Source: https://supreme.justia.com/cases/federal/us/299/51/
Timestamp: 2019-04-19 10:49:49+00:00

Document:
1. One of the objects of the national bank system is to secure, in the event of insolvency, a just and equal distribution of the assets of national banks among unsecured creditors, and to prevent such banks from creating preferences in contemplation of their failure. To that end R.S., § 5242, 12 U.S.C. 91, prohibits preferential payments. P. 299 U. S. 55.
2. Revised Statutes, § 5242, provides that payments made by national banks "in contemplation" of the commission of an act of insolvency, "with a view to the preference of one creditor to another," "shall be utterly null and void." Held that the duty thus imposed not to defeat by preferential payments the just and equal distribution of assets is not confined to the executive officers, but extends to the individual directors of the bank, and is covered by their oath, R.S. 5147. P. 299 U. S. 56.
3. The president and manager of a manufacturing company which had a deposit in a national lank of which he was a director, having learned in confidence, as director, that the condition of the bank was precarious, caused part of his company's deposit to be withdrawn by means of a check, executed by him on its behalf and passed through the clearing house. The bank at the time was doing business with its customers as usual, but it closed its doors on the following business day.
(1) That the payment was a preference in violation of R.S., § 5242, and recoverable from the company by the bank's receiver. P. 299 U. S. 56.
(2) The director also was liable jointly and severally. P. 299 U. S. 57.
its officers or directors to be so at the times when the deposits were made. P. 299 U. S. 57.
5. A respondent in certiorari who did not file a cross-petition cannot question the decree of the court below. P. 299 U. S. 58.
Certiorari, 298 U.S. 648, to review the affirmance of a judgment for the receiver of a national bank in an action to recover a preferential payment made to a depositor, one of the present petitioners, in contemplation of the bank's insolvency. A director of the bank was made codefendant in the action, and joined in the petition for certiorari.
This suit was brought in the federal court [Footnote 2] for northern Illinois by the receiver of the Manufacturers National Bank & Trust Company of Rockford, in that State, to recover, as such preference, the proceeds of a check for $42,761.12 drawn on the bank by the Mechanics Universal Joint Company of that city and paid to it. The answer denied that the bank was then insolvent; that it was known by its officers and directors to be so; that they contemplated the imminent necessity of its closing, and that the payment was made with a view to a preference. On these issues, much evidence was introduced. The District Court, making detailed findings of fact, found on all those issues for the plaintiff, and entered a decree accordingly. The Court of Appeals, accepting the findings made by the trial court, affirmed the decree. 80 F.2d 147. We granted certiorari because of the importance of the question whether the relation of the parties was such as to render the payment unlawful. We accept the findings as there was ample evidence to support them and none of the objections to the admission of evidence is substantial. Pick Manufacturing Co. v. General Motors Corp., ante, p. 299 U. S. 3.
Manufacturers Bank to its general checking account in the Third National. On June 12 and 13, 1931, the Manufacturers Bank conducted its business as usual. It accepted deposits, honored all checks, whether presented through the clearing house or otherwise, and paid all demands upon it. It had not committed any "act of insolvency." But it was, in fact insolvent, and was known by its officers to be so. On June 13, it closed its doors at the conclusion of regular banking hours, and it did not thereafter open them. On June 16, the Comptroller of the Currency certified that the bank was insolvent, and appointed a receiver.
taken over by some other bank in Rockford," and appointed a committee to that end. Ekstrom participated in that action. Shortly after leaving the meeting, he signed the check and caused it to be sent by mail for collection.
First. The company contends that, even if Ekstrom's purpose was to obtain for his company a preference over other creditors, the withdrawal of the deposit was not unlawful. The argument is (a) that, in drawing the check, and thus causing its payment, Ekstrom acted not as director of the bank, but as president of the company; (b) that he was neither an employee of the bank nor specifically authorized as a director to make payment of the check; (c) that this payment was but one with many others which the bank made on the days involved, in the ordinary course of business, and not in contemplation of the commission of an act of insolvency; (d) that the payment cannot be held to have been made by the bank in contemplation of insolvency "with a view to prefer one creditor to another," since this check was paid, like others, in the usual course, without intention on the part of the bank's managing officers to prefer the company; (e) that the wrongful action, if any, was that of Ekstrom in using for his company's benefit knowledge obtained in confidence as director of the bank; but (f) that such breach of duty of a director does not entitle the receiver to recover, because the liability sought to be enforced is wholly statutory, and the statute does not provide that payments to a depositor on withdrawal made pursuant to confidential information obtained as bank director shall be void. The contention is unsound.
