Opinion ID: 1506485
Heading Depth: 1
Heading Rank: 4

Heading: Delaware Power & Light Accounts

Text: These entries were of two kinds; the Purchased Accounts, and the Collection Accounts. The first were a genuine purchase for which the Bankers Company paid $20,000 to the Delaware Power & Light Company, though they succeeded in collecting only $8,500. Very shortly after these accounts were bought the Bankers Company entered into a contract with City Bank by which it assigned them all to the bank in exchange for $22,000 of gold notes of which the State Banking Department of Delaware required the bank to get rid. This agreement was that after the bank had collected $22,000 on the accounts, all else should go to the Bankers Company. In the statement for December, 1935 White entered the accounts as an asset of the Bankers Company of a net value of $13,241.33, which figure he obtained by putting them down at $73,950.19, and setting up reserves of $60,708.86. He did not mention the agreement or any rights of City Bank, which he excused because although he had seen the agreement he did not know whether the bank had ever turned over the consideration, i.e. the gold notes. It is impossible to justify this course, for $22,000 of the accounts belonged to the bank even if it had not turned over the gold notes; the agreement would still have continued in existence and the Bankers Company could have been compelled to transfer the accounts whenever the bank chose to perform. Furthermore, White knew that the bank had been collecting some of the accounts, and further that it had credited some of the collections against other accounts. Therefore, not only was the bank acting as an owner, but it was depriving the Bankers Company of a credit, because it was entitled to all that remained after $22,000 had been collected. The Collection Accounts were a mere fiction of Gaffeney. He apparently did have an agreement with Mackie, the comptroller of the Delaware Company, by which if one of its customers borrowed money of the Bankers Company, that company would deduct from the amount lent the amount of the account due and remit it to the Delaware Company, in this way becoming a kind of collection agent. White did not learn of this apparently, for he swore that Gaffeney told him that he had made an agreement with Delaware Company covering $300,000 of its accounts by which, whoever collected them, the Bankers Company should have one-third of the collections. Gaffeney did not pretend that there was any written contract to that effect, and it is difficult to see any inducement in it to Delaware Company, for apparently the Bankers Company was not to advance any money or even do all the collecting, though perhaps that is to be implied. Again, it required a credulous accountant to accept such a story. Using these two contracts  Purchased Accounts and the apocryphal Collection Accounts  as his excuse, White made two entries as of June 30, 1936 in the journal of the Bankers Company, crediting it with $12,120. This he explained by saying that Gaffeney had estimated that on the Purchased Accounts the company's one-third would amount to $4,120, and on the Collection Accounts to $8,000. He supplemented these entries on December 31, 1936, by another entry of $5,500, estimated apparently only on the Collection Accounts. These two figures made up an item of $17,620 which he put into the financial statement as of December 31, 1936, under the heading Collection fees due from vendors of accounts receivable on estimated collections received and retained by them. Once more his excuse was that he believed Gaffeney; but, at least as to the Collection Accounts, a positive bit of evidence contradicted him. On March 12, 1936 he wrote to the Delaware Company, asking as of December 31, 1935 for any accounts between itself and the Bankers Company. The fourth of his inquiries was: Any agreement between you in addition to the agreement under which certain accounts receivable aggregating $80,708.86 were sold by you to them?; and the fifth was: Any transactions between you not specifically requested above? On April 10, 1936 Mackie answered both these questions. None. White appears to have realized that this did not quite match with Gaffeney's story, and he swore that he asked Gaffeney about it, but was content to be put off with what should have been the very unsatisfactory explanation that he was not to press the inquiry further because it might antagonize the Delaware Company.