Bosworth v. Jacksonville Nat. Bank

• Decision Date: 27 November 1894
• Docket Number: 176.
• Citation: 64 F. 615
• Parties: BOSWORTH et al. v. JACKSONVILLE NAT. BANK.
• Court: U.S. Court of Appeals — Seventh Circuit

64 F. 615

BOSWORTH et al. v. JACKSONVILLE NAT. BANK.

No. 176.

United States Court of Appeals, Seventh Circuit.

November 27, 1894

This is a suit in equity, brought by the Jacksonville National Bank as intervener, against the receivers of the Chicago, Peoria &amp St. Louis Railway Company, to recover the sum of $7,500 being the amount of two several drafts drawn by Marcus Hook as treasurer of the railway company,-- one for the sum of $2,500 and the other for $5,000,-- upon W. G. Purdy, treasurer of the Rock Island & Pacific Railway Company, each dated September 12, 1893. These drafts were delivered on the day of their date to the cashier of the bank, with directions that, when paid, the proceeds were to be indorsed upon a certain note for $10,000 which had theretofore, on July 25, 1893, been executed by the railway company to the bank, with William S. Hook, its president, as surety, for money borrowed by the railway company from the bank, and used to carry on its business. The sum of $2,500 had already been paid by said railway company upon said note, by its check dated September 11, 1893, and these two drafts were intended to pay the balance due upon the said $10,000 note. These drafts were drawn and delivered by the railway company before the appointment of receivers, and, at the time of their delivery, Marcus Hook, the treasurer of the company, notified the bank, through its cashier, that they were drawn under an agreement between the said railway company and the drawees that the traffic balances for the month of August, 1893, in the hands of the Pacific Company, and against which the said drafts were drawn, would not be payable until September 25th following. This fund, not yet due, against which the drafts were drawn by the company, was a balance coming to said company from the drawee, the Chicago, Rock Island & Pacific Railway Company, amounting to $11,550.39, being the freight traffic balance for the month of August, 1893, in the hands of the Pacific Company belonging to the Chicago, Peoria & St. Louis Railway Company. It will be seen from this statement that the drafts, amounting in the aggregate to $7,500, called for only a part of the fund against which they were drawn. They were not presented for payment by the bank until after the receivers were appointed. They were then presented, and payment demanded of the drawee, and refused. Nor until such receivers were appointed was any notice given to the drawee of the possession of the drafts by the bank. Afterwards, on September 27th and November 1st, the money due for such freight balances, and against which the drafts were drawn, was paid by the Pacific Company to the receivers of the Chicago, Peoria & St. Louis Railway Company, the appellants. The claim on the part of the bank is that the drawing of the drafts constituted an appropriation in equity to that extent of the said fund in the hands of the drawee, which gave the bank a lien thereon pro tanto in preference to other creditors, although the said drafts were never accepted or paid by the drawee. The contention on the part of the receivers is that, inasmuch as the drafts were not presented or accepted or the money paid before the railway went into the hands of receivers, and the money was then paid over to the receivers upon demand, no lien attached to the money in the hands of the drawees, and that the receivers hold it as trustees for the benefit of the railway company and its general creditors; that the fund in the hands of the Rock Island & Pacific Company was a single fund and cause of action, and could not be divided and parceled out to different creditors, except by actual payment, or at least by an acceptance which would bind the drawee to pay. The decree of the court below was in favor of the bank.

