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January 30, 1940


The opinion of the court was delivered by: BYERS

BYERS, District Judge.

The judgment of this court rendered March 27, 1939, 26 F.Supp. 890, has been reversed for error in that there was a failure to decide and make appropriate findings on the essential issues "whether the bank in receiving the deposits made between December 15th and December 27th (1937) intended to apply them in payment or set-off on the notes held by it, whether the bankrupt was then insolvent, whether the bank knew or had reasonable cause to believe that the bankrupt was insolvent".

The cause was remanded with direction to this court to make findings and conclusions on the issues presented and to enter judgment appropriate thereto.

 The opinion for reversal contains also the following: "We say nothing as to what the findings and conclusions on the issues should. A new trial is not called for, the proof having been fully developed."

 The record has been re-examined, and both counsel have submitted briefs, and have also supplied the court with their briefs on appeal from the original judgment.

 It is not disputed that the bankrupt was insolvent on December 1, 1937, and that condition persisted until January 26, 1983, when a debtor petition was filed which resulted in adjudication on June 7, 1938.

 So much of the essential issues requires no discussion.

 As to the other issues, the plaintiff's brief urges:

 (a) That the bank had knowledge or reasonable cause to believe that insolvency existed during the period which embraced the receipt of the deposits, because both loans (there were two, of $500.00) "were so regulated as to become due within the period of five days and each was a short term loan; the logical inference being that the bankrupt was to clean up these obligations before the end of the year".

 (b) "The condition of the account on and after December 10th gave the bank direct notice of the bankrupt's cash deficiency."

 The borrowings represented by the two notes were described in the opinion of this court and would not be here repeated, except for the argument first above quoted. The facts as to the loans were:

 The bank had loaned $500.00 to the bankrupt on his note dated October 16, 1937, which was due on November 15, 1937. That was the state of affairs on November 1, 1937, when he borrowed an additional $500.00 on a note payable December 31, 1937.

 On November 15, 1937, he paid the said hote which was due on that day.

 On November 17th he sought a new loan of $500.00 and was told that, if he would accelerate the loan granted on November 1st so that it would become due on December 15th instead of December 31st, the desired new loan would be granted, to become due on December 20, 1937, and this was done.

 The only evidence respecting these matters is that of Clayton, the assistant cashier of the bank, and his testimony will be read in vain for any indication that these two loans were "regulated", the one on November 1st and the other on November 17th, with relation to the solvency or insolvency of the bankrupt. That they were to become due before the end of the year is not a matter of inference, but of direct proof.

 The negotiation of those loans, as has been said, was in accordance with the practice of the parties since April 1, 1935, from which time forward the bankrupt was accustomed to borrowing "$1000.00 occasionally $1500.00".

 So much of the plaintiff's argument carries no persuasion as to the intention to be attributed to the bank in receiving the deposits between the dates named in the opinion for reversal. As to them the evidence shows: 1937 Opening Deposit Checks, etc. paid Close s Dec. 15 $106.23 overdraft $200.00 $25.00 29.94 4.00 $58.94 $34.83 bal. Dec. 16 34.83 balance 124.00 .50 8.25 8.42 31.93 49.10 109.73 bal. Dec. 17 (No transactions.) Dec. 18 109.73 balance 350.68 10.50 10.50 449.91 bal. Dec. 19 (Sunday) Dec. 20 449.91 balance 188.37* 501.00 501.00 137.28 bal. Dec. 21 137.28 balance 110.00 170.00 25.00 195.00 52.28 bal. Dec. 22 52.28 balance 188.00 .50 29.22 12.00 54.79 12.25 10.00 118.76 121.52 bal. Dec. 23 (No transactions.) Dec. 24 121.52 balance 396.99 57.50 100.00 85.00 242.50 276.01 bal. Dec. 25 (Holiday) Dec. 26 (Sunday) Dec. 27 276.01 balance 600.65* 502.13 54.00 199.62 7.86 763.61 113.05 bal. A summary of the foregoing establishes that during the thirteen days in question the bankrupt made eight deposits, distributed among all but two business days, amounting in all to $ 2158.69 There were presented to and paid by the bank twenty checks, concerning which there is nothing to indicate that they were not issued and paid in due course, on all but two business days $ 935.28 Also there were two items of protest at .50 1.00 936.28 The difference between the deposits and drafts was 1222.41 The amounts offset by the bank to pay the two notes on December 20th and 27th, respectively ($501.00 and $502.13) were 1003.13 219.28 There was an overdraft at opening December 15, 1937, of 106.23 Balance at close December 27, 1937 $ 113.05

 During this period there is but one transaction which could possibly lend color to the theory that deposits were received, not with the intention that a balance would be created in favor of the depositor, subject to his withdrawal at will (Bank of Commerce & Trusts v. Hatcher, 4 Cir., 50 F.2d 719, 85 A.L.R. 359), but for the purpose of accumulating a sum solely to enable the bank to repay itself, and that is the check for $300.00 to the order of Cohen and Livingston, dated December 20, 1937, deposited December 23rd and returned on some date thereafter (probably December 27th; see Defendant's Exhibit D) with the notation "Payment Stopped".

 It would have been possible for the bank to have induced its depositor to stop payment on that check so as to relieve the bank of meeting it, but there is no ...

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