Olmstead v. Massachusetts Trust Co.

• Decision Date: 24 February 1926
• Docket Number: No. 2145.,2145.
• Parties: OLMSTEAD v. MASSACHUSETTS TRUST CO.
• Court: U.S. District Court — District of Massachusetts

11 F.2d 410 (1926)

OLMSTEAD v. MASSACHUSETTS TRUST CO.

No. 2145.

District Court, D. Massachusetts.

February 24, 1926.

Clarence A. Barnes and White & Barnes, all of Boston, Mass., for plaintiff.

Harry H. Ham, Ralph H. Willard, and Ham, Willard & Taylor, all of Boston, Mass., for defendant.

MORTON, District Judge.

This is a suit in equity by the trustee in bankruptcy of the C. S. Stearns Shoe Company to recover about $13,000, alleged to have been received by the defendant as a preference. It was heard in open court largely on oral testimony. There is but little controversy about the facts. The Stearns Shoe Company was organized in 1921, succeeding a partnership composed of Battey & Welch. It dealt in shoes at wholesale. Battey was a Hartford business man, who ran several retail shoe stores. Welch was a Boston lawyer, who attended to the active business of the company. In the early part of 1923 the Stearns Company made banking arrangements with the defendant, under which a commercial credit of $15,000 was to be allowed, and this sum was immediately borrowed. In late March or early April a further loan of $5,000 was made in connection with certain manufacturing activities of the Stearns Company. About $11,000 of accounts receivable were assigned by the Stearns Company to the trust company as security for this and the other loans. All the notes were made by the Stearns Company and indorsed by Battey and by Welch.

About May 16th the trust company learned that sums collected by the Stearns Company on the assigned accounts had not been paid over to it. Welch was called to the trust company and had an interview with Mr. Whittaker, one of its vice presidents. I do not gather that there was any feeling on the part of the trust company that the managers of the Stearns Company had been dishonest in what had been done. There appears to have been some misunderstanding about the matter. The upshot of the interview was that the assignment of the accounts receivable of April 5th was discharged, and a new assignment, dated May 16th, of accounts receivable aggregating about $17,000 (including one of $11,000, due from Battey) was made as security for the trust company's loans to the Stearns Company.

Shortly afterward Battey called on Whittaker and said that the Stearns Company was liquidating its affairs, and that he wished Whittaker to get in touch with Welch, but without saying that Battey had suggested his doing so. Whittaker and Welch had an interview, at which Welch confirmed Battey's statements, and said that all the shoes owned by the Stearns Company had been shipped to Battey at Hartford, that it had no other property except its accounts receivable, which were of a face value of about $50,000, that its debts did not exceed about $35,000, and that it had an equity in the business of the difference. Whittaker expressed surprise that the concern which he had supposed was going ahead profitably and had good prospects should go into liquidation. He evidently felt that the trust company's position needed strengthening, and called in Battey for another interview, which took place on May 28th.

At that time Battey gave a demand note for $13,079 to the Trust Company, agreeing to pay it at the rate of $1,000 a week. The proceeds of this note Battey left with the trust company in its loan department, to be applied to the Stearns Company notes indorsed by him as they became due. There were at that time five such notes held by the trust company, viz. two for $5,000 and three for $3,000, none of them as yet due. The trust company applied the proceeds of this note ($13,079) in payment of the above-mentioned notes as they fell due, and thereafter held those so paid for Battey as the indorser who had...