Opinion · Supreme Court of the United States
Mechanics' and Metals Nat. Bank of City of New York v. Ernst
231 U.S. 60
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1913-11-03
- Topic
- general
Mr. Justice Holmes delivered the opinion of the court. This is an appeal from a decree of the Circuit Court of Appeals reached upon the same opinion that disposed of The National City Bank v. Hotchkiss, just decided, ante, p. 50. (The judgment of the District Court will be found *66 in 200 Fed.
Citator
UpLaw has not yet analyzed Mechanics' and Metals Nat. Bank of City of New York v. Ernst. The absence of a flag is not a finding that it is good law.
- Cited by
- 50 opinions
MECHANICS' BANKv. ERNST,231 U.S. 60(1913)
34 S.Ct. 22
MECHANICS' AND METALS NATIONAL BANK OF THE CITY OF NEW YORKv. ERNST ET
AL., AS TRUSTEES IN BANKRUPTCY OF HUMPHREY.
APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
No. 446.
Argued October 20, 1913.
Decided November 3, 1913.
THE facts, which involve the determination of the question of
whether the delivery of securities by a broker immediately
preceding his bankruptcy to a bank to secure its loan was an
illegal preference, are stated in the opinion.
Under the agreement when the loan was made, as amplified and modified by the general custom, appellant acquired an equitable lien upon, or right in or to, the money constituting the "day" or "clearance" loan and in or to all securities or proceeds of whatever nature realized, cleared or obtained possession of by the bankrupt Fiske Co. by the use of such loan in so far as such securities or proceeds were or could be identified as so realized, cleared or reduced to possession.
"A general custom is the common law itself, or a part of it." Written contracts, by implication, incorporate custom into them.Underwoodv.Greenwich Ins. Co.,161 N.Y. 413,423;Newhallv.Appleton,114 N.Y. 140;Wallsv.Bailey,49 N.Y. 464;Botany Worksv.Wendt,22 Misc. 156;Hostetterv.Park,137 U.S. 30,40;Robinsonv.United States, 13 Wall. 363;Hazardv.New England Ins. Co., 8 Pet. 557;Hartshornev.Union Ins. Co.,36 N.Y. 172.
There was an equitable lien, and equity regards as done that which ought to be done. Pom. Eq. Jur., 3d ed., § 1235;Walkerv.Brown,165 U.S. 654,664;Goodnough Co. v.Galloway, 156 F. 504, 510;Howardv.Delgado, 121 F. 26, 30;Chattanooga Bankv.Rome Iron Co., 102 F. 755, 758;Ingersollv.Coram,211 U.S. 335,368;Hoveyv.Elliott,118 N.Y. 124;Holroydv.Marshall, 10 H.L.C. 191.
One may by express agreement create a charge or claim in the nature of a lien on property of which he is the owner or possessor, and equity will establish and enforce such charge or claim not only against the party who stipulated to give it, but also against third persons, who are either volunteers, or who take the estate on which the lien is agreed to be given, with notice of the stipulations.Ketchumv.St. Louis,101 U.S. 306;Hausletv.Harrison,105 U.S. 401;Carrv.Hamilton,129 U.S. 252;Fourth Street Bk. v.Yardley,165 U.S. 634;Walkerv.Brown,165 U.S. 654;Page 62Ingersollv.Coram,211 U.S. 335;Hurleyv.Atchison c.Ry. Co.,213 U.S. 126;Sextonv.Kessler,225 U.S. 90;Dresselv.Lumber Co., 119 F. 531;First NationalBankv.Penn. Trust Co., 124 F. 968;Fisherv.Zollinger, 149 F. 54;Union Trust Co. v.Bulkeley, 150 F. 510;Millsv.Virginia-Carolina Co., 164 F. 168;Re Farmers Supply Co., 170 F. 502;GoodnoughCo. v.Galloway, 171 F. 940;Re National Cash RegisterCo., 174 F. 579.
If such a contract is shown to exist payments made in pursuance thereof will not be invalidated as preferences by the operation of the Bankruptcy Act.Humphreyv.Tatman,198 U.S. 91;Thompsonv.Fairbanks,196 U.S. 516;Re Perlhefter, 177 F. 299, 303.
The agreement creating the lien may be either verbal or in writing.Riddlev.Hudgins, 58 F. 490;National Bankv.Rogers,166 N.Y. 380;Hamilton Trust Co. v.Clemes,163 N.Y. 423;Am. Sugar Co. v.Fancher,145 N.Y. 552;Hoveyv.Elliott,118 N.Y. 124;Coatsv.Donnell,94 N.Y. 168;Springv.Short,90 N.Y. 538;Hustedv.Ingraham,75 N.Y. 251;Paynev.Wilton,74 N.Y. 348;McCaffreyv.Woodin,65 N.Y. 459;Parshallv.Eggert,54 N.Y. 18;Rochester Bankv.Jones,4 N.Y. 497.Sextonv.Kessler,225 U.S. 90, governs this case.
