Security Bank v. Finkelstein

Laughlin, J.: This is an action on a promissory note made by the defendant on the 3d day of January, 1906, for $2,005.35, payable on demand to the order of the plaintiff under its former name, which was the Fourteenth Street Bank, with interest, to recover a balance of $375.67. The action was commenced on the 19th day of February, 1912. It is alleged that there were payments made to apply on the note as follows: January 8, 1906, $502.67; June 13, 1906, '$751.34, and March 28, 1907, $375.67. The allegations with respect to these payments were put in issue by the answer in which the Statute of Limitations was also pleaded. The payments made, which were thus put in issue, were dividends received by the plaintiff from the receiver of the Cooper Exchange Bank, under an assignment, as collateral security for the note, of defendant’s claim against said bank as a depositor. The points presented by the appeal are whether either of — 317 — these last two payments made on the note gave rise by implication or presumption of law to an implied promise on the part of the defendant to pay the balance, on which the Statute of Limitations would commence to rim anew from that time; and whether plaintiff is entitled to recover on the theory of an agreement on the part of the defendant to pay the deficiency after the application of the amounts collected on the collateral security. It was a long form collateral security note such as is in use by banks. It is therein recited that the maker has deposited with the bank as collateral security for payment an- “ assignment of moneys due or to become due from the Cooper Exchange Bank ” or its receiver, with authority to the payee or its assigns without demand of payment, advertisement or notice of sale, in the event of non-payment to sell the whole or any part thereof at any broker’s board or at public or private sale, “ and after deducting all costs and expenses for collection, sale and delivery to apply the residue of the proceeds of such sale, or sales, to pay any or all ” of defendant’s liabilities to the bank, and to return the surplus to the defendant. Immediately after the provisions authorizing the assignment or sale of the collateral, the note contains the following: “And the undersigned agrees to be and remain liable to the holder hereof, for any deficiency. It is further agreed that any moneys or property at any time in the possession of the said Bank, on deposit or otherwise, belonging to or at the credit of any of the parties liable hereon to said Bank, may at any time, at the option of said Bank, be appropriated and applied as a payment on account of this note or the indebtedness evidenced hereby, and on account of any other indebtedness or liability of the parties hereto to said Bank, whether this note or any such indebtedness is then due or not due.” The assignment which it is recited in the note had been deposited with the plaintiff as security therefor, was dated and acknowledged on the 14th day of November, 1905. It recites a consideration of one dollar for which the defendant assigned to the plaintiff and to its successors and assigns “ any and all sums of money now due or to grow due” upon his claim against the Cooper Exchange Bank or its receiver, amounting to $3,006.35, which accrued to him as a depositor, and that he gave to the plaintiff — 318 — “full power and authority, for its own use and benefit,” but at his expense “to ask, demand, collect, receive, compound and give acquittance for the same, or any part thereof,” and in his name “or otherwise to prosecute and withdraw any suits or proceedings at law or in equity therefor.” It is further recited that the assignment is given as collateral security “for an advance or advances ” made to the defendant by the plaintiff “on account of said claim or demand.” It is further therein provided that “when the amount of said debt or claim shall have been collected ” by the assignee it should pay over to him the surplus “ over and above the amount of any advance or advances with interest thereon” made by the assignee to him “on or on account of said claim or demand.” The final sentence of the assignment provided that “if the amount paid by the Cooper Exchange Bank, or the Receiver thereof,” on the claim assigned “shall not be sufficient to pay the amount of the advance or advances and interest thereon, and any and all costs and expenses incurred in the collection of the same by the Fourteenth Street Bank, then in that event I hereby agree to pay any deficiency thus arising.” It does not appear when the doors of the Cooper Exchange Bank were closed nor whether prior to that time the defendant had a deposit account with the plaintiff, but we are informed by the brief of the learned counsel for the appellant that the decision in this'case will be a precedent for a number of other like cases pending, arising out of the plaintiff’s making like advances to other depositors of the Cooper Exchange