Hayes v. Beardsley

The plaintiff is the receiver of the First "National Bank of Auburn, N.'Y., a banking association organized under the statutes of the United States. He brought this action to recover the amount paid for three certificates of deposit which had been issued by the First National Bank of Auburn, and the ground upon which such recovery is sought is that the payment thereof was in violation of § 5242 of the U. S. R. S. It is important, therefore, to state exactly the terms of that statute

That statute is as follows: “ Sec. 5242. All transfers of the notes, bonds, bills of exchange or other evidence of debt owing to any national banking association, or of deposits to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the lise of any of its share- •

The trial justice has found, as matter of fact, that this bank continued the ordinary business of banks in the usual way up to and including Saturday, the 21st day of January, 1888, on which day at twelve o’clock, noon, its doors were closed in accordance with the custom of other banking institutions of the city of Auburn, where this bank was located, to close at that hour on Saturday, in pursuance of the half holiday law enacted by the legislature of the state of New York. That on the 23d day of March, 1887, the bank being indebted to the defendant in the sum of $15,000, with interest thereon from the 20th day of- December, 1886, upon two certificates of deposit, dated respectively December 22, 1883, and December 27, 1883, paid and took up , such certificates of deposit by transferring to the owner thereof certain negotiable paper which the bank held to the amount due and unpaid upon the certificates, less the sum of $506.60, which last named sum was paid in cash; and the notes and the cash were received by the defendant in full payment and extinguishment of the certificates of deposit; that this payment was voluntarily made by the bank without demand or request by the defendant, and upon the ground, as stated by the cashier of the bank, that his directors did not like to pay so large a rate of interest as these certificates bore, which was six per cent, per annum, payable semi-annually.

On the 5th day of December, 1887, the bank was indebted to the defendant upon a like certificate in the sum of $10,000, bearing like interest. On that day the defendant transferred such certificate to the Cayuga County National Bank, of which the defendant was the president, and that sum, with accrued interest, was credited to him upon the books of that bank. Subsequently, but on the same day, the. First National Bank paid the amount of this certificate to the Cayuga County National Bank in settlement of exchanges between the banks in the usual course of business. This payment was made, as the court finds, by the paying teller of the First National Bank, who at that time had no knowledge or suspicion that the First National Bank was insolvent or unable to pay all debts and obligations in full in the usual course of business.

In regard to both transactions, the finding is made specific that these payments were not made with a view to prevent the application of the assets of the bank in the manner prescribed by the national banking act, or with a view to give preference to the defendant over any other creditor of the bank.

The further fact is found, that up to and including Saturday, 'the 21st day of January, 1888, the First National Bank was in good credit as a banking institution, and that up to that time the business public in the city of Auburn had not, nor had any of the officers of the bank other than its cashier, any knowledge or

The principal question in this case is one of fact. It will be noted that the trial justice has in his findings negatived in all its parts the claim made that the payment of the certificates was made in violation of the above quoted provision of the federal law. An examination of the evidence has led our minds to the same conclusion. Many suspicious circumstances are adduced by the learned counsel for the appellant, from which it is earnestly argued that the defendant had knowledge that the bank was insolvent at all of these times. ' Several witnesses have testified to declarations of the defendant made subsequently to the failure of the bank. The plaintiff himself testified that the defendant told him that at the time of receiving these payments he thought the First National Bank was hard up; and another witness testified that the defendant told him that he (the defendant) had advised the president against longer retaining the cashier because he played poker ; to another witness, that he did not draw all of his money at the time, because the cashier couldn’t pay it or did not want to pay it; to another witness, that he should not lose a great deal, as he had drawn out at intervals something like $30,000 that he had in the bank in certificates, and that if he had drawn it all out at one time it would have looked suspicious and excited talk and comment.

All of this testimony, relating to the defendant’s declarations, is either denied or explained by him in his evidence. There is the further fact, that he had at one time been a director of the First National Bank, and had withdrawn from it upon the ground, as stated by him, according to one witness, that he didn’t like the management of the bank.

