Source: https://www.legalcrystal.com/case/90156/rector-vs-city-deposit-bank-co
Timestamp: 2019-04-25 14:23:22+00:00

Document:
Respondent City Deposit Bank Co.
Where a trustee in bankruptcy seeks to recover in a state court what is asserted to be an asset under the bankrupt law, the denial of the asserted right is a denial of a right or title specially claimed under a law of the United States, and presents a federal question reviewable in this Court by writ of error under § 709, Rev.Stat.
While a certificate of a court of last resort of a state may not import into a record a federal question not otherwise existing, such certificate serves to elucidate whether such federal question does exist.
While this Court is bound by the facts found by a state court, where that court does not find the facts, but instructs a verdict on the ground that the evidence justifies no other verdict, a question of law, reviewable by this Court, is raised as to whether the jury could have found otherwise under any reasonable view of the evidence.
Where a bank fails and the clearing house, having notice of such failure, returns all of the debit items to the other banks, it cannot apply the credit item to payment of claims of other banks against the insolvent bank; under the provisions of the Bankrupt Act forbidding preferences, it is its duty to pay those funds over to the trustee in bankruptcy.
See also Rector v. Commercial National Bank, post, p. 200 U. S. 420 .
The firm of Reinhard & Company, composed of John G. Reinhard and Henry A. Reinhard, carry on a banking business in Columbus, Ohio. On April 10, 1900, the firm made a general assignment under the insolvent laws of Ohio. On the following day, a petition in involuntary bankruptcy under the laws of the United States was filed against the firm, and on August 10, 1900, it was adjudged bankrupt, and subsequently Rector, the plaintiff in error, was appointed the trustee.
alleged was the property of Reinhard & Company, and, in substance, the payment to the bank was alleged to constitute a voidable preference.
The answer admitted the making of the general assignment, the adjudication of the firm as an involuntary bankrupt, and the appointment and qualification of the plaintiff as trustee. The other averments of the petition were denied.
It is contended that this Court is without jurisdiction. The argument upon which this proposition is rested is this: first, it is said that whilst, in the petition, the right of recovery was based upon the ground of fraudulent preference, it was not disclosed therein whether the preference relied upon was in violation of the bankrupt law of the United States or of the insolvent laws of the State of Ohio, and therefore a federal question was not raised, as it was necessary to specially direct the attention of the state court to such a question if it was intended to rely upon it; second, but even if the federal question was referred to in the petition, as the cause of action stated in nowise involved the construction or validity of any provision of the Bankrupt Act, therefore there is no right to review under § 709 of the Revised Statutes.
solely upon a state law, the courts of the United States would follow the construction given by the highest courts of the state to the state law, we do not deem it necessary now to say, for, without reference to the doctrine announced in the previous cases, and without regard to the import of the case of Cramer v. Wilson, the contention as to the want of jurisdiction is without merit. It is to be observed that the matter certified by the Supreme Court of Ohio was made by that court a part of the record, and, if it be considered as having the force of an opinion of that court, would clearly establish the fact that the court had considered and decided a federal question, which, apart from other considerations, would obviously give jurisdiction. But even if the action of the court be treated as not an opinion, but a mere certificate, the same result would follow. It is elementary that the certificate of a court of last resort of a state may not import a federal question into a record where otherwise such question does not arise; it is equally elementary that such a certificate may serve to elucidate the determination whether a federal question exists. Applying this principle, we think, as the suit was brought by a trustee in bankruptcy in virtue of the power and authority conferred upon him by a law of the United States, the certificate makes clear the fact, if it were otherwise doubtful, that rights under the bankrupt law were relied upon and passed upon below. And as, this being true, the right of the trustee in bankruptcy to recover thus depended upon a law of the United States, there was clearly jurisdiction within the purview of § 709 of the Revised Statutes. Nutt v. Knut, 200 U. S. 12 .
find for the plaintiff? In other words, was there sufficient evidence to warrant the submission of the case to the jury? This brings us to consider the evidence, in order to ascertain what inferences, one way or the other, might reasonably have been drawn by the jury therefrom.
of the checks against it, the clearing house paid that bank the difference by drawing its check upon one or more of the debtor banks, and each member constituted the manager of the association its agent to draw a check or checks upon such member for any balance found to be due by that member.
