In the Matter of Bel Marin Driwall, Inc., Bert O. Summers, Doing Business as Erbentraut & Summers v. William B. Grover, Trustee in Bankruptcy

This appeal was taken from the district court’s affirmance of the bankruptcy referee’s turnover order. The question is whether direct payments by the bankrupt’s debtor (a general contractor) to the bankrupt’s creditor (a supplier to the bankrupt), made under obligation of California law, were invalid as setoffs under § 68b (2) of the Bankruptcy Act, 11 U.S.C. § 108b(2) (1964), against the debtor’s obligations to the bankrupt’s estate. We reverse.

Facts

Appellee has substantially adopted appellant’s statement of the facts, about which there is no serious dispute. The bankrupt’s debtor was appellant Summers, doing business as Erbentraut and Summers, who was general contractor for a hospital remodelling project. Summers employed Driwall, who later became bankrupt, as a subcontractor. One of the subcontractor’s suppliers was the bankrupt’s creditor, Glidden-Durkee Co. (hereinafter referred to as G-D). Appellee Grover is Driwall’s trustee in bankruptcy.

On September 22, 1969, G-D notified Summers and his surety on his contractor’s bond of a specific claim for paint which G-D had furnished to Driwall. The amount of this claim is here agreed to be $1,467.02. On October 17, 1969,…