Fierman v. SEWARD NAT. BANK OF NEW YORK, 16.

• Decision Date: 05 December 1932
• Docket Number: No. 16.,16.
• Parties: FIERMAN v. SEWARD NAT. BANK OF NEW YORK.
• Court: U.S. Court of Appeals — Second Circuit

61 F.2d 952 (1932)

FIERMAN v. SEWARD NAT. BANK OF NEW YORK.

No. 16.

Circuit Court of Appeals, Second Circuit.

December 5, 1932.

David W. Kahn, of New York City, for appellant.

Willcox, Swiger, Chambers & Scandrett, of New York City (Frederic L. Clark, of Philadelphia, Pa., and J. Anthony Panuch, of New York City, of counsel), for appellee.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

This suit seeks to set aside a transfer made by the bankrupt to the appellee of a $60,000 demand collateral note. The note was that of the Pennsylvania Hardwood Flooring Corporation, payable to the bankrupt. The corporation's first mortgage bonds, amounting to $150,000, were given as collateral security for the note. The appellant claims that it has established that the transfer of this note to the appellee was a voidable preference under the Bankruptcy Act, § 60a (11 USCA § 96(a).

The bankrupt was engaged in the lumber business, and held the controlling interest in the stock of the Pennsylvania Hardwood Flooring Corporation and all of the stock of the R. S. McConnell Lumber Company and the McConnell Lumber Terminal Corporation. In 1927, the three companies opened banking connections with the appellee, making their arrangements with its vice president, Moak. A line of credit was extended, but all loans were guaranteed by the bankrupt. A like course of business was followed with other banking institutions. In December, 1927, the bankrupt's total liabilities were $330,000; his assets, at that time, consisted of stock in the three corporations and unimproved real estate, part of which was afterward sold for $8,000. The assets of the R. S. McConnell Lumber Company amounted to approximately $2,000, and the assets of the Pennsylvania Hardwood Flooring Corporation were sold for $40,000, subject to a mortgage of $150,000. The McConnell Lumber Terminal Corporation had no other creditors than the appellee, but the assets were pledged to it, and these were insufficient to pay the loans and advances received from the appellee, amounting to $93,000. The court below found that McConnell was hopelessly insolvent in December, 1927.

Mr. Moak resigned his position with the appellee in October, 1927, and one Fisher joined the appellee on November 23, 1927. At this time Fisher began making an investigation of the various loans made to the bankrupt, and in the course of his investigation examined the accounts of the bankrupt's companies. He decided that the accounts were in bad condition, and early in December sent for one Dimock, an associate of the bankrupt and a man of good reputation, who discussed the affairs of the companies with Fisher. At that time they considered the loans of $93,000, advanced under a revolving letter of credit and under an agreement that warehouse receipts of the lumber purchased with this money would be deposited as security. Although the advances were made in October and November, the promised warehouse receipts were not produced. Mr. Fisher, dissatisfied with his inability to obtain the security promised by way of warehouse receipts, went to Philadelphia for the purpose of calling on the warehouse company and obtaining information. He reached there December 22, 1927, and found that he had not received the receipts because there were unpaid ocean freight charges amounting to $18,000, and that, until this prior lien was satisfied, the warehouse company would not issue receipts. Fisher consulted counsel in Philadelphia and brought McConnell and Dimock from New York to Philadelphia the next day. The warehouse receipts, subject to the lien of the steamship company for unpaid freight charges, were finally obtained, and, upon Fisher's return to New York, a demand was made for further security. Dimock transferred customers' paper to the extent of $20,000 for the purpose of paying ocean freight charges on the lumber, but Fisher retained this paper as general security. Dimock was forced to pay the freight charges to the extent of $16,000 out of other assets. This was done by discounting some customers' paper held by the McConnell companies.

On December 26, Fisher called Dimock at his home, requested him to attend a conference at the bank in the afternoon, and, counsel being present, it was stated that drastic action would be taken to protect the bank. It was suggested that five collateral notes be prepared aggregating approximately $93,000 which had been advanced against the lumber. These notes were dated back to October and November when the moneys had been advanced. The purpose of this was to tie in these notes with the security of $150,000 of bonds of the Pennsylvania Hardwood Flooring Corporation which were in the appellee's custody and for which it had issued a safe-keeping receipt to the bankrupt in July, 1927. These bonds were acquired by the bankrupt in January, 1927, as security for certain advances which he made on behalf of the Pennsylvania Hardwood Flooring Corporation to the extent of $44,000, and he directed a bank in Pennsylvania which held the bonds to send them to the appellee. Upon their receipt, the...