Pender v. Chatham Phenix Nat. Bank & Trust Co.

• Decision Date: 23 May 1932
• Docket Number: No. 360.,360.
• Citation: 58 F.2d 968
• Court: U.S. Court of Appeals — Second Circuit
• Parties: PENDER v. CHATHAM PHENIX NAT. BANK & TRUST CO.

58 F.2d 968 (1932)

PENDER v. CHATHAM PHENIX NAT. BANK & TRUST CO.

No. 360.

Circuit Court of Appeals, Second Circuit.

May 23, 1932.

Benjamin Siegel, of New York City (Edward I. Kaplan, of New York City, of counsel), for appellant.

Kaye, McDavitt & Scholer, of New York City (James S. Hays and Milton Kunen, both of New York City, of counsel), for appellee.

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

SWAN, Circuit Judge.

The trustee in bankruptcy of Morris Sugarman brought suit to set aside a payment of $3,500 made by the bankrupt to the defendant bank within four months of the bankruptcy. Upon the evidence adduced, all the elements of a preference voidable under section 60b of the Bankruptcy Act (11 USCA § 96) were found to exist except the last, namely, the requirement that the creditor "shall then have reasonable cause to believe" that the transfer would effect a preference. As to that issue the court below found in favor of the defendant. The correctness of this finding is the only question presented by the appeal.

Sugarman Bros., a partnership of which Morris Sugarman was a member, began business dealings with the defendant bank in 1924, but the account then opened, after continuing for several years, had been closed. On December 31, 1929, Abraham Sugarman withdrew from the firm, and thereafter the bankrupt continued the business as sole proprietor. On June 6, 1930, he opened an account with the defendant. On that date the bank loaned him upon his own notes $5,000 and on July 1st an additional $2,500. The line of credit granted was $7,500 on his own paper and $12,500 on bills receivable. It was apparently understood that he should keep on deposit a balance equal to about 20 per cent. of the credit extended. Before opening the account the bank had obtained credit reports on the bankrupt as well as statements showing his general balance sheet at the close of the year 1929 and his trial balance as of April 30, 1930. While the bankrupt's statements disclosed a solvent condition, the credit reports running back to February showed him increasingly slow in payments. Shortly after June 17th the bank was warned by the Bank of America, where Sugarman had previously banked, that his balances there had dwindled until that bank had stopped extending credit. This was evidently the reason for Sugarman opening his account with the defendant. On June 20th, Mr. Debevoise, the defendant's vice president in charge of credits, noted in the bank's credit file that he did not consider this an attractive risk and that "extreme caution should be exercised." This advice seems to have been followed. Mr. Whitman, the assistant manager of the branch office in which the account was carried, repeatedly called Sugarman in and urged him to pay his trade bills more promptly and to increase his balances in the bank. Despite these remonstrances, matters did not improve. The credit reports showed constantly mounting overdue bills, and the report of July 30th disclosed that the National Credit Office had withdrawn all credit in view of slow payments. Meanwhile the bankrupt's bank balances were continually decreasing, and, according to Mr. Warner's testimony, uncollected funds were drawn on. On August 14th Mr. Debevoise again made a memorandum for the credit file in which he noted the action of the National Credit Office and the dwindling bank balance, mentioned...