Philler v. Yardley

62 F. 645, 25 L.R.A. 824, 1894 U.S. App. LEXIS 2328

• Court: Court of Appeals for the Third Circuit
• Decided: July 12, 1894
• Docket: No. 12
• Status: Published

Opinions

ACHESON, Circuit Judge.

Upon a bill brought by Robert M. Yardley, receiver of the Keystone National Bank, against seven individuals, constituting the managing committee of the Philadelphia Clearing House Bank Association, the court below rendered a decree for $70,005.46, with interest from March 20, 1891, against the defendants, who are hete the appellants, upon the ground that, after the known insolvency of the named bank, they applied (as was charged) its funds in their hands or under their control to the payment of its debts to the clearing- house association, and to members thereof, with a view of giving them an unlawful preference over other creditors.

The clearing house association of the city of Philadelphia is a voluntary, unincorporated association, composed of the national banks of that city; its main object being to effect at one common meeting place, called the “clearing house,” the daily exchanges between the associated banks. Its affairs are under the general supervision of a committee of seven bank presidents, selected by a majority of the associated banks, and serving without compensation. This committee appoints a manager, who has immediate charge of the conduct of the business at the clearing house. All exchanges, however, are made directly between the banks themselves, through clerks representing them respectively. All the checks, drafts, and other evidences of indebtedness to be exchanged are brought to the clearing house in sealed packages, which are never opened there. The gross amount of the alleged contents of each package is indorsed upon the envelope, but not the items. The clerk of each sending bank delivers directly to the clerk of the receiving bank the sealed package of cheeks and other obligations held by the former against the latter bank. Receipts pass directly between the clerks of the sending and receiving banks. After the exchanges are thus made, the gross totals only are reported to the clearing house manager, who, upon this information, makes up a sheet of differences to be adjusted and settled between the various banks. Upon this shoot each debtor bank settles the amount due by it to the creditor banks by paying the same to the clearing house manager, who immediately distributes it to and among the creditor banks.

The-Keystone National Rank of Philadelphia, was a member of the clearing house association. On March 20, 185)1, at 8:5)0 o'clock a. m., the hour fixed for the morning exchange, the messenger of Unit bank appeared at the clearing house with sealed packages purporting to contain exchanges against other banks, members of the association, amounting to $70,005.4-0. These packages he delivered directly to the clerks of the other hanks, and received from them receipts therefor. At; the same time the messengers of other banks, members of the association, delivered to the clerk of the Keystone National Rank sealed packages of exchanges against it, purporting to amount to the sum of $117,035.21, and took from him receipts therefor. Thus there was a balance of $47,029.75 against the Keystone National Rank on that morning’s exchange.

After receiving the sealed packages of chocks and other exchanges purporting to amount to $117,035.21, the clerk of the Keystone National Bank left those packages in the custody of the manager of the clearing house until the bank should pay the $47,029.75 difference, which it was hound to do by 12 o’clock of that day. The reason for the deposit was this: Article 17 of the constitution of the clearing house association required each bank to deposit with ihe clearing house committee collateral security for the payment of its daily balances. In December, 1890, however, at the instance and for the benefit of the Keystone National Rank, a special arrangement was entered into between it and the clearing house committee whereby all the security held under article 17 to secure its daily balances was transferred to its loan-certificate account with the clearing house, so as to enable it to receive upon that security further advances of loan certificates, and it was agreed that thereafter, at the morning exchange, the clerk of the Keystone National Rank, after receiving the packages of checks and other exchanges from the creditor hanks, should leave the packages with the clearing house manager as security fliat any debtor balance due by it on that settlement should be paid by Ihe hank before 12 o’clock of the same day.,

The Keystone National Bank did not pay its debtor balance of $47,029.75 due- on the morning exchange of March 20, 1891, by 12 o’clock that day, and that balance has never been paid or tendered. Shortly after 10 o’clock on the same day, by virtue of an order made by- the comptroller of the currency, the Keystone National Rank was closed by William 1’. Drew, bank examiner, and thereafter Robert 51. Tardier was appointed receiver thereof. After 12 o’clock on the same day (51 arch 20, 3891), the clearing house manager, acting under the instructions of tlie clearing house committee, notified the banks which had presented ihe packages containing the checks, drafts, and other evidences of indebtedness against the Keystone National Rank for $117,035.21, that they must make those packages good by paying into the clearing house that amount of money, and, accordingly, in compliance with, this demand, these banks forthwith paid to the clearing house manager $117,-035.21 in cash, and took away the packages.

