
    Hobart P. Atkinson, as Receiver of the City Bank of Rochester, Resp’t, v. The Rochester Printing Company, App’lt.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed April 23, 1889.)
    
    1. Banks and banking—Insolvency—Negotiable securities—Bills of exc toe—When transfer prohibited—Laws 1882, chap. 409, §§ 186, 187, 188.
    In an action by the plaintiff, as receiver, to recover the amount of cer" tain bills of exchange from the defendant, it appeared that on December 16, 1882, the City Bank became insolvent, which fact was known to the president and cashier; but it continued business until December 19, 1882. On December 23, 1882, it was dissolved, and the plaintiff appointed receiver. On December 20, 1882, being a debtor to defendant by reason of various transactions, the bank’s cashier delivered to it six bills of exchange for various amounts, receiving in return defendant’s check, and the transaction was entered under the date of December 19, 1882. The action was brought to recover the amount of the bills on the ground that they were delivered in violation of sections 187 and 188 of chapter 409, Laws 1882. Defendant insisted that receiving deposits from it when the bank’s officers knew of its insolvency was a fraud, that the bank became a trustee ex maleficio of the fraud, that the cashier had a right to make restitution, and that the transfer was not prohibited by section 186, because no one of the bills was of the value of $1,000, and that on February 9, 1883, the parties to the action mutually stated and settled the account, each discharging the other of liability. Held, that the aggregate amount of the bills exceeding $1,000, although no one of the bills was of that value, brought the transfer within the prohibition of section 186.
    2. Same—Transfer, when illegal—Laws 1882, chap. 409, § 186.
    
      Held, that the defendant not being a purchaser for a valuable consideration, and the transaction not being in the usual course of business, the transfer was illegal under section 186, notwithstanding defendant’s intent, or whether he knew of the bank’s insolvency.
    8. Same—Bona fide purchaser—When not question of fact.
    
      Held, that whether the defendant was a bona fide purchaser was not a question of fact, as they were evidently given with intent to prefer defendant’s demand.
    
      4. Same—When deposits recovered.
    _ Held, that as between the bank and defendant, the former acquired no title to the deposits made by the latter, and they might have been recovered from the bank or its receiver, could they have been identified, or their avails traced.
    5. Same—When preference over other creditors not allowed.
    that the fact that the defendant became a creditor of the insolvent bank through the fraud of its officers, and the bank a trustee ex maleficio, gave defendant no right to a preference over other creditors, unless it could trabe and recover its property.
    6. Same — Stated account — When not question for the jury— Fraud.
    
      Held, that whether the transaction of February 9, 1883, was a settlement was not a question for the jury, but one for the court, and that it was correctly held that it did not amount to settlement of accounts, and to a release of defendant from liability to account for the unlawful preference received by it.
    Appeal from a judgment of the general term, fifth department, modifying and affirming a judgment entered upon a verdict directed by the court in favor of the plaintiff at the Monroe circuit.
    
      Smith & Briggs, for pl’ff, resp’t; John Van Voorhis, for def’t, app’lt.
    
      
       Affirming 5 N. Y. State Rep., 470.
    
   Follett, Ch. J.

The City Bank of Rochester was incorporated under the general banking act of this state. Aé early as December 16, 1882, it became insolvent, which fact the president and cashier well knew. The bank continued business, paying all demands until the close of business on the nineteenth of December, when it stopped payment. At a meeting of its directors, held in the evening of that day, at which the cashier was present, it was resolved that an action be begun in the supreme court and an application made in the action for the appointment of a receiver, and that David Hayes, an attorney, be authorized to appear for the bank in the action and consent to the receivership. December twenty-third, a judgment was entered in this action, dissolving the corporation,because of its insolvency,, and appointing a permanent receiver, with the usual powers of receivers in such cases.

For some time before December 20, 1882, the defendant-had kept an account with the bank, which was overdrawn on the fifteenth of December, but to what amount does not appear.

December sixteenth, the bank discounted for the defendant promissory notes made by its customers, and credited its account with the avails, amounting to...... $5, 598 05 Dec. 18. Cash deposited....................... 173 84

19. Cash deposited....................... 1, 236 94

$7, 008 83-

At the close of business, December nineteenth, defendant’s checks had been paid and charged to the account, so that the balance standing to defendant’s credit was $3,004.22.

It was the custom to open the bank for business at ten o’clock. About nine o’clock in the morning of December twentieth defendant’s secretary went to the bank in sesponse to the request of the cashier of the bank, and received from him six bills of exchange aggregating $3,180.32, the largest one being for $983.63, and known in this litigation as the Loomis & Woodworth draft. Defendant’s secretary returned to its office and drew a check for the amount of the bills, dated it December nineteenth, returned to the bank and delivered it to the cashier, who entered the transaction in the books of the bank under the date of December nineteenth.

It is said that this check overdrew the defendant’s account by $79.31. There seems to be an unexplained discrepancy in the amounts given, but it does not affect the principle involved. February 9, 1883, the defendant, upon the request of the receiver, paid this alleged balance, $79.31. Subsequently, the receiver learned the facts above recited, and brought this action to recover the amount of the bills, upon the ground that they were delivered by the cashier and received by the defendant in violation of sections 186 and 187, of chapter 409 of the Laws of 1882.

