Majority
p. 5Silas B. Dutcher, Assignee, etc., Respondent, v. The Importers and Traders’ National Bank, Appellant. (Argued October 8, 1874 ; decided November 10, 1874.)
Headnote
Payment, by a bank known byr its managing officers and agents to be insolvent, but continuing in business, of the check of a depositor wholly ignorant of its financial condition, is not within the meaning of the provision of the Revised Statutes (1 R. S., 603, § 4) declaring it unlawful for any incorporated company to make any transfer or assignment in contemplation of its insolvency; and such payment cannot be recovered back by an assignee of the insolvent bank appointed under the bankrupt law of the United States.An act done by a corporation in the ordinary and usual course of its business, uninfluenced by the state of its affairs, cannot be said to have been done in contemplation of insolvency.
Bobinson v. The Banlc of Attica ( 31 N. Y., 406 ) and Bromoer v. Harbeck (5 Seld., 589) distinguished. Butcher v. Importers and Traders' National Bank (1 N. Y. S. O. [T. & C.], 400) reversed.
Appeal from judgment of the General Term of the Supreme Court in the second judicial district in favor of plaintiff, entered upon an order denying a motion for a new trial and directing judgment upon a verdict. (Reported below, 1 N. Y. S. C. [T. & C.], 400.)
This action was brought by plaintiff as assignee of the Central Bank of Brooklyn (appointed under the United States bankrupt law, § 35), to recover moneys alleged to have been paid defendant by said bank in contemplation of insolvency, in violation of the provisions of the Revised Statutes. (1 R. S., 603, § 4.)
Prior to July 30, 1870, the Central Bank had made collections for defendant; the latter upon that day drew its check
p. 6
upon' the former for $19,300, the balance of such collections. This was sent to the “ clearing-house ” in New York, of which defendant was a member. The Central Bank was not a member; it was represented by the Marine Bank of New York as its redeeming agent. The check was, upon the day aforesaid, exchanged for checks held by the Marine Bank upon defendant. Upon the first of August the check was sent by the Marine Bank to the Central Bank. It was conceded that the check was drawn and exchanged in the usual course of business and that defendant had for years been in the habit of receiving from the Central Bank the proceeds of collections in the same manner. The Central Bank was insolvent on the thirtieth July and had been for some time previous. It stopped payment in the afternoon of August first.
The court directed a verdict for plaintiff which was rendered accordingly. Exceptions were ordered to be heard in the first instance at General Term.
Wm. M. Evarts for the appellant.
Plaintiff having failed to prove the cause of action declared on should have been nonsuited. (Code, § 171; 3 Bosw., 250 ; 17 Abb., 322 ; 33 Barb., 246 ; 28 id., 441; 49 id., 407; 1 Abb. [N. S.], 262; 1 Keyes, 588; 2 id., 106; 14 N. Y., 143 .) Allegations necessary to establish the cause of action stated in the complaint, cannot be rejected as surplusage in order to spell out a cause of action recognized as substantially different. (Bradley v. Aldrich, 40 N. Y., 504 ; Miner v. Beekman, 50 id., 337, 341.) The provision of the Revised Statutes relied on was suspended by the United "States bankrupt law. ( 11 Pet., 102 ; 5 Wheat., 1 ; 12 id., 213; 4 id., 122; 6 Am. L. Reg., 429; Van Nostrand v. Carr, 1 B. R., 154 ; 30 Md., 128 ; Martin v. Berry, 2 B. R., 188 ; 37 Cal., 208 ; Corner v. Miller, 1 B. R., 98 .) A State statute on the subject of the insolvency of a corporation is not affected by the bankrupt ■act, so far as it authorizes State courts to make a decree dissolving the corporation, but their jurisdiction ends with the decree. (Thornhill v. Bk. of La., 3 B. R., 110 .) Under the
p. 7
provision of the Revised Statutes in question, payment to a creditor is not forbidden. (1 R. S., pt. 1, tit. 2, chap. 18, § 9; Leavitt v. Blatchford,, 17 N. Y., 521 , 526; Robinson v. Bk. of Attica, 21 id., 406, 409; Belden v. Meeker, 47 id., 310.) There was no proof that the Central Bank contemplated insolvency, within the meaning of the bankrupt act. (Brower v. Harbeck, 9 N. Y., 589 ; Curtis v. Leavitt, 15 id., 108, 139, 198; Heroy v. Kerr, 8 Bosw., 194 ; Goodloe v. Godley, 13 S. & M., 233 ; U. S. Ins. Co. v. Shriver, 3 Md. Ch. Dec., 381; 1 Hill, 578 ; 4 Paige, 136.) The statute in question was not intended to apply to the case of a bank or other corporation carrying on its ordinary business and paying its ordinary obligations in the usual course of it. ( 8 Bosw., 194 ; affirmed, 2 Keyes, 582; 47 N. Y., 320 ; 15 Wall., 421 ; 36 N. Y., 95 ; 21 id., 406; 5 Hill, 221 ; 30 Barb., 646 ; 15 id., 66 ; Powers v. Shephard, 48 N. Y., 544 .) The power of Congress to pass laws “ on the subject of bankruptcies,” does not extend to corporations created by State laws. (A. & A. on Corp. [5th ed.], §§ 273, 372, 376; 7 How. Pr., 238 ; 51 Barb., 378 , 384; Dart. College v. Woodward, 4 Wheat., 636 .)
