First National Bank v. Lafayette Trust Co.

Crane, J. The plaintiff has no greater right to the bond and mortgage in question than John G. Jenkins, Sr., would have if he were alive. For the following reasons John G. Jenkins, Sr., would not be able to maintain this action: First. The assignment of.the bond and mortgage to the Jenkins Trust' Company was not made to secure a promise to pay the debt of the corporation of Frank & J. G. Jenkins, Jr., nor is the claim of the defendant to possession of these securities based upon an attempt to enforce any such agreement. John G. Jenkins, Sr., was a stockholder in the corporation of Frank & J. G. Jenkins, Jr., which owed the Jenkins Trust Company $557,000 insufficiently secured. This indebtedness consisted of demand loans for which additional security was required on October 25, 1907, when the Jenkins Trust •Company closed its doors for want of cash.. John G. [343] Jenkins, Sr., assigned the bond and mortgage in question to the Jenkins Trust Company by proper assignment in writing and delivered to it the original bond and mortgage as the additional security. This pledge or assignment was an executed transaction, and stands for what it is worth, viz., collateral security for the indebtedness of the Frank & J. G. Jenkins, Jr., Company, and which the trust company can resort to for payment. No claim is made against John G. Jenkins, Sr., or his estate upon any promise whatever to answer for the debts of another. This case, therefore, is not within the Statute of Frauds. Second. Assuming that the bond and mortgage were collateral to an oral agreement to pay the debts of Frank & J. G. Jenkins, Jr., Company, and thus coming within the Statute of Frauds, it may be a serious question whether or not the direct benefit of John G. Jenkins, Sr., was not such a consideration passing to him as to bring the facts within the rulings of Ackley v. Palmenter, 98 N. Y. 425 ; White v. Rintoul, 108 id. 222 ; Mallory v. Gillett, 21 id. 412. As before stated, John G. Jenkins,' Sr., was a heavy stockholder in the Frank & J. G. Jenkins, Jr., Company which had borrowed from the Jenkins Trust Company more than the law allowed. He was also an officer of the Jenkins Trust Company and a member of the executive committee which had authorized and made these loans. On October 25, 1907, the trust company was financially embarrassed for want of cash and was obliged to close its doors. The enormous loans insufficiently secured of the Frank & J. G. Jenkins, Jr., Company were then due and could have been called with disastrous results to that company and to the interests of the senior Jenkins therein. Such cases as McKinney v. Armstrong, 97 Ill. App. 208 ; Reddington v. Cornwell, 90 Cal. 49 ; Davis v. [344] Patrick, 141 U. S. 479, would, indicate that a beneficial consideration ran directly to John Gk Jenkins, Sr., for any oral promise to further secure the debts of Frank & J. Gf. Jenkins, Jr., Company in order to extend the loans, and therefore took such promise out of the Statute of Frauds. But without touching further upon this point, I am convinced, third, that John Gk Jenkins,' Sr., would be estopped from pleading the Statute of Frauds. As before stated, the trust company on the 25th day of October, 1907, closed its doors for want of cash, and the banking authorities of the state took possession. Upon an examination of its affairs the superintendent of banks made a report in writing that the trust company was solvent. The books of the company carried the bond and mortgage in question as security for the Jenkins loans, and the bank examiner’s report stated the same fact, including, therefore, the bond and mortgage as part of its assets. On the seventh and thirteenth of November were held meetings of the directors at which John Gk Jenkins, Sr., was present and at which the bank examiner’s report was read, including the statement that the bond' and mortgage in question were held by the company as an asset or as security for the loans made to the Frank & J. Gk Jenkins, Jr., Company. By this report the institution was made out to be solvent. This being the condition, the directors, with the approval and acquiescence of John Gk Jenkins, Sr., undertook to reopen appointing a committee to carry out plans for the purpose and'adopting a form of agreement to be sent to the depositors whereby they would undertake to allow their deposits to remain under certain conditions. About eighty per cent of the depositors signed and returned the blank form of agreement sent to them. The minutes of the meeting of November seventh show [345] also a form of letter to be sent to the depositors, which reads as follows: ‘The undersigned are a committee of the stockholders and depositors of the Jenkins Trust Company appointed to take such action as will result in a speedy resumption of the business of the trust company and conserve the best interests of the depositors and stockholders. The State Bank Examiner reports that the Jenkins Trust Company is perfectly and absolutely solvent, having its capital and surplus.” A receiver having been appointed on November 16,1907, application was made to the Supreme Court upon papers, including the bank examiner’s report and statements showing all of the above facts, on which the receiver was discharged and the trust company permitted to resume business on April 15, 1908, under the subsequently adopted name of the Lafayette Trust Company. Business was thereafter carried on by the trust company and further deposits received up to November 30,1908, when the trust company again closed its doors and passed under the control of the superintendent of banks. By this time the trust company was insolvent and unable to pay its depositors, who up to the present time have received dividends of only fifty-five per cent. Actions have also been commenced against the stockholders to recover upon their statutory liability. In these facts briefly stated I find all of the elements of estoppel. John G. Jenkins, Sr., had assigned the bond and mortgage of $300,000 to the Jenkins Trust Company as security for loans to his brokerage company. He frequently stated that the trust company held this bond and mortgage as an asset or as property out of which it could repay to itself the Jenkins loans. With his knowledge, acquiescence and consent the bank examiner included it as an asset or as collateral [346] of the company by reason of which he figured out the solvency of the institution. John Gh Jenkins, Sr., knowing that this bond and mortgage was thus counted upon to render the trust company solvent, permitted notices to be sent out to all depositors assuring them of the fact and requesting them, in view thereof, to permit their deposits to remain for a stated period. He also permitted, with his knowledge and acquiescence, a committee to be appointed to reopen the institution upon the basis of its solvency and the possession and ownership of this bond and mortgage. In reliance upon these statements, representations and his acquiescent attitude the trust company did reopen by permission of the Supreme Court, and additional deposits were received and new and greater obligations incurred. To permit John Gr. Jenkins, Sr., if -he were alive, or those representing him, to withdraw this bond and mortgage from the assets of the company and to plead that under the- Statute of Frauds the assignment was void because collateral to an oral promise to pay the debts of the Frank & J. Gr. Jenkins, Jr., Company would sanction a greater fraud than the Statute of Frauds was ever intended to prevent. The Statute of Frauds cannot be used to work a fraud, and such a result will be prevented by the application of the doctrine of estoppel. Brown v. Bowen, 30 N. Y. 519-541 ; Thompson v. Simpson, 128 id. 271 ; Clark v. West, 193 id. 349-361 ; Draper v. Oswego County Fire B. Assn., 190 id. 12-16. Judgment for defendants, with costs.