FRED C. RECTOR, Trustee of Reinhard & Company, Plff. in Err., v.

CITY DEPOSIT BANK COMPANY. (See S. C. Reporter’s ed. 405-420.)

tion— certificate of state oourt.— The

certificate of a state court of last resort may serve to remove any doukt whether rights under the Federal bankrupt law were so re¬ lied upon and passed upon in affirming, with¬ out opinion, a judgment dismissing a suit brought by a trustee in bankruptcy to re¬ cover an alleged asset of the bankrupt estate, as to sustain a writ of error, under TJ. S. Rev. Stat. § 709, TJ. S. Comp. Stat. 1901, p. 575, from the Federal Supreme Court.

tate. — A bank which, in payment of a clear¬ ing house check drawn in its favor on anoth¬ er member, and held as a result of the day’s clearings, receives the proceeds of checks presented by such other member for clearing on the next morning, shortly be¬ fore suspending payment, must account there¬ for to the bankrupt estate of such default¬ ing member, where the clearing house, in the revision of the clearings made necessary by such suspension, eliminated and returned the checks which had been debited against the defaulting member, and which were subse¬ quently dishonored ; and this is no less true because the clearing house, under its rules,

" Note— On certificate of state court as show¬ ing the presence of a Federal question— see note to Cincinnati, P. B. S. & P. Packet Co. v. Bay, 428.

200 U. S.

might have called on Its other members to pay pro rata the amount of the checks drawn upon the defaulting member, and might have treated the credits in favor of the de¬ faulting member as belonging proportionally to the contributing members, since, even un¬ der these rules, a check which was a result of the clearings of the previous day would not be entitled to participation.

[No. 137.]

Submitted December 12, 1905. Decided February 19, 1906.

IN ERROR to the Supreme Court of the

State of Ohio to review a judgment whion affirmed a judgment of the Circuit Court of Franklin County, in that state, which had in turn affirmed a judgment of the Court of Common Pleas of that county, dismiss¬ ing an action by a trustee in bankruptcy to recover an asset of the bankrupt estate. Reversed and remanded for further pro¬ ceedings.

The facts are stated in the opinion.

Mr. David F. Pugli submitted the cause for plaintiff in error. Messrs. Fred G. Rector and Pugh d- Pugh were on the brief:

If the title of the bankrupt is not ques¬ tioned, and if the question is whether the property passed to his trustee under the bankrupt act, then this court has juris¬ diction.

McKenna v. Simpson, 129 U. S. 506, .32 L ed. 771, 9 Sup. Ct. Rep. 365; Cramer v. Wilson, 195 U. S. 408, 49 L. ed. 256, 25 Sup. Ct. Rep. 94; Williams v. Heard, 140 U. S. 529, 35 L. ed. 550, 11 Sup. Ct. Rep. 885; Dushane v. Beall, 161 U. S. 513, 40 L. ed. 791, 16 Sup. Ct. Rep. 637.

The petition here recites the assignment for the benefit of creditors under the state law, the insolvency of the assignors, the filing of the petition in bankruptcy, the adjudication in bankruptcy, the appoint¬ ment of the trustee, — all of which, together with the allegations about the transfer and payment of the money, show a voidable preference, and that the petitioner intended to assert a right under the bankrupt law. All of this appears on the face of the record, and is in strict conformity with the rule as laid down in Hoyt v. Shelden, 1 Black, 518, 7 L. ed.- 65 ; Maxwell v. Newbold, 18 How. 515, 15 L. ed. 508, and in other subsequent

C£LS6S.

If the petition should be deemed too gen¬ eral and indefinite, the certificate of the chief justice of the supreme court of Ohio makes it more specific and certain,' which is the function of a certificate.

Brown v. Atwell, 92 U. S. 327, 23 L. ed.

5H.

It was not necessary that the petition

527

409

Supreme Court of the United States.

Oct. Term,

should aver in so many words, or positively, that the right which the petitioner claimed was derived from or under the bankrupt law.

