,', ' ' I
, ARMSTRONG 'D.
OOtt'1> 8. D.
Rev., 8tH ,1'1, 8. § 52i2, whioh prohibit$ natjQnaH:!anking associa.ti':ln made the cOlnmJssion of snact of ips,qlvency, in.coJ;ltemplatipn ,thereof, wIth a vieW' to' the preferenoe of one creliitorw' another, IS dIrected to a preference, ,J;lot the of seourity when a debt,ill orj'lated; and if the '\;rlijlllolj.(ltion be free from frS\lCI'lD fact, and is intended merely to adequatelyprotoct loan made at the 'tiJne; the-creditor oantetain pr<lperty' transferred to soomliuch'aloan until the is paid, 1;bQJJgll is insolvent;snd the oreditorbas l'e.8ll0n 11,' the time , to the fact. " \ ',' A:banker!a:ueU fot! the;amount of the, balance'of its general does not exist when th!'l seeuritiellbave been depo\lited with the bank fora special purpose, 01.' fol' the pitYment '1f a pai:'ticular 10al1; . .' " ,
to recover balance on accdurit.
It, ; :
June;!4., 1887, NatiopaJ" Cincin· in the city of . natHransmitted to the defendant, ab$nk :;New Y'ork,s,epurities QQJ;lsi&ting drafts, hills of exchange pf over $1;000,000; " NationjU and the appointed its ;',tM' ;N . some of tQ t4e reGe,Hr,er; TQ,e l'eCelVer nOlY SU!3sto recover ,lilP,',' that",iti,S, entitled,to,reta,", ,61,.2',5,87 ,wh,i,Ch tt collecteq f\'P,Ul, and ,apply the tQ that arnoullt it, by the Fidelity: Nati,onal Bank at the' time of #ieffl,ilure of the latter, add that it has return,ed, pr .fo!, the ht¥aI;lC60f the to the plaintiff. facts ap. pear iriJhe reyord; 'rh'e;two banking institutions h8.c1,',fQr a considerable'period'Qi tillleanterlor tothe ,trallsactions acted, ,as for' one anotller at t1?-eir qf busin,ess, time the kept}Vith the,defendant 'aJ;i dlfP9sit accdunt, which ·Wl.tS, a large one,. ThEl:actwobaI,lks, from , and any existing at such or debited, forwa,x;d intpeaccounts. , In Figelity to 'the ,1:imS". ,as it then asked rorM 8360,000, and the defi:mc'lant consented to make the loan, Atld,credite,d ;tq.eacCi,>u,Ilt of the Fidelity "The this s).lit (1!i'lginated Ju.ne14tb, apPWtJ:s by a,nd.p1aij tQ,e t,wo .banks. HtQ the FideIity ·Bank " " . , ; , , tpe ·. ' . · Qefendau.t; .c-'· - . ,;' ' , sending flllse, anollymous, !JirQuJars. and have reported a 'run onus, also false. We .to you choice bills to
b'old a.gainst an)' <Werdraft. which will not be to exceed' tliirty
protect ue? '.. . .
On thesnme.day it wrote to the defendant: "We inclose herewith about $1.000,000 of our choice bills, to ag<dnst any overdraft w:e may make until the false rumors subside. We trust: you w,ill pot fail to stand by us·. as everything is all right, we will appreciate the favor in .time .of necessity." June 15th the defendant telegraphed the Fidelity Bank: . "On satisfactory bills, when 'received, might $200,000. Amount . you name The same day the Fidelity Bank wrote to defendant: "Webave your telegmm that you will advance $200,000 on satisfactory. bills. The demand onus to-day is fearful, bLlt we can your, help during the week.' The million dollars of bills are choice, and beg of stand by uil to a large if we require it. which we will for, a .few days. We have been keeping an active account with you, and have no otl.\er ba.nk to ask favors of. If you wllldo as we request, it will be oneoC the bl,'st aelf! 01 your hIstory, and be appreciated mure than words can express. .T.here is no bank that· we know of that can pay all at one time. without ana we these bills 1'6beg of you to see us through, especially as you run no ceivableare all good beyond question. The panic is subsiding. and we think. in one week be a thing of the past." The same day the Fidelity Bank telegraphed the defendant: "Charge us and deposit with assistant treasurer, NewYork, one thousand Itollars. Have him wire at once assistant treasurer here to pay U8' one hundred thousand dollars .currency." .
