Price v. Dime Savings Bank

Mr. Justice Shope delivered the opinion of the Court: There can be no question that the certificate of fifty shares ■of stock in the Dime Savings Bank was the property of William K. Beed,' and that Kelsey had notice of that fact when he accepted the same as collateral security for the payment of Henry C. Seed’s note of November 30, 1872, in lieu of the Buehler note and mortgage. When a third person pledges his property as a security for the payment of a debt or obligation of another, such property will stand in the position of a surety of the debtor, and any change in the contract of surety-ship which would discharge a surety, will release and discharge the property so held as collateral. This rule also applies to mortgages made by one person to secure the debt of another. Burnap v. National Bank of Potsdam, 96 N. Y. 125; Rowan v. Sharpe Rifle Manufacturing Co. 33 Conn. 18; White v. Ault, 19 Ga. 551; Barnes v. Mott, 64 N. Y. 397; Christner v. Brown, 16 Iowa, 130; Ryan v. Town of Shawneetown, 14 Ill. 20; Crawford v. Richeson, 101 id. 351; Bank of Albion v. Burns, 46 N. Y. 170; Colebrook on Collateral Securities, sec. 239. The rule is well settled in this State, that if a creditor, by a valid and binding agreement, without the assent of a surety, gives further time for payment to the principal debtor, the surety will be discharged. Dodgson v. Henderson, 113 Ill. 360; Davis v. People, 1 Gilm. 409; Waters v. Simpson, 2 id. 570; Crossman v. Wohlleben, 90 Ill. 537; Myers v. Bank, 78 id. 257; Danforth v. Semple, 73 id. 170; Montague v. Mitchell, 28 id. 481; Kennedy v. Evans, 31 id. 258. See, also, Brandt on Suretyship, secs. 301, 304, 307; Bayliss on Sureties and-Guarantors, 240, et seq. The. surrender of the old notes, and their cancellation, was a sufficient consideration for the new notes given, and the holder, by such surrender and cancellation, put it out of his power to sue on the indebtedness or enforce its collection until the maturity of the new notes. After the pledging of the certificate of the bank stock in October, 1874, as collateral security, Kelsey, the creditor, on December 1, 1876, had a settlement with Henry C. Beed, the debtor, on which it was found there was a balance of $4600 due from the latter to the former upon the original indebtedness, and new notes, extending the time of payment for five years, were taken by Kelsey for such balance, and the note for the payment of which this collateral was pledged, was cancelled and surrendered. To this, William K. Beed is not shown to have consented, or that he had any knowledge of it, or notice that his stock was pledged for the payment of the new notes. It is not shown that he authorized Henry 0. Beed, or any one else, to make such new pledge of his property. But if he had made or authorized the making of said pledge of his property in October, 1879, it appears that two years before the maturity of the last of these notes, Kelsey-surrendered them to the maker, and again extended the time-, of payment to his debtor by accepting in lieu four other notes,, the first for $300, due on demand, and the other three for $1000 each, due in one, two and three years, respectively,, from their date, the last of which did not fall due until im October, 1882. This material change in the terms of the contract, without the consent of William K. Beed, was sufficient .to release the undertaking that his property should stand as security. As before said, the record fails to show that he had any knowledge of, or assented to, any of these extensions, or authorized Henry. C. Beed or any other person to use his bank stock as a pledge for the performance of such new contract. It is, however, urged, that the pledge of the bank stock was made by William K.- Beed on a valuable consideration moving from Henry C. Beed; that it was substituted for the Buehler note and mortgage of $1000, the property of Henry C. Beed, and therefore the bank stock is to be treated as the property of the latter, and therefore the various extensions given to him. would not operate to release the collateral. It is true, that if a debtor pledges collaterals of his own as security for his note or bill, the extension of the time of payment will not extinguish his creditor’s lien on the collaterals. If Henry C. Beed owned the Buehler note and mortgage, and consented to its exchange for the bank stock, this rule might be invoked, and become decisive of the question being considered. Did he own such note and mortgage? In October, 1874, Kelsey held in his hands various collaterals to secure the payment of the Henry C. Beed note of $7331, among which was the Buehler note and mortgage for $1000, payable to Walter Lister, dated July 11, 1873, payable two years after the date thereof. This note was indorsed by Lister, and its payment guaranteed by him. The record fails to show how it came into the hands of Kelsey, but it is fairly inferrable, from the evidence, that Henry C. Beed procured the note and mortgage from or through his brother, William K., and pledged the same to Kelsey. It appears from the testimony of George W. Beed and that of L. B. Shattuck, that this note and mortgage were, on February 2, 1874, taken by the Illinois Land and Loan Company in part payment of a debt due from Walter Lister, the payee, and that this com-” pany, on May 16, 1874, sold the same to the Dime Savings Bank, with which bank William K. Beed was connected, and of which he was an officer. On August 2, 1874, as appears