167 U.S. 344 (1897), 296, Yardley v. Philler

Docket Nº:No. 296
Citation:167 U.S. 344, 17 S.Ct. 835, 42 L.Ed. 192
Party Name:Yardley v. Philler
Case Date:May 24, 1897
Court:United States Supreme Court

Page 344

167 U.S. 344 (1897)

17 S.Ct. 835, 42 L.Ed. 192




No. 296

United States Supreme Court

May 24, 1897

Argued April 28, 1897




The national banks in Philadelphia organized, for their convenience, a Clearing House Association, with rules for its business set forth in detail in the statement in the opinion below. Among these rules, one provided for the deposit of securities in fixed amounts by each bank as collateral for their daily settlements, and another for the hours in the day in which settlements were to be made, and the mode of making the exchanges. The Keystone Bank made its deposit in conformity with the rule, but, having become indebted to the clearing house by reason of the receipt of clearing house certificates to a large amount, the securities deposited by it were surrendered, and were redeposited by it as security for the payment of the certificates. In the clearing of March 19, 1891, the Keystone Bank presented charges against other banks to the amount of $155,136.41, and the other banks presented charges against it for $240,549, making the Keystone Bank a debtor in the clearing for $75,359.08. In accordance with the rule, the Keystone Bank between the hours of eleven and twelve paid the $75,000 in cash or its equivalent, and gave its due bill to the manager of the clearing house for the fractional sum of $359.08, which was deposited by the manager and checked against by him as cash. In the runners' exchange of that day, the Keystone Bank owed a balance of $23,021.34, which balance it settled by giving its due bill to the manager for deposit in accordance with the system above stated. In operating the clearing on the morning of March 20, the Keystone Bank, through its runner, delivered to the respective clerks of the various banks packages containing claims held by the Keystone Bank amounting to $70,005.46, and the settling clerk of the Keystone Bank received from the runners of the other banks packages containing $117,035.21, leaving the Keystone Bank debtor in the clearing for $47,029.75. The packages containing the demands which the Keystone Bank held against other banks, and which had been delivered to the agent of each of those banks, were by them taken away at the termination of the clearing. The packages containing the charges presented against the Keystone Bank, which in the aggregate amounted to $117,035.21, instead of being taken away by its settling clerk, were, under the arrangement which we have stated, turned over by him to the

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manager of the clearing house, to be retained until at the hour named the Keystone Bank paid the balance due by it. Before the hour for making the payment, however, the Keystone Bank, by order of the Comptroller of the Currency, was closed, and subsequently was placed in the hands of a receiver. On the failure of the Keystone to make the payment of $47,029.75, the committee of the association instructed the manager to call on the banks by whom claims had been presented against the Keystone "to redeem the packages against the Keystone Bank." The manager thereupon gave the proper notification, and the various banks notified sent their checks and redeemed the packages in question. Among the obligations for $117,035.21, however, were due bills amounting to $41,197.36. These due bills came from the fractional amounts arising by the settlement made on the morning of the 19th, to-wit, $359.08; for the due bill given at the runners' settlement on the morning of the 19th, $23,031.44, and for due bills given to various banks during the course of business on the 19th, amounting to $17,806.84. Thereupon, and as part of the same transaction, the manager paid from the $70,005.36, which by his settlement sheet appeared to the credit of the Keystone as owing from other banks to the Keystone Bank for the checks surrendered by that bank, the amount of the due bills referred to, viz., $41,197.36. This left to the credit of the Keystone the sum of $28,808.10, and this amount was by the manager, acting under direction of the committee of the association, credited on the loan certificate account of the Keystone Bank with the association. In a suit by the receiver of the bank to determine the rights of the parties, Held (1) that the claim of the receiver that the Keystone Bank was entitled to be paid $70,005.36 of credit irrespective of the outstanding due bills which it had been expressly agreed between the parties were to be paid by way of set-off in the clearing, was without foundation; (2) that the Clearing House Association, having been in possession of the $28,808.10 as the fiduciary agent of the Keystone Bank without a lien or right upon it, its appropriation of the same after the insolvency of the Keystone Bank to the debt owing for loan certificates was obviously a preference within the inhibition of the statute against preferences in the cases of insolvent banks, Rev.Stat. § 5242.

The case is stated in the opinion.

WHITE, J., lead opinion

MR. JUSTICE WHITE delivered the opinion of the Court.

The Clearing-House Association of Philadelphia is a voluntary organization, created by the cooperation of national banks

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doing business in that city. Its affairs are governed by rules and regulations adopted by agreement between the banks forming the association, and the general direction of its operation is under the control of a president, secretary, and manager, and of a committee selected by the members of the association. As the name of the association implies, it is intended to afford a uniform and convenient method by which daily settlements of balances can be had between the banks entering into the association. In addition to the function of affording a means for the daily clearing of balances, the Clearing-House Association, by agreement among its members, issued at periods when it was deemed best to do so, clearing-house certificates. These certificates were delivered, under the discretion of the managers, when applied for by a member of the association, and were secured by the pledge of bills receivable or assets taken from the portfolio of the bank obtaining the certificates. These certificates were available as cash in settlements between the banks, and for other purposes, and the object of issuing them was, in times of panic or stringency, to create, to the extent of the certificates, solidarity of responsibility between the banks, as each bank was liable for a proportionate share of the certificates in case of default in their payment, thus fortifying the credit of one by the credit of all. Moreover, the certificates afforded a means by which a bank with good assets could use them in order to obtain certificates which were, for banking purposes, the equivalent of cash, when, from any stringency or panic, the assets themselves, although entirely sound, could not be readily convertible into current money.

Article 2 of the Constitution of the Clearing-House Association provided as follows:

Art. 2. Its object shall be to effect at one place the daily exchanges between the several associated banks, consisting of a morning exchange and a runners' exchange, and the payment at the same place, of the balances resulting from such exchanges. The responsibility of the association for such exchanges is strictly limited to the faithful distribution by the manager, among the creditor banks for the time being, of

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the sums actually received by him, and, should any losses occur while the said balances are in the custody of the manager, they shall be borne and paid by the associated banks in the same proportion as the expenses of the clearing house, as hereinafter provided for.

Article 11 said:

Art. 11. Should any of the associated banks fail to appear at the clearing house at the proper hour, prepared to pay the balance against it, the amount of that balance shall be immediately furnished to the clearing house by the several banks exchanging at the establishment with the defaulting bank in proportion to their respective balances [17 S.Ct. 836] against that bank resulting from the exchanges of the day, and the manager shall make requisitions accordingly, so that the general settlement may be accomplished with as little delay as possible. The respective amounts so furnished the clearing house on account of the defaulting bank will, of course, constitute claims on the part of the several responding banks against that bank, provided that the amount of the duebill given by the defaulting bank in settlement of its debit balance in the runners' exchange of the previous day, and deposited by the clearing house in its depository bank, shall be deducted from the total charge of such bank, and shall be the first claim against the securities deposited by the defaulting bank, under article 17.

Article 17 was as follows:

Art. 17. Each bank, member of the Clearing-House Association, shall deposit securities with the clearing-house committee as collateral for their daily settlements, in the following percentage or assessment on capital:

1st. Banks with capitals of $800,000 and over, ten percent

2d. Banks with capitals of $500,000 and under $800,000, fourteen percent, but not to be required to deposit over $80,000.

3. Banks with capitals over $250,000 and under $500,000, twenty percent; but not to be required to deposit over $70,000.


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