Deitrick v. Greaney, 4111.

• Decision Date: 16 June 1938
• Docket Number: No. 4111.,4111.
• Citation: 23 F. Supp. 758
• Parties: DEITRICK v. GREANEY et al.
• Court: U.S. District Court — District of Massachusetts

23 F. Supp. 758

DEITRICK v. GREANEY et al.

No. 4111.

District Court, D. Massachusetts.

June 16, 1938.

Brenton K. Fisk, of Aldridge & Fisk, all of Boston, Mass., for plaintiff.

Daniel J. Gallagher, of Boston, Mass., for defendants.

Louis G. Stone, of Boston, Mass., for defendant Karnow.

SWEENEY, District Judge.

This is a suit in equity brought by the receiver of the Boston-Continental National Bank to enforce a stock assessment on 457.2 shares of stock of the bank, against these defendants, individually and jointly, and against the defendants Greaney and Karnow, to enforce the payment with interest of a note signed by defendant Greaney in the sum of $14,553.66.

For the purpose of clarity, the Boston National Bank will hereinafter be referred to as the Boston, the Continental National Bank will be referred to as the Continental, and the consolidated Boston-Continental National Bank will be referred to as the Boston-Continental.

Early in 1930, the Boston found itself in a position where it was the owner of 190 shares of its own stock. This ownership came about by the purchase of the stock from one of its directors who threatened to dump it on the open market. Fearing the result of such action, the bank took the stock over, and carried it as a cash item. Such ownership was in violation of the National Banking Act, 12 U.S.C.A. § 83. In order to conceal this illegal ownership, a scheme was devised whereby the note of some third person would be carried on the bank's books as a receivable, and the stock would be carried on the records either in the name of that third person, or in someone's name other than the bank.

The defendant Greaney was a director of the Boston, and after conference with one Ulin, who was president of the bank, he prevailed upon the defendant Karnow to execute a note in the sum of $23,500 as an accommodation to the bank. Karnow was a small depositor in the Boston, and never intended to pay the note or become a purchaser of its stock, or to do anything other than to accommodate the bank, probably in the hope that in a pinch the bank would return the favor.

Karnow's note was discounted by the bank, and he received from it a check in the sum of $23,203.14. In accordance with the agreement between the parties, Karnow deposited this check in another bank to the credit of the defendant Greaney. Greaney issued his check drawing against this sum, and paid the money to the Boston. The shares were then transferred on the books of the bank to the defendant Greaney.

When the Karnow note became due he was prevailed upon to renew it, which he did against his better judgment. Shortly thereafter he caused the stock to be transferred on the bank's records from Greaney's name to his own, and took actual possession of the certificates. I find that even at this time he did not intend to become a purchaser of the bank's stock, but merely took the certificates as security. From this time on, Karnow repeatedly made efforts to have his liability on the note cancelled, but, between Ulin and Greaney, he was prevailed upon to make several renewals of the original note.

In September of 1930, a consolidation was proposed by the officers of the Continental whereby the Boston-Continental would be formed. Ragan and Balter were the guiding geniuses of the Continental, and were the originators of the proposed consolidation. Ragan intended to have control of the consolidated bank, and, for that purpose, was in the market for shares of the old Boston. A purchase price was agreed on between the Boston and Ragan for the purchase of the shares here involved at $150 a share. Not having the ready money to consummate the deal, Ragan and Balter issued a series of notes, and delivered them to the bank. The bank then turned three of the notes, aggregating $24,000, over to Greaney with instructions that when they were collected, the stock now standing in Karnow's name, was to be transferred to Ragan and Balter. Greaney was to secure the release of such shares from Karnow as were needed to cover any payments made by Ragan and Balter on their notes which were held by Greaney.

In December of 1932, the consolidation was effected, and Ragan became the president of the Boston-Continental. Under the plan of consolidation, the 190 shares of Boston stock, standing in the name of Karnow, become convertible into 684 shares of the new stock. In March of 1931, the first Ragan and Balter note became due and was paid. This was in the sum of $9,500, and on receiving payment Greaney surrendered one of the notes in that same amount, and Karnow released the requisite amount of stock. On the books of the bank Karnow was credited with the...