Market National Bank of New York v. Pacific National Bank of Boston.

And by that construction an attachment against the property of the association can only be maintained where it shall be issued previous to the commission of any act of insolvency, or contemplated insolvency, on the part of the association. As to what the act may be which will place the case within the operation and effect of this section it has not in terms been declared, but the phraseology made use of is not uncommon in statutes of this nature. And such a construction has ordinarily been given to it as to render the act containing it applicable to corporations or associations still having ability by the careful appropriation of their assets to pay their debts. Such ability is not sufficient to prevent the application of the section. Even though the debts may be paid out of its assets, still it may commit an act of insolvency within the obvious intent of the language of this section. A provision of the Bankrupt Law not as specific or pointed in its enactment as this section, was considered in the case of Toof v. Martin, 13 Wall. 40, and it was held that the term "insolvency" is not always used in the same sense.

It is sometimes used to denote the insufficiency of the entire property and assets of an individual to pay his debts. This is its general and popular meaning; but it is also used in a more restricted sense to express the inability of a party to pay his debts as they become due in the ordinary course of business. It is in this latter sense that the term is used when traders and merchants are said to be insolvent; and as applied to them it is the sense intended by the act of Congress. Toof v. Martin, 13 Wall. 47. And the same construction was given to another section of the statute quite similar in its import in Rasin v. Ammidown, 15 Hun, 422, where it was said that "insolvency when used in this statute in reference to traders means inability to pay debts as they fall due in the ordinary course of business. Id. 426.

The section of the statute applicable to the present case is more explicit in its provisions than either of those upon which these decisions were made. And it was probably made so because of the necessity for strict legislation concerning the business and operations of the financial associations of the country. For that reason the commission of any act of insolvency, or any act in contemplation thereof, is all that has been required to prevent a

Market National Bank of New York v. Pacific National Bank of Boston.

banking association from making a transfer of its property, or payment of its money to secure a preference of one creditor over the others. And to permit the same, under the seizure of its property by means of an attachment, was also in like manner prohibited. The act of insolvency, upon which the effect of the other provisions of the section was made dependent, under these authorities must be held to be any act proceeding from the inability of the association to pay its debts in the ordinary course of its business. Scrupulous punctuality is required to be ob served in the financial management of these associations. Their efficiency and usefulness require them to be prepared on all occasions to meet their just and unquestioned obligations. and when they fail to do that in consequence of the want of funds, that is an act of insolvency within this section of the statute. Section 12 of the act of June 22, 1874 (chap. 390), enacted for the purpose of amending the Bankrupt Law, has been brought to the attention of the court, but it justifies no different considerations of the obligations of banking associations. That has provided for the defaults upon which proceedings in bankruptcy might be instituted, and it in no manner modified or qualified the section of the Revised Statutes to which reference has already been made. It provided for an altogether different proceeding upon facts not included within the provisions of this section, and it can have no effect upon the disposition which should be made of this appeal. Under this construction of the statute it becomes a question of fact to be determined upon the affidavits and papers produced upon the hearing of the motion whether this act of insolvency was committed by this association.

It is stated in general terms in the affidavit of Daniel Needham, that "on the 18th day of November, 1881, the defendant committed divers acts of insolvency, to-wit: The refusal and failure by said defendant to pay, upon due demand, divers legal debts and obligations then due and owing by defendant to divers persons and corporations." This statement was neither denied nor qualified in any form by either of the other affidavits in the But by the sworn complaint in this action its correctness is confirmed by the statement that on the 19th day of November, 1881, the certificates of deposit held by the plaintiff were "duly

case.

Market National Bank of New York v. Pacific National Bank of Boston.

presented for payment to the defendant, and payment thereof refused by the defendant." These facts, as they are set forth in the affidavit, may safely be accepted as a truthful relation of the acts of the defendant preceding the service of this attachment. And they, together with the fact that the association had closed its doors and was placed in possession of an examiner, were evidence of its inability to pay its legal obligations in the ordinary course of its business. Brown v. Montgomery, 20 N. Y. 287.

