Waite v. Second Nat. Bank of Belvidere, Ill.

• Decision Date: 01 July 1948
• Docket Number: No. 9386.,9386.
• Citation: 168 F.2d 984
• Parties: WAITE v. SECOND NAT. BANK OF BELVIDERE, ILL.
• Court: U.S. Court of Appeals — Seventh Circuit

168 F.2d 984 (1948)

WAITE v. SECOND NAT. BANK OF BELVIDERE, ILL.

No. 9386.

Circuit Court of Appeals, Seventh Circuit.

July 1, 1948.

Carlton K. Welsh, of Rockford, Ill., and Harold C. Sewell, of Belvidere, Ill., for appellant.

Floyd E. Eckert, Sr., of Woodstock, Ill. (Robert W. Besse, of Sterling, Ill., and Alexander J. Strom, of Belvidere, Ill., of counsel), for appellee.

Before SPARKS and KERNER, Circuit Judges, and LINDLEY, District Judge.

SPARKS, Circuit Judge.

Appellee, as trustee in bankruptcy, sued to recover certain alleged preferential payments made by the bankrupt to his bank within four months prior to the filing of the voluntary bankruptcy proceeding. The court found the payments to constitute preferences, as alleged, and ordered payment of the sums of $12,113 and $344, with interest from dates of payment by the bankrupt. Appellant asserts error as to the entire judgment, contending that the payments were not preferential, but if the judgment be found correct as to the principal amounts, then it asserts error in the allowance of interest from date of original receipt by the bank instead of from date of suit or judgment.

The bankrupt, McMackin, had for several years operated as a cattle dealer, buying stock in surrounding states for shipment to and sale through the Belvidere Livestock Company, to which we shall refer as the Company, which held its sales each Friday. Sidney Gorman, executive vice-president of appellant bank, had acted as clerk of these sales for some time, and was thoroughly familiar with the bankrupt's mode of doing business. The latter had had an account in the bank for many years, and for a period of about a year prior to his voluntary proceeding in bankruptcy, the bank had permitted him to follow an arrangement by which he left blank, signed, unsecured notes payable to the bank and used checks on the bank to pay for cattle which he went into surrounding states to buy. As the checks came in, they were paid, and at the close of each day, his notes were filled in for an amount corresponding to the total of the checks paid out during the day. Each Friday, after the weekly sale, Gorman as clerk figured up the amount due each dealer and issued the check of the Company to each. Each Saturday, McMackin came into the bank and deposited his check, paid up his notes for the previous week, and made out a new series in blank, to be used the following week.

Friday, September 17, 1943, the situation was that McMackin had $92.87 in his open account, and owed the bank $13,955 on his notes, $13,000 of which was for what we may call "current indebtedness," represented by three notes dated September 11, 14, and 16, incurred on his transactions of the current week, and $955 on two unsecured notes not yet matured (six month notes maturing respectively November 8 and December 19, 1943). The sale on that day, September 17, did not dispose of all of McMackin's stock, and he was forced to carry over twenty-eight head of cattle until the following week, and his check was for only about $9300, insufficient to cover all his notes to the bank. On that day, the bank refused payment on two checks sent in for collection aggregating $4,414 for the purchase of two lots of cattle, and notified the forwarding banks of their protest. Subsequently, however, the protest was withdrawn, and the checks were called back from the notary and paid, one following a telephone call on September 20, when Gorman stated to the president of the forwarding bank that proper arrangements had been made, and appellant would pay further checks of McMackin given for cattle purchases.

On September 18, when McMackin came in for his regular weekly, Saturday reckoning, the president of the bank and Gorman both talked to him about his financial affairs and obtained from him the first financial statement they had had since 1941 or 1942, although this was admittedly incomplete, showing only his assets as valued by himself. Gorman testified that they did not ask him whether he owed anyone besides the bank, or whether there were then any checks outstanding. This so-called financial statement, introduced as an exhibit by appellant, shows assets valued at $10,678, consisting principally of cattle at the barn (the 28 head not sold September 17), or in transit (the two lots involved in the protested check transaction), and a few other items explained elsewhere as due from the sale of cattle to private parties, and nine cows owned by the bankrupt on two farms. In addition, Gorman testified that he "always figured he (McMackin) had four or five thousand dollars worth of property on the farm," although he did not state any basis for this belief and there is nothing in this record to substantiate a contention that he had anything apart from assets listed in the exhibit.

As a result of the conference, the two bank officers determined to permit McMackin to continue doing business in the same way and agreed to pay the two checks held for protest the day before. McMackin signed a new note for $8200 to cover these checks and the balance of indebtedness on the earlier transactions of the week. The following week McMackin again went out and bought cattle for the sale on Friday, September 24, at which he had 97 head for sale, including the 57 listed in the September 18 stat...