In making the clearings on April 9, 1900, the day before the assignment or Reinhard & Company, the checks presented against that firm in the clearings exceeded the checks presented by it against other banks by $1,161.74 -- that is, Reinhard & Company, as a result of the clearing, was indebted in that amount. On the same day, the City Deposit Bank presented in the clearings checks drawn upon other banks which exceeded by $10,245.63 the amount of the checks presented against that bank; in other words, as a result of the clearings it was entitled to receive the amount of money just stated. In payment of the balance, the clearing house gave to the City Deposit Bank a check on Reinhard & Company for the sum due by that firm, viz., $1,161.74, and a check upon the Capital City Bank for $9,083.89. There was nothing in the evidence to show upon what bank the checks were drawn which were held by the City Deposit Bank on April 9, and which it presented for clearing on that day, nor was there anything in the evidence to show upon what banks the checks were drawn which were presented by Reinhard & Company for clearing on the same day. The check of the clearing house on Reinhard & Company for the balance due by that firm in the clearings, and which, as we have said, was given to the City Deposit Bank, was not on that day presented by the City Deposit Bank to Reinhard & Company for payment. On the contrary, the City Deposit Bank held the clearing house check until the next day. When, on the morning of the tenth of April, the City Deposit Bank presented its checks for clearing, it treated the clearing house check on Reinhard & Company as being entitled to participate in the clearing, and included it in the checks presented for that purpose.
"In case of failure to respond promptly to the checks of the manager, on the part of any member of the association, they shall be immediately returned to the manager, who shall call upon the other banks or bankers to make up the sum for which payment has been refused in proportion to the amount of checks upon the defaulting member sent into the clearing house at the preceding settlement, which sums so furnished or contributed shall constitute claims in the hands of the responding members respectively against the defaulting members, and it is hereby agreed that the checks received from the clearing house by the defaulting members shall be delivered, if required, to the member owning the same, without mutilation; the agency of the clearing house in the matter, it is understood, is only as a trustee, and in no case is the association to be held responsible for any loss that may occur."
"I told him that the Reinhards had failed, and that his check had been returned, and that I had a balance due Reinhard & Company, and that I would substitute a check on the Capital City Bank for this check on Reinhard, which had been returned. Mr. Jennings said that he would -- I think he said he would telephone Mr. Outhwaite, and if it was all right he would return my check -- the Reinhard check. . . ."
"It runs in my mind . . . that I told him that I wanted to substitute those, and that he asked me what for, and I told him not to ask any questions -- I am not sure about that -- that I wanted to substitute those checks."
National Bank, and in addition gave a check drawn on the Capital City Bank for $1,161.74, the exact amount of the clearing house check which had been thrown out of the clearings.
Analyzing these facts for the purpose of arriving at the inferences which may reasonably be deduced from them, this plainly results: when, on the morning of April 10, 1900, as the result of the failure of Reinhard & Company, the clearings of that day required revision, the clearing house having received back the checks drawn on Reinhard & Company which it had cleared for its members that morning made new settlements with those members based upon deductions from the original settlements of the sum of the checks which had been put in the clearings on that morning and were afterwards dishonored. The result of each new settlement was that the amount due to the member was reduced or the indebtedness shown on the original settlement was increased, according as, by the original settlement, the member was a creditor of or a debtor in the clearing; and, as a necessary consequence of the new settlements having eliminated all the debits against Reinhard & Company, the clearing house held, as the property of that firm, the proceeds of the checks on other banks which that firm had sent for clearing on that morning.
this: that in the revision of the clearings, although the clearing house eliminated and returned the checks which had been debited against Reinhard & Company and were subsequently dishonored, it retained and appropriated the credits arising from the checks put in by Reinhard & Company for the purpose of the clearing of the morning. Having thus appropriated those credits, it used them pro tanto to pay the clearing house check on Reinhard & Company held by the City Deposit Bank as the result of the clearings of the previous day. But as the clearing house had received the checks from Reinhard & Company on the morning of April 10, 1900, for the purpose of making the clearing on that day, such agent was without power, after returning to the banks which had presented the same, the checks debited against the firm, to hold on to the credits of Reinhard & Company, and treat them as subject to be appropriated. Indeed, when the inferences from the proof are thus accurately fixed, it is apparent that the transaction was in substance like the one which was held by this Court in Yardley v. Philler, 167 U. S. 344 , to be a misappropriation, and besides to constitute a fraudulent preference within the meaning of the National Banking Act.
against Reinhard & Company in the clearing wherein the check was given.
