1. The payee of a promissory note sent it for collection to a
national bank, named in the note as the place of payment and in
which the maker had a deposit account in excess of the note. Two
days before maturity, the maker delivered to the bank his check
upon the account for the sum due on the note, and received back the
note, which was surrendered as paid. Both knew that the bank was
then insolvent, and, on the next business day, it was closed by the
Comptroller of the Currency. Held
that there was no ground
for impressing a trust on the assets of the bank in favor of the
payee. See Jennings v. U.S. Fidelity & Guaranty Co.,
p. 294 U. S. 216
294 U. S.
2. The provision of the Uniform Bank Collection Code, adopted in
New York, to the effect that, in the event of a bank's insolvency,
the claims of those whose paper the bank has collected but for
which it has not paid them, shall be preferred, is invalid as
applied to a national bank. Jennings v. U.S. Fidelity &
Guaranty Co., ante
U. S. 216
. P. 294 U. S.
71 F.2d 280 affirmed.
Certiorari, 293 U.S. 546, to review the affirmance of a decree
dismissing the bill in a suit against an insolvent national bank,
its receiver, and the maker of a promissory note, brought by the
payee to impress a trust upon its assets.
Page 294 U. S. 228
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The controversy here, like the one in No. 338, ante,
294 U. S. 216
grows out of an attempt by the owner of negotiable paper to impress
a trust upon the assets of an insolvent national bank to which the
paper had been forwarded for the purpose of collection.
The complaint, which is in three counts, is brought before us by
a motion to dismiss, which is equivalent to a demurrer.
According to the first cause of action, plaintiff, a New Jersey
corporation, the petitioner in this Court, was the owner of a
promissory note for $3,000, made by R. G. Brewer, Inc., to the
order of the plaintiff, and payable on January 16, 1933, at the
office of the First National Bank of Mamaroneck, a corporation
organized under the national banking act. This note the plaintiff
deposited on January 12, 1933, in a bank in Philadelphia, which
forwarded it through other banks to the bank in Mamaroneck for
collection from the maker. R. G. Brewer, Inc., the maker, had an
account at the First National Bank of Mamaroneck with a credit
balance on the books of the bank in excess of the amount owing on
the note. On January 14, 1933, it delivered to the bank a check
upon that account for $3,015, and received back the note, which was
surrendered as paid. On January 16, 1933, the next business day,
the Mamaroneck bank, being insolvent, was closed by the Comptroller
of the Currency without remitting or accounting for any proceeds of
collection. The plaintiff claims the benefit of a trust upon the
assets in the hands of the receiver.
The second cause of action is the same as the first, with these
additional allegations: the bank in Mamaroneck knew itself to be
insolvent on January 14, 1933, when the plaintiff's promissory note
was accepted for collection.
Page 294 U. S. 229
R. G. Brewer, Inc., whose treasurer (R. G. Brewer) was a
director and managing officer of the bank, also knew of the
insolvency and of the impending liquidation. What was done in the
acceptance of the check and the surrender of the note two days
before maturity was the product, so it is charged, of a conspiracy
to release the Brewer corporation from liability, and thus defraud
The third cause of action goes upon the theory that the note was
not discharged or cancelled, but is in the possession of the
receiver, who should be directed to return it.
The Circuit Court of Appeals affirmed a judgment of dismissal as
to the first and second causes of action, holding the plaintiff to
be a general creditor without title to a preference. As to the
third cause of action, the allegations were found sufficient on
their face to put the parties to their proofs, and, to that extent
only, the dismissal was reversed. 71 F.2d 280. A writ of certiorari
brings the case here. The third cause of action is not before us,
the receiver having acquiesced in the judgment of the court below.
The causes of action to be considered are the first and second.
What was done by the Mamaroneck bank on January 14, 1933, did
not involve in its doing the creation of a special deposit or an
augmentation of the assets. What was done had no effect except to
diminish liabilities by reducing the indebtedness due to a
depositor. Jennings v. United States Fidelity & Guaranty
p. 294 U. S. 216
petitioner insists that the transaction must be viewed as if
Brewer, the depositor, had withdrawn $3,015 in coin or other
currency, and had paid it back to the bank to apply upon the note.
But that is not what happened. The Bank, aware of its insolvency,
might have been unwilling to pay out the coin, even if Brewer had
demanded it, when the effect of the payment would have been to
prefer one creditor over others. R.S. § 5242, 12 U.S.C. § 91;
National Security Bank v. Butler, 129 U.
Page 294 U. S. 230
McDonald v. Chemical National Bank, 174 U.
, 174 U. S. 618
Roberts v. Hill,
24 F. 571. Brewer, equally aware of the
insolvency might have been unwilling to return the coin if once he
held it in his grasp and had the power to retain it. Moreover, the
note had not matured, and there was no duty to pay or to collect in
advance of its maturity. We indulge in nothing more than guess work
when we assume that the transaction would have been carried through
at all if bank or depositor had insisted that it receive another
form. Cf. Hecker-Jones-Jewell Milling Co. v. Cosmopolitan Trust
242 Mass. 181, 187, 136 N.E. 333. Form is closely knit to
substance when a bank at the end of its resources, is about to
close its doors.
The argument is made that the agent for collection was guilty of
a wrong in accepting payment through the medium of a check upon
itself with knowledge at the time that insolvency was imminent. If
this be so, the wrong does not avail to charge a trust upon the
assets whereby the plaintiff will have a preference over the
creditors at large. A cause of action for damages may exist, upon
which the plaintiff, making proper proof, will be entitled to a
dividend. There may also be a cause of action for the return of the
cancelled note, or for a dividend upon the value if return is found
to be impossible. Liabilities such as these have their origin and
measure in the loss suffered by the claimant, the owner of the
paper transmitted for collection. They do not correspond to
equivalent increments of value in the assets that are left in the
hands of the receiver.
By an amendment of the Negotiable Instruments Law (Consolidated
Laws of New York, c. 38, Article 19-A, §§ 350 to 350(1)), New York
has adopted the Uniform Bank Collection Code, which has already
been considered by this Court in a case arising in Indiana.
Page 294 U. S. 231
United States Fidelity & Guaranty Co., supra.
Section 350(1) of the Code is to the effect that in the event of
insolvency a creditor in the situation of the plaintiff shall be
entitled to a preference. As applied to a national bank, the
preference is unlawful. Jennings v. United States Fidelity
& Guaranty Co., supra.
The decree should be affirmed, and it is so ordered.