Pender v. First Nat. Bank (4 F. Supp. 79, 1933)

BYERS, District Judge.

This is an action in equity by a trustee in bankruptcy, who seeks to set aside, as preferential, a payment of $10,000 made by the bankrupt to the defendant on or about May 31, 1932.

An involuntary petition was filed in this court on June 4, 1932, and the payment m question was of a 30-day note given by the bankrupt to the defendant on May 16, 1932.

It is not contended that the bankrupt was solvent at the time of the payment, the only issue being whether, at that time, the defendant had reasonable cause to believe that it was receiving a preference.

The bankrupt conducted a nursery in Farmingdale, Long Island, and the enterprise had been in existence for some years when, on September 15, 1931, the bankrupt applied for a loan at the defendant bank, explaining that one or more banks in New York City with which he had been doing business were restricting his borrowings; namely, they were “crowding him.”

He borrowed $15,000 from the defendant, giving his three,-months’ note, and with the proceeds opened a bank account; when the note became due, it was renewed for a like period, and the process was repeated in March, 1932, and the note then given became due May 16, 1932; on that date $5,000 was paid on account, and application was made to renew as to $10,000 with the privilege of paying the note off from daily or frequent receipts of the business. The cashier of the defendant suggested to the bankrupt that the new note be given for 30 days, and pointed out that the payment could be anticipated if desired. The note was discounted at 6% per annum, and no part of this item was refunded when on May 31, 1932, the note was paid in full by applying the then balance in the bank account, of $2.,741.33-, plus cash of $7,-258.67, and the note was surrendered; at that time the bankrupt’s son, who made the payment, asked for the return of a financial statement given to the bank in the previous September, when the original loan was negotiated ; this request was complied with, and, from these circumstances, the trustee urges that the bank had reasonable cause to believe that the payment of the note would constitute a preference.

There is no testimony whatever to establish that the bank had reason to suspect that the bankrupt was in financial jeopardy at any time. The only circumstance which helps;the trustee’s argument is the failure of the bankrupt to demand the return of the unearned 6% interest for the unexpired period of the note. Standing alone as this does, it tends to illustrate the conventional cupidity of a bank, rather than to signalize a duty of inquiry concerning the possible legal effect of accepting payment of the debt before it was due.

It is true that the business was conducted in a comparatively small community, wherein it might be thought that the officials of the bank would have had every opportunity for* observing the size and earnings of the enterprise, but nothing has been brought home to