Hirning v. Federal Reserve Bank of Minneapolis, Minn.

• Decision Date: 24 August 1931
• Docket Number: No. 9073.,9073.
• Parties: HIRNING v. FEDERAL RESERVE BANK OF MINNEAPOLIS, MINN.
• Court: U.S. Court of Appeals — Eighth Circuit

82 ALR 297, 52 F.2d 382 (1931)

HIRNING v. FEDERAL RESERVE BANK OF MINNEAPOLIS, MINN.

No. 9073.

Circuit Court of Appeals, Eighth Circuit.

August 24, 1931.

J. H. Colman, of Minneapolis, Minn. (John Junell and Junell, Oakley, Driscoll & Fletcher, all of Minneapolis, Minn., on the brief), for appellant.

A. Ueland, of Minneapolis, Minn. (Sigurd Ueland, of Minneapolis, Minn., on the brief), for appellee.

Before KENYON and BOOTH, Circuit Judges, and DEWEY, District Judge.

BOOTH, Circuit Judge.

An action at law was brought by appellant, plaintiff below, to recover from appellee the sum of $21,355.82, being the amount of two remittances made by the Farmers' National Bank of Brookings, S. D., to the Federal Reserve Bank of Minneapolis, on the ground that said remittances constituted unlawful preferences under section 5242, Rev. St. (12 USCA § 91).

A jury was duly waived, and the case was tried to the court.

At the close of the evidence, plaintiff moved for judgment in his favor; defendant moved for judgment of dismissal on the merits. The latter motion was granted, and judgment was entered for defendant. This appeal followed.

The relevant statute under which the action was brought reads as follows: "All transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any national banking association, or of deposits to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its shareholders or creditors; and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner prescribed by this chapter, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void; and no attachment, injunction or execution, shall be issued against such association or its property before final judgment in any suit, action, or proceeding, in any state, county, or municipal court." Rev. St. § 5242, 12 USCA § 91.

From the findings, the admissions in the pleadings, and the undisputed evidence, the following facts appear: The Federal Reserve Bank of Minneapolis (hereafter called the Reserve Bank) on November 13, 1926, received from certain of its member banks for collection checks on the Farmers' National Bank of Brookings, S. D. (hereafter called the Brookings Bank), amounting to $22,114.22. On the same day, the Reserve Bank, as agent of said member banks, forwarded said checks to the Brookings Bank for collection. On November 15, 1926, the Reserve Bank, as agent for certain member banks, received for collection other checks on said Brookings Bank amounting to $15,020.88; and on the same day forwarded these checks to the Brookings Bank for collection. The Reserve Bank, as agent, had authority to receive cash or drafts for the checks so sent. On the 16th of November, the Brookings Bank accepted most of said checks, and on that day sent to the Reserve Bank two drafts drawn on the Reserve Bank and payable to its order, one for $22,059.11 covering the checks accepted from the first list, and one for $14,880.86 covering the checks accepted from the second list. The drafts were drawn by Mr. Haroldson, cashier of the Brookings Bank. In the usual course of business, the drafts would have been drawn on some bank other than the Reserve Bank, but in this instance they were drawn on the Reserve Bank because the Brookings Bank realized that it would not reopen the following day and the drafts would not clear on November 17th if the drawee banks received prior notice of the closing of the Brookings Bank. The checks were charged by the Brookings Bank against the various drawers who were depositors in said bank on November 18th.

At the time of sending the two drafts to the Reserve Bank, the Brookings Bank did not have in the Reserve Bank sufficient reserve account to meet the drafts. Accordingly, and in order to provide funds with which to meet the drafts, the Brookings Bank, on November 16th, by its cashier, Mr. Haroldson, wrote a letter to the Reserve Bank inclosing collection items belonging to the Brookings Bank for collection by the Reserve Bank. These items on their face amounted to $10,029.07, but the Reserve Bank collected thereon only $8,355.82. This letter inclosing the collection items was not mailed until late in the evening of November 16th, and until after a resolution had been passed by the board of directors suspending the operation of the bank. (Resolution in the margin.¹) On the afternoon of the 16th, the Brookings Bank also made up a bundle of currency amounting to $13,000, and this was sent to the Reserve Bank on the morning of November 17th. On the morning of November 17th, the Reserve Bank was notified by the Brookings Bank by telephone that the Brookings Bank had suspended operations. On the same morning, the Reserve Bank received the collection items which the Brookings Bank had mailed on the 16th. The Reserve Bank made the collections and credited the proceeds to the reserve account of the Brookings Bank, provisionally on the 17th, and finally on the 22d. On November 18th, the Reserve Bank received the $13,000 currency sent by the Brookings Bank, and credited that amount to the reserve account of the Brookings Bank.