Crouell v. Randell, 10 Pet. 368, 9 L. ed. 458; Miller v. Nichols, 4 Wheat. 311, 4 L. ed. 578; Willson v. Black Bird Creek Marsh Co. 2 Pet. 245, 7 L. ed. 412.

The petition of the plantiff in error was abundantly sufficient to authorize a recov¬ ery, even if there had been no preference intended, and there had been simply a con¬ version by the defendant in error.

The import of the decision by the circuit court is that there was a variance between the proof offered by the plaintiff in error and the allegations of his petition. If there was a mere variance, and not a fail¬ ure of proof, the objection should have been made on the trial. It was too late to make the objection, for the first time, in the ap¬ pellate court.

Speer v. Bishop, 24 Ohio St. 598; Hoff¬ man v. Gordon, 15 Ohio St. 211.

Mr. Talfourd P. Linn submitted the cause for defendant in error. Messrs. Outh- waite, Linn, & Thurman were on the brief :

There must be a definite issue as to the possession of the right, distinctly deducible from the record, before the state court can be held to have disposed of such Federal question by its decision.

Sayward v. Denny, 158 U. S. 180, 39 L. ed- 941, 15 Sup. Ct. Rep. 777.

The certificate of the presiding judge of the state court cannot itself confer juris¬ diction upon this court to re-examine the judgment, and the petition for the writ of error forms no part of the record, upon which action can be taken here.

Ibid.

To render a Federal question available on writ of error to the state court, it must have been raised in the case before judg¬ ment, and cannot be claimed for the first time in a petition for rehearing.

Turner v. Richardson, 180 U. S. 87, 45 L. ed. 438, 21 Sup. Ct. Rep. 295. See also Yazoo & M. Valley R. Co. v. Adams, 180 U. S. 1, 45 L. ed. 395, 21 Sup. Ct. Rep. 240.

The question cannot be raised for the first time in the assignments of error.

Jacobi v. Alabama, 187 U. S. 133, 47 L. ed. 106, 23 Sup. Ct. Rep. 48; Johnson v. New York L. Ins. Co. 187 U. S. 491, 47 L. ed. 273, 23 Sup. Ct. Rep. 194.

A writ of error to a state court must be dismissed where no Federal question was raised in the record, and the case was dis¬ posed of in the state courts on a ground wholly independent of a Federal question.

New York C. & H. R. R. Go. v. New York, 186 U. S. 269, 46 L. ed. 1158, 22 Sup. Ct. Rep. 916.

528

This court will not review, on error, mere questions of construction of Federal stat¬ utes, or applications of facts to those stat¬ utes, when the validity of the act or stat¬ ute is not involved, and where no right to proceed under the statute is denied by the state court. ,

Cameron v. United States, 146 U. S. 533, 36 L. ed. 1077, 13 Sup. Ct. Rep. 184; Cho- teau v. Marguerite, 12 Pet. 509, 9 L. ed. 1175; Cook County v. Calumet & C. Canal & Dock Co. 138 U. S. 635, 34 L. ed. 1110, 11 Sup. Ct. Rep. 435; Osborne v. Florida, 164 U. S. 650, 41 L. ed. 586, 17 Sup. Ct. Rep. 214; Kennard v. Nebraska, 186 U. S. 304, 46 L. ed. 1175, 22 Sup. Ct. Rep. 879.

In the very recent case of Thompson v. Fairbanks, 196 U. S. 516, 49 L. ed. 577, 25 Sup. Ct. Rep. 306, the identical question under consideration was decided by this court.

To the same effect is the case of Cramer v. Wilson , 195 U. S. 409, 49 L. ed. 257, 25 Sup. Ct. Rep. 94.

McKenna v. Simpson, 129 U. S. 506, 32 L. ed. 771, 9 Sup. Ct. Rep. 365, is also in point. That was a suit brought by an as¬ signee in bankruptcy to set aside a fraudu¬ lent conveyance. The court held that it was an action which might have been brought in the United States court direct, but that having been brought in the state court, and no decision having been rendered in the state court against the validity of any statute of, or authority exercised under, the United States, or immunity claimed under the Constitution of the United States, this court had no jurisdiction to review the state decision. It was held, further, that the decision of the state court as to what should be deemed a fraudulent con¬ veyance does not present any Federal ques¬ tion, nor does the application by the court of the evidence in reaching such decision raise a Federal question.