Appellee was entitled to set off the fifty-four thousand dollar deposit.
The moment the checks composing that deposit were received by appellant and passed to the credit of the brokers the funds became appellant's property and the relation of debtor and creditor was created and the right of set-off established.NewYork County Bankv.Massey,192 U.S. 138;National Bankv.Burkhart,100 U.S. 686;Cassidyv.Uhlman,170 N.Y. 505,515;Joycev.Auten,179 U.S. 591;Scottv.Armstrong,146 U.S. 499;Strausv.T.N. Bank,122 N.Y. 379.
The case involves no question of actual fraud andPage 63appellees failed to establish by a preponderance of evidence that appellant received a voidable preference.
The burden is on the trustee to prove by a preponderance of evidence every element necessary to constitute a preference.Barbourv.Priest,103 U.S. 293;Kimmerlev.Farr, 189 F. 295;In re Leech, 171 F. 622. The insolvent's estate must have been diminished as a result of the transaction.Coderv.Arts,213 U.S. 223; aff'g 152 F. 949;Hardyv.Gray, 144 F. 922;Calhoun Bankv.Cain, 152 F. 983;Tumlinv.Bryan, 165 F. 166;In reNeill-Pinckney Co., 170 F. 481;Sparksv.Marsh, 177 F. 739;Kimmerlev.Farr, 189 F. 295; Remington on Bank., §§ 1276et seq.;Collier on Bank. (9th ed.), 790-791.
The debtor must have been insolvent within the meaning of the statute, and insolvency in that sense has a different meaning from that ordinarily understood, namely, an inability to meet maturing obligations.Piriev.Chicago Title Co.,182 U.S. 438,451;McDonaldv.Clear-Water Short Line, 164 F. 1007;Hardyv.Gray, 144 F. 922;Re Klein, 197 F. 241;Butler Paper Co. v.Goembel, 143 F. 295; Remington, § 1343; Collier (9th ed.), 8.
The payment must have been in satisfaction of or on account of an antecedent debt.Coderv.Arts, 152 F. 943;S.C.,213 U.S. 223.
Payment within four months of the filing of the petition must be established, and insolvency as defined by the statute must have existed at the time when the payment was made.Tumlinv.Bryan, 165 F. 166, 168;Rutland County Bankv.Graves, 156 F. 168;Butler Paper Co., v.Goembel, 143 F. 295;In re Rome Planing Co., 96 F. 812;Troy Wagon Worksv.Vastbinder, 130 F. 232, 234.
The inhibition of the statute applies only to preferences given when the debtor is insolvent in fact, and a lien perfectedPage 64before such insolvency is not affected.In re Wittenberg VeneerCo., 108 F. 593; aff'dsub nom. McDonaldv.Daskam, 116 F. 276.
Where quotations vary enormously in a few moments, as in "panicky" times, the law will recognize the fraction of a day and the rule that the law takes no notice of the fraction of a day is inapplicable.Upsonv.Mount Morris Bank,103 A.D. 367.
The adjudication of bankruptcy did not relate back to the filing of the petition and is not evidence of insolvency prior to such filing.Tumlinv.Bryan, 165 F. 166;In reChappell, 113 F. 545;In re Alexander, 102 F. 464;In re Rome Planing Co., 96 F. 812.
The payment did not enable the bank to obtain a greater percentage of its claims than any other creditor of the same class.
There being no other creditor of this class there could be no violation of the statute.Swartsv.Fourth National Bank, 117 F. 1;Crooksv.People's Bank,46 A.D. 335.
The debtor making such payment must have intended to give such a preference.Alexanderv.Redmond, 180 F. 92;Hardyv.Gray, 144 F. 922;Kimmerlev.Farr, 189 F. 295;In re Leech, 171 F. 622;Tumlinv.Bryan, 165 F. 166;Debusv.Yates, 193 F. 427.
Silence as to one's financial condition cannot be construed as an admission of insolvency.Wilsonv.City Bank, 17 Wall. 473;Re Jackson Mfg. Co., Fed. Cas. No. 7153;Sawyerv.Turpin,91 U.S. 114;Clarkv.Iselin, 21 Wall. 360;Watsonv.Taylor, 21 Wall. 378;Cookv.Tullis, 18 Wall. 322; Remington on Bank., § 1829.
