O'Brien v. Grant

• Decision Date: 21 May 1895
• Citation: 146 N.Y. 163,40 N.E. 871
• Parties: O'BRIEN et al. v. GRANT.
• Court: New York Court of Appeals Court of Appeals

146 N.Y. 163

40 N.E. 871

O'BRIEN et al.

v.GRANT.

Court of Appeals of New York.

May 21, 1895.

Appeal from supreme court, general term, First department.

Action by Miles M. O'Brien and another, receivers of the Madison Square Bank, against Hugh J. Grant, receiver of the Saint Nicholas Bank, to recover certain securities. From a judgment of the general term (32 N. Y. Supp. 498) affirming a judgment dismissing the complaint, plaintiff appeals. Affirmed.

This action was brought to recover from the defendant certain securities which had been deposited by the Madison Square Bank with the St. Nicholas Bank, and the proceeds of the securities, which the latter bank had converted into money. The following facts were found, and are either undisputed or proved: In January, 1891, an arrangement was made between the Madison Square Bank and the St. Nicholas Bank (both of them being state banks) by which the latter bank, which was a member of the New York Clearing-House Association, became the agent to clear, through the clearing house, checks drawn upon the Madison Square Bank. The St. Nicholas Bank submitted in writing a memorandum of the conditions on which it would undertake this business for the Madison Square Bank, as follows: ‘$50,000 balance to be kept at all times, to be free from interest. An allowance at the rate of 2 per cent. per annum shall be allowed on average exceeding this amount. The Madison Square Bank is to keep with this bank $100,000 in approved bills receivable.’ In a letter dated January 9, 1891, addressed by the Madison Square Bank to the St. Nicholas Bank, the cashier of the Madison Square Bank says: ‘Referring to conversation of our president with your good selves, we would say that we accept the terms and conditions on which your bank agrees to clear for us as per your memorandum, namely $50,000 balance to be kept with you at all times, free of interest. Interest at 2 per cent. per annum to be allowed us on average exceeding that amount. This bank to keep with you $100,000 of approved bills receivable. * * * We inclose copy of a letter addressed by us to the clearing-house committee to conform with the requirements of their circular of December 18th, last.’ The letter to the clearing-house committee inclosed a copy of a resolution signifying the acquiescence of the Madison Square Bank with the terms of the circular, and authorizing its cashier to send a check for the annual payment of $200 required of banks clearing through members. It was verbally agreed between the parties, at the time of the arrangement referred to in said letter of the 9th of January, that other securities, of equal value, might be substituted from time to time for those first deposited, making up the $100,000 of bills receivable. The Clearing-House Association was and is a voluntary association of banks and banking associations of the city of New York. The object of the association, as stated in its constitution, is ‘the effecting at one place of the daily exchanges between the several associate banks, and the payment at the same place of balances resulting from such exchanges.’ The St. Nicholas bank was a member of the association. The Madison Square Bank was not so. Section 25 of the constitution was as follows: ‘Whenever exchanges shall have been made at the clearing house, by previous arrangements between members of the association, through one of their number and banks in the city and vicinity who are not members, the receiving bank at the clearing house shall in no case discontinue the arrangement without giving previous notice, which notice shall not take effect until the exchanges of the morning following the receipt of such notice shall have been completed.’ This section was in force at and before January 9, 1891, and is still in force, and it was known to be so by the Madison Square Bank at the time of the making of this arrangement. After the making of this arrangement, and on and after the 13th January, 1891, the St. Nicholas Bank made the clearances at the clearing house for the Madison Square Bank up to and including the 8th day of August, 1893; and the Madison Square Bank deposited and kept good, as to amount and value, its deposit of bills receivable with the St. Nicholas Bank, and up to some time in July, 1893, kept good its money balance of $50,000 in addition thereto. Some time prior to August 8, 1893, the St. Nicholas Bank desired to terminate the arrangement for making clearances for the Madison Square Bank. At that date it held, also, certain collateral securities, taken upon loans made upon notes of the Madison Square Bank, and by agreement they or their proceeds should be applied to any other obligations of that bank. On the 8th day of August, 1893, the St. Nicholas Bank gave the notice required by the twenty-fifth rule,-that it would cease to make clearances for the Madison Square Bank. This was served upon the banks constituting the Clearing-House Association on that day. By the terms of section 25 this notice took effect upon the completion of the exchanges at the clearing house on the 9th of August. These clearances were made every day immediately after 10 o'clock, and were completed before 12 o'clock. The St. Nicholas Bank paid on the 9th of August, through the clearing house, checks drawn upon the Madison Square Bank by depositors having amounts to meet the same to their credit as depositors on the books of the Madison Square Bank, $372,000. On the 8th day of August, 1893, the Madison Square Bank, after ineffectual efforts to obtain a loan to relieve its immediate necessities, was visited by the clearing-house committee and its condition examined; also by an officer of the state banking department. After this examination by the committee of the clearing house, their conclusion that the bank was not in a condition to continue business was communicated to the officers and some of the directors of the Madison Square Bank. The Madison Square Bank did not open for business on the following day. It was, in fact, insolvent on the 8th of August, 1893; and the officers of the St. Nicholas Bank knew before the exchanges were made on the 9th of August that the Madison Square Bank was insolvent, or that its insolvency was imminent, and that it had stopped business. Included in the gross sum of $372,000, the amount of the checks upon the Madison Square Bank cleared by the St. Nicholas Bank on the 9th of August, were two checks drawn by Elliott Danforth, the treasurer of the state of New York, against funds of the state deposited in the said bank, which checks were signed and dated on the 8th day of August, 1893, and were deposited in banks in the city of New York which were members of the Clearing-House Association, before 10 o'clock on the morning of the 9th of August, 1893, and were by such banks sent to the clearing house on said 9th day of August. The clearance of said checks was regular, and according to the usual course of business among the banks constituting said Clearing-House Association, notwithstanding the fact that they were not deposited for collection with a clearing-house bank until the morning of the 9th day of August, 1893. The St. Nicholas Bank had no knowledge on the 9th day of August, 1893, of any irregularity in regard to the drawing, deposit, or transmission to the clearing house of any of the checks going to make up said gross amount of $372,000. The referee found that the payments of checks on the morning of August 9, 1893, were in the performance of its contract with the Madison Square Bank, and were not made with the intent on the part of either of the banks to give a preference to any creditor of the Madison Square Bank over any other creditor, or in violation of the corporation law of the state, and he held that the plaintiffs were not entitled to recover any part of the money or securities held by the St. Nicholas Bank. From the affirmance of the judgment entered upon his report, at the general term, the plaintiffs have appealed to this court.