June telegraphed to Fidelity Bank: "We wrote youyestei'day that we expected to be the amount somewhat. Telegraph uSll.uthorizing ns to ,discount,llny of the notes, and pledging all notes and security in our hands for any indebtedness to us, and confirm by leLter." The same day the Fidelity Bank'telegraphed to defendant: balance, it will be sufficient. Wire at once." " " '.' The same day the defendant telegraphed to the Fidelity Bank: "We think it would be enough if we discount $650,000 of the bUls. and' then charge up. the cel'tilieate of depusit for $300.000, retainmga margin of collaterals, alld retul'Iling the rest." The same day the Fidelity Bank telegraphed defendant: "Please .refuse ,pa;.vment on our four drafts, Nos.. 16,411 to 16.414. inclusive. for one hundred thousand dollars each." June 18th the Fidelity Bank telegraphed to defendant: "Please discOUnt eight hundred thuusand dollars of the bills, 'and tbEln chargE' up certificate·of dpposit for three hundreJ thousand dollars; retain a' margin 01' us balance. If this is done, We pledge all in your hands for any indebtedness to YOII." .'. ' notes and . The same day the defendant telegraphed Fidelity Bank:
"If you will discount five hundred thollsand dollars of the bills, and return i
II Attachments just served, sJlit13ank of Montreal on your account, and aU your property here; two bundred thousand dollars amount of suit."
The same day the defendant telegllitphed to the Fidelity Bank: "Make no remittances to Chemical, and do not draw on it." The same day the defendant wrote to the Fidelity Bank: "Your telegram of this date has been received, ·Please discount $800,000,' etc., and while framing a reply in wbich we intended to say that we would make it $700,000 total indebtedness, not $800,000,-which we considered too large,- at 11: 45 A. M. the warrant of attachment whicll. is inclosed herewith onus, thus putting a for your perusal and return by return' mail was check upon any further loans to you or essential change in the ac. We then telegraphed you of this attachmentdlnd shortly thereafter wired you by West. Union, and then by B. & 0., n,ot any anrl not to draw on US.', You will, of course, see wisdom of this request: for whatever you sent; us wOll1abe SUbject to'tbiEj .attachment; if we accept such WdUld it'not be wellillso may bave given to your'cori'espdlldenta to reniit'tO, lls fortonr account Ganceled? We send yOI1 s*!,tem.ent o'f'act. showing Y9" ?verdriiowIl Our collections act.. appears ,abol1t$34,000 in yourhand6 in addition thereto. " .Fidelity Bank wrote to defendant: smali cbecks,'a'll;loriIltiug to $5,800, before we celved 'your 'ulessage. We trust you have sufficien,tlJ,ecurity to protect the $200,000 attachments, and pay the checks of to-day, and leave a small surplus addition, w,hi()hyou can no doubt belp us on. We .think we are over the \yorst, and if our friends stand. by everything will work in good sbape s'Ooh. WeJhank, 'you for Y9urfavors, Which are greatly appreciated." 1·; .. " .'. . .,:' " June 19th Fidelity Bank telegraphed defendant: "Will you protect our drafts on you with proceeds in our letter of the 7th" (rem,ittanpell for collection and credit,) whicll willmore than cover? If n'ot,deIive'r to First National Bank, and we will instruct tbe.m to .Wil'eat once." , . .. 'June 20th defendant wrote to Fidelity Bank: "Your telegram of the 19th in,st lias been received, asking if we would protect your outstanding drafts against yours of 17th. We wired back that we Jiiive'paid your We refused payment of any of your drafts excepting the four of $100,000, stopped by you. Herewith statement of your act., showing you overdraWQ$89,020 at close of business to-day; also you Qwe us, for collections, .' ", . ;'-1'-- " , i' Byastipulation between the parties, it fl,ppears that the Fidelity Bank' "was insolvent on the 14th day of June; 1887, but that the defendant had no knowledge gl,'ound of apprehension that such was the:fact." o'J;'he: Fidelity. Bank closed its doors 1887, and the complainant was appointed its receiver; June 27, 1887. Upon these (acts the complainant insists t!:latthe defendant did not title to Sf.C,qri,ties sent to it June 11th, the transwas by sectIon Rev. St. U. S., Whlich.prohlbltB all trans,bY any pa:tional banking association made after the commission of an act of insolven«y, or in contemplation thc,reof, with II view to the preference of one cre:ditor to anotPel. On the other hand, the defendant in-
ARMSTRONG II. CHEMICAL NAT. li4Nlt.
