Reed v. Federal Finance Corp.

• Decision Date: 27 July 1923
• Docket Number: 1716.
• Citation: 291 F. 679
• Parties: REED et al. v. FEDERAL FINANCE CORPORATION. In re MASSACHUSETTS MOTORS CO.
• Court: U.S. District Court — District of Massachusetts

291 F. 679

REED et al. v. FEDERAL FINANCE CORPORATION.

In re MASSACHUSETTS MOTORS CO.

No. 1716.

United States District Court, D. Massachusetts.

July 27, 1923

George W. Reed, of Boston, Mass., for plaintiffs.

Edward A. Counihan, Jr., of Boston, Mass., for defendant.

LOWELL District Judge.

Bill in equity brought by the trustee in bankruptcy of the Massachusetts Motors Company to recover certain payments and transfers which were alleged to be preferences. The bankrupt was engaged in the business of selling motor cars. It borrowed money of the defendant under the following circumstances:

Cars were shipped from the factory to Boston, and a sight draft was drawn on the bankrupt and sent with the bill of lading for the cars to the Back Bay National Bank. The bankrupt on receiving notice of the shipment went to the defendant and borrowed money of it sufficient to pay the draft. It made out to the defendant a check for 20 per cent. of the amount to be borrowed. The defendant then paid the total amount to the Back Bay National Bank, which delivered the bill of lading to the bankrupt, and the cars were taken from the railroad and brought to the bankrupt's place of business. As security for the loan made by the defendant, an instrument was drawn which provided that the title to the automobiles should remain in the defendant until the notes secured by the automobiles were paid. All these documents were recorded in Boston. The defendant began to do business with the bankrupt in April, 1920, and continued to issue new loans on similar security until the latter part of July, 1920. The practice was that as soon as a car which was covered by the agreement was sold the bankrupt would at once pay to the defendant the amount of the note secured by that car.

Toward the end of July it came to the knowledge of the defendant that the bankrupt had sold six or seven cars and had not paid the notes which were secured by the cars. The amount which the bankrupt had thus received and not paid over to the defendant was about $11,000. One of the officers of the defendant went to the bankrupt and protested. The bankrupt was unable to pay to the defendant $11,000, but on August 4th gave to him a document similar to the other documents which were used between the parties, secured by about 23 secondhand cars which the defendant had in its possession. Payments were received from sales made of automobiles covered by this document as follows: August 16, $540; August 17, $589.05 August 25, $360. There was evidence that the bankrupt was insolvent in July.

Toward the end of August the defendant learned that other finance corporations which had similar contracts with the bankrupt were taking possession of the cars which had been left with the bankrupt. The defendant thereupon took possession of several cars which were covered by the agreements between the parties. These cars were subsequently sold for $27,260. Shortly thereafter a petition in bankruptcy was filed against the Massachusetts Motors Company, and a receiver was appointed. After that the present plaintiffs were appointed trustees.

The plaintiff alleges that the giving of security on August 4th for the payment of about $11,000 which was due to the defendant was a preference, and that the three payments in August on account of the sale of cars which were part of the security was also a preference.

I find and rule that when the defendant received in August the three payments on account of a past debt it received a greater percentage of its debt than other creditors of the same class, and that it had reasonable cause to believe that a preference would be effected.

Under the terms of the arrangement between the parties the bankrupt was to pay to the defendant the amount of its loan on any car as soon as...