The creditor receiving the payment must have knowledge or have had reasonable cause to believe he was receiving a preference.Collettv.Bronx Nat'l Bk., 200 F. 111;Re Klein, 197 F. 241;Re The Leader,Page 65190 F. 624;Re Pfaffinger, 154 F. 523; Collier on Bank. (9th ed.), 816.
Mere suspicion of insolvency is not sufficient to satisfy the statutory requirement.Grantv.National Bank,97 U.S. 80;Powellv.Gates City Bank, 178 F. 609. See, also,Stuckyv.Masonic S. Bank,108 U.S. 74;Barbourv.Priest,103 U.S. 293;Sparksv.Marsh, 177 F. 739;First National Bankv.Abbott, 165 F. 852;In rePfaffinger, 154 F. 523;Offv.Hakes, 142 F. 364;In re Eggert, 102 F. 735.
The insolvent's estate was not diminished as a result of the transaction.N.Y. County Bankv.Massey,192 U.S. 138,147;Continental Trust Co. v.Chicago Title Co.,229 U.S. 435;Newport Bankv.Herkimer Bank,225 U.S. 178;Wildv.Provident Trust Co.,214 U.S. 292;Jaquithv.Alden,189 U.S. 78;In re Sagor, 121 F. 658;Gansv.Ellison, 114 F. 734;Dresselv.North State Lumber Co., 107 F. 225; Remington on Bank., § 1296; Collier on Bank. (9th ed.), 802.
Appellees as trustees in bankruptcy acquired no greater rights than had the bankrupts.Zartmanv.First Nat'l Bank,216 U.S. 134,138;Hurleyv.Atchison c. Ry. Co.,213 U.S. 126;Thomasv.Taggart,209 U.S. 385;Richardsonv.Shaw,209 U.S. 365;Security Warehousing Co. v.Hand,206 U.S. 415;York Mfg. Co. v.Cassell,201 U.S. 344;Thompsonv.Fairbanks,196 U.S. 516.Mr. Daniel P. Hays, with whomMr. Edwin D. Hayswas on the brief, for appellees.
The advance in this case was made at about ten on the following note to the firm signing it "Please loan us today $400000. Crediting this amount to our account and oblige. J.M. Fiske Company." This sum was credited on the firm's deposit account, on which there was already $36,239.47. Before noon the bank certified and afterwards paid checks for $276,679.67. Between 11 and 12 the cashier, hearing that there was trouble in the stock market and with J.M. Fiske Co., ordered that no more checks should be paid or certified. He then went to the brokers' office; saw Mr. Sherwood, a member of the firm, at about twelve and after getting an evasive answer to an inquiry as to the rumor, said that the firm had made no deposits on that day, and was told that one was on its way. ($54,048.08 were in fact paid in after the cashier's order to stop payment.) He then told Mr. Sherwood that he had better give him some securities, that he ought to give additional securities on the bank's loans, and after consultation Mr. Sherwood did so and the cashier returned to the bank. We may assume for purposes of decision that the securities with a small exception were obtained by the use of the clearance loan.
At forty minutes after twelve the brokers gave notice to the stock exchange that they were unable to meet their obligations and an involuntary petition in bankruptcy was filed against them at twenty-five minutes past three. This suit is for the proceeds of the securities, (which were sold by the bank), and for the sum deposited as we have stated. In view of our decision in the other case only one or two matters need mention. It is somewhat more pressed that the bank had not reasonable ground to believe that the brokers' property at a fair valuation would be insufficientPage 67to pay their debts, and therefore had not ground to believe that the brokers were insolvent within the meaning of the Bankruptcy Act of July 1, 1898, c. 541, § 1 (15),30 Stat. 544. We think it too plain to need argument that the findings below that the firm was insolvent, knew that it was insolvent and intended a preference, were correct. These brokers were ruined by the collapse of the pool mentioned in the other case, and apart from any knowledge that the bank may have had as to their interest in the stock concerned, the entirely unusual course of the cashier in leaving his bank to get additional security (not merely proceeds of the clearance loan upon a claim of lien) and the circumstances are sufficient to prevent our going behind the findings below. Really no other conclusion could have been reached.
On the question of lien the evidence does not differ enough from that in the other case to need further discussion. The bankrupts were under an agreement with the bank, of the usual sort, giving the bank a general lien on all securities in its hands for all liabilities of the firm and a right to require additional approved securities to be lodged with it, c. But a general promise to give security on demand puts the creditor in no better position than an agreement to pay money.Sextonv.Kessler,225 U.S. 90,98.
The so-called deposit of $54,048.08 was paid in after the cashier had forbidden the payment of checks against the deposit account and therefore rightly was held to be a payment and a preference. A set-off properly was denied.Decree affirmed.Page 68