Sickles v. Herold

The action is against the maker of a promissory note for $5,000, payable on demand to the order of the Harlem River Bank, and the case is this: In November, 1893, finding the Harlem River Bank reduced in its capital, the official examiner required the deficit to be promptly supplied by a payment of cash or else he would not suffer the bank to open again. Thereupon a negotiation ensued between the examiner on the one side and the'officers of the bank on the other, in which defendant, as director, took part. The defendant and other officers were solicitous £o avert the threatened closing of the bank. The result was that the examiner accepted certain notes, among them the one in suit, as sufficient to make good the capital, and permitted the bank to continue its operations. Six months afterward, deeming the bank again insecure, the banking department closed it, commenced an action for its dissolution and liquidation,' and meanwhile procured the appointment of the plaintiff as receiver. As such he sues to collect defendant’s note, in order .that he may apply its proceeds in discharge of the bank’s liabilities. '

In answer to the action, the defendant first urges the invar lidity of the note for want of consideration, and the learned-counsel in his behalf supports the contention in an argument which, if not convincing, is admirable, indeed, for its learning and ability.

Undoubtedly, the suffering the bank to go on was, in the legal sense, of detriment to the department, because a forbearance to exercise a legal right (Hamer v. Sidway, 124 N. Y. 538 ); and manifestly, also, was of benefit to the defendant, because a shareholder and depositor.

In another view, the tender of the note to the bank as inducement to the continuance of its operation was an offer by the defendant, which, on acceptance by the bank, became a consummate contract, on the one side to open the bank and on the other to pay the note.

But, argues the defendant, the bank desired to continue its business, and hence continuing its business was of no detriment to it. But this is confounding motive with consideration ; and non constat but the continuance of business was detrimental to the bank in accumulating upon it a still heavier burden of indebtedness.

Supposing, however, the consideration for the note did move from the department and not from the bank; then we have a promise by the defendant to the department for the benefit of the bank, and it is the settled law of the state that upon such promise its beneficiary may maintain an action. Kor is the case altered by the fact that the defendant, in fulfillment of his promise to the department, executed the note to the bank, for the bank may maintain an action on the note.

The defendant replies that he made no promise to the1 department, but the inevitable inference is otherwise. The department demanded the note and he gave it; assent to the request must have preceded compliance. He agreed with his; associate directors to satisfy the requirement of the department, and that was a promise to the department.

Again, the defendant objects that there was no obligation: from the department to the bank, and no- legal or equitable claim of the bank to the benefit of the promise. Neither was. there such obligation or claim in Rector v. Teed, supra, and yet the action by the beneficiary of the promise was upheld.

The defendant objects still further, that the promise of the-department or the bank, whichever it be, was to forbear a. reasonable time, and that six months was not such time. I cannot say that six months was not a reasonable- forbearance. On the contrary, if, as I am bound to assumq, the bank when closed was in an insolvent or insecure, condition, it would have-been unreasonable, nay,-a violation of duty by the department,, to suffer it to go on a moment longer.

But, suppose the forbearance was not for a reasonable time,, still the promise was' to forbear for such time — a competent consideration for the note—-and hence the defense is not a defect but a failure of consideration or matter of counterclaim in damages, neither of which is available because not pleaded.

Finally, the defendant insists that the promise of forbearance, if any, was ultra vires and void, and so not a valid consideration for the note; but just such a promise was sustained in Hun v. Salter, 14 Wkly. Dig. 419 ; in Hurd v. Kelly, 78 N. Y. 588 , and in Hurd v. Green, 17 Hun, 328 .

- Upon the strict common-law doctrine of consideration the note is not to be upheld, and such was my opinion on the argument. But the old technicality is relaxed in New York, and stare decisis. concludes me. Upon the adjudications of the New York courts the note is a binding obligation, and enforcible at the suit of the plaintiff. Rector v. Teed, 120 N. Y.

Even were the note without consideration I should hold the defendant estopped to allege the defense. He knew all the circumstances of the transaction, for he was an actor in it; he knew why the note was exacted and for what purpose he gave it, namely, to enable the bank, by means of the note, to continue business, and so appear to the public as a solvent concern. Thus representing the bank to be solvent, he invited the public to repose confidence in it; and now, upon recourse to the note to redeem its pledge of the solvency of the bank, the defendant proposes to escape liability and defraud the creditors of the bank by pleading the invalidity and worthlessness of the very security by which he authorized the bank to beguile the public into trusting it. If ever a case of estoppel was presented this surely is one. “ The objection that the. transaction was ult/ra vires cannot prevail against the claims of depositors who are represented by the receiver, who is seeking to collect the bond as an asset of the bank, for distribution among those for whose protection it was given.” Hurd v. Kelly, 78 N. Y. 588 , 596. “ The defendant was thus apprised that this bond was to be used to give credit to the bank, with the bank department and with the public, so that it should be enabled to continue its business, * * * and having allowed the bond to be treated as an asset and the public to deal with the bank on this assumption until the bank has become insolvent, he is. estopped from setting up the defense in question,” i. e., the invalidity of the bond. P. 597. Best v. Thiel, 79 N. Y. 15 , 18 ; Hurd v. Green, 17 Hun, 327 , 335.

Failing in the defense of want of consideration for the note, the defendant then contends that the 'action is premature, because brought before exhaustion of other assets of the bank. But the note is payable on demand, and while parol evidence is competent to prove that it was not to take effect till the fulfillment of a condition, such evidence is incompetent to show a different day of payment. Browne Parol Ev. 245, and

In conclusion, the defendant insists that he is but a surety, and that the plaintiff should be compelled to resort, in the first instance, to securities in his possession pledged to the payment of the principal debt. A formal defect in the contention is that the answer omits to demand any subrogation or marshaling of assets. But, assuming such prayer for judgment superfluous, the evidence shows no case for the relief. The defendant is not a surety; his note is not a collateral. The note was given to supply a deficiency in the capital of the bank; it is an asset of the bank, and is available primarily to the creditors of the bank. Cases, supra. But if the defendant be a surety, still, as already apparent, the receiver is entitled to all the securities for satisfaction of creditors ; and until the entire indebtedness of the bank be discharged, he is,not compellable to forego access to any resource. 14 Am. & Eng. Ency. of Law, 701, 706, and notes; 3 Pom. Eq. Juris. §§ 1414, 1419.

I am of opinion that the counterclaims are sufficiently established by the-evidence.

Judgment for plaintiff in the amount of the note, with interest, less the sum of the counterclaims.

Ordered accordingly.