Booth v. Atlanta Clearing House Ass'n

• Decision Date: 19 February 1909
• Citation: 63 S.E. 907,132 Ga. 100
• Parties: BOOTH et al. v. ATLANTA CLEARING HOUSE ASS'N et al.
• Court: Georgia Supreme Court

63 S.E. 907

132 Ga. 100

BOOTH et al. v. ATLANTA CLEARING HOUSE ASS'N et al.

Supreme Court of Georgia

February 19, 1909

Syllabus by the Court.

The transactions between the plaintiffs in error and the trustees of the Atlanta Clearing House Association was in the nature of a loan and the pledge of collaterals to secure the same and, although the amount of the collaterals exceeded the amount of the debt they were intended to secure, no such trust as is prohibited by Civ. Code 1895, § 2695, par. 1, was thereby created.

[Ed Note.-For other cases, see Fraudulent Conveyances, Dec. Dig § 110. ^[*] ]

In accepting the certificates from the trustees of the clearing house association, and giving its notes for the amount thereof, and depositing sufficient collaterals to secure the payment thereof, no such preference was created as is inhibited by Civ. Code 1895, § 1979.

[Ed Note.-For other cases, see Banks and Banking, Dec. Dig. § 74. ^[*]

For other definitions, see Words and Phrases, vol. 6, pp. 5498, 5499; vol. 8, p. 7759.]

Under the evidence appearing in the record, the court was authorized to hold that the trustees of the clearing house association were not chargeable with notice of the insolvency of the Neal Bank at the time of the issuance and delivery of the clearing house certificates.

[Ed. Note.-For other cases, see Banks and Banking, Dec. Dig. § 74. ^[*]]

It appearing that the Neal Bank has enjoyed and is still enjoying the benefits derived from the transactions in question, and has not offered to restore the certificates, or any part thereof, neither it nor its creditors are entitled to a rescission of the contract and a restoration of the collaterals to the receiver of the bank, even if for any reason entitled to a rescission.

[Ed. Note.-For other cases, see Banks and Banking, Dec. Dig. § 77. ^[*]]

It being not only the right, but the duty, of one who holds collaterals in the nature of notes and other commercial paper, pledged to secure a debt, to collect the same as they fall due, and to properly apply the proceeds, the court rightly refused to take the collaterals here in controversy from the pledgees and place them in the hands of the receiver; no special reason being shown why it was necessary for the protection of the rights of any one to do so.

[Ed. Note.-For other cases, see Pledges, Dec. Dig. § 30. ^[*]]

Error from Superior Court, Fulton County; J. T. Pendleton, Judge.

Action by S. Booth and others against the Atlanta Clearing House Association and others. Judgment for defendants, and plaintiffs bring error. Affirmed.

R. B. Blackburn, E. P. Upshaw, F. M. Hughes, and Walter R. Brown, for plaintiffs in error.

John C. Hart, Anderson, Felder, Rountree & Wilson, King, Spalding & Little, Westmoreland Bros., and Candler, Thomson & Hirsch, for defendants in error.

WORRILL J.

1. The record shows that at different times during a period beginning on the 31st day of October, 1907, and ending on the 30th day of November of the same year, the Neal Bank executed and delivered to the Atlanta Clearing House Association seven notes or certificates of indebtedness, which amounted in the aggregate to $200,000; that the sole consideration for which these notes were given was for certain paper called Atlanta Clearing House certificates, which also aggregated in face value the sum of $200,000; that the Neal Bank, for the purpose of securing these notes, transferred to the Atlanta Clearing House Association choses in action and other collaterals in the aggregate amount of $295,000; that the amount of certificates obtained at the time of executing each note equaled in face value the amount of the note given therefor; and that the amount of collaterals put up at each time was approximately 1 1/2 times the amount of the face value of the certificates obtained at the time. It further appears that in all of these transactions C. E. Currier, R. J. Lowry, and W. L. Peel, designated as trustees, represented the Atlanta Clearing House Association. They delivered to the Neal Bank the clearing house certificates, and received from it its notes or certificates of indebtedness and the collaterals, which they held for the purposes they were delivered. It also appears that the sole purpose of the transfers of the collaterals was to secure the notes the bank executed at the time of delivering them; no interest or benefit of any character being reserved in the bank in these collaterals under the contract by which they were transferred, except the right to redeem them upon compliance with the terms of the contract. The transaction assumed the nature of a loan and the pledge of collaterals to secure the same; and, although the amount of the collaterals exceeded the amount of the debt they were intended to secure, no such trust as is prohibited by the statute was thereby created. See Carey v. Giles, 10 Ga. 10; Banks v. Clapp, 12 Ga. 514; Rowland v. Coleman, 45 Ga. 204; Lay v. Seago, 47 Ga. 82; Coulter v. Lumpkin, 88 Ga. 277, 14 S.E. 614.