Benjamin F. Tracy for the respondent.
The transfer of the assets of the Central Bank through the clearing-house on August first to pay drafts on itself on that day was void. (R. S., § 4, tit. 4, chap. 18, pt. 1; Robinson v. Bk. of Attica, 21 N. Y., 406 ; Brower v. Harbeck, 9 id., 589; Sibell v. Remsen, 33 id., 95.) Parties must abide by the issues raised by and the admissions in their pleadings. (Paige v. Willet, 38 N. Y., 28 [31].) The payment to defendant was such a transfer and assignment as is meant by the statute. (Robinson v. Bk. of Attica, 21 N. Y., 406 .) The relief plaintiff is entitled to depends upon the facts he alleges and not upon the relief he asks for or the construction he places upon the law. ( Wood v. Brown, 24 N. Y., 337 ; Stewart v. Hutchinson, 29 How., 381 ; Colton v. Johnson, 7 Robt., 164; Marquat v. Marquat, 12 N. Y., 336 ; Robinson v. Bk. of Attica, 21 id., 411 ; Lounsberry v. Purdy, 18 id., 515 ; Bennet v.
p. 8
Judson, 21 id., 238.) The assignee in bankruptcy has vested in him all the rights of action to set aside fraudulent transfers and to recover property fraudulently alienated that would otherwise vest in a receiver. (Sawyer v. Hoag, 17 Wall., 610 .) The bankrupt act, repeals all such portions of the insolvent statutes of the States as are inconsistent with the procedure provided by it for the administration of the insolvent estate. (Thornhill v. Bk. of La., 3 N. B. R., 110 ; In re Independent Ins. Co., 6 id., 260 [201]; Martin v. Berry, 2 id., 188 ; Comer v. Miller, 1 id., 98; 12 Wheat., 213 ; 4 id., 122.) The bankrupt act does not authorize a transfer of property that would otherwise be illegal and which is inhibited by the State statute. (Goodwin v. Sharkey, 5 Abb. [N. S.], 61; Watkins v. Pinckney, 3 Edw., 533 ; Sands v. Codwise, 4 J. R., 536.) The assignee is vested with all the rights of action a receiver would otherwise take to recover property fraudulently alienated. (Cook v. Waters, 9 N. B. R., 155 ; Bradshaw v. Klein, Bank. Reg., 146; In re Wynne, 4 id., 5; In re Metzger, 2 id., 114; In re Meyers, 1 id., 162; Pratt v. Curtiss, 6 id., 139; Edmundson v. Hyde, 7 id., 1; Allen v. Massey, id., 401; Knowlton v. Moseley, 105 Mass., 156 .) The assignee may bring an action in the State court. . (Cook v. Waters, 9 N. B. R., 155 .) A bankrupt law concerns those who are affected by it simply, as debtors or creditors. (Ansonia B. and C. Co. v. N. L. C. Co., 53 N. Y., 123 .)
