Eyges v. Boylston Nat. Bank

• Decision Date: 16 November 1923
• Docket Number: 1813.,1812
• Citation: 294 F. 286
• Parties: EYGES v. BOYLSTON NAT. BANK. SAME v. WALKER.
• Court: U.S. District Court — District of Massachusetts

294 F. 286

EYGES v. BOYLSTON NAT. BANK.

SAME v. WALKER.

Nos. 1812, 1813.

United States District Court, D. Massachusetts.

November 16, 1923

Philip W. Jacobs and Jacobs & Jacobs, all of Boston, Mass., for plaintiff.

Frederick Gilbert Bauer and Fowler, Bauer & Kenney, all of Boston Mass., for defendant Boylston Nat. Bank.

Wendell P. Murray and Isaac E. Simons, both of Boston, Mass., for defendant Walker.

LOWELL District Judge.

These are two bills in equity brought by the trustee in bankruptcy of the Colonial Grocery Company to recover alleged preferences. We are met at the outset with the motion in No 1812 that the bill be dismissed, as there is a complete and adequate remedy at law. I have already held, in Reed v Guaranty Security Corporation (D.C.) 291 F. 580, that the settled practice in this circuit is to allow a bill in equity to set aside a preference consisting merely in the payment of money. There is the further fact in this case that, in order to recover, a transfer of accounts receivable must be set aside. Such a remedy cannot be had in an action at law. The motion is denied.

Early in the year 1921 the defendant Walker bought all the shares of the Colonial Grocery Company. He applied to the defendant the Boylston National Bank for a loan. On February 4th and 15th the bank loaned the Colonial Grocery Company the sum of about $25,000 on three notes. One note, for $15,000, was indorsed by Walker, and two notes, for $5,000 each, were taken without indorsement; these two notes were discounted. All these notes were afterwards renewed, the two latter ones on May 5th. On May 23, 1921, the bankrupt assigned to the defendant bank substantially all of its accounts receivable as security for the two unindorsed notes. This was done by the orders of Walker at the instance of the bank, which called the bankrupt's attention to the fact that its deposit was very low.

The Colonial Grocery Company was adjudicated a bankrupt on a petition filed June 16, 1921. Subsequently Mr. Walker formed the Crown Flour Company, and gave to the bank its notes, indorsed by him, in the sum of $22,236.16, which represented the amount due on the notes of the Colonial Grocery Company, less the sum of $3,563.84, which the bank had received from the assigned accounts. The evidence showed that the accounts were not given to the Crown Flour Company, but are still held by the bank. It was also in evidence that between May 23 and June 16, 1921, new accounts were given from time to time to the bank in exchange for old ones, on which the Colonia Grocery Company had collected sums of money, which the company was allowed to keep.

Mr. Walker testified that he bought the shares of the Colonial Grocery Company under the assurance that he had been informed of all its debts. After that he learned of several large debts which it owed, and the situation of the company toward the end, in May and June, became worse and worse. He further testified that the value of groceries was continually falling during the spring of 1921. The testimony of an expert accountant showed that the company was insolvent on May 23, 1921. I am satisfied on the evidence that Walker knew that the company was insolvent on that date.

At the time of the assignment of the accounts the bank made no inquiries of Mr. Walker, or any one else, as to the financial condition of the company. It sent one of its officers, named Eldredge, to the place of business of the company, who stamped in the books, wherever the accounts receivable appeared, a statement that they had been turned over to the bank. Eldredge testified that the stock on hand seemed good, but that he was not acquainted with the wholesale grocery business.

Mr. Bailey, the president of the bank, testified that he did not consider a concern a good risk which 'hocks' its accounts. He made no inquiries, however, and the reason was plain. The bank throughout took only a mild interest in the affairs of the bankrupt, because, as its president, Mr. Bailey, testified, he looked to Mr. Walker to stand back of the loan. His confidence in Mr. Walker was justified by the result, as we have seen that Mr. Walker took up the notes.

I find on the evidence that the bank was put upon its inquiry as to the condition of the company (2 Black, Bankruptcy (3d Ed.) Sec. 599; In re Sutherland Co. (D.C.) 245 F. 663; Tilt v. Citizens' Trust Co. (D.C.) 191 F. 441) and that if it had asked Mr. Walker it would have found that the company was insolvent. I therefore rule that, when the bank received the accounts, it had reasonable cause to believe that a preference would be effected, as it is charged with knowledge of facts which a reasonably careful investigation would have disclosed. Cases cited supra; ...