siststhat it acquired a banker's lien upon the securities for the of any balance upon its general account with the Fidelity Bank which remains unpaid. . . The naked Jact that the Fidelity Bank was insolvent at the time it sent the securjties to the defendant does not imply that the transfer of the securities was made in .contemplation of insolvency, or with a view of a preference to the defendant over its other creditors. Although, in the light of s\,lbsequent the Fidelity Bank was then insolvent, it may be that its insolvency was not suspected by its officers. So far as appears, no act of insolvency b,ad been committed. A bank is not in contemplation of insolvency until the fact becomes reasonably apparent to its officers that it will be unable to meet its obligations, and will.be obliged to suspend its ordinary operations. Roberts v. HiU, 24 Fed. Rl3p.,b71. Until this condition of affairs exists, certainly a national ban,kl.ng association does not the statute by pledging its securities to a reasonable amount to raise money needed to meet all pected run. The best-managed institutions are liable to such contingeJ.lch:s, and the right to use their assets in.an honest attempt to bridge over such a is indispensable to their safety. Obviously, the exercise of this right would be impracticable if the pledge beGomes void whepever the attempt oithe bankto rescue itself from failure proves, It is apparent that the did not intend,to pledge dties to its antecedent indebtedness when it in June to defendant, or for any purpose other than to. theadvancei;l which itthen.de.'lired. They Were 'sent to protect the a temporary Joan, not of any specific SUIll, but of sucW sums the Fi.. aelity Bank migllt need to meet the exigencies of the situatipn; overdrafts Dc;>twarranted bv the state of its account'Vith thedef6I:ldant, and which expected to be compelled to makeimmediately. The dethis, but was unwilling to aCGede',to a loan of an in.. definitearn,oliu,lt, and offered at first to advance $200,000·. The Fide,lity Bank was: not ,satisfied with this proposition, and bElgged the defendaqt to "stand b)''' to a larger amount, if its necessitiel:i ... The letter ofthedE!fendant of June 17th does not any 011 its part it was to hold the securities to protect the former losp, wuch less the geriel'$l accoun,t of the Fidelity ,,,That letter. th,e fact of the previous loan of $300,000 a'pparentlyas ;asuggeati,on: oftPe e;xtent of the !l:ssistance already rendered, Rn<;l its the Bank.with liberality. That thedefel}dantAid not.supp,Qse the !!ecurities ip its hands as collateral for anything except the. sums needed. by th.e Fidelity·. Bank for the .emerge.,nc.y , is apparent...ff.om its to pledge themfoJ:'all inletter of June 17th, asking the Fidelity debtednesS. ,To: this the counter-prC?position of the ,FideHty Bank wa.a that it would acce,de if the defendant would. disco,unt &500,000 ,of the eurities and return the rest. Up to this time there:ha,d beep no thought pressed on the part of either bank that the securities were to be a for the generaUndebtedness of the :Fidelity-Bank. In the mean, time the defeudapt hll.dadvanced $200,000 by depositing it for the Fidel#y Bar$
treasvrer New and, the Bank had telegraphed for$100,OOO more; and thereupon, answering the last propof the Fidelity Bank, the defendant proposed to discount $650,000 return the rest, doubtless meaning to apply 'theproceeds ,to its $300,000 loan of March,and to its advances made after June'14th, re'tainingthe excess as margin to make good these 'amounts in case any of the discounted paper should not be paid. To this proposition the' Fidelity Bank replied that if the defendant 'would discount $800,000 ofits securities it might chargeup the $300,000, return 'the 'balance, and retain a margin of collateral,-that is, the proceeds bfthe $800,000 discounted paper,-ana in that event all retained jnitshands:should stand as collateraLforitswhole indebtedness. At 