Plymouth County Trust Co. v. MacDonald

• Citation: 60 F.2d 94
• Decision Date: 27 June 1932
• Docket Number: No. 2541.,2541.
• Parties: PLYMOUTH COUNTY TRUST CO. v. MACDONALD.
• Court: U.S. Court of Appeals — First Circuit

60 F.2d 94 (1932)

PLYMOUTH COUNTY TRUST CO. v. MACDONALD.

No. 2541.

Circuit Court of Appeals, First Circuit.

June 27, 1932.

Joseph B. Jacobs, of Boston, Mass. (Herbert C. Thorndike, of Brockton, Mass., and Jacobs & Jacobs, of Boston, Mass., on the brief), for appellant.

Robert A. B. Cook, of Boston, Mass. (Walter J. MacDonald, of Brockton, Mass., and J. B. Rintels, of Boston, Mass., on the brief), for appellee.

Before BINGHAM, WILSON, and MORRIS, Circuit Judges.

WILSON, Circuit Judge.

The Supreme Court in this case in an opinion delivered May 16, 1932 (52 S. Ct. 505, 76 L. Ed. ___), having held that a referee in bankruptcy, even though having no jurisdiction in a proceeding to recover funds belonging to the bankrupt while in the hands of a third party, either in a plenary suit or in summary proceedings, may, with the consent of the adverse party, determine on petition the right of a trustee in bankruptcy to such funds, it becomes necessary to dispose of the case on its merits.

The facts are as follows: The Craig, Reed & Emerson, Inc., is a corporation formerly engaged in the manufacture of shoes, and disposed of its product largely through chain stores. From 1926, when it lost its largest customer, its business was conducted at a loss.

For some time it had done its banking business with the appellant. In June, 1929, it was owing the appellant on a demand note $36,500. Up to March 8, 1927, its indebtedness was represented by time notes. On the latter date officials of the bank, knowing that the bankrupt was losing money, refused to carry the loan in the form of time notes and required the bankrupt to give a demand note. From that time the corporation was unable to reduce its loan, and the bank officials knew that to force payment would close up the business.

In June, 1929, the bankrupt's affairs, according to the findings of the referee in bankruptcy, had reached a point where it had become a question of whether it could longer continue in business. A meeting of its stockholders was called, at which the president of the appellant bank attended. At that meeting the stockholders, after discussion, determined to allow the corporation to continue business for three months longer. To this the president of the appellant bank, if not vocally assenting, did not object.

The bankrupt continued to do business and made its deposits with the appellant bank, subject to check as formerly. For some time prior to July 10, 1929, the bankrupt manufactured chiefly for one customer, which paid its monthly bill about the middle of the month. On the morning of July 12, 1929, there was a balance in the bankrupt's account of $5,657.79. Of this $4,402.29 represented collected funds and the balance, checks, or drafts not yet honored.

On this day the bank received word of the deposit the day before in a branch of the bank of three checks totalling $15,100.78, which were forwarded by the branch bank and received at the main office on the morning of the 12th. The bank then proceeded, in accordance with its usual monthly custom, to appropriate $375 of the collected funds in the bankrupt's account to rent due the bank from Craig, Reed & Emerson, Inc., and also applied to its "frozen loan" the balance of the collected funds in the account, viz. $4,027.29; and also paid and charged against the balance of its account then represented by uncollected funds, several small checks, leaving a balance at the close of July 12th of $843.58.

Upon receipt of the checks for $15,100.78 at the main bank, they were immediately forwarded to New York for clearance by registered letter, with instructions to notify the appellant by wire if they were honored. Not receiving notice of their honor on the morning of the 13th, it again wired for a report, which it received by wire on the 13th, and proceeded forthwith to apply the amount of these checks to the balance due on its note, and from that time refused to honor any checks of the bankrupt, except pay roll checks, which it did on the advice of counsel. On July 15th, it also applied the balance of the bankrupt's account, amounting to $1,348.72, to its note, and notified the bankrupt that it had called the loan and demanded that the bankrupt make an assignment to its assistant treasurer for the benefit of creditors. The bankrupt did not receive notice of the application of the funds until July 17th, when it protested.

In September following, a petition in bankruptcy was filed, a trustee in bankruptcy appointed, who filed a petition with the referee to order the bank to turn over to the trustee the sum of $20,476.79, as a preference received by the bank under section 60a of the Bankruptcy Act (11 USCA § 96 (a), which sum included only the sums of $4,027.29, $15,100.78, and the sum of $1,348.72 applied to the note of July 15th. It does not include any sum for the $375 paid for rental.

The referee held that the application to the bank's note of the proceeds of the checks deposited in the branch bank on July 11th totalling $15,100.78, and also the additional sum applied on July 15th, but for some reason which does not appear, only to the amount of $1,007.71, or a total of $16,108.49, were preferences, which the referee ordered the bank to restore to the trustee with interest from November 27, 1929, the date of adjudication in bankruptcy. The referee held, however, that the application of the amount of collected deposits on July 12th of...