by the correspondence, Henry C. Beed requested William K. Beed to send to him (Henry) the mortgage he had spoken of, and $200 in money. That this was the Buehler mortgage, is apparent from the letter of Henry C. Beed acknowledging its receipt, and the subsequent correspondence between William K. and Kelsey, and the letter of the latter to Henry G. Beed. William K. Beed wrote to Levi Kelsey of the date of October 16,1874: “Michael Buehler, whose note and mortgage you hold as collateral to H. C. Beed’s agreement, wishes to take up his note of $1000, and have the mortgage released. I send you certificate No. 12 of the Dime Savings Bank, for fifty shares stock belonging to me.” This shows that its hypothecation was known to William K. Beecl, and tends to strengthen the view that it had originally come from him to Kelsey. This letter was received by Kelsey, for in his letter of October 17, 1874, to Henry 0. Beed, he says: “Henry, I have just received a letter from William K. Beed, asking me to send him the last mortgage that you left with me, etc. William sends me fifty shares Dime Savings Bank, to hold in lieu of it. Shall I do it?” The note and mortgage were sent October 23, 1874, to William K. Beed, by Kelsey. It also appears from the note, duly proved, that it was paid to “William K. Beed, cashier,” and that on the same day of its payment Buehler procured a loan bn the same property from the Dime Savings Bank. The record nowhere shows that William K. Beed or the bank was ever called upon to account for the money received on this Buehler note and mortgage. If, as shown, this note and mortgage belonged to William K. Beed, no accounting would be expected, but if it belonged to Henry 0. Beed or to some other person, and had been accounted for, it could have, in some way, been made apparent. It does not appear that Kelsey, when this note and mortgage were pledged to him, had notice that they belonged to William K. Beed. Henry G. Beed being the holder and clothed with the evidence of ownership of said note and mortgage, and the same being indorsed in blank by the payee, Lister, might have passed the title to the note to any innocent purchaser for value, and vested the title as against William K. Beed. This being so, Kelsey might properly take the same in pledge of Henry 0. Beed as collateral security for his debt, and no extension of the time of payment, before notice of its being the property of William K. Beed, would have released it from the pledge. After notice that it belonged to William K. Beed, it was the duty of Kelsey, the pledgee, to do nothing prejudicial to the rights of William K. Beed as owner of such collateral. The letter of William K. Beed of October 16, 1874,' to Kelsey, in which he sends the certificate of the bank stock, notified Kelsey that the shares of stock were the property of William K. Beed. By the same letter, Kelsey was requested to return the Buehler note and mortgage to him. Kelsey, acknowledging the receipt of that letter, on October 23, 1874, says: “I received your letter last Saturday, and wrote to Henry about sending the mortgage to you, ” etc., and inclosed the note and mortgage, as requested. We think the' correspondence, when considered in connection with the letter of Kelsey to Henry 0. Beed, to know if he should return the same, was sufficient notice to Kelsey of the claim of William K. Beed to the note and mortgage. Whatever is sufficient to put a reasonably prudent man upon inquiry, is to be regarded as notice of the facts such inquiry will disclose. Such inquiry, if made by Kelsey, clearly would have shown him that the note and mortgage belonged either to William K. Beed or to the bank, of which he was cashier. That Kelsey had notice of the ownership of the fifty shares of bank stock hypothecated in lieu of the Buehler note and mortgage, is clearly apparent. It can not, therefore, be said, that William K. Beed pledged his bank stock in consideration of the surrender to Henry 0. Beed of the note and mortgage as his property. We have seen that the note and mortgage were not the property of Henry 0. Beed, but that of William K.. Beed, or of the bank, and if the latter, William K. Beed would be responsible to the bank for it. No consideration passed from Henry 0. Beed for the exchange of collaterals, as neither belonged to him. It follows, therefore, that the certificate of bank stock pledged in lieu of the Buehler note and mortgage must be regarded as the property of William K. Beed, pledged as security for the payment of the note of Henry C. Beed made in 1872, and that the several extensions of the time of payment must be held to have discharged the pledgee’s lien on the same. It is insisted that the Appellate Court should have remanded the cause generally, so as that the complainant might have proceeded further in the court below. If the decree had been reversed for variance between the allegations of the bill and the proofs, or for any reason not going to the merits of the-right of complainant to recover, the practice indicated would have been proper. But the proof showing that the lien on-the collateral, in respect of which relief is sought by the bill, had been released, thereby defeating the complainant’s right of relief, there was no reason for remanding the cause generally. The views expressed render it unnecessary to consider the other question discussed by counsel. Perceiving no substantial error in the judgment of the Appellate Court, it must be affirmed. Judgment affirmed.