Ernst v. Mechanics' & Metals Nat. Bank of New York

HAND, District Judge

(after stating the facts as above).

[1] My opinion in Hotchkiss v. National City Bank, 200 Fed. 287 , just handed down, controls as to the main issues, and leaves very little for discussion here, especially in view of the full report of the master. The proof of insolvency was much more than enough. The price of the Hocking Valley stock had already reached a price below the mark necessary to make the bankrupts insolvent when the transfer occurred, and it never regained that price, and has since almost altogether disappeared. The values which it had had prior to January 19, 1910, I an? satisfied, as a matter of fact, to have been the result of the existence of the pool. That the stock had any such value, in such quantities as the bankrupts held it, seems a contention unworthy of any serious argument. As soon as it was sold in such quantities, its value dropped, not because of a temporary flurry, but because upon an open market, where it was not, in the slang of the brokers, “supported” constantly, it could not maintain a value even as high as its lowest figure of the 19th.

[2] The exception to the admissibility of the books is not good. They were not put in evidence to prove the sale and delivery of any securities represented by any item contained in them, nor the loan of any money, but to show whether the bankrupts were solvent or insolvent at a given time. If they were not admissible for that purpose, no one could be proved insolvent without proving separately every item of liability and every asset by common-law proof. The law requires nothing of the sort, but allows any one’s hooks in evidence, even if not a privy, to show whether he is insolvent or solvent, upon proof that they are in fact his books, duly kept in his business, for the purpose of showing his financial condition. Adams v. Bowerman, 109 N. Y. 23 , 15 N. E. 874 . The authorities cited by the defendant are all cases where the effort was to use the hooks to show that an item therein contained in fact represented some transaction which was the basis of the action.

The last question is of the deposit of $54,048.08, received some time about 12 o’clock from the bankrupts. The exact time when this was *298 received cannot be fixed,.except that it was after Roe left the bank, and before he got back. Moreover, it had left the bankrupts’ place of business before Roe got there. As Roe left at between 10 minutes before noon and noon, and as he got to the bankrupts’ office in about 5 or 10 minutes, it is almost certain that the deposit reached the bank about 5 minutes before noon, and, therefore, at a time when the bankrupts were solvent. The only remaining question which can arise is whether, when the bank received the money, they knew that the bankrupts were insolvent, because it is not necessary to prove that the bankrupts themselves meant to give any preference when they made the deposits. Alexander v. Redmond, 180 Fed. 92 , 103 C. C. A. 446 . I agree with the master that the bank never accepted the deposits as such at all, but as a payment of the firm’s indebtedness. Roe says that he had at least temporarily closed the account and stopped any further withdrawals.

[3] Now, a bank account certainly means that the depositor may draw, and, if he has no right to draw, his deposit can be honestly received only as- a payment of indebtedness already owing. Treating it, therefore, as a payment of the “clearance” loan pro tanto, was the bank’s information at that time enough to make it a preference? Roe learned nothing from Sherwood, except in so far as by an evasive answer he corroborated his existing information. I do not mean that this added nothing to .Roe’s information, for reticence under the circumstances was nearly equivalent to- an admission of the fact; but it does not follow that the information was not enough without such an admission. Consider the situation as a whole in the light of all the facts. The bank heard that there was a rumor that the bankrupts were in financial straits, which necessarily meant that they might be insolvent. Until confirmation of the rumor could be made, they had stopped the normal relations between themselves and the bankrupts, conduct'which cannot possibly have meant anything else than that they feared the bankrupts’ insolvency and meant to act as though it already existed till they should learn the facts. Finally they sent an officer directly to the bankrupts to learn wh’at he could, and to bring back everything he could get, which would secure the indebtedness. Really, it seems to me, in face of such circumstances to contend that the bank did not apprehend that the bankrupts might be then insolvent is beyond serious consideration. Of course, if an intent to receive a preference can exist only when the creditor has full knowledge of insolvency, then there was not the necessary intent here; but full knowledge is not necessary, and practically never exists. As in other cases of notice, as, for example, commercial paper, all that is necessary is such knowledge as would put most men on inquiry. Coder v. McPherson, 152 Fed. 951 , 82 C. C. A. 99 ; Stern v. Paper (D. C.) 183 Fed. 228 . Here the knowledge did in fact stimulate inquiry, and the inquiry showed the rumor to be true. There could be no better case of intent, unless a confession of insolvency be necessary. Therefore I agree with the master that, even if the deposits reached the bank before Roe spoke to Sherwood, the delivery was a preference under the act, and was invalid.

*299 The proof of the custom in the case at bar is a little different from that in the case of Hotchkiss v. National City Bank, in that Roe testifies to one instance in which a bank went to a customer and required him to put up collateral for a loan. The circumstances are too vague, however, to enable me to attach any effect to this testimony.

Bet a decree pass as indicated by the master, with costs.