Andrews, C. J., and Peckham, J., dissenting.

BANKS AND BANKING-CONTRACT FOR CLEARANCE.

Rule 25 of the New York clearing house provides that arrangements by a member of the association to clear for an outside bank shall not be discontinued without previous notice, and that the notice shall not take effect until the completion of clearances on the day after receipt of the notice. Held, that a contract by which a member agrees with a bank that is not a member to clear for it, in consideration of a deposit of a certain sum of money and bills receivable, is valid, and requires the member to pay checks on the other bank presented to the clearing house on the day after notice of discontinuance is given, though it knew at the time that the other bank was insolvent; hence such payments are not within the prohibition of Laws 1892, c. 688, s 48, against payments by an insolvent corporation made with intent to prefer creditors, and the money and securities held under such contract are applicable to the amount of the checks so paid. 32 N. Y. Sup. 498, affirmed.

Louis Marshall, for appellants.

William Allen Butler, for respondent.

GRAY J. (after stating the facts).

The St. Nicholas Bank claims the right to apply the securities and moneys therefore deposited with it by the Madison Square Bank towards the reimbursement of its payments or clearances of the morning of August 9, 1893. With respect to that claim the proposition of the plaintiffs is twofold: They say that rule 25 of the clearing house did not require the St. Nicholas Bank to clear the checks drawn on the Madison Square Bank, presented after it became aware of the insolvency of the latter, and that such insolvency terminated the relation of clearing-house agents, and rendered any payments made unauthorized; or, if the clearing-house rule is susceptible of the interpretation that it required the St. Nicholas Bank to honor checks drawn on the Madison Square Bank after its...