Stone v. Jenison

Moore, J. The plaintiff sued the defendant to recover from him the amount of deposits paid to him by the Central Michigan Savings Bank on the forenoon of the day in the afternoon of which the bank closed its doors for want of funds to carry on its business. The defendant had judgment in the court below. The plaintiff brings error. The facts, so far as it is necessary to state them, are as follows: The Central Michigan Savings Bank was incorporated in 1875, under the general banking act, and conducted a savings and a commercial department, until it suspended, April 18, 1893, when plaintiff was appointed as receiver. During all the time the bank was doing business Mr. Bradley was its cashier, and had general management and control of its affairs. When the bank suspended, its assets were nominally $860,000, and its liabilities, exclusive of capital and surplus, were about $700,000. After the bank closed, and its affairs passed into the hands of a receiver, it was found that a large amount of the paper held by it was *of doubtful value, because the makers of the paper had become financially embarrassed during the,year prior to the suspension of the bank; and it is now evident that the depositors will not be — 594 — paid in full. The defendant made his.last deposit in the bank February 27, 1893. The day the bank suspended, “the defendant had six certificates of deposit, four of which he had held more than three months. Those were paid to him, principal and .interest. The deposits represented by the fifth and sixth certificates had not been in the bank three months, and no interest was paid on them. It is claimed by the plaintiff that the bank was insolvent, and known to be so by the cashier, and that it had also committed two acts, at least, of insolvency. In relation to the last proposition, the proofs show that the bank owed the state treasurer $25,000; that, two or three days before the suspension, the deputy state treasurer called at the bank, and asked for the money. The bank had funds enough to pay him, but he was told by Mr. Bradley that he would much rather he would not draw the money then, on account of the closeness of the money market, and he went away without it, though he was afterwards paid. The proof with reference to the other act of alleged insolvency is that, some weeks before the bank closed, Herbert Johnson left at the bank, with Mr. Bradley, a $10,000 mortgage belonging to his father, together with a discharge, to be delivered when the money should be paid by the maker; that two or three days before the suspension he called at the bank, and inquired if the money had been paid, and was told by Mr. Bradley that it had not; that on the morning of April 18th, after the bank opened, he called at the bank, and asked again if the mortgage had been paid, and Mr. Bradley replied that it had not; that shortly afterwards he learned that the mortgage had been paid to Mr. Bradley a week or ten days before, whereupon he demanded the money, together with $1,600 due his father on open account, and for which he had a check; that Mr. Bradley tried to induce him to take some securities; that, after waiting some time, Mr. Bement came in, and paid Mr. Bradley $5,000, which — 595 — money Mr. Bradley gave Johnson, together with a draft on the Third National Bank of Detroit for the entire balance; that he took such draft, and went to Detroit, immediately presented the same, and payment was refused,—for what reason the record does not disclose, though it discloses that the draft was drawn against a fund that the bank had in Detroit. The bank closed on Tuesday. On Saturday and Monday preceding, some deposits were made in the bank, and there was a slight run on it. On Tuesday morning there was a run on the bank, and in the effort to stop the run about $108,000 was paid out. Included in this was the amount paid Mr. Jenison. The run then became so great that it was evident the bank must suspend, and its doors were closed at about 3 o’clock, with funds amounting to about $10,000 still in the bank. Mr. Bradley’s testimony is that there was no thought of preferring Mr. Jenison when the payment was made to him, that they were paying all certificates of deposit as they were presented, and that he hoped and expected the bank would be able to continue business, and that he then believed that the bank had sufficient assets to pay all of its depositors in full. He also testified that what was done in reference to the deposit of the state treasurer and the Johnson collection, as well as the payment of all the deposits, was Jone to protect the bank, and to enable it to continue to Jo business, and was not done expecting the bank would discontinue business, or for the purpose of preferring one creditor over the others. The plaintiff asked the circuit judge to instruct the jury as follows: “If, when the defendant received his money, the bank was insolvent, and if the defendant demanded to be preferred, and if Mr. Bradley so understood him, and, so understanding, caused the money to be paid to him, and if the defendant was, as matter of fact, preferred by such payment, then the law presumes that what was done was intended; and, if the payment to Jenison was not made — 596 — with a view to his preference, the burden of proving such fact rests upon the defendant. ‘ ‘ The refusal by Mr. Bradley to pay over the money to Mr. Johnson on the morning of the 18th was an act of insolvency of the bank. Mr. Bradley is conclusively presumed to have known that it was an act of insolvency, and thereafter, for the few hours the bank remained open, he had no right to pay money to other depositors with a view to their preference. And from Mr. Bradley’s refusal to pay Mr. Johnson in the morning, and that he did pay Mr. Jenison a short time thereafter, the jury may presume he did intend to prefer the defendant. “If the real situation of the bank, as it actually was, considering the actual condition of affairs, made it reasonably certain that the bank must suspend, then Mr. Bradly must be held to have known it; and the mere fact, if it be a fact, that he (Bradley) did not expect to suspend, or did not believe he would be obliged to suspend, is of no consequence. “If the actual condition of the bank at the time the money