'thattiil;le' its whole indebtedness, as appears from the defendant's letter ofJunet8th,wlU! $300,000, $200,000, $113,000, and $34,000, in all, '8647,000, and the Fidelity Bank doubtless supposed that the discount of of securities wduld cover its whole indebtedness, and enable it to' draw. further until there should be left only a sufficient margin to provide for the, non-payment of any of the discounted paper. Before this proposition 'on the part of the Fidelity Bank was assented to by the was served at the suit of the Bank of Montreal, and the closed. When the negotiations were thus terminated, the Fidelity Bank had not consented that the securities should stand lI.s collateral for the March loan of $300,000, or for its genindebtedness'lo the At this time the defenilant'had ad8200,000 on the faith ofthe securities, and ha9 written that it expected to be liberal, and might 'increase the amount. It is not quite clear whether defendan't had not also permitted the Fidelity Bank to, :overdraw its account in the further'sum 01'$113,000, (subsequently reduced to 889,000.) .Under the circumstances, any overliraft madeafter'tll'esecurlties weresent'to the defendant, and after it baqadvanced, '$200,000, should be regarded as'one a1l6wed on the !aitb of the sectirities,in:the absence of distinct evidence to the contrary. :l!f lany partoHhe:$89,OOO was a previous overdraft, to that extent it is hot to be inClUded. In this connection it is proper to say that the amount ofa:noVerdraft:isnot .necessarily .sU Ol drawn, but. is 'the amount llr8.wD, less the' amount to which the drawer at the tim'e is entitled to a tlredit balance upon his account. . . ' . ' . . '. Wl18 noiransfer of the securities toprote(lt the antecedentUl, of the Fidelity Bank, there was not ll.preterence bf the oYer its other creditors, there nothing, in fIle transaction which contravenes the RfPvisions onhe statute. Although the of a valnevastly. ,in of the sU.l1l Up15n,t'hem,}heywere sent upon the expectatIon bythe :FIdelIty B/lnk to the limit f6rwhich they would be acceptable c6llll.teraIs; was ofpledging them for existing indebtedness )!tcquired a valid lien upon thein by the advances already made, .and Bank was. unable. to i'ehaddesii'tld uVdO'Sc);L' The statute is' to' a 'prefer-
rnQt,:tb of aacurity when a debt is created; and transaction, be free fr:(l.ud. ip fact, and is .merely to. adel.<>an made,atttbe time, the cJ;'editorcan property transfel(redtpl'\6cure such loan,until the debt is paid, even though,th.e and, the m:editor has reason at the time to believe debtOf(is t:he, :fa.ct.. This has often been decided in the analogous cases /iLot (J.;iffqny v. Luca.s,15 Wall. "1:10; Cocky. Tullw, 18 Wall. 332; Clark v. "Iselin, 21 Wall. 360,) pressly held in a case arising under the present statute, (Casey v. So. ciete de Credit MobUier, 2 Woods, 77 .) 'fhe view thus reached is necessarily fatal to the contention of the defendant that it acquired a lien securing it for the $300,000 loan, or for the payment of the balance .Arising upon. the general account of the Fidelity Bank. It is familiar law that a banker has a lien upon all funds and securities in his poSsession, deposited with hitninthe usual coun;e of business by a customer to facilitate the financial transacti?ns contemplated ei!tepds'to the payment' of 'The lien arises from the implied understanding of the PQ.rties to b,e given of the ban'ker to the customer upon the faIth ofthe secuntles. ltlsequally familiar law that the lien 'does not exist when, the securities have, been '. special pUl'pOSe,oT for thepaymf;l,Iit and, where they are delivered specifically to protect 'the bankElr in, par·ticulal'itra'nsactionor· seriel! .of transactions, he has no lien 11 pon tl!liem for li,Ily othElr',ppTpose, one for any other whether ar.ieingupon,general account or otherwise.. , This doctrine has very recently been reiterated and applied by the supreme courtihReyr!ea ; v. S. M4, 9,$up.Ct.,Rep. 486., .That wRsa¢astdn 'wbichseeurities, consisting of $27&,000 of unicipal bonds, had,lbeen left 'by' 6rie;banking firmwitb: another for a01 :p'eriod of tWCJyearsand a half, during which large transactions on general account took place between them, various loans were lU,Ilde to the former by tJ;1e, latter :upon :'andtl1e at the req1J,esti of the qqqals(?, 0 . 