Hotchkiss v. Nat’l City Bank - 200 F. 287 (S.D.N.Y. 1911)

Rule:

A lien means that the lienor is to have the right to take his debt out of some specified res, which may, it is true, be a changing fund, but nevertheless must be ascertainable since it is a property right. To take out one's debt from a res is a very much more stringent right than to restrict the borrower's rights in the money you lend him, or even to promise to pay him from a fund.

Facts:

The National City Bank of New York was involved in various financial transactions with a securities broker. The broker became bankrupt while some of the bank's loans to the broker were outstanding. In order to satisfy the debts, the broker transferred certain securities to the bank. Hotchkiss subsequently brought the action to set aside the transfer and recover the transferred securities. 

Issue:

Is the defense of an equitable lien available to the bank?

Answer:

No.

Conclusion:

While the use of funds by the broker does not necessarily preclude the existence of a lien, there was nothing in the practice of business which at all required it to be interpreted in such terms. It was quite true that these "clearance" loans were merely to enable brokers to shift about securities; but, while they were shifting them, they may hold them free and clear, or they may hold them subject to liens for the price. No one could have a priori said which was more likely, and in the absence of some express provision covering the case the only interpretation which can be safely made was from the practice. Furthermore, the only occasion in practice which would throw and light would be when the question arose as to the bank's rights between the time when the checks were certified and the loan paid. Such an occasion never arose, and so the custom did not help. If there had been instances in which the bank exercised a right as lienor during that period, and the broker assented, they would be material, but there were none. Even the single case which Alexander remembers in which the broker gave security overnight proved nothing, because the necessity would have been the same, whether or not the "clearance" loan had been secured by a lien, because the "clearance" loan was due in any case, and the broker must pay it by taking out a call loan with collateral somewhere, whether or not it had been secured itself theretofore. All the evidence of custom, therefore, seemed not to help the Bank in the least; on the other hand, some of it seemed to injure its cause. For instance, if the brokers kept the "clearance" loan securities separate, or in any way distinguished the bank's supposed property from their own, there might be color for the claim of a lien; but, unfortunately for the bank, they mix everything indiscriminately.