Under the rule announced in Kaufman v. Tredway, 195 U. S. 271, 49 L. ed. 190, 25 Sup. Ct. Rep. 33, the decision of the su¬ preme court of Ohio, confirming the lower courts, is final, and not subject to review by this court.

The law is too well settled to need cita¬ tion, that an unlawful preference, within the meaning of the bankruptcy act, must have been a preference obtained by the creditor — in this case, the City Deposit Bank — with full knowledge of the insol¬ vency, and with a deliberate intent to obtain the preference at the expense of other creditors.

Collier, Bankruptcy, 4th ed. 418.

Mr. Justice White delivered the opinion of the court:

The firm of Reinhard & Company, com-

200 U. S.

Rectob v. City Deposit Bank Co.

409-412

posed 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 subse¬ quently Rector, the plaintiff in error, was appointed the trustee.

In a court of common pleas of the state of Ohio the trustee began this suit against the defendant in error to recover the sum of $1,300, which it was subsequently agreed was only $1,161.74. The petition alleged the adjudication in bankruptcy and the ap¬ pointment of the trustee, and based his right to recover upon the ground that on April 10, 1900, the firm had transferred and assigned to the defendant bank, who had re¬ ceived the same, the sum of money sued for,

[4 10] which it was ’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 plain¬ tiff as trustee. The other averments of the petition were denied.

A trial was had to a jury. At the close of the evidence for the plaintiff the court, at the request of the defendant, instructed a verdict in its favor, and judgment was entered dismissing the action. The circuit court of Franklin county affirmed the judg¬ ment, which was thereafter affirmed by the supreme court of Ohio, without opinion. The chief justice of the supreme court of Ohio made, and the court caused to be filed and entered on its journal, the cer¬ tificate which is in the margin.!

L411] * It is contended that this court is with¬

out 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 neces¬ sary to specially direct the attention of the state court to such a question if it was in¬ tended 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 valid¬ ity of any provision of the bankrupt act, therefore there is no right to review under § 709 of the Revised Statutes, U. S. Comp.

Stat. 1901, p. 575.

Both these contentions might well be dis¬ posed of by saying that the action was brought by a trustee appointed under the bankrupt law of the United States, seeking to recover what was asserted to be an asset of the bankrupt estate under that law.

This, therefore, presented a Federal ques¬ tion, and the denial of the asserted right was a denial of a right or title specially claimed under a law of the United States.

Peck v. Jenness, 7 How. 612, 12 L. ed. 841; Barton v. Geiler, 108 U. S. 161, 27 L. ed.

687, 2 Sup. Ct. Rep- 3*87 ; Williams v. Heard,

140 U. S. 529, 35 L. ed. 550, 11 Sup. Ct. Rep.

885; Dusfiane v. Beall, 161 U. S. 513, 40 L. ed. 791, 16 Sup. Ct. Rep. 637 ; Stanley v. Schwalby, 162 U. S. 275, 40 L. ed. 967, 16 Sup. Ct. Rep. 754. Whether expressions, re¬ lied upon in argument, contained in Cramer v. Wilson, 195 U. S. 416, 49 L. ed. 258, 25 Sup. Ct. Rep. 94, must be taken as not in harmony with the previous cases, or whether those expressions simply implied that where a right claimed by a trustee in bankruptcy in its final aspect depended ’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 an¬ nounced 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 con¬ sidered 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

tOn motion of the plaintiff In error, Fred G. Rector, trustee, this court orders it to he cer¬ tified 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 al¬ leged by the said plaintiff in error that, on the 10th day of April, a. d. 1900, Reinhard & Company, a partnership, by deeds of its in¬ dividual members, committed an act of bank¬ ruptcy, to wit : made a general assignment for 200 U. S.

