National City Bank v. Hotchkiss - 231 U.S. 50 (1913)
U.S. Supreme Court
National City Bank v. Hotchkiss, 231 U.S. 50 (1913)
National City Bank v. Hotchkiss
Nos. 459, 460
Argued October 17, 20, 1913
Decided November 3, 1913
231 U.S. 50
Courts may go far in giving financial transactions between banks and customers any form which will carry out the mutually understood intent, Sexton v. Kessler, 225 U. S. 90, but if the intent is doubtful or inconsistent with the legal effect of dominant facts, it will fail.
An understanding that the proceeds of a loan made by a bank to a customer and placed to the credit of his general account are to be used to take up certain securities does not, in the absence of any special agreement to that effect, create a lien upon those securities, and the delivery of such securities to the bank with notice of the customer's impending insolvency is an illegal preference under the Bankruptcy Act.
A trust cannot be established in an aliquot share of a man's whole property, as distinguished from a particular fund, by showing that trust monies have gone into it.
Although a loan may be made for a specified purpose, if the lender places it in the stream of the borrower's general property, there is no right of subrogation.
A general creditor may increase the bankrupt's estate by his advances and lose the right to take them back.
Time may sometimes be disregarded when it is insignificant, but not where it has sufficed to materially change the financial positions of the parties.
These cases arc distinguished from Gorman v. Littlefield, 229 U. S. 19, and other cases in which there was a specific res which identified the fund and separated it from the general mass of the estate.
A notice to a bank demanding securities for a loan made to the bankrupt
that bankruptcy was impending and that it was receiving a preference is sufficient to show that the bank had cause to believe that it was obtaining a preference.
Under an agreement, made in a suit by a receiver against a bank to recover securities in specie as an illegal preference, that the bank should hold them pending the decision of the suit with a power to sell in its discretion which had not been exercised, held that the bank was only liable for the securities, and not for their value at the time the agreement was made.
201 F. 664 affirmed.
The facts, which involve the determination of whether the delivery of securities by a broker, immediately preceding his bankruptcy, to a bank to secure its loan was an illegal preference, are stated in the opinion.