Elliotte v. American Sav. Bank & Trust Co.

• Decision Date: 08 April 1927
• Docket Number: No. 4746.,4746.
• Parties: ELLIOTTE v. AMERICAN SAV. BANK & TRUST CO.
• Court: U.S. Court of Appeals — Sixth Circuit

18 F.2d 460 (1927)

ELLIOTTE v. AMERICAN SAV. BANK & TRUST CO.

No. 4746.

Circuit Court of Appeals, Sixth Circuit.

April 8, 1927.

Lowell W. Taylor, of Memphis, Tenn. (W. Percy McDonald, of Memphis, Tenn., on the brief), for appellant.

Hamilton E. Little, of Memphis, Tenn. (Holmes & Canale, of Memphis, Tenn., on the brief), for appellee.

Before DENISON, MOORMAN, and KNAPPEN, Circuit Judges.

KNAPPEN, Circuit Judge.

Plaintiff appellant, as trustee in bankruptcy of the above-named estate, brought this suit under section 60b of the Bankruptcy Act (Comp. St. § 9644) to recover $11,500, the aggregate of nine alleged preferential payments received within four months of bankruptcy (December 31, 1924), viz. on and after November 3, 1924. On final hearing on pleadings and proofs the bill was dismissed. This appeal is from that action.

Bankrupts had for many years been customers of the defendant bank, and in 1924 had a line of credit therewith amounting to $26,500, represented by a series of promissory notes with definite maturities — usually 60 and 90 day paper. The bank held no indorsements other than that of the bankrupts, and no other security except life insurance policies having a surrender value of between $5,000 and $6,000.

In the summer of 1924 bankrupts, at the bank's request, agreed to reduce the indebtedness one-half between September 1st and January 1st then next. It was recognized that payments were not practicable during the quiet summer season. Although the bankrupts deposited in the bank $20,000 during September and $31,000 during October, no payment was made in either of those months on the bank's indebtedness. The bank account was kept practically exhausted by the bankrupts' payments to merchandise creditors. On November 3, 1924, $1,000 was paid on the bank's debt. During November the bankrupts' deposits in the bank were about $28,000, and during December about $32,000, making a total of deposits of about $111,000 during September, October, November, and December. On November 28th, at the bank's instance, a definite maturity note for $4,000 was renewed by a demand note in the same amount, and, apparently in that connection, $500 was paid on the bank's paper on November 29th. On the 3d, 8th, and 12th of December, similar demand renewals of time paper were had as the latter matured — respectively for $1,500, $3,000, and $6,000, making a total of renewals by demand notes of time paper amounting to $14,500 during practically 30 days, in addition to the aggregate payments of $1,500 on November 3d and November 29th. There was paid on the bank's paper between December 1st and December 22d (six payments) a total of $7,000. On December 24th the bank charged to the bankrupts' account the $3,000 demand note, thus overdrawing the bank account by $2,400.79. During the seven remaining days before bankruptcy, deposits made by the bankrupts were applied by the bank to the extinguishment of this overdraft. On the $26,500 line of bank paper there remained unpaid at bankruptcy $15,000, consisting of two demand notes, for $4,000 and $6,000 respectively, given since November 29, 1924, and a note for $5,000, given before that date, and due January 3d following.

The bankrupts owed substantially $100,000. The assets of the estate were a stock of merchandise, consisting of broken line, odds and ends, much of which were shopworn and old, together with fixtures and open accounts amounting at face to about $20,000. At trustee's sale the merchandise and fixtures brought $29,500; the trustee testified that in his opinion that was the best sale ever made in the jurisdiction of the bankruptcy court. No definite evidence was given of the value of the open accounts. But, more than a year after bankruptcy, the trustee testified, without dispute, that he had been able to collect about $2,000 thereon, and that the estate could not pay to unsecured creditors more than 30 per cent. of their claims. It is stipulated that there had been no change in the bankrupts' financial condition during the two months before bankruptcy.

1. It is not clear that the payments to the bank previous to December 25 were preferential within the meaning of the Bankruptcy Act. The only testimony on the merits was that of the bank's president, who was called as a witness for plaintiff. If his testimony is given full credence, it would repel the claim that the bank had, substantially before that date, reason to believe that the payments made would effect a preference. The fact that the bank insisted upon the reduction of the line by one-half and on renewing the time paper by demand notes, considered in connection with the fact that, to begin with, at least, the bank was willing to continue the line at such reduced amount, is not necessarily inconsistent with a belief on the part of the bank of the solvency of the bankrupts, who had been customers of the bank for many years, and during the fall months were apparently doing at least a fairly good business, as evidenced by the bank deposits of about $111,000 in the four fall months, the great bulk of which was paid to merchandise creditors, a fact...