These remittances by the Brookings Bank to the Reserve Bank of the collection items and of the currency were made by the Brookings Bank in contemplation of insolvency, and after the Brookings Bank was in fact insolvent. Mr. Haroldson had been in Minneapolis on November 15th and had had a conference with Mr. Young of the Reserve Bank there, with a view to borrowing money to help the financial situation of the Brookings Bank. The condition of the Brookings Bank was gone into, the depletion of its reserve, and the decrease in its deposits. Mr. Haroldson testified that, as a result of this conference, he reached the conclusion as managing officer of the Brookings Bank that the only thing to do was to close the bank, and that he returned home, reaching Brookings on the morning of November 16th, and took steps to close the bank; that one of the steps taken was to call the meeting of the board of directors; that the cash letter with the collection items and the $13,000 currency were sent after he had stated to the board of directors the condition, after the resolution above mentioned was passed, and in the execution of his plan of closing the bank.

The bank examiner took possession of the bank on November 18th, and a receiver was appointed December 3d.

The Reserve Bank, on receiving from its member banks on November 13th and November 15th the checks on the Brookings Bank, had credited those checks to the member banks. On receiving word on November 17th of the failure of the Brookings Bank, these credits to the member banks were reversed.

On December 17, 1926, the Reserve Bank wrote to the member banks which had sent the checks on the Brookings Bank for collection as follows:

"Federal Reserve Bank, Chicago, Illinois.

"Gentlemen: Referring to the transit items listed below on the Farmers National Bank of Brookings, South Dakota, received from you November 15, 1926, and charged back for non-remittance and for no return of the items, we write to say that we will endeavor to have the item made chargeable against the reserve account with us of the Brookings bank. If we succeed, we will remit to you in full for your item, but should we fail, the charging of the items back to you will have to stand."

The Reserve Bank did not enter on its books the two drafts from the Brookings Bank until January 27, 1927, as will be noted later.

Following the appointment of the receiver for the Brookings Bank, correspondence was had between the Reserve Bank and the receiver relative to the state of the accounts between the two banks and relative to certain items not here involved. In a letter from the receiver of the Brookings Bank dated January 3, 1926, the following appears:

"Federal Reserve Bank, Minneapolis, Minn.

"Gentlemen: I am enclosing copy of letter received today from the Comptroller of Currency regarding the account of the Farmers National Bank with you. * * *

"You will also note regarding the unpaid drafts which is being left to your wishes in the matter. Personally as Receiver I would not raise any objection to you charging the account with these drafts and believe that it would simplify matters if you would do so."

The letter referred to in the receiver's letter was from J. E. Fouts, assistant supervising receiver, and, so far as here material, read as follows: "As to the unpaid drafts held by the reserve bank which represent an attempted remittance by the Brookings bank to the reserve bank of the proceeds of the cash collection letters, you are advised that if the reserve bank desires and elects to assert ownership of the items involved, it has the right to do so, and if it takes this position it is believed that you cannot prevent it from charging the unpaid drafts to the account of your trust."

In answer to the receiver's letter, counsel for the Reserve Bank wrote as follows:

"January 17, 1927 "L. C. Kranhold, Receiver, Farmers National Bank, Brookings, So. Dak.

"Dear Sir: This bank has directed me to write you in answer to your letter of the 3rd inst. accompanied by copy of letter to you of December 29th from the Assistant Supervising Receiver, Division of Insolvent National Banks.

"Acting upon the statements in your letter and in that of Mr. Fouts, the assistant supervising receiver, the Federal Reserve Bank has charged up against the reserve account of the Farmers National Bank of Brookings the two drafts for respectively $22,114.22 and $15,020.88 described in my letter to you of December 16th."

On January 27, 1927, the Reserve Bank charged the...