Mercantile Trust Co. v. Atlantic Trust Co.

FOLLETT, J. When this action was before this court on the appeal from the first interlocutory judgment sustaining a demurrer to the matter pleaded in avoidance in the original answer, it was held that the facts so pleaded were insufficient to constitute a defense, but leave was given to serve an amended answer. 69 Hun, 264, 23 N. Y. Supp. 496. Subsequently the Atlantic Trust Company served an amended answer- pleading further facts by way of avoidance, to which the plaintiff demurred on the ground that they were insufficient to constitute a defense. The demurrer was sustained, and an interlocutory judgment entered, which granted leave to the defendant to plead anew; of .which privilege the defendant availed itself, and filed and served a second amended answer. "Upon the issues so joined the action was tried, and a judgment ordered for the plaintiff. A demurrer runs through all the pleadings, and the effect of the interlocutory judgments is that the facts alleged in the complaint, unless successfully controverted or avoided, are sufficient to constitute a cause of action, and that the facts pleaded in the ■original and first amended answer by way of avoidance are insufficient to constitute a defense. The facts alleged in the complaint were proved on the trial, and thus, under our former decision, a cause of action was established, unless a valid plea in avoidance was proved. The Atlantic Trust Company, by way of a defense, proved that April 28, 1890, the United Electric Traction Company pledged to the trust company said 60,000 shares of stock as security for the repayment of all moneys loaned by the trust company on the promissory notes of the United Electric Traction Company; and that April 28, 1890, the date of the contract of guaranty, and after the trust company had indorsed its receipt thereon and delivered it to the plaintiff, it loaned from time to time to the United Electric Traction Company large sums of money secured to be paid by 11 promissory notes, the first dated May 12, 1890, and the eleventh November 10, 1890, given by the traction company to the trust •company, which have not been paid, and that by reason of these facts the trust company has a lien on the shares. It is not alleged in the answer of the trust company, nor was it proved on the trial, that the plaintiff or the bondholders, for which it acted as trustee, had notice that the shares were so pledged; and the Atlantic Trust Company, having contracted to hold the 30,000 shares as security for the 102 bonds, cannot now avail itself of the secret contract by which it received the shares in pledge as a defense to an action to compel it to perform its contract to hold them as security for the 102 bonds. By reference to the contract of guaranty, it will be seen that it -contains this covenant: “And the United Electric Traction Company aforesaid does hereby, for itself, its successors and assigns, covenant, stipulate, and agree that the United Electric Traction Company aforesaid will not make, nor allow to be made or issued, any mortgage, mortgage bonds, debentures, or any preference securities, other than the $2,000,000 in preferred stock provided for in [255] the said the United Electric Traction Company’s articles of incorporation, until all of the said 102 bonds above referred to, both principal and interest, shall have been paid or redeemed pursuant to the terms of said bonds.” December 8, 1890, the United Electric Traction Company mortgaged its property to the Mercantile Trust Company (the plaintiff), as trustee, to secure the payment of 1,800 bonds, amounting to $700,000. As a defense, the Atlantic Trust Company alleges that the execution of the mortgage was a violation of the above covenant, and that the plaintiff, being a party to the mortgage, cannot compel the defendant to deliver the 30,000 shares, which it alleges it has the right to retain as security for the payment of said 11 promissory notes. The answer to this is that the Atlantic Trust Company knew before the mortgage was executed that it was to be given, and its president advised that it should be executed to the Mercantile Trust Company as trustee. These facts were proved on the trial, and were not disputed, though the president of the Atlantic Trust Company was a witness. More than this, he corroborated the testimony of the witnesses who testified to these facts. This appellant, having waived the performance of the covenant, is estopped from urging its nonperformance as a defense to this action. The defendant gave no evidence of any defense not pleaded in its original and first amended answer; and it seems quite unnecessary further to discuss the propositions which were considered at general term (69 Hun, 264, 23 N. Y. Supp. 496), and subsequently at special term, on a demurrer to the first amended answer. As a ground of error, the learned counsel for the appellant insists that the execution by the United Electric Traction Company of the guaranty was not legally established. It is urged that this contract is one which the officers of the corporation could not execute without the authority of the board of trustees. On this trial it was proved, and not denied, that the contract was executed by the president of the corporation, and that its corporate seal was affixed. This, the defendant insists, was not sufficient, and asserts that the plaintiff should have gone further, and proved that it was executed by the authority of the board of directors. We think the defendant is not in a position to raise this question. It is not a surety nor guarantor, but a mere depositary of the shares, under an agreement that it would hold them as security for the performance of the contract of guaranty. The fact'that there may have been some informality in the execution of the contract of guaranty is not available as a defense to this defendant. It is in the same position as an agent who collects money for his principal, which the principal could not have collected in an action against the person who pays it. In such a case the agent cannot interpose as a defense, when called on to pay over the money to his principal, that he could not have enforced the demand as against the person from whom collected. It is like the case of a public officer who collects money upon an execution or a warrant which could not have been enforced had the person against whom it was issued resisted. The officer is bound to pay over the money collected in [256] accordance with the command of Ms warrant, and a defense which might have been available to the person from whom the money was collected is not available to the officer. People v. Brown, 55 N. Y. 180. It was not necessary for the plaintiff to prove that the board of directors authorized the execution of the guaranty in order to lay the foundation for a judgment against the defendant requiring it to deliver the 30,000 shares of stock in accordance with its agreement. The judgment should be affirmed, with costs. All concur.