(dissenting).
Plaintiff, Trustee in Bankruptcy for General Textile Processors (General), is seeking to recover from defendant, The Peoples Bank of Haverstraw (the Bank), the funds which General had on deposit in Peoples. According to plaintiff, the funds had wrongfully been transferred by S. Koenig, an officer of General, from the General payroll account to an account labelled “S. Koenig Special for Payroll.” After the transfer, payroll cheeks mostly drawn previously on the General account to the order of a number of General employees continued to be presented to the Bank. The General account having been closed, there were no funds therein. At the direction of Koenig, these checks were paid out of the newly created “S. Koenig Special for Payroll” account. The crucial dates are:
Sept. 21, 1956
General insolvent (unknown to the Bank).
Nov. 5, 1956
General’s account transferred by Koenig to “S. Koenig Special for Payroll.”
Nov. 5,1956
Complaint for the appointment of receiver presented to New Jersey court (unknown to the Bank).
Nov. 5,1956
Koenig resigned as treasurer of General (unknown to the Bank).
Nov. 7, 1956
Petition in Bankruptcy filed (unknown to the Bank).
Nov. 7th through 26th, 1956
Checks (some dated before November 5th, and some dated after) drawn against General’s account, paid out of the “S. Koenig Special for Payroll” account. Special account reduced from $20,160.81 to $1.76.
Nov. 26,1956
The Bank notified of bankruptcy of General.
The court below held that even if the Bank breached its obligation to General by permitting the transfer, it would be liable only for the loss actually incurred by the corporation; and since the transferred funds were used for legitimate corporate obligations and since the payroll checks would have been paid out of the General account even if the transfer had not occurred, no such loss existed.
Discussion of the ease on this hypothesis is unnecessary in view of the trial court’s findings of fact. Although the findings are gleaned from the narrative opinion, they are nonetheless findings and the court made the approximate designation to that effect.
*894Under the law the Bank would be liable only if corporate funds were withdrawn by a coi’porate officer and used for his own pux-poses with actual or constructive knowledge by the Bank that this would occur. Bischoff v. Yorkville Bank, 218 N.Y. 106, 112 N.E. 759, L.R.A.1916F, 1059; Commercial Trading Co. v. Trade Bank & Trust Co., 286 App.Div. 722, 146 N.Y.S.2d 570; E. Moch Co. v. Security Bank of New York, 176 App.Div. 842, 163 N.Y.S. 277, affirmed 225 N.Y. 723, 122 N.E. 879. And then such liability would attach only for the amount of the loss.
The detex-minative facts must be those which bear upon “actual or constructive knowledge to the Bank.” The court found that “the receiver never communicated with the Bank or attempted to take possession of the bankrupt’s funds”; that the Bank “had no knowledge of bankruptcy, insolvency, the appointment of a receivex', or financial failure”; that the funds in the “S. Koenig Special for Payroll” account were used “for legitimate corporate obligations of the bankrupt”; and that “checks drawn against the Special Payroll account were checks of the bankrupt.” As to loss, there was no proof that the funds had been “diverted from legitimate corporate purposes.” The undisputed facts affirmatively established that the funds had been used for corporate purposes. “Any loss or damage which occurred was to other priority wage creditors because of the preference obtained by other creditors of the same class” but the Bank “is not liable for any loss which may have been suffered by ■creditors because of preferential payments made in satisfaction of legitimate ■corporate obligatioxis.” * [185 F.Supp. 438]
A reviewing court is thus met with the “clearly erroneous” rule. Even this rule scarcely applies because no different findings could have been supported. The majority finds a failure on the part of the trial court “to make a specific finding as to wrongful conduct on the part of the bank as a basis of its liability.” Exactly how this could have been done by a court convinced that there was no wrongful conduct is not revealed. The majority opinion seems to recognize this in its own “finding that the transaction of November 5, 1956, did not divest the bankrupt from the ownership of the funds in the bank at that time and the same constituted a change of name in the account rather1 than a transfer of the title thereto.” Therefore, the opinion holds that “ownership of the account remained in the bankrupt until November 7, 1956, when the petition in bankruptcy was filed.” Attention, thus, must be focused on the legal situation as it existed on November 7, 1956. The account, according to the majority, was still in Capitol; S. Koenig, despite his resignation, so far as the Bank was concerned was still the Treasurer; and because no notice of bankruptcy had been received, the funds of Capitol were not under restraint. The same reason given by the majority for holding valid the checks paid before November 7th would apply equally well to the checks drawn thereafter but for the bankruptcy petition. However, the proof is unchallenged that the Bank had no notice of the petition.
Section 70, sub. d(2) of the Bankruptcy Act provides:
“(2) A person indebted to the bankrupt or holding property of the bankrupt may, if acting in good faith, pay such indebtedness or deliver such property, or any part thereof, to the bankrupt or upon his order, with the same effect as if the bankruptcy were not pending; ”
To take this protection away from the Bank, the majority rely upon Koenig’s resignation on November 5th, of which the Bank had no notice. This fact they avoid by the fact that the Bank acted on the “oral, individual and personal authorization of Koenig to charge the special account with the checks involved.” The conclusion is that the checks were not paid “upon his (the bankrupt’s) order” *895(Sec. 70, sub. d(2)). But this result is completely at variance with the majority’s new finding that the transaction of November 5, 1956, did not divest the bankrupt of ownership. A relationship of debtor and creditor must, therefore, have continued and the “Special Account” theory has no factual support. Furthermore, the very same type of authorization used to justify the payment of the $7,497.14 applies equally to the $12,662.31.
The proposed judgment is also baffling because if the Bank may proceed to recover “that portion of the funds, represented by the judgment to be entered, which have been used in the payment of the bankrupt’s legitimate obligations,” why cannot the trial court on the remand determine as it has already done that all checks were honored for such purpose? What then becomes of the Trustee’s judgment?
Upon the facts here presented, I believe the trial court’s conclusion to be in conformity with the applicable principles of law and, hence, I would affirm.
Quotations from opinion below.