Merchants National Bank v. Cook 1877 Mr Justice Hunt

• Decision Date: 25 August 1869
• Citation: 95 U.S. 342,24 L.Ed. 412
• Parties: MERCHANTS' NATIONAL BANK v. COOK. Octo er Term, 1877 . The facts are stated in the opinion of the court. Mr. Stanley Matthews for the appellant. Mr. Edgar M. Johnson, contra . MR. JUSTICE HUNT delivered the opinion of the court. This action is brought by the assignees of B. Homans, Jr., to recover from the Merchants' Bank certain securities, or their value, received by the bank from Homans. The securities are alleged to have been received in violation of the thirty-fifth section of the Bankrupt Act. That Homans was insolvent when the securities were delivered is not denied, but the bank insists that it had no reasonable cause to believe that such was his condition. On the morning of
• Court: U.S. Supreme Court

95 U.S. 342

24 L.Ed. 412

MERCHANTS' NATIONAL BANK v. COOK.

Octo er Term, 1877

APPEAL from the Circuit Court of the United States for the

Southern District of Ohio.

The facts are stated in the opinion of the court.

Mr. Stanley Matthews for the appellant.

Mr. Edgar M. Johnson, contra.

MR. JUSTICE HUNT delivered the opinion of the court.

This action is brought by the assignees of B. Homans, Jr., to recover from the Merchants' Bank certain securities, or their value, received by the bank from Homans. The securities are alleged to have been received in violation of the thirty-fifth section of the Bankrupt Act. That Homans was insolvent when the securities were delivered is not denied, but the bank insists that it had no reasonable cause to believe that such was his condition.

On the morning of Aug. 25, 1869, the bank advanced to Homans, upon his check on New York, the sum of $10,000, less the usual charge of one-eighth of one per cent. In the afternoon of the same day, Homans became satisfied that his failure could no longer be averted, and that his check thus given would not be paid. He therefore placed in an envelope addressed to the bank the securities in question, with the following note:——

'HOMANS & CO., BANKERS, NO. 23 W. THIRD ST.,

CINCINNATI, Aug. 25, 1869.

'D. I. FALLIS, Esq., Pr.

'DEAR SIR,—A disappointment gives us reason to fear that our check of this date may not be paid. I leave with you the enclosed as security.

B. HOMANS, Jr.'

On the morning of the 26th, his banking-house was opened for business as usual, Homans himself being present. At nine o'clock A.M. he left his office for Covington, where he lived, instructing Mr. Wood, one of his clerks, that if he did not return at ten o'clock to deliver the envelope addressed to the Merchants' Bank, and another of a like character to another bank. Homans did not return that day; but at ten or half-past ten o'clock, Mr. Albert, another clerk, received directions from him to close the doors, take no more deposits, and pay no more checks. Mr. Albert immediately locked the doors, and, receiving the package from Mr. Wood, at once delivered it to the bank. Upon these facts, with one exception as to time, the parties are agreed.

The president of the Merchants' Bank testifies that he found the envelope on his desk in the bank when he came to the bank at about eight o'clock in the morning, and is quite confident that it could not have been later than half-past eight when he became aware of its contents. On the point of time he may easily have fallen into an error; and, we think, there can be no doubt of his mistake. Mr. Homans testifies that he left the banking-house at nine A.M. to go to Covington, and then gave instructions to Mr. Wood, a clerk, to deliver the envelope, if he did not return by ten o'clock. Mr. Albert also testifies that the banking-office of Homans was opened at nine o'clock, and continued open for about an hour; that he then received orders from Mr. Homans to close the doors; that he did so, and, in pursuance of directions then received from Mr. Wood, proceeded to deliver this envelope, with a similar one to another bank; and that this delivery was made at ten or half-past ten o'clock.

Mr. Yergason, the cashier of the Merchants' Bank, presented at Homans's office a clearing-house check, and payment thereof was refused. Mr. Albert testifies that this check was presented and payment demanded by the cashier after the doors were closed and after the envelope had been delivered at the bank. Mr. Fallis testifies to the same purport, and that this demand and refusal was made between nine and ten o'clock in the morning,

That Homans intended to give the bank a preference over other creditors,—that is, that he expected and intended by means of the enclosures sent that the bank should receive the full amount of its $10,000 check, while other creditors would receive but a portion of their debts,—is too evident to require discussion. Mr. Homans states in explicit terms that he was at that time aware of his inabili y to pay his creditors in full then or in the future.

The important question remains, Had the Merchants' Bank, when it received the packages, reasonable cause to believe that Homans was insolvent? If it had, the thirty-fifth section of the Bankrupt Act declares the transaction to be void. If it had not, it may lawfully hold the securities or their avails.

The president of the bank testifies that there was nothing in the note sent with the securities, or in the transaction itself, that led him to suspect the insolvency of Homans....