Bank on their notes secured by an assignment of their old accounts, “ thus enabling such depositors to continue business with banking facilities.” It is contended by the learned counsel for the respondent that the assignment was made as collateral security for a prior indebtedness. That argument is predicated on the date of the assignment and the recitals therein, the material parts of which have been set forth. There is no evidence, unless it may be inferred from the recitals in the assignment, that there was any prior indebtedness on the part of the defendant to the plaintiff. It is fairly to be inferred from the record, however, that the assignment was delivered as security for this note, for the plaintiff called its former cashier, through — 319 — whom, evidently, the transaction was negotiated with the hank, and asked him whether the defendant, on January 3, 1906, made “ this note and assignment to your hank.” Whereupon counselfor the defendant said: “ That is admitted, your Honor.” The court also stated that it was admitted, hut defendant’s counsel then said: “Hot on that one point; I want to bring that out.” According to the record the question was not pressed further, and it would seem that the fact sought to be proved was taken as admitted. The plaintiff showed payments made on the note as alleged, and that the source of the payments was dividends received from the receiver of the Cooper Exchange Bank. The plaintiff also showed that the last payment left a balance of principal unpaid of $375.67. The cashier of the bank testified in substance that at the time each payment was made he, representing the bank, informed the defendant that the dividend had been paid and applied on the loan; that the defendant seemed gratified with the collections and expressed the hope that “we would be able to get it all; ” that the defendant being a depositor frequently called at the bank and talked with him; that on the 28th day of October, 1908, defendant called at the bank on another matter and was informed by him that no dividends, other than the three, the last of which was paid on the 28th of March, 1907, had been paid by the Cooper Exchange Bank, and that the defendant said “he was sorry, and he hoped we would win out finally; those were his exact words; ” and that in February, 1909, the defendant inquired concerning the prospects of anything further being realized from the Cooper Exchange Bank, and received no encouragement. The effect, on the running of the Statute of Limitations, of the payment of principal or interest is declared by judicial decisions, but there is no statutory provision governing it. The only statutory reference to it is contained in section 395 of the Code of Civil Procedure, which is as follows: “An acknowledgment or promise contained in a writing, signed by the party to be charged thereby, is the only competent evidence of a new or continuing contract, whereby to take a case out of the operation of this title. But this section does not alter the effect of a payment of principal or interest.” By judicial decisions a — 320 — rule, doubtless now as binding as a statutory enactment, has been declared to the effect that a payment of either principal or interest made by the debtor gives rise to an implied promise, or justifies an inference of a new promise, on his part made at that time, in the absence of evidence showing that he disclaimed the intent to have his act given that effect, to pay the balance of the indebtedness; and that the Statute of Limitations from that time commences to run on the new promise renewing the contract. (Murdock v. Waterman, 145 N. Y. 55; Harper v. Fairley, 53 id. 442; Smith v. Ryan, 66 id. 352; Pickett v. Leonard, 34 id. 175.) So rigidly have the courts adhered to the underlying reason for this rule that it has been repeatedly held that-a payment by one, jointly or otherwise liable with others on the same instrument, even with the knowledge of the others liable thereon and whose liability is thus reduced, suspends the running of the Statute of Limitations only as against himself. (Hoover v. Hubbard, 202 N. Y. 289; Murdock v. Waterman, supra; Gould v. Cayuga County Nat. Bank, 86 N. Y. 75; McMullen v. Rafferty, 89 id. 456; Harper v. Fairley, supra.) The only exceptions to the rule that a payment, in order to prevent the running of the statute, must be made by the debtor, who pleads the statute, are, where the payment is made by his authorized agent clothed with sufficient authority to disclaim for him any intention to have the effect given the payment which by legal inference or presumption would otherwise attach thereto and he fails to so disclaim; or where he ratifies a payment made in his behalf. (Pickett v. Leonard, supra; Harper v. Fairley, supra ; Smith v. Ryan, supra; Murdock v. Waterman, supra.) It is well settled that where the debtor assigns collateral as security for his note or other obligation, his debtor, in making a payment to the assignee on