And such failure proceeding from this inability was an act of insolvency within the reasonable signification of this section of the statute. Further proof of the accuracy of the statement made in this affidavit is supplied by the report of the attorney, W. J. Best, who states that at the time when the bank suspended it had less than $13,000 in cash, and the report of the examiner incorporated in the case confirms the truth of this statement. That reported the financial condition of the association on the 18th of November, 1881. In that report the bills of other banks held by this association was stated to be the sum of $9,694, and its gold treasury notes at the sum of $3,049.68, making its total cash on hand to be the amount of $12,743.68, which was very little in excess of one-half of that which was due to the plaintiff upon its certificates of deposit. These figures fully sustain the report of the attorney, and prove beyond controversy that at the time when the association failed to pay the certificates of deposit held by the plaintiff, the failure proceeded from its financial inability to meet the demands made upon it in the course of its business. And that failure, together with the closing of the doors of the bank, within the language of this section, was an act of insolvency. And by the effect to be given to that act, it prevented the seizure of the defendant's property by the attachment issued in favor of the plaintiff.

The resumption of the business of the bank under the authority of the Comptroller of the Currency, in the following month of March, in no manner tended to support the right of the plaintiff to the attachment. For the facts upon which that was permitted did not conflict with the evidence showing the commission of these acts of insolvency on the part of the association. At the time when the business was allowed to be resumed, over

678

NEW YORK SUPREME COURT, 1883.

Market National Bank of New York v. Pacific National Bank of Boston.

$1,000,000 of its indebtedness had been paid off, and about $500,000 owing to the bank had been secured by mortgages, stocks and bonds, which had been brought into it by the debtors as collateral, and instead of having less than $13,000 in cash on hand, as was the fact when the act of insolvency was committed, its cash had been increased to nearly $1,000,000, and was still steadily increasing.

It was because of these favorable changes in the condition of the affairs of the bank, and not for the reason that it had committed no act of insolvency, that this resumption in its business was allowed to take place. It was entirely consistent with these facts that the acts of insolvency alleged in support of the motion had taken place before the attachment was issued.

Neither the delay in finally bringing on the motion, nor the change in the property of the defendant, justified the order from which the appeal had been taken. As a matter of fact a prior motion was made to set aside the attachment which resulted in an order to that effect, but as it was finally entered, it was reversed and the motion denied on appeal to the General Term, but without prejudice to the motion which was made for the same purpose in the summer of 1882. For most of the time since the attachment was served proceedings have been pending to vacate it, because the association was not liable to be proceeded against in that manner, for the reason that it had previously committed the alleged act of insolvency. Besides that the section of the Code declaring the time within which such a motion may be made was applicable to the case when the hearing occurred resulting in the order. It was at that time both authorized and regular. And as the attachment was issued in contravention of the prohibition of the section of the Revised Statutes of the United States which has been referred to, it should have been successful, and the attachment itself then set aside. If the plaintiff's position had been prejudiced in the collection of its debts, that has been done by its own act, the consequence of which it has no right to require should be transferred to the defendant.

The order should be reversed, but without costs, and an order entered setting aside the attachment.

BRADY, J., concurred.

Order reversed and order entered setting aside attachment.

Where one deposits a draft with a National bank, and the bank sends it to an agent for collection, who collects it, and the bank fails before receiving the avails, having been insolvent at the time of the deposit, the depositor may rescind the transaction for fraud and recover the avails from the agent.

A

CTION against Brown Brothers & Co. to recover proceeds of drafts, drawn by plaintiffs on the New York, Lake Erie and Western Railroad Company, to the order of Lee, president of First National Bank of Buffalo, and intrusted to said bank for collection, April 13, 1883, half an hour before the close of bank hours, and credited to them on their pass-book. The bank on the same day sent them for collection to Brown Brothers & Co. At three P. M. of the same day, the bank closed its doors and never re-opened. Brown Brothers & Co. collected the drafts and held the proceeds; subsequently paid the money into court, and defendant, as receiver of the bank, was substituted. The referee found that the bank had been for some time before April 13, 1883, hopelessly insolvent, to the knowledge of all its officers. Judg ment for plaintiffs.

Richard Crowley (Crowley & Laughlin, attorneys), for appellant.

John G: Milburn (Rogers, Locke & Mylburn, attorneys), for respondents.

BECKWITH, J. When the plaintiffs deposited their draft with the First National Bank it was upon a contract implied from the circumstances, custom and course of dealing, to this effect, namely, that the plaintiffs transferred the drafts upon the promise of the bank that it would honor the checks of the plaintiffs whenever in business hours presented, to the extent of the sum deposited. The promise was a sufficient consideration moving from the bank, and gave it ownership of the drafts.