Citation Numbers: 65 N.Y. St. Rep. 823
Filed Date: 12/14/1894
Status: Precedential
Modified Date: 10/17/2022
Judgment affirmed, with costs, on opinion of court below.
The opinion of William G. Choate, Esq., to whom the canse was referred to bear and determine, is as follows:
In this case the plaintiffs, the receivers of the Madison Square Bank, seek to recover from the receiver of the St. Nicholas Bank certain securities, the property of the Madison Square Bank, which were deposited with the St. Nicholas Bank under the circumstances, hereinafter stated, together with the proceeds of certain other securities, part of such deposit, which had been converted into money before the commencement of this action. In January, 1891, an arrangement was made between the Madison Square Bank and the St. Nicholas Bank, by which the latter bank, which was a member of the New York Clearing-House Association, became the agent to clear, through the clearing house, checks drawn upon the Madison Square Bank. The St. Nicholas Bank submitted in writing a memorandum of the conditions on which it would undertake this business for the Madison Square Bank as follows : “ The conditions under which this bank agrees to make the clearance of checks of the Madison Square Bank are as follows : $'50,000 balance to be kept at all times, to be free from interest. An allowance at the rate of two per cent per annum shall be allowed on average exceeding this amount. The Madison Square Bank is to keep with this bank $100,000 in approved bills receivable.” In a letter dated January 9, 1891, addressed by the Madison Square Bank to the St. Nicholas Bank, the cashier of the Madison Square Bank says: ‘‘ Referring to conversation of our president with your good selves, we would say that we accept the terms and conditions on which your hank agrees to clear for us as per your memorandum, namely, $50,000 balance to be kept with you at all times free of interest. Interest at two por cent per annum to be allowed us on average exceeding that amount. This bank to keep with you $100,000 of approved bills receivable. * * * We inclose copy of a letter addressed by us to the-clearing-house committee, to conform with the requirements of their circular of December 18th last.” Then follows a request that the arrangements shall be made to go into effect on the 13th of January, on which day an arrangement between the Madison Square Bank and another member of the clearing-house association was to expire. The letter to the clearing-house committee was as follows, dated December 30, 1890 : “In conformity with the terms of your circular of the 18th inst, I beg xo inform you that, at a regular meeting of the board of directors of- this company, the following resolution was adopted, namely: ‘Resolved, that the cashier cf this bank is hereby instructed to notify the
The clearing-house association was and is a voluntary association of banks and banking associations of the city of New York. The object of the association, as stated in its constitution, is “the effecting at one place of the daily exchanges between the several associate banks, and the payment at the same place of the balances resulting from such exchanges.” The St. Nicholas Bank was a member of the association. The Madison Square Bank was not so. Section 25 of the constitution was as follows: “When-
ever exchanges shall have been made at the clearing house by previous arrangements between members of the association, through one of their own number, and banks in the city and vicinity who are not members, the receiving bank at the clearinghouse shall in no case discontinue the arrangements without giving previous notice, which notice shall not take effect until the exchanges of the morning following the receipt of such notice shall have been completed.” This section was in force at and before January 9, 1891, and is still in force, and it was known to be-so by the Madison Square Bank at the time of the making of this arrangement. After the making of this arrangement, and on and after the 18th of January, 1891, the St. Nicholas Bank made the clearances at the clearing house for the Madison Square Bank up to and including the 8th day of August, 1893 ; and the Madison Square Bank deposited and kept good, as to amount and value, its deposit of bills receivable with the St. Nicholas Bank, as required by the agreement, and up to some time in July, 1893, kept good its money balance of $50,000, in addition thereto. Some time prior to the 8th of August, 1893, the St. Nicholas Bank desired to terminate the arrangements for making clearances for the Madison Square Bank. The Madison Square Bank had not kept up uniformly, from day to day, its cash balance of $50,000, from some time in the month of July to the 8th of August. On the 8th of August the St. Nicholas Bank held three promis
The sole question in this case is whether the plaintiffs, as receivers of the Madison Square Bank, have a right to recover from the St. Nicholas Bank, or its receiver, the securities remaining in the hands of the St. Nicholas Bank on the 8th of August, 1893, and the proceeds thereof, so far as the.sarne have not been required for the payment of the three notes held by the St. Nicholas Bank, aggregating $150,000, which notes were paid out of the proceeds of thesecurities held by the St. Nicholas Bank on the 27th of October, 1893, and before the commencement of this action. The amount of the securities so held by the defendant, being the same held on the 8th of August, and their proceeds after payment of the three notes above referred to, is $86,780.68, in securities at their face value, and $149,643.93 in money, on which has accrued interest to the amount of $10,567.16 up to this date. The claim of the
which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States, nor any of its officers, or directors, shall transfer any of its property to any of 'its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder, when the corporation is insolvent, or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the ■corporation, shall be valid. Every person receiving by means of any such prohibited act or deed any property of the corporation, shall be bound to account therefor to its creditors or stockholders or other trustees. No stockholder of any such corporation shall make any transfer or assignment of his stock therein to any per■son in contemplation of its insolvency. Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void. No conveyance, assignment or transfer of any property of a corporation formed under or subject to the banking law exceeding in value one thousand dollars shall be made by such corporation or by any officer or director thereof, unless authorized by a previous resolution of its board of directors, except promissory notes or other evidences of debt issued or received by the officers of the corporation in the transaction of its ordinary business, and except payments in specie or other current money or in bank bills made by such officers. No such conveyance, assignment. or transfer shall be void in the hands of a purchaser for a valuable consideration without notice. Every director or officer of a corporation who shall violate or be concerned in violating any provision of this section, shall be personally liable to the creditors and stockholders of the corporation of which he shall be director or an officer, to the full extent of any loss they may respectively sustain by such violation.”
