La Bour v. Michigan Nat. Bank

• Decision Date: 09 December 1952
• Docket Number: No. 22,22
• Citation: 335 Mich. 298,55 N.W.2d 838
• Parties: LA BOUR v. MICHIGAN NAT. BANK et al.
• Court: Michigan Supreme Court

Page 838

55 N.W.2d 838

335 Mich. 298

LA BOUR v. MICHIGAN NAT. BANK et al.

No. 22.

Supreme Court of Michigan.

Dec. 9, 1952.

McCobb, Heaney & Dunn, Grand Rapids, for defendant, cross-plaintiff and appellant.

Rom & Newton Dilley, Grand Rapids, for defendant, cross-defendant and appellee.

Before the Entire Bench.

BUSHNELL, Justice.

Plaintiff George F. LaBour, the trustee in bankruptcy of Arthur J., Hunt, brought this suit to recover claimed preferential payments that Hunt had made to the defendant and cross-plaintiff, Michigan National Bank. Hunt, on an involuntary petition, had been adjudicated a bankrupt on September 6, 1949. The bank did not file a claim in the bankruptcy proceedings.

In June of 1947 the bankrupt borrowed $5,800 from the bank on a note which was indorsed by his father, defendant Arthur H. Hunt. The maker from time to time made payments on his loan. On April 7, 1949, his indebtedness, totaling $2,772.29, was evidence by a renewal note payable $200 on or before June 1st, and the same amount in monthly installments thereafter. Payments were thereafter made as follows: June 14, 1949, $200; July 7, 1949, $200; and August 1, 1949, $300. When the last payment was made the bankrupt deposited, with bank, certain notes receivable, for collection and application of the proceeds on his indebtedness. There remained on October 1, 1949, an unpaid balance of $1,825.34.

On January 18, 1950 the bank began a law action against Arthur H. Hunt, the indorser, setting up 2 counts, the first for the amount of the unpaid indebtedness, and the second for $1,028.72, which the trustee had asserted was the total of preferential payments made to the bank. On June 2, 1950, subsequent to the institution of the present suit on April 5, 1950, by the trustee, the bank took a judgment for $1,889.12 against Arthur H. Hunt, the indorser, on count 1. On motion of the bank, in the law action, count 2 was dismissed, with the specific provision in the judgment that such dismissal was without prejudice. Arthur H. Hunt paid the judgment obtained against him, and the bank filed an acknowledgment of satisfaction of that judgment on June 27, 1950.

The bank filed its answer on July 13th in the suit brought by the trustee. Later the bank asked the court, in the event it should be held that it had received moneys as a voidable preference under the bankruptcy act, that the decree include a money decree against defendant Arthur H. Hunt for the amount of such preferential payments. Hunt then filed a amended answer, with a notice of the special defense, that the judgment theretofore entered against him in the law action was a bar to the claim asserted by the bank in the equity suit.

The trial judge held that the bank was liable to the trustee for the money it had received during the preferential period before Hunt was adjudicated a bankrupt. A money decree was entered against the bank in the amount of $1,029.07. The trial judge further held that, when the bank obtained a judgment against defendant Arthur H. Hunt for the balance then due on the note, it had exhausted its remedy against the indorser; and that to permit another judgment for the amount now due on the same note would be to permit the bank to split its cause of action.

In order to avoid the necessity for a cross-appeal by the indorser against the trustee, it was stipulated between the bank and the indorser that:

'(a) Endorser received the benefit of the preferential payments totaling $1,029.07 paid by bankrupt to bank because they dismissed his liability on his contract of endorsement of bankrupt's note to that extent; (b) Endorser, at the times the payments were made, did not have reasonable cause to believe that bankrupt was insolvent within the meaning of section 60(b) of the Bankruptcy Act [11 U.S.C.A. § 96, sub. b]; and (c) in consequence, endorser did not receive a...