This suit was brought by the receiver of the First National Bank of Macedón, N. Y., to recover money withdrawn by the appellants from that bank on July 3, 1929, October 16, 1930, December 19, 1930, and April 1, 1931, and to require the return of bonds and securities transferred to the appellants on April 3, 1931. Appellants, by an agreement of December 31, 1928, deposited $61,-886 with the bank, and the bank gave a pledge of certain securities owned by it as a guaranty against loss. These securities were placed in a custodial account with the Central-IIanovcr Bank in Now York City. That bank recognized and subscribed to the pledge made for the appellants’ benefit. For convenience, Robert Lewis may be considered *522 as the,sole-appellant. Robert Lewis became a- stockhоlder and depositor of the bank in 1927, and was elected a director in January, 1928, resigning as director in July, 1929.
It is now definitely settled that this pledge óf securities on December 31, 1928, was ultra vires and void. Texas
&
Pacific Ry. Co. v. Pottorff,
The bank was closed by order of the Comptroller of the Currency on April 8,1931, and appellee was appointed receiver.
On March 26, 1931, the appellant Robert Lewis was advised of a decision of a federal court to the effect that an agreement with a bank such as was here made for the pledge of securities as collateral was illegal. Smith v. B. & O. R. Co. (D. C.)
- -.The.capital -stock of the bank was $25,-000,;. Its' -published statement on April 1, 1931, .showed a solvent condition as of March 25,1931. After the bank closed it was found that the cashier had embezzled $32,000. The receiver -has paid .52 per cent, in dividends to depоsitors, and.there remain assets still to be liquidated. At the trial no claim was made for a return of th'e deposits withdrawn prior to April 1, 1931, 'as'praj'-ed for in the complaint, but a -money judgment was granted •for $15,000, the - amount of the withdrawal on April 1),-1931, and for $28,690.84, the amount given for. the securities exchanged on April 3, 1931. There is no finding that the . appellants knew the bank was insolvent before it closed. Lewis denied knowledge of the bank’s insolvency.
The court below held that the contract of pledge of the securities was ultra vires, illegal, and void, and that therefore the payment to the appellants was “in consummation of such illegal .contract,” as was also the transfer of the securities on April 3, 1931. The appellants do not contest the illegality of the pledge pursuant to the agreement of December 31, 1928. As said in Texas & P. R. Co. v. Pottoroff, supra: “National banks lack power to pledge their assets to secure a private deposit. The measure of their powers is the statutory grant; and powers not conferred by Cоngress are denied.”
But it is also said by the appellee that section 52 of the National Banking Act, 13 Stat. 115 (Rev. Stat. § 5242, 12 U. S. Code § 91 [12 USCA § 91]) which provides that “all payments of money to either [shareholders or creditors], made after the commission of an act оf insolvency, or in contemplation thereof, * * * with a view to the preference of one creditor .to another, * * * shall be utterly null and void,” makes the transactions here involved an illegal preference and hence void. The,conсlusions of fact and law of the court below are on the theory that the payments here made were in “consummation of an illegal contract,” and also gave the appellants an illegal preference. We have examined the record to ascertain whether an unlawful preference was granted by such payments.
The appellee contends that, since the bank did not have enough money on hand to pay Lewis when he demanded the return of his deposit, its insolvеncy was thereby established. Erhard v. Boone State Bank, 65 F. (2d) 48, 53 (C. C. A. 8), is cited as an authority therefor. That .case did not so hold. It dealt with the Iowa rule that' a bank is “insolvent” when unable to pay its depositors or creditors in the ordinary course of business. Section 91 dеals with payments made “in contemplation” of an act of insolvency with a view to a preference. In Roberts v. Hill (C. C.)
In the same case Wheeler, J., said: “Insolvency is not enough; the statute does not make transfers after insolvency void.”
If flie financial condition of a bank is such that an actual act of insolvency is imminent, and the officers of the bank know or ought to know this condition, a payment to a creditor or depositor is void if not made in the ordinary course of business; an intent to prefer is presumed under such conditions, and as a rule thе creditor and depositor need not know of the imminency of the act of insolvency. National Security Bank v. Butler,
The payments here concerned were of both cash and securities. They must be dealt with separately.
A mere preponderance of liabilities over assets docs not make a payment under such conditions void as constituting a preference. There must be a present inability to meet the debts of the bank as they mature. While the bank was insolvent in the sensе that its assets did not oqua.1 its liabilities, the question is presented as to whether it could meet its obligations as they matured. The only evidence tending to support a claim that it could not do so is the fact that there was no material change in the bank’s сondition between April 1, 1931, and April 8, 1931, the date when the Comptroller of the Currency closed the bank because of its insolvency. Another fact, although not so important, since it was a small bank, is that on April 1, 1931, the cashier did not have $15,000 cash on hand to рay the defendant and again, on April 3,1931, ho did not have enough cash on hand to equal the balance of appellant’s deposit. But it did have other assets, and gave other securities as suggested by its cashier. The bank was open daily, for business whеn these payments were made, and remained so open up to April 8th, and nothing otherwise indicated that it could not meet its obligations as they matured.
Even assuming that the bank was insolvent on the date of the withdrawals, was this fact known to the officers? The cashier, an embezzler of its funds, might have known it, but the appellee has shown no. facts which indicate such knowledge on the part,of the other officers, and appellee relies upon a presumption that the officers knew.' The cаses where illegal preferences have -been held to have been made show either aetnal knowledge of insolvency on the part of the officers (American Surety Co. v. Jackson; supra) Nat. Security Bank v. Butler, supra), or that the offiсers could not help but knowFeeáuse of the assets being greatly below the liabilities (Brill v. McInnes, supra; Roberts v. Hill, supra; Parks v. Knapp, supra). None of the eases hold that there is a presumption of knowledge of insolvency. McDonald v. Chemical Nаt. Bank, supra, held that an *524 intent to prefer cannot be presumed merely from thé fact that the bank is actually insolvent and that such condition is known to the officers.
“Ordinary course of business” means the taking of deposits and the paying of withdrawals in the custоmary manner. There was nothing not usual or not ordinary about appellant’s request to withdraw his deposit. In the recent case of Rucker v. Kokrda,
The sale of securities on April 3, 1931, rests upon the same conditions. The appellants say it constituted a purchase of the securities, the consideration being the closing of the account, or the canceling of the indebtedness of the bank to them. Whether or not the transaction constituted a purchase, what occurred on April 3 was in furtherance of the desire of the appellant to close his account. If appellant was willing to take securities in place of cash, which cash he could have had if he had desired to make the bank sell its securities below their book value, he should not now be obliged to refund their value, especially since no knowledge of insolvency is shown, and since, in any case, the payment was received in the ordinary course of business. The rules announced in McDonald v. Chemical National Bank and Rucker v. Kokrda, supra, apply to this transaction. There had been no default in any matured obligation by the bank and the transaction was in the ordinary course of business. If the defendant had insisted upon cash rather than favor the bank by accepting securities, the rule of the Rucker v. Kokrda and McDonald v. Chemical National Bank Cases, supra, would apply. On this record there was no illegal preference granted in the transactions of April 1 and April 3, 1931.
The withdrawals of April 1 and April 3, 1931, were not in any manner in consummation of the contract or pledge of December 31, 1928.
Decree reversed.