In re Smith

22 F. Cas. 409, 10 Chi. Leg. News 86, 16 Nat. Bank. Reg. 399, 1877 U.S. Dist. LEXIS 243

• Court: District Court, D. Massachusetts
• Decided: November 10, 1877
• Status: Published

Opinion

LOWELiL, District Judge.

I suppose that the aggregate amount of all the orders given by the bankrupt, and conditionally accepted by Mr. Field, will be enough to absorb the net proceeds of the judgment, after deducting the reasonable counsel fees of Mr. Field. If not so, the assignees would, perhaps, have a strict legal right to collect the money, even though the orders may be valid; in which case, they would be trustees for the holders of the orders, to the extent of their several demands, and trustees for the general creditors of Smith, for the remainder. I understand, however, that the question which the parties wish me to decide is whether the orders are valid, and create a change in the proceeds of the judgment against the as-signee in bankruptcy; and that the settlement will be readily made by the parties when this is decided. It is the law that an ordinary bill of exchange, like those which pass between merchants, does not operate as an assignment of any funds in the hands of the acceptor. The reasons are: (1) That such a bill is a well-known commercial security which is taken upon the credit of the parties; and (2) the great inconvenience to trade if merchants and bankers were to be held as trustees for the holders of all their acceptances. Harris v. Clark, 3 Comst. [3 N. Y.] 93; Cowperthwaite v. Sheffield, Id. 243; Hopkins v. Beebe, 2 Casey [26 Pa. St.] 85; Thomson v. Simpson, 5 Ch. App. 659.

The supreme court of the United States, and the courts of many of the states where the question has arisen, have applied a. similar rule to bank-checks, “that no right to the deposit of the drawer of the check passes to the payee by the signing and delivering of the check. In other states, the bank-check is held to work an assignment. See Bank of Republic v. Millard, 10 Wall. [77 U. S.] 152; Bullard v. Randall, 1 Gray, 605; Dana v. Boston Third Nat. Bank, 13 Allen, 445; Carr v. National Security Bank, 107 Mass. 45; Lunt v. Bank of North America, 49 Barb. 221; Strain v. Gourdin [Case No. 13,521]; In re Smith [Id. 12,990]; and the cases cited in Judge Brown’s opinion. The reasons for this rule do not apply to a draft or order which is made payable out of a particular fund. Such a paper is not, strictly speaking, a bill of exchange, and it is well settled that such an order makes an assignment in equity, whether accepted or not. Spain v. Hamilton, 1 Wall. [68 U. S.] 604; Yeates v. Groves, 1 Ves. Jr. 280; Ex parte Alderson, 1 Madd. 53; Ex parte South, 3 Swanst. 392; Diplock v. Hammond, 2 Smale & G. 141,5 De Gex, M. & G. 320; Cutts v. Perkins, 12 Mass. 206; Robbins v. Bacon, 3 Greenl. 346; Legro v. Staples, 16 Me. 252; Lowery v. Steward, 25 N. Y. 239; Moody v. Kyle, 34 Miss. 506.

Then the only question is, whether these drafts were payable out of the proceeds of this note; and it cannot be doubted that they were. The drafts, as drawn, do not express this fact, but the mode of acceptance does. An agreement for such payment is perfectly good in equity, though made wholly by word of mouth; and therefore the facts found in this case, that the creditors were severally informed that the order was to be paid out of the proceeds of the judgment, would bind the fund, in equity, even if the acceptance had been absolute. It is hardly necessary to say that an assignee in bankruptcy takes the property subject to all equitable as well as legal liens.

My decision, therefore, is that the several holders of the orders are entitled to be paid the amounts of their several acceptances in preference to the assignee in bankruptcy.