was paid to the defendant rendered it morally cer^ tain that it must soon suspend, and if such prospect was apparent to any intelligent person, then the mere fact, if it be a fact, that Mr. Bradley did not so believe, is unimportant. “If, when the money was paid to the defendant, Mr. Bradley knew and understood that the bank was in a precarious situation, and that suspension was not only probable, but imminent, then such payment was unlawful. ‘ ‘ The mere fact, if it be a fact, that Mr. Bradley believed or expected, or that he now thinks that he then believed or expected, that the bank would not be obliged to suspend, is of no consequence, if, as matter of fact, there was then no reasonable ground for such belief or expectation.” The court declined to give these requests, and, as appears from the record,— “The court thereupon instructed the jury that there was no evidence that any act of insolvency had been committed when payment was made to Mr. Jenison; to which instruction plaintiff’s counsel then and there excepted. The court further instructed the jury that plaintiff Was not entitled to recover unless the jury were satisfied from — 597 — the evidence that, when the money was paid to defendant, Mr. Bradley expected the bank’s suspension, or thought he, probably must suspend; to which instruction the plaintiff’s counsel then and there excepted. The court further instructed the jury that, if they were satisfied from the evidence that Mr. Bradley did not expect to suspend when the money was paid to the defendant, but thought the probabilities were he should get through, that plaintiff could not recover; to which instruction plaintiff’s counsel then and there excepted.” This case involves the construction of 3 How. Stat. § 3208e6, which reads as follows: “* * * All payments of money, either after the commission of an act of insolvency or in contemplation thereof, with a view to prevent application of its assets in the manner prescribed in this act, or with a view to the preference of one creditor over another, shall be held to be null and void.” It is the contention of the plaintiff, stated in the language of his eminent counsel: ‘ ‘ First. That no payment should have been made, nor withdrawal permitted, after the trouble began. ‘ ‘ Second. That, the bank being insolvent, every such payment (even had there been no run) was unlawful. ‘ ‘ Third. There were at least two ‘ acts of insolvency ’ committed prior to the payment to defendant. He was paid; the bank suspended; he was preferred. If paid, and if suspension followed, such payment was, of hecessity, a preference, and therefore the case is made out.” Unfortunately, there has been no construction given to the section of the statute, under which this action is bx’ought, by our court. The question at issue must be determined by the rulings of other courts in relation to similar statutes. A reading of the statute, giving its words their natural meaning, would, indicate that two things must concur to make the payment void: Not only must there be an act of insolvency, or a contemplation of insolvency, but the payment must be made with a view to prevent -the application of the assets of the bank in the — 598 — manner provided by the act, or the payment must be made with a view to the preference of one creditor oven another. Can it be the law that when a bank, having assets sufficient so that its officers believe, if it can continue in business, it will be able to pay all its debts, is confronted with a run on the bank, and, to avoid the necessity of suspension, pays its depositors as fast as they present their certificafes of deposit,—that under such circum.stances, if the bank is compelled to suspend, the receiver can sue, and recover the money paid in good faith to the depositors ? In the case of Hayes v. Beardsley, 136 N. Y. 299, which was a case of payment of certificates of deposit after the bank became insolvent, and after the cashier had known for months that it was insolvent, this language is used: “There was no satisfactory evidence that these payments were made by the bank to prevent the application of its assets in the manner prescribed in the national banking act, or with a view to a preference of the defendant over the other creditors of the bank. * * * There does not appear from the facts found to be any better ground for claiming that these payments made to the defendant were void than there is for making the same claim in reference to the numerous payments made in the regular course of business by this bank to its customers during many months prior to the closing of its doors. In order to uphold a recovery in an action like this, there should be some satisfactory evidence that the cashier or other officer actually paid the money of the bank in contemplation of insolvency, for the purpose of giving a preference to the payee, and with a view to prevent the application of the assets of the bank to the creditors generally.” The provisions of the act construed in this decision are almost identical with the provisions of the Michigan banking act, and we think the construction a reasonable one. If the receiver can maintain this proceeding, I can see no good reason why he may not sue and recover from each of the depositors who drew their money after the bank became embarrassed. Such a construction does not commend itself to one’s sense of justice. See Curtis v. — 599 — Leavitt, 15 N. Y. 198; Fidgeon v. Sharpe, 5 Taunt. 545; Tiffany v. Lucas, 15 Wall. 410; Jones v. Howland, 8 Metc. (Mass.) 377 (41 Am. Dec. 525); Utley v. Smith, 24 Conn. 310 (63 Am. Dec. 163); Haas v. Whittier, 97 Cal. 411. The circuit judge was not very fortunate in the language used by him in his charge to the jury. We do not regard his charge as a good statement of the law. However, in view of the decisions already cited, we do not see how, under the record as made, the plaintiff can maintain his action. There is nothing in the record from which the jury would have been warranted in finding that the payment to the defendant was made with a view to prevent the application of the assets of the bank in the manner prescribed in the banking act, or with a view to the preference of the defendant over the other creditors. Taking this view of the case, we affirm the judgment.