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FREEMAN v. MARINE MIDLAND BANK

March 24, 1981

John R. FREEMAN, Plaintiff,
v.
MARINE MIDLAND BANK and Aetna Casualty and Surety Company, Defendants



The opinion of the court was delivered by: BRAMWELL

DECISION AND ORDER

On January 7 and 8, 1981, this Court entertained the trial of "this seemingly endless litigation," *fn1" in which the Court has been asked to assess the legal validity of seventeen checks delivered by the plaintiff, John R. Freeman, to an entity that subsequently merged with defendant Marine Midland Bank. *fn2" The plaintiff contends that these negotiable instruments should be declared void as extensions of credit in violation of Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R. ยง 221 et seq. (1980). *fn3" The defendants dispute this contention, arguing that the seventeen checks implicate neither the definition nor the purpose of Regulation U. In accordance with Rule 52(a) of the Federal Rules of Civil Procedure, this Court will resolve this dispute through Findings of Fact and Conclusions of Law.

 FINDINGS OF FACT

 1. The plaintiff, John R. Freeman, presently is an insurance agent (58).* He also has served as a principal of Allstate Factors, an outfit that purchased retail consumer credit obligations at discount (58-59).

 2. During the 1960's, Mr. Freeman transacted business with the Community Bank of Lynbrook, New York (hereinafter referred to as "the Bank") (10).

 3. Mr. Freeman had a $ 10,000 unsecured credit line with the Bank (100).

 4. The Bank merged with defendant Marine Midland Bank on September 3, 1970 (8).

 5. The Bank assigned any and all of its rights, claims and interests against Mr. Freeman to defendant Aetna Casualty and Surety Company on November 21, 1968 (Def. Ex. H, I).** *fn4"

 6. In 1964, John Coughlin, an executive of the Bank (10), *fn5" introduced Mr. Freeman to Bruce Hervieux (10, 286, 336), the bank officer who handled Mr. Freeman's accounts at the Bank from 1964-1968 (261-62).

 7. Mr. Hervieux had the authority to lend $ 5,000 on an unsecured basis and $ 10,000 on a secured basis (163, 262, 353; Def. Ex. J.).

 8. As a result of his dislike for the length of the period encompassing the date that he paid a broker for stock that he purchased and the date that he actually received the stock (11, 81), Mr. Freeman involved Mr. Coughlin and then Mr. Hervieux in a procedure that he hoped would hasten his numerous security transactions (13, 314, 318). *fn6"

 9. The procedure had the following elements:

 
i) Mr. Freeman would telephone a stock purchase order to a broker at a price acceptable to Mr. Freeman (12, 26);
 
ii) Mr. Freeman orally would instruct the broker to deliver the purchased stock to the Bank (12, 13, 27);
 
iii) Mr. Freeman would instruct the Bank to accept the stock (12, 27);
 
iv) after the purchasing broker received the stock, he would deliver it to Manufacturers Hanover Trust Company, his bank (29, 30);
 
v) Manufacturers Hanover Trust Company then would direct the Bank by way of collection letters to pay for the stock in return for delivery (30, 31);
 
vi) Mr. Hervieux would call Mr. Freeman to inform him that the stock had arrived at the Bank (31);
 
vii) after inspecting the stock at the Bank (14, 15), Mr. Freeman would tender his personal uncertified check to Mr. Hervieux in payment for the stock (14, 17, 21, 32, 286, 308); ...

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