Stress is also put upon the fact that he had been loaning for some time to this bank the sum of $50,000, and the bank was paying thereon as much interest as it could lawfully receive for loans made by it; and consequently it is argued the defendant must be charged with knowledge that the bank was not properly managed and was in embarrassed circumstances.

On the other hand, in respect to the first two certificates, it is shown that the transaction was ten months before the bank closed its doors on the flight of the cashier, after a series of em-' bezzlements by him; and in respect to the third certificate, the fact that it was paid, not to Mr. Beardsley in person, but to the bank where he had deposited it, and of which he was president, in the regular course of business of settling exchanges; and the

It is argued, however, by the learned counsel for the plaintiff,. that under this statute, so long as the cashier knew of the condi- . tian of the bank, and these payments were made when the bank was in fact insolvent, as it clearly was at the time of the payment of the first certificates and for a considerable time prior thereto, as well as at the time of the payment of the last certificate, that it is not material whether the defendant knew of the real condition of the bank or not, but that under this statute an absolute liability against the defendant attaches. He cites upon that branch of his argument the case of Nat. Security Bk. v. Butler, 129 U. S., 223 . But that case, in its facts, materially differs from the one now under consideration. In the case relied upon by counsel, the insolvency of the bank was well-known to its officers, and the payment was there actually made by the bank for the purpose of giving a preference. In this case no officer of the bank, except the cashier, who was also a director, knew of the bank’s actual condition ; on the contrary it had been fraudulently concealed from them, and the concealment seems to have been so completely made that the bank examiner, visiting the bank a few days before its collapse, did not find out its true condition. In the ease cited, the contemplated insolvency of the bank followed immediately upon payment to the preferred creditor. The inference to be drawn from acts so nearly simultaneous is quite different from that to be adduced where the lapse of time between the acts is so great as is shown to have been in this case.

If any one of the payments was made with a fraudulent intent on the part of the cashier to give a preference to this defendant, that fact has not been shown. Other inferences in regard to the motive of the cashier in paying off these certificates may be readily drawn as that he intended to give the defendant a preference. Being engaged a long time at deliberate embezzlement of the bank’s funds, he naturally would try by his actions to lead such an extensive lender of money as the defendant into a belief that the bank was prospering; and no better means to that end probably could have been adopted than the voluntary payment by him of a portion of the bank’s indebtedness to the defendant, coupled with the notice that the bank did not like to pay such high rate of interest.

There is a failure of proof, as it seems to us, of any facts actually tending to show a preference in the payment of these sums of money to the defendant. As the court say in Curtis v. Leavitt,

It seems to us that payments cannot be said to be “made after the commission of an act of insolvency, or in contemplation thereof,” when they were made, not by the bank with knowledge by its directors of its actual condition of insolvency, so far as could be ascertained by the directors of the bank in the regular course of business of a solvent institution, but by the cashier alone, and that such a payment cannot “ be said to have been made with a view to the preference of one creditor to another,” when made under the circumstances disclosed .in this case.

Nor does the circumstance that the defendant was a director of the First National Bank up to the beginning of the year 1887 make, under these proofs, his liability in this action any more manifest, even though the bank was actually insolvent at that time, or render him liable to pay back the moneys received by him in the manner stated so long as he acted in good faith, whatever may have been the misconduct and motive of the cashier, for he, while a director, as well as the other directors "and officers of the bank, was deceived by the cashier as to the bank’s true condition, and not absolutely liable for the latter’s misconduct. •As the court said in Land Credit Co. v. Lord Fermoy, L. R., 5 Ch. App., 763, “Whatever may be the case with a trustee, a director cannot be held liable for being defrauded. To do so would make his position intolerable.” Briggs v. Spaulding, 141 U. S., 132 ; S. C., 33 Am. & Eng. Corp. Cases, 420.

Judgment appealed from should be affirmed.

Dwight, P. J., and Lewis, J., concur. 0