the benefit of creditors; that on the 11th 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 10th dav of August, a. n. 1900, said Reinhard & Company were, by said court, adjudged bankrupt, and on September 13, a. d. 1900, said plaintiff in error was ap¬ pointed trustee thereof ; that on the 10th day of April, a. D. 1900, said Reinhard & Company, then being, to the knowledge of the defendant in error, insolvent, assigned and transferred to

529

412—414

Supreme Court of the United States. Oct. Term,

considerations, would obviously give juris¬ diction. 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 im¬ port a Federal question into a record where otherwise such question does not arise; it is equally elementary that such a certifi¬ cate may serve to elucidate the determi¬ nation 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 con¬ ferred 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 jurisdic¬ tion within the purview of § 709 of the Re¬ vised Statutes, U. S. Comp. Stat. 1901, p.

26 Sup. Ct. Rep. 216.

Coming to the merits, we premise that if the court below had found the facts we should be bound thereby. Here, however, as we have seen, the court below did not find the facts, but instructed a verdict for the defendant, being of the opinion that, up¬ on no view of the evidence, was there a case made which would have justified a verdict for the plaintiff. This raises a question of law, which is this: Was the evidence such as would have justified the jury, under any

reasonable view thereof, to *find for the plaintiff? In other words, Was there suffi¬ cient evidence to warrant the submission of the case to the jury ? This brings us to con¬ sider the evidence, in order to ascertain what inferences, one way or the other, might reasonably have been drawn by the jury therefrom.

Outside the testimony of the trustee as to the insolvency of the bankrupt estate, the only evidence introduced was the tes¬ timony of John Field, manager of the Co¬ lumbus Clearing House Association. By

th» defendant in error, The City Deposit Banl Compan3r, and that the said last-named com pany then and there received from said Rein hard & Company, the sum of $1,161 74 of mon eys belonging to said Reinhard & Company that said assignment and transfer was an un lawful preference, given to the said defendant In error, and violated the provisions of § 60g and §606 of the United States bankrupt law; that it became and was material to the said cause for this court to determiiie whether the said sum of $1,161.74 was so assigned and transferred: whether it was an unlawful pref¬ erence ; whether it was a violation of said § 60 a and § 606 of the said bankrupt law ; and wheth¬ er the said plaintiff in error, under said law, 530

that testimony the following facts were dis¬ closed :

Prior to the bankruptcy of Reinhard & Company that firm carried on a banking business in the city of Columbus, Ohio, and the firm, as well as the City Deposit Bank Company, were members of the clearing house association. In order to accomplish the purpose of its existence the clearing house association was an agent, for a lim¬ ited purpose, of the banks composing the association; that is, its duty was to clear or balance daily the claims of the respec¬ tive banks, one against the other, resulting from the checks drawn upon and held by the different members. The only source from which the association derived the means to carry on its operations was from assessments upon the members, which were made solely for the purpose of paying rent, salaries, and similar expenditures. To ef¬ fect the clearings each meipber of the asso¬ ciation, on banking days, sent to the clear¬ ing house, at a specified hour, the checks held by it against other banks. The checks sent by each member were considered as re¬ maining the property of the member, the association being simply an agent for col¬ lection. Where the sum of the checks pre¬ sented by one bank exceeded the sum of the checks against it presented by other mem¬ bers of the association, that bank had, of course, a credit balance. Where the cheeks presented by a particular bank against other banks were less than the sum of the checks against it presented by other banks, that bank had a debit balance. Where a bank was entitled to a credit or payment corre¬ sponding to the excess which the sum of the checks presented by it exceeded the sum *°f tlle checks against it, the clearing

house paid that bank the difference by draw¬ ing 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 of Reinhard & Company, the checks presented against that

was entitled to have the said assignment and ransfer set aside and declared null and void, and to have a judgment and order for the re¬ covery 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 plain- t ff in error was not deprived of any right un¬ der said law. and was not entitled to have said assignment and transfer set aside, and to

dtfendr ! ? Said SUm 0f $1>161.74 from said defendant in error.