2, 3. Plaintiffs in error contend that the transfers of the collaterals in question by the Neal Bank to the Atlanta Clearing House Association violated section 1979 of the Civil Code of 1895, which provides that: "All conveyances assignments, transfers of stock, or other contracts made by a bank in contemplation of insolvency, or after insolvency except for the benefit of all creditors and stockholders, shall be fraudulent and void, unless made to an innocent purchaser for value, without notice or knowledge of the condition of the bank, and the officer making or consenting to such conveyance or contract shall be punished as provided in the Penal Code." In construing the meaning of the provision of the foregoing section of the Code, this court in the case of Hill v. Western & Atlantic Railroad Co., 86 Ga. 284, 12 S.E. 635, held that "section 4429 [now section 1979] of the Code (act of 1833) is a special statute of the state of Georgia with reference to banks, intended to prohibit preferences by a bank insolvent at the time or in contemplation of insolvency, which preferences might be legal in the case of other insolvent debtors under the act of 1818." This was the interpretation given it in Hightower v. Munstian, 8 Ga. 506, and the same rule of interpretation of its meaning has been followed by the court in later decisions. See Clark v. Ingram, 107 Ga. 576, 33 S.E. 802; McGregor v. Battle, 128 Ga. 582, 58 S.E. 28, 13 L.R.A. (N. S.) 185. In the case of Clark v. Ingram, 107 Ga. 576, 33 S.E. 802, cited by plaintiffs in error, it will be seen from an examination of the facts that the parties to whom the Bank of Americus made the conveyances were its three largest creditors; that a petition had been previously filed against the bank by its creditors on the ground of insolvency, and under the proceeding a receiver had been appointed by the court to take charge of its affairs; that these creditors who took the deed had previously intervened and been made parties to the petition, thereby adopting all its allegations; that the conveyances embraced practically all the property the bank had, and, while a part of its consideration was to secure an advance of money made at the time, it was also made to secure the past indebtedness to the creditors. It further appears that the sole inducement that moved these creditors to make the advance was to get security for the past indebtedness. They had actual knowledge of insolvency; and, although a present consideration passed, it was in fact a contract made to procure such a reference as was forbidden by the statute. In this case (page 576 of 107 Ga., page 807 of 33 S.E. ) in delivering the opinion of the court Justice Lumpkin says this: "this deed was made to secure not only the money advanced by the bank's prior indebtedness to them, and thus gave them a preference over other creditors." This meaning is given to a preference in 10 Cyc. 295: "An unlawful preference can only arise when the transfer is made for an antecedent debt." In the case of Armstrong v. Chemical National Bank (C. C.) 41 F. 234, 6 L.R.A. 229, in which the validity of the transfer of certain collaterals by the Fidelity Bank to the Chemical National Bank was attacked as being violative of section 524 of the United States Revised Statutes, which prohibits all transfers by national banking associations after the commission of an act of insolvency, or in contemplation of insolvency with a view to the preference of one creditor to another, to which statute our own embodied in section 1979 of the Code is analogous, Judge Wallace, in delivering the opinion of the court, says: "The statute is directed to a preference, not to the giving of security when a debt is created; and if the transaction be free from fraud in fact, and is intended merely to adequately protect a loan made at the time, the creditor can retain the property transferred to secure such loan until the debt is paid, even though the debtor is insolvent, and the creditor has reason at the time to believe that to be the fact. This has often been decided in the analogous cases arising under the bankrupt act"-citing Tiffany v. Lucas, 15 Wall. 410, 21 L.Ed. 198; Cook v. Tullis, 18 Wall. 332, 21 L.Ed. 933; Clark v. Iselin, 21 Wall. 360, 22 L.Ed. 568; Casey v. La Société de Credit Mobilier, 2 Woods, 77, Fed. Cas. No. 2,496. In Tiffany v. Boatman Institutions, 18 Wall. 388, 21 L.Ed. 868, the court says: "Neither the terms nor the policy of the bankrupt act are violated, if these collaterals be taken at the time the debt is incurred. His estate is not impaired or diminished in consequence, as he gets a present equivalent for the securities he pledges for the repayment of the money borrowed. Nor in doing this does he prefer one creditor over another, which...