Herget v. Central National Bank & Trust Co.

Background

A bankruptcy trustee sued a bank to recover more than $300,000 in payments that the bankrupt company made in the months before it filed for bankruptcy. The company, N. L. Rogers & Company, filed a voluntary petition and was declared bankrupt on April 11, 1938. The trustee waited until March 3, 1943—more than four years later—to file a claim under the bankruptcy law to set aside those alleged preferential payments. The district court dismissed the suit because a federal rule, subsection e of §29 of the Bankruptcy Act, requires trustees to bring such suits within two years after adjudication; the court of appeals affirmed.

Reasoning

The Court asked whether the federal two-year rule stops a trustee from suing after that period even when state law would give more time. The opinion surveyed earlier bankruptcy statutes and court decisions and concluded Congress intended the two-year limit to govern trustee suits to recover prior payments. Because the cause of action under §60 did not exist before the bankruptcy petition was filed, the trustee could not rely on a longer state statute. Thus actions to set aside preferential transfers must be started within two years after the bankruptcy is declared, and this suit—filed later—was barred.

Real world impact

This ruling means trustees, creditors, and banks must act quickly: trustees lose the right to sue to recover pre-bankruptcy payments if they wait more than two years after the bankruptcy is entered. The Court did not decide whether state time limits apply in other contexts; it relied on the federal statute’s clear two-year rule.