Essex Nat. Bank v. Hurley, 2060.

• Citation: 16 F.2d 427
• Decision Date: 18 December 1926
• Docket Number: No. 2060.,2060.
• Parties: ESSEX NAT. BANK v. HURLEY.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

16 F.2d 427 (1926)

ESSEX NAT. BANK v. HURLEY.

No. 2060.

Circuit Court of Appeals, First Circuit.

December 18, 1926.

James P. Cleary, of Haverhill, Mass. (John J. Ryan and Ryan & Cleary, all of Haverhill, Mass., on the brief), for appellant.

John W. Morgan, of Lynn, Mass. (Murray Brown, of Lynn, Mass., on the brief), for appellee.

Before BINGHAM and JOHNSON, Circuit Judges, and MORRIS, District Judge.

MORRIS, District Judge.

The plaintiff, appellee, trustee in bankruptcy of Atwood & Gardner, Inc., a Massachusetts corporation, brings this bill under the provisions of section 60b of the Bankruptcy Act, of July 1, 1898, and amendments thereto (Comp. St. § 9644), to recover two alleged preferential payments made by Atwood & Gardner, Inc., to the Essex National Bank.

The evidence establishes the following facts:

The bankrupt, Atwood & Gardner, Inc., was a small shoe-manufacturing concern doing business in Haverhill, Mass. It was adjudicated a bankrupt on November 24, on an involuntary petition filed November 10, 1924. It had a capital stock of $30,000. Prior to November, 1923, its stock was owned by Frank S. Atwood, president, and George B. Gardner, its treasurer. About that time Gardner bought out Atwood's interest and thereafter appears to have owned and operated the concern as his own. The bankrupt had a line of credit for $10,000 with the Essex National Bank in Haverhill, Mass., and $20,000 with the Essex Trust Company, in Lynn. In its general course of dealing with the bank, the notes of the corporation were indorsed by Atwood and Gardner, individually, and after Atwood's retirement by Gardner alone. Its fiscal year ended on May 31. The bank was accustomed to require and receive annually from its borrowing customers statements of their condition. The last statement received from the bankrupt corporation was in 1923. It showed considerable shrinkage in net worth during the preceding year. During most of the time prior to the summer of 1924 the corporation had been a borrower from the defendant bank on notes, of sums ranging from $5,000 to $10,000. The notes were given, some on one month's time and some on three months' time. On April 22, 1924, the bank discounted a note of the corporation for $10,000, due July 22, 1924. When the note became due, $5,000 was paid and a note for $5,000 was given for the balance, which became due and was paid September 22, 1924.

It is these sums that the trustee now seeks to recover as a preference.

In the summer of 1924, the shoe business in Haverhill was particularly bad, due in part to labor troubles. About July 1st, Gardner stated in effect to the president of the bank that he was making no money; that he was considering making a change in the kind of shoes manufactured, which would necessitate considerable expense for the new machinery, and also that he was considering leaving Haverhill.

During the summer the corporation was doing practically no business, and this fact was known to the defendant as its pay rolls were drawn weekly from the bank. The bank had neglected to insist, as was its custom, on the filing of a financial report as of May 31, 1924. Earlier reports, as well as the course of business with the bank, indicated that credit was grounded,...