200 U. S.

Rectob v. City Deposit Bank Co.

414-416

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 ex¬ ceeded 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 pre¬ sented 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 & Com¬ pany 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 on April 9, and which it pre¬ payment. On the contrary, the City De¬ posit Bank held the clearing house cheek until the next day. When, on the morning of the 10th of April, the City Deposit Bank presented its checks for clearing, it treated the clearing house check on Rein¬ hard & Company as being entitled to par¬ ticipate in the clearing, and included it in the checks presented for that purpose.

On the morning of April 10, the cheeks, as [4 15] presented to the "clearing house by the City Deposit Bank, including the clearing house check, exceeded the amount of the checks presented against it by other banks in the sum of $4,875.98; and the clearing house gave to the City Deposit Bank its check on the Deshler National Bank for that sum. On that day the checks pre¬ sented by Reinhard & Company against other banks aggregated $2,132.19, whilst the checks against it presented by other banks amounted to $6,369.30, leaving a balance due by Reinhard & Company in the clearing of $4,237.11. Shortly after the clearing was made it developed that Rein¬ hard & Company had made a general as¬ signment for the benefit of their creditors and had suspended payment, and as a re¬ sult, of course, it was certain that the firm of Reinhard & Company would not meet its obligations. The rules of the clearing 200 U. S.

house had provided for such a contingency as follows:

“In case of failure to respond prompt¬ ly to the checks of the manager, on the part of any member of the association, they shall be immediately returned to the mana¬ ger, who shall call upon the other banks or bankers to make up the sum for which pay¬ ment has been refused in proportion to the amount of checks upon the defaulting mem¬ ber sent into the clearing house at the pre¬ ceding settlement, which sums so furnished or contributed shall constitute claims in the hands of the responding members re¬ spectively against the defaulting members, and it is hereby agreed that the checks re¬ ceived from the clearing house by the de¬ faulting members shall, be delivered, if required, to the member owning the same, without mutilation ; the agency of the clear¬ ing 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.”

All the checks drawn against Reinhard & Company, and which figured in the morn¬ ing settlement, were returned to the clear¬ ing house with the information that Rein¬ hard & Company had failed. The clearing house thereupon revised the previous set¬ tlements by deducting, wherever appearing, the credits which had been given for checks drawn on Reinhard & Company, "which had[410] been presented by other banks, and changed the balances to correspond with such de¬ ductions, and the dishonored checks were returned to the respective banks. Having thus returned all the checks which had been presented against Reinhard & Company on that morning, the entire sum which had been collected on the checks sent to the clearing house by Reinhard & Company on the same morning for the purpose of the clearing, viz., $2,132.19, remained in the hands of the clearing house without any debit against it. Being thus in possession of the sum referred to, the manager testified that he paid $970.45 thereof to the Commercial Bank and the balance of $1,161.74 to the City Deposit Bank. With a view of making the payment to the last-named bank, the manager went to the office of the City De¬ posit Bank. Conflicting versions were given of what took place at the interview, which was had with an officer of the City Deposit Bank named Jennings. The manager at first testified :

“I told him that the Reinhards had failed, and that his cheek 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 re¬ turned. Mr. Jennings said that he would —

531

416-419

Supreme Court of the United States.

Oct. Term,

I think he said he would telephone Mr. Outhwaite, and if it was all right he would return my check, — the Reinhard check. .

Subsequently, referring to checks which the witness had carried to the City De¬ posit Bank to give to that bank in ex¬ change for the prior check of $4,875.98, he said :

“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 substi¬ tute those checks.”

Certain it is, however, that the manager took up the check for $4,875.98 drawn on the Deshler Bank, which had been given to the City Deposit Bank in discharge of the credit balance in its favor as the result of the previous clearing of that day, and substituted for it a check for $3,714.24,

drawn on the Deshler 'National Bank, and in addition gave a check drawn on the Capi¬ tal 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 rea¬ sonably 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 up¬ on 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 in¬ debtedness shown on the original settle¬ ment 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 set¬ tlements 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.