The defendant insisted that the transfer was not pro- -* hibited by section 186, because no one of the bills was of the value of $1,000; that receiving deposits from the defendant when the officers of the bank knew that it was insolvent, was a fraud; that the bank became a trustee ex maleficio of the fund, and that the cashier had the right to make restitution, and that February 9, 1883, the parties to this action mutually stated and settled the account, and the defendant paid, and the plaintiff received $79.31, in full settlement and discharge of all liability of the one to the other.

At the close of the evidence, the defendant asked to go to the jury upon the following questions:

First. Upon all of the questions of fact in the case.

Second. Whether the defendant was a bona fide holder of the bills for value?

Third. Whether the bank, on and after December 16, 1882, was insolvent, and its officers expecting its immediate failure, and whether the receipt of the defendant’s deposits on that and the subsequent days was not a fraud which prevented the bank from obtaining title to the deposits?

Fourth. Whether the account was stated and settled?

These requests were refused, and the trial court directed a verdict for the amount of the bills, with interest, upon which a judgment was entered, which was modified by the-general term by deducting the Loomis & Woodworth draft for $983.63, which the defendant had been unable to collect; and as so modified, the judgment was affirmed. From this judgment, the defendant appeals.

The sections under which this action was brought provide:

“Section 186. No conveyance, assignment or transfer not authorized by a previous resolution of its board of directors shall be made by any such corporation of any of its real estate, or any of its effects, exceeding the value of one-thousand dollars, but this section shall not apply to the-issuing of promissory notes, or other evidences of debt, by the officers of the company in the transaction of its ordinary business, nor to payments in specie or other current money, or in bank bills made by such officers; nor shall it be construed to render void any conveyance, assignment or transfer in the hands of a purchaser, for a valuable consideration, and without notice.”

“Section 187. No such conveyance, assignment or transfer, nor any payment made, judgment suffered, lien created or security given by any such corporation when insolvent, or in contemplation of insolvency, with the intent of giving to any particular creditor over other creditors of the company shall be valid in law, and every person receiving, by means of any such conveyance, assignment, transfer, lien, security or payment, any of the effects of the corporation, shall be bound to account therefor to its creditors or stockholders, or their trustees, as the case shall require. * * * ”

It is conceded that when the six bills of exchange were transferred, and for several days before, the bank was insolvent, which fact was well known to the president and cashier; indeed, a resolution had passed the board of directors that it should be placed, at once, in the hands of a receiver. It is also conceded that the transfer of the six bills had not been authorized by a previous resolution of the ■board of directors.

The aggregate amount of the bills transferred exceeding in value §1,000, the transfer was prohibited by section 186 .above quoted, although no one of the bills was of that value. Gillet v. Phillips, 13 N. Y., 114; Smith v. Hall, 5 Bosw., 319.

The defendant not being a purchaser for a valuable consideration, and the transaction not being within the usual course of business, the transfer was illegal under section 186, without regard to defendant’s intent, or whether it knew that the bank was insolvent. Brouwer v. Harbeck, 9 N. Y., 589.

Whether the defendant was a bona fide purchaser of the six bills of exchange was not a question of fact for the jury. Nothing was paid for them, nor anything of value parted with, and the circumstances under which they were delivered admit of but a single conclusion, i. e., that they were given and received with the intent of both parties to the transaction of preferring the demand of the defendant. Had the jury found for the defendant upon this issue, the ■court would have been compelled to set aside the verdict.

It was quite unnecessary to inquire of the jury whether the reception of the deposits from the defendant was a fraud, because the law so declares it. Cragie v. Hadley, 99 N. Y., 181.

As between the defendant and the bank, it acquired no> title to the notes and money deposited, and they might have been recovered from the bank, or its receiver, if they could have been identified, or their avails traced into any fund or security. Cavin v. Gleason, 105 N. Y., 256; 7 N. Y. State Rep., 13.

But the six bills received by the defendant never belonged to it; and it is not asserted that they were, in whole, or in part, the proceeds of the deposits made by the defendant. The transaction was not a restoration, or restitution by the wrongdoer; but was compensation by the wrongdoer for the fraud which had been perpetrated; which, in the case of an insolvent bank, is prohibited by the statute. The-fact that the defendant became a creditor of the insolvent bank through the fraud of its officers, and the bank a trustee ex maleficio, gave the defendant no right to a preference over other creditors, unless it could trace and recover its property. It was said in the case last cited: “It is clear, we think, that- upon an accounting in bankruptcy or insolvency, a trust creditor is not entitled to a preference over general creditors of the insolvent, merely on the ground of the nature of his claim, that is, that he is a trust creditor as distinguished from a general creditor. We know of no authority for such a contention. The equitable-doctrine that as between creditors equality is equity, admits, so far as we know, of no exception founded on the greater supposed sacredness of one debt, or that it arose out of a violation of duty, or that its loss involves greater apparent hardship in one case than another, unless it appears in addition that there is some specific, recognized equity founded on some agreement, or the relation of the debt to the assigned property, which entitles the claimant, according to equitable principles, to preferential payment.”

Whether the transaction between the defendant and the receiver, of February 9, 1883, was a settlement between the parties, was not a question for the jury. The receiver testified that when he received the $79.31 from the defendant, he was ignorant of the transaction out of which this'action arose, and there is no evidence or circumstance in the case f^om which it could have been inferred that his testimony was untrue. There being no dispute about the facts, the-question was not one of fact for the jury; but one of law, for the court; and it was correctly held that the transaction did not amount to a settlement of the accounts between the defendant and the bank, and to a release of the defendant from liability to account for the unlawful preference received by it.

The judgment is affirmed, with costs.

All concur, Bradley and Haight, JJ., not sitting.  