MECHANICS' AND METALS NATIONAL BANK OF THE CITY OF NEW YORK
v.
ERNST ET AL., AS TRUSTEES IN BANKRUPTCY OF HUMPHREY
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The Supreme Court affirmed that a bank could recover funds and securities obtained from a brokerage firm hours before the firm filed for bankruptcy, holding that the firm was insolvent and intended to prefer the bank as a creditor, and that a subsequent deposit made after the bank ceased honoring checks constituted a preferential payment under the Bankruptcy Act. The Court rejected the firm's argument that a general lien agreement gave the bank security rights superior to bankruptcy law, establishing that such agreements do not improve a creditor's position beyond an ordinary debt obligation.
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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 in 200 Fed. Rep. 295.) This case arose at the same time and differs but little from that in its facts, as to which, as in the other case, the master, the District Court and the Circuit Court of Appeals all agree.
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 in sufficient to 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. Sexton v. 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.
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Cited By (14 total)
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Benedict v. Ratner, 268 U.S. 353 (U.S. 1925)…ot thereby invalidated. Clark v. Iselin, 21 Wall. 360 (book accounts); Sexton v. Kessler, 225 U. S. 90 (negotiable securities); Chapman v. Hunt, 254 Fed. 768 (book accounts). Compare Casey v. Cavaroc, 96 U. S. 467, Compare Mechanics’ Bank v. Ernst, 231 U. S. 60, 67. Schaupp v. Miller, 206 Fed. 575; Grimes v. Clark, 234 Fed. 604; Gray v. Breslof, 273 Fed. 526, 527. Mandeville v. Avery, 124 N. Y. 376, 382; Stimson v. Wrigley, 86 N. Y. 332, 338; Dutcher v. Swartwood, 15 Hun (N. Y.) 31. It was cited in Youn…
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Mayo v. Pioneer Bank & Tr. Co., 270 F.2d 823 (5th Cir. 1959)…24 S.Ct. 199, 48 L.Ed. 380. If, however, the deposit is given by the depositor or received by the bank as payment of a debt, a transfer occurs that might be a voidable preference. Mechanics & Metals National Bank of City of New York v. Ernst, 1913, 231 U.S. 60, 34 S.Ct. 22, 58 L.Ed. 121.…
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Kane v. First Nat. Bank of El Paso, 56 F.2d 534 (5th Cir. 1932)…e the deposits are received there is not an intent in good faith to increase the cheeking account but to arrange for an offset, there is in truth not a. [*537] deposit but a payment which is a preference. Mechanics’ & Metals’ National Bank v. Ernst, 231 U. S. 60, 34 S. Ct. 22, 58 L. Ed. 121. On this distinction a set-off of the whole of a deposit account which had been accumulated in the usual course of business has been upheld, but a set-off of subsequent deposits which were received by the bank with the…
Previewing 3 of 14 citing cases — full citator treatment, depth of discussion, and citing context are member features.
Join FLexlaw to unlock all legal intelligenceAuthorities Cited (35 total)
- Scott v. Armstrong, 146 U.S. 499 (U.S. 1892)
- Coder v. Arts, 213 U.S. 223 (U.S. 1909)
- Thompson v. Fairbanks, 196 U.S. 516 (U.S. 1905)
- N.Y. Cnty. Nat'l Bank v. Massey, 192 U.S. 138 (U.S. 1904)
- Sexton in Bankr. of Kessler & Co. v. Kessler & Co., 225 U.S. 90 (U.S. 1912)
- Walker v. Brown, 165 U.S. 654 (U.S. 1897)
- Ingersoll v. Coram, 211 U.S. 335 (U.S. 1908)
- Richardson in Bankruptcy v. Shaw, 209 U.S. 365 (U.S. 1908)
- York Mfg. Co. v. Cassell, 201 U.S. 344 (U.S. 1906)
- Nat'l Bank of Newport v. Nat'l Herkimer Cnty. Bank of Little Falls, 225 U.S. 178 (U.S. 1912)