State Bank v. Smith

O’BRIEN, J. The causes of action were upon 12 promissory notes made by the defendants Smith to the order of Wainwright & Bryant, and by them indorsed and delivered to plaintiff. There was no contest as to the making and delivery of the notes, or as to the title of the plaintiff to the same; but it was contended that [1002] the defendants Smith were accommodation makers, and that the notes were made for the accommodation of Wainwright & Bryant. It was further contended that Wainwright & Bryant placed certain securities with the plaintiff to secure. the' payment of these notes with others; and that the plaintiff had realized certain sums, of money upon said securities, and had negligently wasted and destroyed a part thereof; and that the defendants were entitled to have the amounts realized by the plaintiff on such securities applied to the payment of these notes pro rata with others; and also that the value of the securities wasted by the plaintiff should be credited on these notes. The referee found, against the contention of plaintiff, that all the notes except one were accommodation paper; that the plaintiff had received $22,000 applicable to the pay- ■ ment of these notes, with others; and directed that $3,389.48 be credited pro rata upon the principal of the notes. The plaintiff does not appeal, but the defendants do, claiming that they were entitled to a larger credit, and that all the notes were accommodation paper. In holding that 11 of the 12 notes were accommodation notes, the referee reached a conclusion most favorable to the appellants, and with such conclusion we understand no fault is found, it being insisted, however, that the twelfth note also should have been included in the same category. In excluding it, we think, the referee was clearly right. Under the terms of the agreement, the defendants had a right to use the notes sent them by Wainwright & Bryant in exchange for notes of similar amount and tenor which they had loaned to that firm. If they had availed themselves of this privilege, and had used the notes, there can be no doubt, upon authority, that they would be regarded as business notes, because given in exchange for other notes, and used for the purpose of raising money. Where, however, but one was used, and the other 11 retained, we find no reason for relieving the defendants from liability as makers of business paper. It appearing, then, as to one of the Wainwright & Bryant notes,—i. e. the one dated August 6, 1889, for $1,154.13,—that the defendants, for their own benefit, had it discounted at the bank, the referee was right in holding that the counterpart note given to Wainwright & Bryant, which was discounted by the plaintiff, was included among the 12 notes sued upon, and, unlike the other 11, was not an accommodation note. The other 11 notes being accommodation notes, the referee held that the ultimate duty of paying them rested on Wainwright & Bryant, and that any payments made by the latter or securities given by them inured to the benefit of the defendants Smith, whose obligation was that of sureties. To the extent to which they were entitled to the benefit of the security thus given, which consisted of the judgment note for $122,313, covering these and other notes of Wainwright & Bryant, the referee allowed the pro rata amount realized under the judgment upon the sale of the real property, and $10,000 in addition, realized from two other sources, making up the amount of $22,000, which he held was applicable to the payment of the notes. The defendants claim, however, that they were entitled to a greater credit, and that, in addition to the proceeds of [1003] the real estate, there should have been applied upon the notes the pro rata share of the proceeds of the personal estate of Wainwright & Bryant which the plaintiff should have realized upon the judgment given to dt to secure the notes. Whether this contention is right depends entirely upon the determination of the question as to whether, under the law, Simpson, who was president of the bank, and to whom Wainwright & Bryant were indebted in a large sum of money, for which he held their judgment notes, violated a duty, which as president of the bank he was chargeable with, towards the defendants, in giving himself a preference out of the avails of the personal property. It was in the power of Simpson to seize all of Wainwright & Bryant’s property at any time during a long period prior-to the giving to him of the judgment note for the bank. Had he reaped the advantage of his position by so seizing the property, the defendant, as against him, would have no legal right to complain. It may be that, considering his relation to the bank and the use that he had made of their funds, it might compel him, in some way or in some form of action, to make good the loss which under Ms management the bank sustained. Without, however, discussing the rights of the bank, it is clear that no tMrd party, situated as the defendants are, could successfully assail Simpson’s right to obtain, were he so disposed, a preference in respect to Wainwright & Bryant’s property over all other creditors. It must be remembered, too, that, in the disposition of their property among their creditors, Wainwright & Bryant selected Simpson as the person who was to make it, and constituted him their agent for that purpose; and they had a right to instruct him, had they seen fit, as to the manner in which the property should be applied; or they could leave it, as they did, to Ms discretion, in exercising which the defendant would have no more right to complain than if the disposition had been made by Wainwright & Bryant themselves. As correctly said, therefore, by the referee: “In the absence of proof, the act of Simpson may be considered to be just what Wainwright & Bryant intended. Hence the bank cannot be held to stand as having received in payment of