200 U.S. 405 (1906), 137, Rector v. City Deposit Bank Company

Docket Nº:No. 137
Citation:200 U.S. 405, 26 S.Ct. 289, 50 L.Ed. 527
Party Name:Rector v. City Deposit Bank Company
Case Date:February 19, 1906
Court:United States Supreme Court

Page 405

200 U.S. 405 (1906)

26 S.Ct. 289, 50 L.Ed. 527



City Deposit Bank Company

No. 137

United States Supreme Court

February 19, 1906

Submitted December 12, 1905




Where a trustee in bankruptcy seeks to recover in a state court what is asserted to be an asset under the bankrupt law, the denial of the asserted right is a denial of a right or title specially claimed under a law of the United States, and presents a federal question reviewable in this Court by writ of error under § 709, Rev.Stat.

While a certificate of a court of last resort of a state may not import into a record a federal question not otherwise existing, such certificate serves to elucidate whether such federal question does exist.

While this Court is bound by the facts found by a state court, where that court does not find the facts, but instructs a verdict on the ground that the evidence justifies no other verdict, a question of law, reviewable by this Court, is raised as to whether the jury could have found otherwise under any reasonable view of the evidence.

Where a bank fails and the clearing house, having notice of such failure, returns all of the debit items to the other banks, it cannot apply the credit item to payment of claims of other banks against the insolvent bank; under the provisions of the Bankrupt Act forbidding preferences, it is its duty to pay those funds over to the trustee in bankruptcy.

See also Rector v. Commercial National Bank, post, p. 420.

The facts are stated in the opinion.

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WHITE, J., lead opinion

MR. JUSTICE White delivered the opinion of the Court.

The firm of Reinhard & Company, composed of John G. Reinhard and Henry A. Reinhard, carry on a banking business in Columbus, Ohio. On April 10, 1900, the firm made a general assignment under the insolvent laws of Ohio. On the following day, a petition in involuntary bankruptcy under the laws of the United States was filed against the firm, and on August 10, 1900, it was adjudged bankrupt, and subsequently Rector, the plaintiff in error, was appointed the trustee.

In a court of common pleas of the State of Ohio, the trustee began this suit against the defendant in error to recover the sum of $1,300, which it was subsequently agreed was only $1,161.74. The petition alleged the adjudication in bankruptcy and the appointment of the trustee, and based his right to recover upon the ground that, on April 10, 1900, the firm had transferred and assigned to the defendant bank, who had received the same, the sum of money sued for, which it was

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alleged was the property of Reinhard & Company, and, in substance, the payment to the bank was alleged to constitute a voidable preference.

The answer admitted the making of the general assignment, the adjudication of the firm as an involuntary bankrupt, and the appointment and qualification of the plaintiff as trustee. The other averments of the petition were denied.

A trial was had to a jury. At the close of the evidence for the plaintiff, the court, at the request of the defendant, instructed a verdict in its favor, and judgment was entered dismissing the action. The Circuit Court of Franklin County affirmed the judgment, which was thereafter affirmed by the Supreme Court of Ohio, without opinion. The Chief Justice of the Supreme Court of Ohio made, and the court caused to be filed and entered on its journal, the certificate which is in the margin. *

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It is contended that this Court is without jurisdiction. The argument upon which this proposition is rested is this: first, it is said that whilst, in the petition, the right of recovery was based upon the ground of fraudulent preference, it was not disclosed therein whether the preference relied upon was in violation of the bankrupt law of the United States or of the insolvent laws of the State of Ohio, and therefore a federal [26 S.Ct. 290] question was not raised, as it was necessary to specially direct the attention of the state court to such a question if it was intended to rely upon it; second, but even if the federal question was referred to in the petition, as the cause of action stated in nowise involved the construction or validity of any provision of the Bankrupt Act, therefore there is no right to review under § 709 of the Revised Statutes.

Both these contentions might well be disposed of by saying that the action was brought by a trustee appointed under the bankrupt law of the United States, seeking to recover what was asserted to be an asset of the bankrupt estate under that law. This therefore presented a federal question, and the denial of the asserted right was a denial of a right or title specially claimed under a law of the United States. Peck v. Jenness, 7 How. 612; Barton v. Geiler, 108 U.S. 161; Williams v. Heard, 140 U.S. 529; Dushane v. Beall, 161 U.S. 513; Stanley v. Schwalby, 162 U.S. 275. Whether expressions, relied upon in argument, contained in Cramer v. Wilson, 195 U.S. 416, must be taken as not in harmony with the previous cases, or whether those expressions simply implied that, where a right claimed by a trustee in bankruptcy in its final aspect depended

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solely upon a state law, the courts of the United States would follow the construction given by the highest courts of the state to the state law, we do not deem it necessary now to say, for, without reference to the doctrine announced in the previous cases, and without regard to the import of the case of Cramer v. Wilson, the contention as to the want of jurisdiction is without merit. It is to be observed that the matter certified by the Supreme Court of Ohio was made by that court a part of the record, and, if it be considered as having the force of an opinion of that court, would clearly establish the fact that the court had considered and decided a federal question, which, apart from other considerations, would obviously give jurisdiction. But even if the action of the court be treated as not an opinion, but a mere certificate, the same result would follow. It is elementary that the certificate of a court of last resort of a state may not import a federal question into a record where otherwise such question does not arise; it is equally elementary that such a certificate may serve to elucidate the determination whether a federal question exists. Applying this principle, we think, as the suit was brought by a trustee in bankruptcy in virtue of the power and authority conferred upon him by a law of the United States, the certificate makes clear the fact, if it were otherwise doubtful, that rights under the bankrupt law were relied upon and passed upon below. And as, this being true, the right of the trustee in bankruptcy to recover thus depended upon a law of the United States, there was clearly jurisdiction within the purview of § 709 of the Revised Statutes. Nutt v. Knut, 200 U.S. 12.

Coming to the merits, we premise that, if the court below had found the facts we should be bound thereby. Here, however, as we have seen, the court below did not find the facts, but instructed a verdict for the defendant, being of the opinion that, upon no view of the evidence, was there a case made which would have justified a verdict for the plaintiff. This raises a question of law, which is this: was the evidence such as would have justified the jury, [26 S.Ct. 291] under any reasonable view thereof, to

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find for the plaintiff? In other words, was there sufficient evidence to warrant the submission of the case to the jury? This brings us to consider the evidence, in order to ascertain what inferences, one way or the other, might reasonably have been drawn by the jury therefrom.

Outside the testimony of the trustee as to the insolvency of the bankrupt estate, the only evidence introduced was the testimony of John Field, manager of the Columbus Clearing House Association. By that testimony, the following facts were disclosed:

Prior to the bankruptcy of Reinhard & Company, that firm carried on a banking business in the City of Columbus, Ohio, and the firm, as well as the City Deposit Bank Company, were members of the clearing house association. In order to accomplish the purpose of its existence the clearing house association was an agent, for a limited purpose, of the banks composing the association -- that is, its duty was to clear or balance daily the claims of the respective banks, one against the other, resulting from the checks drawn upon and held by the different members. The only source from which the association derived the means to carry on its...

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