the obligation thus assigned, is hot his agent, and that such a payment does not give rise to a new promise on the part of the debtor (Harper v. Fairley, supra ; Smith v. Ryan, supra; Acker v. Acker, 81 N. Y. 143); and the same has been held with respect to payment by a general assignee for creditors. (Pickett v. Leonard, supra.) It has also been held that the creditor in selling and applying the proceeds of collateral to the payment — 321 — of the obligation is not the agent of the debtor for this purpose. (Brooklyn Bank v. Barnaby, 197 N. Y. 210.) In view of these authorities it requires no further argument to show that the receiver of the Cooper Exchange Bank in paying the dividends was not the agent of the defendant, and that there is no legal presumption or inference to be drawn from such payments that a new promise was then and there made by the debtor to pay the balance owing on the note, hior can it be successfully contended that the plaintiff itself was the defendant’s agent in collecting and applying the dividends. The plaintiff in collecting the dividends acted for itself pursuant to the rights derived by it under the assignment. There was no act involved in the collection or application of the dividends to the payment of the note that it was necessary to perform in the name of the defendant. The money when received became the property of the bank so far as required in paying the note. Its application to the payment of the note was a mere mental operation or bookkeeping entries which the officers of the plaintiff performed in its behalf and for it. It cannot be said as matter of law that defendant ratified the payments as made or applied on the note .by the bank so that they are to be regarded the same as if he brought the money in and paid it over the counter. The question of ratification was submitted to the jury as a question of fact and was found by them adversely to the appellant. We would not be justified in disturbing the verdict on that point unless as matter of law the evidence shows a ratification. The defendant was not consulted with respect to the appropriation of the dividends to the payment of the note. He was merely informed that the dividends had been received and so applied. He had no voice in the matter and he had no standing to question the right of the plaintiff to make the application. He was not called upon to protest against the doing of that which plaintiff had a right to do; nor was he since the act was not his, required' to disclaim its effect on the Statute of Limitations or with respect to a new promise. The only debatable point is whether the plaintiff is entitled to recover on the theory that the note itself or the assignment contains a promise, separate and apart from the promise con — 322 — tained in the note proper, to pay any déficiency arising after the application of the moneys received under the assignment. In Brooklyn Bank v. Barnaby (supra) the Court of Appeals had' this question under consideration in an action on a note in substantially the same form as that in the case at bar, and the collateral was sold and the proceeds applied thereon. There the deficiency could not be ascertained until the sale of the collateral and on that ground three of the judges maintained that a cause of action on the promise to pay the deficiency did not arise until the deficiency was known; but the majority of the court decided otherwise, and that decision is controlling on this court on that proposition. I am also of opinion that the action cannot be maintained on the theory of a promise contained in the assignment to pay the deficiency. The action is upon the note and not on the assignment. This provision of the assignment is not set forth in the complaint. It would now be too late, if the attempt were made — but it is not by counsel for appellant — to read it into it now, for the action evidently was not tried on that theory and the proof is not sufficient to show that no more could have been realized under the assignment, nor does it appear but that there might have been some other defense had the action been on the assignment. However, it would seem doubtful whether the action, if properly brought on the assignment, could be sustained on that theory. In Brooklyn Bank v. Barnaby (supra) it does not appear that there was a separate formal assignment such as in the case at bar. On the theory upon which that case was decided, however, I am of opinion that the separate assignment does not materially distinguish the case at bar from it. The court there held that there was but one promise and that was the promise in the note proper to pay the indebtedness, and that the promise to pay the deficiency had reference to the unconditional promise to pay the indebtedness and was to be so construed, These views require an affirmance. It follows that the determination should be affirmed, with costs. McLaughlin and Dowling, JJ., concurred; Ingraham, P. J., and Hotchkiss, J., dissented.