the Smith notes that which Simpson managed to apply to his notes through the instrumentality of Wainwright & Bryant.” As urged by the respondent, the bank owed no duty to the Smiths-requiring it to take the judgment note at all, or to enter judgment thereon, or to endeavor to thrust aside Simpson’s security, which was prior in equity and in point of time, even' if it had the power to do so. The question here raised is not as to what rights the bank might claim against Simpson on the facts disclosed, but solely whether the Smiths, as so-called “accommodation makers” of the notes held by the bank, for which it had paid full value, can hold the bank liable for something which it neither did nor permitted. It is well established -that the holder of negotiable paper loses no right against the surety thereon by merely remaining passive. Bank v. Wood, 71 N. Y. 405, 411; Smith v. Erwin, 77 N. Y. 466. We do not think that the act of Simpson* and Gorss, although they were the president and the attorney, respectively, of the bank, in permitting [1004] Simpson to obtain a priority upon the personal property, made the bank liable for a breach of duty, and chargeable, as though lost, with the amount that would have been realized had the bank’s judgment attached equally with Simpson’s upon the personal property. Another grievance assigned by the appellants consists in the refusal of the referee to find that the bank had realized $20,000 on the execution against the real property, and finding, instead, that it had realized only $12,000. Mr. Simpson, the president of the bank, testified that $20,000 was realized on the real property; but that this statement was made from memory, and that it was incorrect, is evident from the original documents, which include the receipt of Mr. Simpson and the sheriff’s return. Besides, it appears that the real estate was sold for $26,490; and, regard being had to the amount of the four judgments, the bank’s pro rata share of the proceeds would be about $12,000,—the amount found by the referee. There being a conflict between the oral testimony and these written documents, we think, upon consideration, that the referee was right in following the latter, as against the statement of the witness. Although the referee has charged the plaintiff with $22,000 as having been realized upon the bank’s judgment, there is a serious question whether the entire value of the collateral security, including the judgment note, and the entire amount with which it is chargeable in favor of the defendants, was more than $12,150. The $22,000 found by the referee was made up of $12,000, the proceeds of the execution issued on the bank’s judgment to the sheriff of Jefferson county, and of $5,000, which he charged to the bank as being the amount realized on the resale by it of the property sold under the execution issued to the sheriff of Philadelphia, and which it bought in at such sale for $150, and of $5,000, the amount realized from the sale of certain cattle stock which Wainwright & Bryant had given to Simpson at the date of their failure. The amount of $150, realized on the sale of the Philadelphia real estate, would seemingly be the proper credit which the bank was entitled to allow, because any profits realized on the resale thereof could no more be reached as a security in defendants’ favor than would a loss, had it been made upon such resale, have been chargeable to it; and the referee, instead of charging the bank with $150, has charged it with $5,000, in defendants’ favor. The $5,000, proceeds of the cattle stock, as testified to by Bryant, was given by him to Simpson, as he understood, individually for his indebtedness. This amount, however, was appropriated by Simpson to the bank, under their agreement, pro tanto on the Wainwright & Bryant notes, and the referee allowed the payment. It will thus be seen that the referee reached upon these items a conclusion most favorable to the defendants. The remaining question urged upon this appeal is in regard to the order granting to the plaintiff an allowance, in addition to costs, of $386.07. In view of the amount and the character of the questions involved, this cannot be regarded as an excessive allowance. It is insisted, however, by the appellants, that they should not be punished, by way of an allowance granted against them, for having in [1005] terposed equitable defenses which in part have been sustained. The answer to this seems to us apparent. It is true that the plaintiff asked a judgment for the full amount of the notes, upon the theory that they were business paper, and that the defendants took the opposite view, that they were accommodation notes; and, while the former demanded the full amount, the defendants insisted that the complaint should be dismissed. While the plaintiff did not obtain the entire relief demanded, we do not think it can be claimed that it has1 not succeeded in the action. Apart from this, if the defendants desire to limit their liability for costs, the Code provides a way by permitting a person to make an offer of judgment, which, if not accepted, would place the liability for costs upon the other party. This the defendants did not do, but litigated the question of plaintiff’s right to any recovery; and the plaintiff having recovered and been awarded costs, in view, as already said, of the difficulty of the questions involved, we think it was entitled to the allowance made. In concluding, we think it proper to say that we might well have let this appeal rest upon the clear and satisfactory opinion of the referee; but as the appellants, with much force and earnestness, have pressed the questions again upon our consideration, we feel that a brief reference to all the questions presented upon the appeal was proper. We think the conclusion reached by the referee was right, and that the judgment and order should be affirmed, with costs. All concur.