After the morning exchange on that day, the state of accounts between the Keystone National Bank and the clearing house association was this: The debtor balance of the bank on that morning’s settlement, as we hare seen, was $47,029.75. Its debtor balances on the exchanges of the preceding day amounted to $41,197.36, for which it had issued its clearing house duebills, — two thereof, amounting to $23,390.52, to the clearing house association, and several others, amounting to $17,806.84, directly to certain banks of the association. These duebills were in the form prescribed by the rules of the association, bore date March 19,1891, and by their terms were “payable only in the exchanges through the clearing house the day after issue.” Then, in addition to its debtor balances on these exchanges, the Keystone National Bank owed $335,000 on clearing house loan certificates which had been issued to it previously by the clearing house committee, agreeably to the provisions of a written agreement between all the associated banks. To secure the payment of this last-mentioned indebtedness for $335,000, the bank had deposited with the clearing house committee collateral securities; but the other banks were ultimately responsible for that debt in case of a deficiency in the collaterals, for by the terms of the written agreement referred to any loss caused by the nonpayment of clearing -house loan certificates issued by the committee to any member of the association was assessable upon all the other banks in the ratio of capital.

The money, namely, the $117,035.21, which the other banks, upon the call of the clearing house committee, paid on March 20,1891, to the clearing house manager, he .immediately appropriated, by the direction of the committee, in manner following: To make good the balance due by the Keystone National Bank on that morning’s exchanges, $47,029.75; to the payment of the duebills given by the bank for iis debtor balances on the exchanges of the preceding day, $41,197.36; and the residue, $28,808.10, he applied towards the cancellation of the clearing house loan certificates which had been issued to that bank. Has the receiver of the bank any just reason to complain of that appropriation, or of the transaction in -any respect?.

The receiver of an insolvent national bank takes its assets subject to all just claims and defenses that might have been interposed against the corporation itself; and all liens, equities, and rights arising by express agreement, or. implied from the nature of the dealings between the parties, or by operation of. law, prior to insolvency, and not in contemplation thereof, remain unimpaired. Scott v. Armstrong, 146 U. S. 499, 510, 13 Sup. Ct. 148. The morning exchange on March 20th between the Keystone National Bank and its clearing house associates, in itself, was unimpeachable. It took place before the bank examiner acted. The clearing house association had no reason to suspect the impending failure. On the part of the bank itself the transaction was in the regular course of its business, and with a view to continued operations. It did not act in contemplation of insolvency, nor with a purpose to give one creditor a preference over another, or to prevent the application of its assets in’the manner prescribed by law in case of insolvency. The rights of the parties were fixed when the bank was closed. As between the Keystone National Bank and the other banks, the morning exchange had been already consummated. The packages of exchanges on the one side and the other had been delivered and receipted for. The exchange itself was an accomplished fact. What remained to be done was the payment by the Keystone National Bank of its debtor difference of $47,029.75 to the clearing house manager. To insure this payment by 12 o’clock, the bank, under its arrangement with the clearing house committee, left its sealed packages in the hands of the clearing house manager. The bank, however, defaulted, and what after-wards occurred in the clearing house was in consequence. The situation was unprecedented. The bank had been closed by the government officer. The pledge was not an ordinary one. The sealed packages on temporary deposit with the clearing house manager did not contain assets of the bank, but checks and drafts drawn upon it, and other evidences of its indebtedness. As the packages contained commercial paper, prompt action might be necessary to hold indorsers and drawers. In the emergency, occasioned wholly by the default of the Keystone National Bank, whose supposed equity is the foundation of this bill, tbe clearing house committee made the call upon the other hanks already mentioned. Whether those banks were bound to comply with that demand to its full extent we need not inquire. Under the stress of the situation they saw fit to do so, and paid into the clearing house, of their own moneys, $117,035.21, and relieved the manager of his custody of the packages. Did this work an annulment of the morning exchange? We cannot so conclude. That deduction would be highly unreasonable. That the banks which paid in this money intended such a result is incredible. The whole transaction negatives the idea, of intended rescission. Indeed, the other banks had no right to undo the morning exchange without the concurrence of the Keystone National Bank. Nor was it to their interest to disturb what had taken place. Why should they pay this large sum of money into the clearinghouse in relief of the debtor bank? Assuredly, this money was not paid for the benefit or use of the Keystone National Bank. The other banks made the payment in promotion of their own interests as members of the association, primarily in order that they might make settlements inter se. This they were at liberty to do without relinquishing any of tlieir rights or equities as against their defaulting associate. The obligation of the Keystone National Bank to pay its debtor balance remained in full force. Without the payment of the $47,029.75, the bank was not entitled to the return of the deposited packages. Hence those packages were rightfully withheld from the bank. Nothing is better settled than the right of a transferee of a pledge to hold it until the debt for which it was given is paid. Story, Bailm. § 327: Donald v. Suckling, L. R. 1 Q. B. 585; Talty v. Trust Co., 93 U. S. 321. This principle is peculiarly applicable Rere, for tbe clearing house manager held the deposited packages for the benefit of the creditor banks. It is our judgment that the morning exchange between the associated banks was valid, and was not avoided, or the rights thereunder of the clearing house association or of the creditor banks impaired, by what subsequently occurred.