It was conceded upon the argument and held
upon the trial, that the only ground upon which a recovery by the plaintiff could be sustained, was by virtue of the provisions of the clause of section 4, 1 Revised Statutes, 603, in substance as follows : It shall not be lawful for any incorporated company to make any transfer or assignment in contemplation of the insolvency of such company, to any person or persons whatever. The action was for money paid by the bankrupt (the Central Bank) to the defendant, upon its cheeks drawn upon the former for a balance due from it to defend
p. 9
ant, arising from collections made for it. The payment was made through the clearing-house by the Marine Bank as agent for the Central for such purposes, in the usual course of business. Some discussion „of the point whether such payment was to be regarded as made upon the 30th July, 1870, or not until the first of August thereafter, Avas had upon the argument, but I do not regard this as material, as the proof showed that the Central Bank continued its business until the afternoon of August first, anil the payment at all events was made Avhile such was the case. The proof shoAved that the Central Bank was insolvent on the thirtieth of July, and had been so for some considerable time previous thereto, Avhich was probably knoAvn to its managing officers and agents, but ncA'ertheless it continued its business of banking the same as though in a sound and prosperous condition. The payment for the purpose of determining the construction of the statute in its application thereto, I shall regard the same as if made by the Central Bank over its counter upon the check of a depositor wholly ignorant of its financial condition upon the first of August, AA-hile it continued to transact its ordinary business. This is as favorable to the plaintiff as any vieAv of the transaction will Avarrant. The question is Avhether a payment so made by a banking association organized under the general Irav of the State, is made void by the clause in question, and the money so paid can be recovered from the creditor by a receiver subsequently appointed under the State statute or an assignee under the United States bankrupt Irav. Such recovery Avonld seem to be precluded by the language of the clause, which is that it shall not be lawful to make any transfer or assignment in contemplation of insolvency to any person or persons Avliatever. Hoav can a payment or sale made in the ordinary and usual course of business by the company, one Avhich Avould have been made had the company been prosperous and solvent, be said to have been made in contemplation of insolvency, although the company was at the time insolvent, AAdiich was known to its officers? The act being done in the
p. 10
ordinary and usual course of business by the company, unin-, fluenced by the state of its pecuniary affairs, it cannot be said to have been done1 in contemplation of any particular condition of such affairs. Jn considering the question, I include sales made in the ordinary course of business, for the clause operates to make such acts void equally with payments, if it makes either void.' There is no provision validating the former in behalf of bonco fide purchasers, such as is made by section 8, 1 Eevised Statutes, 591, of the act relating to moneyed corporations. This is a strong reason for holding that the clause in question does not include sales made in the usual and ordinary course of business, for it is of much more importance to protect these when made by manufacturing and many other corporations, than those made by moneyed.
The counsel for the respondent claims, that it has been determined by this court that the clause under consideration does make • void payments in the ordinary and usual course of business by a corporation insolvent to the knowledge of its officers. Robinson v. The Bank of Attica ( 21 N. Y., 406 ), and Brouwer v. Harbeck (5 Seld., 589), are relied upon to sustain the position. Although the note of the reporter in the former appears to sustain the position of the counsel, an examination of the facts showed that the case was not one of payment made in the ordinary atid usual course of business. The insolvent corporation (the Hollister Bank) became indebted to the Attica Bank on the 28th day of August, 1857, upon two drafts, one maturing September third and the other upon the fifth of the same month. On the twenty-ninth of August, the Hollister Bank became insolvent and never resumed business thereafter. On the thirty-first day of August, the payment was made by a transfer of notes which had been discounted by the Hollister Bank, and a small amount of money. It further appeared that the Bank of Attica had knowledge sufficient to put it upon inquiry as to the solvency of the Hollister Bank. This clearly was not a payment made in the usual course of busi
p. 11
ness. The creditor was sought out by the debtor before the debt became due and payment made, not in cash, but by transferring notes discounted by the debtor. This, when the debtor was a banking association, was, of itself, strong evidence of insolvency; and when from other evidence this fact was proved, required a finding by the referee, as was held by this court, that the payment was made by the debtor in contemplation of insolvency. The present is a case of payment in the usual course of business, and the case cited does not apply to this or to a sale so made. Brouwer v. Harbeck was a case depending upon the construction of section 9, 1 Revised Statutes, 591, a statute which does not apply to the present case. (Robinson v. The Bank of Attica, supra; Belden v. Meeker, 47 N. Y., 307 .) Section 9 declares invalid all conveyances, payments, etc., made by the corporation when insolvent or in contemplation of insolvency, with intent of giving a preference to a particular creditor over other creditors. This, it will be seen, does not include a payment in the usual course of business, like the one in the present action. It was held in Brouwer v. Harbeck [supra), that a payment made by an insolvent corporation, or one made in contemplation of insolvency, where the intention of the corporation was to give a preference to a particular creditor, was void irrespective of the questions whether the insolvency was open and notorious, and whether the party receiving the payment knew of the insolvency or this particular motive of the corporation in making the payment. A payment made with a view of giving a preference to a particular creditor is one rarely if ever made in the usual course of business. In such a ease the creditor will usually be sought out by the debtor and payment-made by an unusual transfer of assets, as in the case of Robinson v. The Bank of Attica. In the present case all the evidence tended to show that the payment was made in the usual course of dealing between the Central Bank and the defendant, and would have been made in the same way had the Central Bank been entirely solvent and its
p. 12
affairs prosperous. Such a payment cannot be said to have been made in contemplation of insolvency.
As this will probably terminate the litigation in this case, a determination of the other questions discussed by counsel, is unnecessary.
The judgment appealed from must be reversed and a new trial ordered, costs to abide the event. « =
All concur.
Judgment reversed.