It is obvious from the above recital of facts that the securities in question came rightfully into the possession of the St. Nicholas
It has been contended on the part of the plaintiffs that the fair and reasonable construction of section 25 did not require the payment of these checks by the St. Nicholas Bank, as the clearing agent of the Madison Square Bank, after the insolvency of the Madison Square Bank happened, and had become known to the St. Nicholas Bank; secondly, that if such was the true meaning and construction of the contract between the parties, in view of the twenty-fifth rule, then such contract, so far as relates to the clearances of the 9th of August, was invalid, and in violation of that act.
The first question is, what did the St. Nicholas Bank undertake to do, and did its undertaking extend to an obligation to pay checks drawn on the Madison Square Bank which were presented to it at the clearing house on the 9th of August ? It seems to me that the obvious purpose of section 25 was to secure to the associated banks who should present to a clearing-house bank checks upon an outside bank, witli which such clearing-house bank had made such previous arrangement to act for it, the payment of such checks up to and including the day following the giving of a notice of the termination of such arrangement. The original arrangement being made with the direct reference to this rule requiring one day’s notice, it is to be construed exactly in this case,
It is urged, against the construction of the twenty-fifth section claimed by the defendant, that it puts the clearing-house bank at the mercy of the outside bank for which it clears. It is very true that the arrangement made puts no limit on the amount of the checks drawn on the outside bank which the clearing-house bank is obliged to take care of on a particular day. In the present ease, checks might have been drawn against the? Madison Square Bank on the 8th of August for the whole amount, of its deposits ($850,000), for the payment of which, under theconstruetion claimed by the defendant, the St. Nicholas Bank would only have had its $100,000 of securities, and such cash balance, contemplated to be $50,000, which the Madison Square Bank had on deposit with it. It is true, also, that such an outside bank, being, to the knowledge of its officers, about to become-insolvent, might ruin the clearing-house bank, under this arrangement, if its officers should give information to depositors to a very large amount, which would induce them to draw their checks-the day before the failure. The St. Nicholas Bank undoubtedly took these risks. The present ease shows that that- risk was considerable and serious. Those risks were well known to it, and it is to be presumed that parties in this, as in all other business transactions, dealing together, trust to a great degree to the supposed good character and good faith of the parties with whom they are dealing,' as their main protection against the abuse of powers which, by the contract, are lodged in the hands of their co-contracting party. I do not think these suggestions are of suf
If this view is correct of the nature of the contract between the two banks, and between them and the associated banks, and indeed between the Madison Square Bank and each member of the association, then the payment of these checks cannot be considered as the payment by the Madison Square Bank with an intent to give a preference, but as a payment in pursuance of a valid contract made by it, and a collateral contract made by its agent, with its knowledge and consent, from which that agent was not at liberty to recede by reason of the insolvency of the Madison Square Bank. The agreement between these several parties certainly was not made in contemplation of insolvency. Without doubt, when it was made it was not expected that the exchanges of any day would exceed $150,000 while the contract lasted; and the very fact that this amount of security was treated as sufficient during two years tends to show that the contract was not made in contemplation of insolvency happening during its running. As originally made, it cannot be tortured into a contract with intent, m its operation and effect, to give preference to one creditor of the Madison Square Bank over another, for no such thing was within the express agreement of the parties, or apparently within the contemplated possibilities of the future. But it is said that if the parties intended, even in case insolvency should happen, that the”clearing-house banks should go on paying the checks, that would in fact give one creditor a preference over another, and therefore it must be deemed to have been their intent, from the beginning, to provide for the case of insolvency, and so to give an illegal preference, and therefore, in case that has happened, and as applied to that case, the contract was illegal. This argument, as it seems to me, is unsound. The Madison Square Bank then being in solvent condition, made a contract for the better, more economical and safer transaction of its business; and for this purpose, and for the security of its co-contracting parties, pledged part of its assets. It has enjoyed for two years all the advantages of that contract, and now it endeavors by this action to deprive its co-contracting party of the consideration which it was to enjoy for the privilege conferred. It is very true that when the contract was made a future insolvency was possible, but the contract was not made “in contemplation of insolvency,” as that term is used in the class of prohibitory statutes to which this belongs, but
It is unnecessary to hold, as claimed by the defendant, that the drawers or holders of the checks drawn on the 8th of August had an equitable lien on these funds, or to decide whether the special remedies given by statute for the ascertainment of the validity of claims made against insolvent corporations in the hands •of receivers are exclusive of remedy by action brought, as this action was, by the plaintiffs under their general powers as receivers, and not by special leave of the court, or whether the defendant receiver can urge as a defense that he stands in a better position on the pleadings in this case than the St. Nicholas Bank, for which, as defendant, he has been substituted.
