; and that by virtue of the premises, the bank was entitled to recover such sum from the trustee. The prayer was that an order by entered directing that out of the proceeds recovered by the trustee from the Interstate National Bank, the sum of $50,000 be paid to the petitioning bank, and for such other and further relief as was just. The trustee filed a motion to dismiss the petition. The first ground in the motion was that the pleading was not filed within the time fixed in the Bankruptcy Act for the filing of claims against a bankrupt estate. The second ground was that the records of the court showed conclusively that the transaction out of which the then present petition arose had been adjudicated by the court, and that the judgment constituted res judicata.And the third ground was that the facts set out in the petition, in the answer, in the stipulation, in the prior claim, and in the order denying the prior claim disclosed that the relationship between the bankrupt and the bank was that of debtor and creditor; and that no trust could arise therefrom as to any specific funds, including funds recovered by the trustee from the Interstate National Bank. The referee dismissed the petition on the first and second grounds set forth in the motion. On petition to review, the district court entered judgment sustaining in all respects the order of the referee. And the bank appealed.