187 F. 750 | 8th Cir. | 1911
This was an action at law, brought by the receiver of a national bank to recover the value of property alleged to have been transferred by it, before the receivership, to the defendant the German Bank of Carroll County, Iowa, in violation of section 5242, R. S. 1878 (U. S. Comp. St. 1901, p. 3517). At the close of the case each party requested the court to instruct a verdict in its favor. The court refused the request of the plaintiff, and gave that of the defendant, directing a verdict in its favor. Due exceptions were saved by plaintiff to both these rulings, and they are now assigned for error.
The two banks were doing business in the same town, Carroll, Iowa, and ’it had been for years a common practice for each to pay checks drawn on the other, and at the close of each business day to take an account of their payments for each other, and for the bank against which a balance was found to give to the other its duebill for that balance, to be liquidated in cash or by draft on the following day. These duebills were regarded merely as temporary evidence of the result of the day’s clearance. Upon such liquidation, whether in cash or by draft, the checks paid by either bank were surrendered to the bank upon which they were drawn for debit against the account of the depositor who drew them.
A clearance made on October 13, 1908, pursuant to this general practice, disclosed that the German Bank had overpaid for account of the First National Bank $3,511.56, and a duebill for that amount was executed and delivered to the former by the latter. A' clearance of October 15th disclosed that the German Bank had overpaid for account of the P'irst National Bank $2,968.16, and a duebill for that sum was given. On October 14th the First National Bank drew a draft on a correspondent bank at Cedar Rapids, Iowa, for $3,000, payable to the German Bank, and delivered it (probably with a balance in cash) to the German Bank, whereupon the first mentioned due-bill was taken up and marked “Paid.” On October 15th a like draft was drawn for $2,500, and with it (and probably some additional cash) the second mentioned duebill was taken up and marked “Paid.”
The cashier, who remained in charge of the bank, and to whom the request for collateral was preferred, made it clear by his uncontradicted testimony that the bank could not open its doors after that day, and would have to suspend business, if the officers failed to raise the needed money in Chicago. He also testified in effect that he knew, prior to‘the time of making the transfer to the German Bank, that they had so failed. He then conformed, to the request of the president of the German Bank, and indorsed and delivered to him, for his bank, the two bills receivable, the value of which is sued for in this action, and took the following receipt:
“Carroll, Iowa, October 17, 1908.
“Received from the First National Bank, Carroll, as collateral security, the following notes, to wit: Ed. Hageman, $4,000.00; Mr. Krensky, $1,500.00. Said notes deposited to protect the German Bank against any loss that may arise by reason of drafts issued by said First National Bank to said German Bank which have been reported dishonored, amounting to $3,000.00 and one for $2,500.00. [Signed] J. P. Hess, Pres.”
At the time of this transfer the First National Bank was undoubtedly insolvent. It kept its doors open, and, though its cash resources were low, honored all checks, whether few or many we do not know, presented at its counter on and prior to Saturday, the 17th.day of October. It did not open for business after that day, but early Monday-morning its president committed suicide, the Comptroller of the Treasury took charge, and the receiver was appointed who is now winding up its affairs. Upon this state of things the conclusion is inevitable that at the time the transfer in question was made the German Bank was a creditor of the First National Bank in the sum of $5,500 at least. The parties so treated themselves, and we shall treat them accordingly.
Even if the German Bank could have rescinded the transaction, and taken back the checks which it had turned over to the First Natiqnal Bank, and resorted to the drawers to enforce a contingent liability against them, no attempt was made to do so. On the contrary, the German Bank affirmed the transaction as made, and took security for the ultimate payment of the money due it. It became a creditor, and attempted to get security for the payment of its debt.
Again, the First National' Bank was not only actually insolvent, but its final effort to continue in business had failed. It knew on Saturday evening, when the notes were transferred, that it would not open its doors for business again. .In these circumstances it must be charged with knowledge of its own condition, and.of the necessary consequence of its act in transferring a ■ substantial part of its assets to secure one creditor, namely, that that creditor would thereby get
In the case of National Security Bank v. Butler, 129 U. S. 223, 9 Sup. Ct. 281, 32 L. Ed. 682, the Supreme Court dealt with a similar situation, and there said:
“Tlie undisputed facts of tlic ease showed that the act of the cashier could, under the circumstances, have no other result, if allowed to stand, than to operate as a preference in favor of the Security Bank; that the Pacific Bank had decided to close its doors and to go into liquidation; that after that the necessary consequence of the transfer was to create a preference,” etc.
In passing it may properly be observed that defendant’s knowledge or want of knowledge of the condition of the Eirst National Bank, or of the intentions or purposes of its officers, is quite immaterial. The statute (section 5242) does not make them an element affecting the liability of a transferee. National Security Bank v. Butler, supra.
Having already concluded that.the transfer in question was made to a creditor, and with the intent of preferring that creditor over others, it only remains to ascertain whether it was so made, either after the commission of an act of insolvency or in contemplation of such an act. There is much reason to hold that the drawing of the two drafts on the Cedar Rapids bank and delivering them to the German Bank at a time when the First National Bank had no funds to its credit in that bank was an act of insolvency. It can with difficulty be conceived that a solvent bank could, in the due and ordinary course of business, do such an act. It can scarcely be accounted for, except on the theory of financial distress. The evidence that the First National Bank thought it had funds there and drew the drafts by mistake can hardly prevail against the presumption, that ought to be indulged in important banking transactions, that a bank knows where its funds are deposited.
We, however, need not rest our decision of this case on any doubtful matter of presumption. After carefully weighing the evidence, we are unable to reach any other conclusion than that the transfer was made at least in contemplation of an act of insolvency. The final closing of its doors for business on Monday morning, October 19th, taken in connection, with .the fact of actual insolvency and inability to go on with the business in the usual course, was clearly an act of insolvency by the First National Bank. This cannot- be doubted. Roberts v. Hill (C. C.) 24 Fed. 571, 573; Hayden v. Chemical Nat. Bank, 28 C. C. A. 548, 84 Fed. 874, 876. The bank was not then continuing in the due and ordinary course of its business, as appeared to be the fact in McDonald, Receiver, v. Chemical National Bank, 174 U. S. 610, 19 Sup. Ct. 787, 43 L. Ed. 1106. On the contrary, there had been a final cessation of business. As a result of the failure to get money in Chicago, the bank was not again to open for business. “It had” in effect, “decided to close its doors and go into liquidation,” and is therefore brought directly within the rule announced in National Security Bank v. Butler, supra, and its acts done thereafter were clearly done in contemplation of an act of insolvency.
Fearned counsel contend that the transfer of the notes in question
Other contentions of defendant’s learned counsel have been carefully considered;' but, in view of the conclusions reached on the facts of the case, they must be held untenable. The judgment is reversed, and the cause remanded for a new trial.
It is so ordered.