One of the objects of the national bank system is to secure, in the event of insolvency, a just and equal distribution of the assets of national banks among unsecured creditors, and to prevent such banks from creating preference in contemplation of their failure. Compare 88 U. S. S. 56Á Bank v. Colby, 21 Wall. 609, 88 U. S. 613-614; Davis v. Elmira Savings Bank, 161 U. S. 275, 161 U. S. 284, 161 U. S. 290. To that end, R.S. § 5242, 12 U.S.C. § 91, prohibits preferential payments. That prohibition is not directed solely to managing officers. The duty not so to defeat the just and equal distribution of the assets commanded by the act rests upon all who obtain such knowledge by reason of their connection with the bank -- upon directors and employees, as well as upon the executive officers. [Footnote 3] By R.S. § 5147, as amended, 12 U.S.C. § 73, each director is required to take an oath that he "will not knowingly violate or willingly permit to be violated any of the provisions of this title." Finn v. Brown,@ 142 U. S. 56, 142 U. S. 68. Ekstrom violated his oath and the duty under R.S. § 5242, which it imposed when he used knowledge of the bank's perilous condition, gained in his position of trust, to cause the withdrawal of funds by his company with a view to assuring it a preference over other depositors who lacked that knowledge.
of its perilous condition, and, in violation of his statutory duty as director, used that knowledge for the purpose of preferring his company. If the deposit withdrawn had been in Ekstrom's own name, he would obviously have been obliged to return it. The company is in no better position. Compare McCaskill Co. v. United States, 216 U. S. 504; Curtis, Collins & Holbrook Co. v. United States, 262 U. S. 215. As it is liable under the statute, we have no occasion to decide whether it would be liable also on general principles of law or equity. Compare Yates v. Jones National Bank, 206 U. S. 158, 206 U. S. 178; Bowerman v. Hamner, 250 U. S. 504, 250 U. S. 510.
remained in the company, and could be followed as a trust fund. The Circuit Court of Appeals stated that it affirmed the action of the trial court dismissing the counterclaim on the ground that no fraud had been practiced by the bank on the company, and that "it was not an innocent depositor by reason of the acts of its president." The receiver gives additional reasons in support of that action. We have no occasion to enter far into the inquiry. Throughout the litigation, the company has insisted that the bank was still solvent on June 12, when the check in question was drawn, and on June 13, when it was paid. As to those dates, the findings are to the contrary. But there is no finding that, prior to June 12, the bank was insolvent, or that, prior to the discussion at the informal directors' meeting, its executive officers or directors believed it to be so. The evidence is clearly consistent with the conclusion that, between May 6 and June 7, it was believed to be solvent. The counterclaim was properly dismissed. Compare St. Louis & San Francisco Ry. Co. v. Johnston, 133 U. S. 566, 133 U. S. 576; Easton v. Iowa, 188 U. S. 220, 188 U. S. 232.
273 U. S. 52, 273 U. S. 66; Charles Warner Co. v. Independent Pier Co., 278 U. S. 85, 278 U. S. 91; Lloyd Sabaudo Societa Anonima v. Elting, 287 U. S. 329, 287 U. S. 331. Moreover, this claim was not made below in either court.
"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."
See 28 U.S.C. § 41(1, 16); Commonwealth Trust Co. v. Bradford, 297 U. S. 613, 297 U. S. 617. Compare Bowerman v. Hamner, 250 U. S. 504.
See Smith v. Baldwin, 63 App.D.C. 72, 69 F.2d 390; Schilling v. Sieroty, S.D.Cal., Cent.Div., August 21, 1934. Compare American Surety Co. v. Jackson, 24 F.2d 768; Isaacs v. Stock, 66 F.2d 928; Rucker v. Kokrda, 68 F.2d 73, 74; Pearson v. Durell, 77 F.2d 465, 467.
Ekstrom having died January 12, 1936, his administratrix, Grace M. Ekstrom, was substituted as appellant.

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