The following additional facts may be stated, as showing the history of the proceedings which culminated in the bringing of this suit by the bank as intervener and petitioner for the recovery of the amount of these drafts. On December 18, 1890 the Chicago, Peoria & St. Louis Railway entered into possession of the St. Louis & Chicago Railway Company, under a written lease, and continued in possession until about the 22d day of July, 1893. On the 10th day of July, 1893, R. J. Cavett, receiver of the said St. Louis & Chicago Railway, filed a petition in the United States circuit court for the Southern district of Illinois, setting out the lease aforesaid, and alleging material defaults in the performance of the covenants of the same by the said Chicago, Peoria & St. Louis Railway Company; and prayed a surrender of the said St. Louis & Chicago property, a decree for arrears in rent, and for damages. On this, process issued, and the Chicago, Peoria & St. Louis Railway Company appeared August 7, 1893, and demurred thereto. On September 12, 1893, R. J. Cavett, as receiver aforesaid, filed his amended petition against the Chicago, Peoria & St. Louis Railway Company, W. S. Hook, and Marcus Hook, alleging an indebtedness of the said Chicago, Peoria & St. Louis Railway Company to many other railroads, corporations, and individuals, and default in bonded interest,-- and thereupon prayed that a receiver might be appointed to take possession of the property of said Chicago, Peoria & St. Louis Railway Company. Whereupon an order was entered setting down the above petition, together with the applications of the Woodward & Tiernan Printing Company, the St. Louis & Southeastern Railway Company, and John Coughlin for the appointment of a receiver of the Chicago, Peoria & St. Louis Railway Company, and other companies comprising the 'Jacksonville Southeastern Line,' for hearing on the 21st day of September, 1893. On September 21, 1893, the Mercantile Trust Company of New York, as trustee, filed its bill in chancery against the Chicago, Peoria & St. Louis Railway Company, in the United States circuit court for the Southern district of Illinois, alleging default in interest on first mortgage bonds, insolvency, and praying for the appointment of a receiver and foreclosure, Afterwards, on September 21, 1893, the court of its own motion entered an order consolidating the applications for the appointment of a receiver of the said Chicago, Peoria & St. Louis Railway Company, filed by R. J. Cavett, the Woodward & Tiernan Printing Company, John M. Coughlin et al., and the St. Louis & Southeastern Railway Company, with the bill of complaint of the Mercantile Trust Company, under the name of 'The Mercantile Trust Company, complainant, against the Chicago, Peoria & St. Louis Railway Company, defendant. ' On the same day, the court entered an order appointing C. H. Bosworth and E. Ellery Anderson receivers of the Chicago, Peoria & St. Louis Railway Company, and of all the other railways comprised in and commonly known as the 'Jacksonville Southeastern Line.' Pending such application for a receiver, and on the 16th day of September, 1893, Boyd, Stickney & Co. sued out an attachment in the circuit court of Peoria county, Ill., against the Chicago, Peoria & St. Louis Railway Company, on a claim of $5,499.64, and levied the same on two passenger coaches, in addition to garnishing the Chicago, Rock Island & Pacific Railway Company, the Rock Island & Peoria Railway Company, and the Atchison, Topeka & Santa Fe Company, railway corporations indebted to said Chicago, Peoria & St. Louis Railway Company on account of traffic balances. Meanwhile, the Chicago, Peoria & St. Louis Railway Company was indebted to the Jacksonville National Bank, as before stated, in the sum of $10,000, upon the promissory note of July 25, 1893, with William S. Hook as surety. Later the garnishment proceedings of Boyd, Stickney & Co. were dismissed, and the Chicago, Rock Island & Pacific Railway Company paid the receivers of the Chicago, Peoria & St. Louis Company the amount ascertained to be due on the said freight traffic balance. On October 28, 1893, the Chicago, Peoria & St. Louis Railway Company filed its appearance in the consolidated cause of the Mercantile Trust Company against the Chicago, Peoria & St. Louis Railway Company. On December 5, 1893, the demurrer of the Chicago, Peoria & St. Louis Railway Company to the bill of the Mercantile Trust Company came up for hearing, was argued, and the demurrer overruled. In said consolidated cause, on the 18th day of December, 1893, the Jacksonville National Bank filed its intervening petition, alleging the indebtedness of $10,000 to the petitioner by the said Chicago, Peoria & St. Louis Railway Company, evidenced by its promissory note executed July 25, 1893; the drawing of the two drafts above mentioned, by Marcus Hook; the indorsing and delivery of the same to petitioner; that the drafts were drawn on a particular fund, and was an appropriation of the said fund; and praying that the court would order the payment of the said drafts out of the fund mentioned. The receivers of the Chicago, Peoria & St. Louis Railway Company were made defendants, and filed an answer thereto denying the right of the petitioner to the amount claimed. On February 16, 1894, the court entered a decree finding that it was the custom in doing business between the Chicago, Peoria & St. Louis Railway Company and the Chicago, Rock Island & Pacific Railway Company to settle freight balances between the two companies on or about the 25th of each month, and that the officers of the bank were informed of this fact when the drafts were delivered, and that the drafts would be paid on or about the 25th of the month; that it was the intention and purpose in delivering said drafts to have the proceeds applied to the payment of the balance due on said note; and further found that by the said two drafts the Chicago, Peoria & St. Louis Railway Company appropriated the sum of...