Was the receipt and appropriation of the $1,161.74 by the City Deposit Bank a preference within the bankruptcy law? is, then, the question. It is said that it was not, because, to constitute a preference under that law, the transfer or payment must have been the act of the bankrupt. Western Tie & Timber Co. v. Brown, 196 U. S. 502 . Here it is insisted that it cannot be so held, because there was nothing in the proof warranting the implication that the firm authorized or ratified the misappropriation, or that the clearing house was the agent of the firm when it made such misappropriation. The latter proposition rests on the contention that whatever agency the association possessed in virtue of its authority to make clearings was revoked by the fact of the voluntary assignment made by Reinhard & Company before the money was appropriated to the City Deposit Bank. Whilst it may be conceded that these propositions are well founded, it does not follow that the inferences deducible from the evidence did not warrant the conclusion that, under the bankrupt law of the United States, there was a duty on the part of the City Deposit Bank to pay over to the trustee the sum received by it of the funds of Reinhard & Company deposited on April 10, 1900, with the clearing house for the purposes of the clearing of that date. From the inferences, which we have stated were properly deducible from the evidence, it follows that the jury would have been amply justified in finding that the clearing house had made a wrongful disposition of a trust fund in favor of the City Deposit Bank, which institution had notice, either actual or constructive, of the misappropriation. Western Tie & Timber Co. v. Brown, supra.
"was adverse to the claims and contentions of the said plaintiff in error, in this: that said court decided that said assignment and transfer of said sum of $1,161.74 was not an unlawful preference, in violation of the said provisions of the bankrupt law,"
"was not deprived of any right under said (bankrupt) law, and was not entitled to have said assignment and transfer set aside, and to recover the said sum of $1,161.74 from said defendant in error."
The judgment of the Supreme Court of Ohio must be reversed and the cause be remanded to that court for further proceedings, not inconsistent with this opinion.
"On motion of the plaintiff in error, Fred C. Rector, trustee, this court orders it to be certified and made part of the record in this case, and the Honorable William T. Spear, Chief Justice of said supreme court, does now certify, that in said cause, and on the hearing before this court, it was claimed, contended, and alleged by the said plaintiff in error that, on the tenth day of April, A.D. 1900, Reinhard & Company, a partnership, by deeds of its individual members, committed an act of bankruptcy, to-wit: made a general assignment for the benefit of creditors; that, on the eleventh day of April, A.D. 1900, a petition in bankruptcy was filed in the District Court of the United States of the Southern District of Ohio, Eastern Division; that, on the tenth day of August, A.D. 1900, said Reinhard & Company were, by said court, adjudged bankrupt, and on September 13, A.D. 1900, said plaintiff in error was appointed trustee thereof; that, on the tenth day of April, A.D. 1900, said Reinhard & Company, then being, to the knowledge of the defendant in error, insolvent, assigned and transferred to the defendant in error, The City Deposit Bank Company, and that the said last-named company then and there received from said Reinhard & Company, the sum of $1,161.74 of moneys belonging to said Reinhard & Company; that said assignment and transfer was an unlawful preference, given to the said defendant in error, and violated the provisions of § 60 a and § 60 b of the United States bankrupt law; that it became and was material to the said cause for this Court to determine whether the said sum of $1,161.74 was so assigned and transferred; whether it was an unlawful preference; whether it was a violation of said § 60 a and § 60 b of the said bankrupt law, and whether the said plaintiff in error, under said law, was entitled to have the said assignment and transfer set aside and declared null and void, and to have a judgment and order for the recovery of said money against said defendant in error; that the decision of this Court was adverse to the claims and contentions of the said plaintiff in error, in this, that said court decided that said assignment and transfer of said sum of $1,161.74 was not an unlawful preference, in violation of the said provisions of the bankrupt law, and that the said plaintiff in error was not deprived of any right under said law, and was not entitled to have said assignment and transfer set aside, and to recover the said sum of $1,161.74 from said defendant in error."

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