The statements of the manager as to what- was done with the clearing house check which had been put in the clearings by the City Deposit Bank are not perfectly clear. In one aspect he returned that check to the City Deposit Bank as he had re¬ turned the other dishonored checks, and then gave to the City Deposit Bank a check for the amount due it on the revision of ftie clearing ($3,714.24), and also delivered 532

a check for $1,161.74, to take up the dis¬ honored clearing house check- In another aspect the same result was brought about without any return of the dishonored check.

The mere form of the transaction, however, does not affect its nature. The payment out of this fund by the manager, in part to the City Deposit Bank arid in part to another bank, therefore amounted simply to *this:

that in the revision of the clearings, al¬ though the clearing house eliminated, and returned the checks which had been debited against Reinhard & Company, and were sub¬ sequently dishonored, it retained and ap¬ propriated 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 re¬ turning to the banks which had presented the same, the checks debited against the firm, to hold on to the credits of Rnnhard & Company, and treat them as subject to be appropriated. Indeed when the infer¬

ences 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 Yardlcy v. Philter, 167 U. S. 344, 42 L. ed. 192, 17 Sup. Ct. Rep.

835, to be a misappropriation, and besides to constitute a fraudulent preference within the meaning of the national banking act.

The result, however, of the proof would not be different, even if it be conceded that, under the rule as to clearings, which we have quoted, the clearing house would have had the power, upon the default of one of its members, simply to call upon the other mem¬ bers to pay in a pro rata proportion of the amount of the check or checks which had been drawn upon the defaulting member, and to treat the credit standing in the clear- ing in favor of the defaulting member as belonging proportionately to the contribu¬ ting members. We say this because even under such hypothesis the clearing house check held by the City Deposit Bank would not have been entitled to so participate.

That check was the result of the clearings of the previous day; and, under the hypoth¬ esis as to the meaning of the rule in which we have indulged, the holder wa3 only en¬ titled to obtain payment, pro rata , from those who had presented checks 'against [4 19]

200 U. S.

Rector v. Commercial Nat. Bank.

419) 420

Reinbard & Company in the clearing where¬ in the cheek wa« given.

Was the receipt and appropriation of the $1,161.74 by the City Deposit Bank a pref¬ erence 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. West¬ ern Tie & Timber Co. v. Brown, 196 U. S. 502, 49 L. ed. 571, 25 Sup. Ct. Rep. 339. Here it is insisted that it cannot be so held, because there was nothing in the proof war¬ ranting the implication that the firm au¬ thorized or ratified the misappropriation, or that the clearing house was the agent of the firm when it made such misappropria¬ tion. The latter proposition rests on the contention that whatever agency the associ¬ ation possessed in virtue of its authority to make clearings was revoked by the fact of the voluntary assignment made by Rein- hard & Company before the money was ap¬ propriated to the City Deposit Bank. Whilst it may be conceded that these prop¬ ositions are well founded, it does not fol¬ low 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 trus¬ tee 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 misappropria¬ tion. Western Tie & Timber Co. v. Brown, supra.

We interpret the certificate of the su¬ preme court of Ohio as establishing that that court did not rest its affirmance of the judgment rendered by the trial court against the trustee upon the mere technf cal ground that the petition counted upon a voidable preference, and there could not

be a recovery unless *the facts constituted such preference, even although the evidence justified the inference that the money which the City Deposit Bank received from the clearing house association, under the cir¬ cumstances we have stated, was the prop¬ erty of Reinhard & Company, which the bank, by operation of the bankrupt law, was obliged to account for to the bankrupt estate. We so conclude, because the su¬ preme court of Ohio not only certified that its decision “was adverse to the claims and 200 U. S. U. S.. Book 50.

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;” but in addition, moreover, certified that the case was decided against the trustee, because, under the facts proved, the trustee “was not deprived of any right under said (bankrupt) law, and was not entitled to have said assignment and trans¬ fer 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 re¬ manded to that court for further proceed¬ ings, not inconsistent with this opinion.