0 f ,other, P1!'flkers by. so !J;Ilanyo' bonds ,as was In ,the part,icular a fact that the,bonds were left with the banking, firl)l origi. .ffillateralfor a paJ:1;icular loan; there was no expre!\S..underthe t}Vq: pap,king firms. that.th!3Y were to a securitrfplf general transactions, and that theloall$ subsequently were specific by an express held, that these were inconsistent with the e)(istenceofa . If the sendingof.th'e secQrities had resqlted, ei conse, quence .,oci subsequent,exprel'Sqontract, Of in consequence trapsactioll"ingiving the d,efendant a indebtedpess of;the FidelHyB,anlr,it : ,bie ,()Qf)" Bank, v. U·. S. Sup" Ct. ,:w,"V?f whi!lhspggests that
240 'by one creditor of a national'bahk over another, after the bank has be· come insolvent, whether obtained with' the, consent of or by adversary has or has not proceedings against the bank, arid whether the · any reason to suppose the bank 'to be insolvent at the time. The com, plainarit is entitled to a decree, and the defendant 'must account for all the which it has ,not returned to the complainant, their value or ,ptoceed'S', less the amount of and overdrafts made after it re"ceitedthem.
(CircwttOou11,D.,CblortWo. February 1,1800.) ,
The trustees of an .umncoryomfud "trust," organized for the purpose of a<lqlllring;hOI,di,ng ".and,',d,iS,po,Bi"n!g, .Of,·the:, ti',Pital,,,',stoo, of oorporatlo"ns e,n,gaged, i,n a partie" ',k ul,Br line pfbusiness, whose artlcl,esofassociation authorize them'''to receive, hold, and dispose of tlietitlew" such stock, have power to sell any such stock ,tQ thii'd'p e r s o n s . " · . ," , stoc'k, t'l1e 'ool-v0ration is nota necessaprllarty. ,," , '
'I. CO!tPOltAINON\H-lBTOCK-Bu,IT''1li') CoHPEL, Tn.tNSll'ER-PARTIBS. In a suit tDcompelthe oftlcera of aoqrporation to register Ii, transfer of corporate
- 8. B.um-DElI'llNSEs__AGREEJlfllNTNOT
; In such a' suit an', agreement betwelln :the complainant's v,endor,and tbe defendant, fromwhornb,e purchased the such venltor V\T,oU,ld not, transfer it to, pe,rson', is not a good d'efenS6, Where it appears that such agreement was madeafter,the defendant had sold thtJ -stook to complainant's Tendor, and no oonis alleged for the agreemllnt, ,
,,' ", , .
SAJlfE., · "
In 'such a BUit, an answer aUelrlng "that tbe complainant bad acquired the stook witbout eonsideration, for theJ>U1'Pose:ot1>btaining oontrolof,tbecorporation to the exclusion 'PIj,defendant, andllU interested therein, states a good llefense.' , ,,' " , , ' ,
'In Equity. This calise was 'heard by' Judge' PHILIPS, of the western district of 'Missouri, under order of thecircu\t judge. The questions' to be decided ,,arise dn' exceptions taken by the complainant to thesepar'ate answer of the respondent Head, and ondemurter to the bill by the respondent of the bill are that the Phcenix · Warrell., The$ubstantive Farm & Hauch Oompany is acorporalion ofthe territory of New Mexico, !organized forthe purpose of Q01nga general cattle business, with a cap"italstock of$160,DOO, divided into'1,600 shares, of $100 each; that its of business is ,the towDof Watrous, Mora county, N. M., :'Yith itsprin'bipal office at the town of Las Vegas, N; M.; and that the l',eSPondents to be, and' to act as, directors of the com;pany. It is alleged thaton:,Apri14, '1889, the for good ,and valuable cqnsiderationby hi,mpaid to the owners thereof, acquired 1,696 sharesbfthls stock; 'thatat"the time of his purchase he received ,froJl1 the"vendorScertificatesnum,bered 11, 12, 18, and 14, for 399 'Shares each, whibhceftificates'were indorsed on the back thereof, in blank, by