It is quite plain that the court below proceeded upon views radically different from those we have expressed. The decree, it will be perceived, entirely overlooks the default of the Keystone National Bank, and puts the receiver in a far better position than the bank would have been in had it fulfilled the terms of its pledge. Had it done that, it would have paid into the clearing house $47,-029.75, whereas, without paying anything, the. receiver has a decree requiring the defendants to account to him for the whole $70,-005.46. We are unable to accept that result as just. The principle of the decision of the supreme court in the case of Scott v. Armstrong, supra, requires that the equities and rights arising from the express agreements or implied from the nature of the dealings between the Keystone National Bank on the one side and the clearing house association or the other members thereof- on the other side, prior to the closing of the bank, shall be preserved and enforced.

Was • anything done prejudicial to the rights of the Keystone National Bank or its receiver? As already stated, .the clearing house áuebills, amounting to $41,197.36, which the bank had given for its balances on the exchanges of the preceding day, were paid out of the fund claimed by the receiver. Can the rightfulness of that appropriation be gainsaid? On the face of each duebill it was stipulated that it was “payable only in the exchanges through the clearing house the day after issue.” Those duebills were actually in the morning exchange on March 20, 1891. They were in the packages amounting to $117,035.21, delivered to the clerk of the Keystone National Bank. They were entitled to payment out of the bank’s credit of $70,005.46 in that morning’s exchanges. The application of the $41,197.36 to those duebills was therefore right, even upon the receiver’s hypothesis as to the origin of the fund which the clearing house manager disbursed. The duebills were extinguished. By no possibility can they come against the funds in the hands of the receiver.

Is the receiver in any position to question the application of the $28,808.10 to the indebtedness of the Keystone National Bank as a member of the clearing house association on its loan-certificate account? That liability arose from the course of dealings between the bank and the clearing house, and under an express agreement between all the members thereof, whereby the other associated banks were chargeable with any loss occasioned by the failure of the Keystone National Bank to pay. The other banks, therefore, had a prevailing equity to have applied to that debt money of their own which they paid into the clearing house under the circumstances as disclosed. How can the receiver object that, as the outcome of the settlement between the other banks, á balance from funds which they provided was applied to the reduction of the debt due by his bank? Then, again, the receiver, who has no higher rights than his bank, is in a court of equity. Here he is met by the default of the bank in not paying into the clearing house the $47,029.75 it was bound to pay. He has not deemed it to be for the interest of his trust to pay that money. He does not propose to do so. How, then, can he ask a, decree against the defendants for the $28,808.10? Obviously, to the extent of his bank’s default, he is without equity.

For the reasons stated, we hold that the receiver has no good ground upon which to challenge the transactions in the clearing house. We add a single observation: As the-right of set-off existed between the banks (Scott v. Armstrong, supra; Yardley v. Clothier, 51 Fed. 506, 2 C. C. A. 349), it is by no means clear that the other creditors of the Keystone National Bank would have fared better if the exchange had not taken place. With claims aggregating $117,035.21 as against claims for $70,005.46, it would seem improbable that anything would have been recoverable by the receiver.

Finally, the receiver does not show himself to be entitled here to equitable relief of any nature. The duebills for $41,197.36 are entirely out, of the way. It does not appear that any items in the packages for $117,035.21 have been proved against the funds in the hands of the receiver, or have been present fed to him for payment, or that any suit thereon has been brought or is threatened. ' If the receiver has the right to insist upon the formal cancellation of $28,808.10 of those items (which is the tit most he can claim), the present bill is not available to him to secure» such decree. Xo such relief is here sought. The» bill is not framed for that purpose. It is not apparent that the re»ceiv<»r needs the aid of a court of equity; but, if he is entitled to equitable relief, it is as against the other banks. Those banks are not parties to this suit.

The detuve» of the circuit court is reversed, aiid the case is remanded to that court with directions to dismiss the bill of complaint.

G-REEX, District Judge, dissents.