A suggestion was made on the part of the plaintiffs that the agreement between these banks should be construed as a contract continually renewed from day to day. Reference was, in this connection, made to the substitution of securities up to and asíate as the 8th of August. Such substitution, however, was provided for in the original contract, and it worked no change of value in the fund held by the St. Nicholas Bank. The same amount was released which was at any time added to the fund. The purpose of it was apparently to allow the pledgor to collect maturing obligations ; making them good by the substitution of other obligations, having further time to run. Such a provision in a contract does not alter its nature or construction, or affect its validity in case of insolvency. Cook v. Tullis, 18 Wall. 332. This contract was made.in January, 1891, and continued in force till it was terminated, August 9, 1893, in the mode provided therefor in the contract itself.
It is also claimed that the sole purpose of the clearing house is to do in one place and at one time what otherwise would have to be done at many places, and with much less safety, and with the consumption of much more time and labor on the part of the banks. Hence, it has been held that its rules are for the benefit of, and binding on, its members, and not for the benefit of, and binding on, strangers. Merchants' Nat. Bank v. National Bank, 139 Mass. 513; Overman v. Bank, 30 N. J. Law, 61; 31 id. 563. But though this is the purpose of the clearing house, as plainly stated in its constitution, it does not follow that for the effecting of that purpose the banks composing the association do not enter into positive and binding obligations, as between themselves, and with nonmembers; and the fact that the clearing-house bank is called and is the ageut, for certain purposes, of the nonmember bank for which it clears, is not at all inconsistent with its assuming other obligations and other relations, in the discharge of its
A question is made with regard of particular checks, and a good deal of evidence has been given of the peculiar circumstances under which some of these checks were drawn. Two checks, aggregating $250,000, were drawn by Mr. Danforth, at that time the treasurer of the state of New York, against his deposit in the Madison Square Bank of moneys belonging to the state. A check for $50,000 was drawn on the 8th of August by Frederick Uhlman, as president of, and against a deposit to the credit of, the East River Bridge Company. Mr. Uhlman was one of the directors of the bank. He was at the bank on the afternoon of the 8th of August, and knew its precarious condition. He was the president and a large stockholder in the corporation the East River Bridge Company. The Glen Ridge Quarry & Mining Company, by Simon Uhlman, its president, also drew a check on the 8th of August for $4,731.12. Mr. Simon Uhlman was a brother of Mr. Frederick Uhlman, and was in communication with him on the .afternoon of August 8, before the drawing of this check, and both the Uhlmans were interested in said corporation. All these checks which are made the subject of special inquiry were drawn late in the day on the 8th of August, were deposited' in banks which were members of the clearing association, between nine and ten o’clock on the 9th of August, and were presented by those banks for payment, through the clearing house on the 9th of August, and were honored and paid by the St. Nicholas Bank, like all other checks against the Madison Square Bank presented through the clearing house on that day. It is proved beyond all controversy that the deposit of these checks on the morning of the 9th, and their subsequent presentation at the clearing house, was not irregular, or out of the usual course of business; that is, it was proved that it was the usage and custom with the banks which composed the clearing house to pass through the clearances of the day checks—especially such as were for a large amount—received on the morning of the clearance, before ten o’clock, but bearing an earlier date than that day. Such checks are constantly received by mail from out of town correspondents, and put through the clearing house; and it was not uncommon or irregular for checks of date prior to that day to be received directly from depositors in the morning, before ten o’clock, and passed through the clearances on the same day. No doubt the contract of the parties contemplated only the clearance of checks which, according to established usage, were entitled to be cleared. There is evidence that Mr. Danforth, having determined to draw his funds some time during the 8th,—his check book being then at Albany, and the checks requiring the signature of another officer,—made his preparations, in which he succeeded, to have the checks completed before midnight on the 8th, and deposited before ten o’clock in the morning with the clearing-house banks. It is true that Mr. Blaut, the president of the bank, and Mr. McDonald, one of its directors, were sureties on Mr. Danforth’s bond; but I am unable to find from the