Hallowell v. Blackstone National Bank

Holmes, J. This is a bill to redeem certain stock given by one Smith, the plaintiff’s insolvent, to the defendant, as collateral security for a loan to Smith. The main question is whether the defendant can hold the stock as security not only for the loan mentioned, but also for two acceptances of a firm of which Smith was a member, which acceptances the defendant had discounted before the date of the loan in question. The note given by Smith for the loan authorizes the defendant to sell the stock “ on the non-performance of this promise, said bank applying the net proceeds to the payment of this note and accounting to me for the surplus, if any.” It then goes on, — and these are the important words, — “ and it is hereby agreed that such surplus, or any excess of collaterals upon this note, shall be applicable to any other note or claim against me held by said bank.” The counsel for the plaintiff based his argument on the proposition that the right to apply the excess of collaterals to any other note or claim was conditional upon Smith’s non-performance of his promise. We think it doubtful at least whether that is the true construction of the words which we have quoted. We are disposed to read the agreement as an absolute pledge or mortgage of the securities for other notes and claims. But if this be not so, we are of opinion that Smith did not perform his promise [362] within the meaning of the note. The bank demanded payment of Smith on January 3,1889, and he made partial payments, but failed to pay the residue, and requested the bank to make the balance a time loan, which the bank refused. This was a nonperformance of his promise by Smith. It is true that the report states that it was understood that the demand should not be pressed without further notice.. But this did not take away the effect of the breach. It merely called on the bank to give notice before taking further steps, such as selling the security, and this it did. We neither construe the report as meaning, nor do we infer from it, that the breach of Smith’s promise by his failure to pay on demand was waived by the bank. On January 3, if not before, the bank’s right vested to apply any excess of collaterals upon other claims. The question remains whether the bank is entitled to hold the security for the bills which were accepted by Smith’s firm, and not by him individually. It cannot be denied that the acceptances were “ claims against him,” or that the words used in his note were broad enough to embrace firm acceptances unless there is some reason in the context, the circumstances, or mercantile practice, to give them a narrower meaning. Singer Manuf. Co. v. Allen, 122 Mass. 467. Chuck v. Freen, Mood. & Malk. 259. If Smith had had private dealings and a private account with the bank as a depositor, and his firm also had had dealings and an account there, and Smith had given security in the terms of his note in order to be allowed to overdraw or to obtain a discount, it may be that the generality of the language would be restrained to the line of dealings in the course of which it is used. Ex parte M’Kenna (City Bank case), 3 DeG., F. & J. 629. See Lindl. Part. (5th ed.) 119, and note. But we are called on to construe a printed form*used by the bank and presented by it for those who borrow from it to sign. The question is what is the reasonable interpretation of such words, when insisted on as a general formula to be used by would be borrowers, irrespective of any special course of business of the particular person who signs it, which, for the matter of that, there does not appear to have been in this case. For all that appears, the note mentioned may have been the only transaction that ever took place between the defendant and the plaintiff’s insolvent alone. [363] The printed form, it may be assumed, would have been used by the bank equally in a case where the borrower was the principal man in his firm and the only one known to the bank, was borrowing for his firm daily, and had never borrowed for himself but in this instance, and in a case where the borrower’s membership in a firm whose notes the bank held was unknown. This being so, in the opinion of a majority of the court there is-no sufficient reason for not giving the words their full legal effect. The clause pledging the property for any other claims against the debtor is not inserted with a view to certain specific debts, but as a drag-net to make sure that whatever comes to the creditor’s hands shall be held by the latter until its claims are satisfied. Cory on Accounts and Lindley on Partnership have made it popular to refer to a mercantile distinction between the firm and its members. But we have no doubt that our merchants are perfectly aware that claims against their firms are claims against them, and when a merchant gives security for any claim against him and there is nothing to cut down the literal meaning of the words, he must'be taken to include claims against him as partner. Decree accordingly.