Brooklyn Bank v. Barnaby

The action was brought, as stated in the foregoing compendium of facts, to recover upon a promissory note. The only defense interposed is that of the Statute of Limitations. The question whether that defense is valid or not depends upon the legal effect of two transactions which are relied upon by the plaintiff to take the case out of the

The note ivas made on the 12th day of February, 1894. Between that date and the 2nd day of October, 1895, several payments were made upon the note, which the defendant admits by not denying them. The learned trial court found that on the 24th day of August, 1899, and the 10th day of December, 1901, the defendant made further payments, and these findings have been unanimously affirmed by the Appellate Division. If there were no further findings upon that feature of the case, the unanimous affirmance would compel us to assume that there was evidence to support the legal conclusion that ¡Dayments were made by the defendant in 1899 and 1901. The trial court went further, however, and found the specific facts constituting the transactions in these two years. From these specific findings it appears that in August, 1899, the defendant requested the plaintiff to release a part of the collateral held as security for the payment of the note,'. <;and accept in place thereof Five hundred a-ud sixty-two dollars and fifty cents.” The plaintiff complied with the defendant’s request, and indorsed the money received by it as a payment upon the note. This payment is relied upon by the plaintiff to extend the period of limitation for six years from the time when it was made, and the defendant contends that it had no effect upon the running of the statute. Upon this question we think the finding of the learned trial court was correct. The effect of the transaction of 1899 was to extend the period of limitation. It was a payment made by the defendant himself upon his written request that the plaintiff accept a certain sum of money in lieu of a part of the collateral then held by it. It was made under circumstances which clearly support the implication that the defendant intended to acknowledge the obligation of the debt, and to make a new promise to pay the balance due.

The next transaction relating to the note in suit occurred on the 10th day of December, 1901. On that day the plain

It is this last mentioned transaction of 1901 that presents the real question in the case, and that is whether the plaintiff’s exercise of the right to sell the collateral and apply the proceeds constituted such a payment by the defendant as to extend the period of limitation for another six years from that time. If that was such a payment the defendant’s plea of the statute is unavailing for the action was brought within six years ; if that was not such á payment the plea is good, since the action was not commenced until seven years had elapsed after the payment of August, 1899. The contention of the plaintiff is that in selling the pledged collateral and applying the proceeds thereof to the payment of the note, it acted as the agent of the defendant with express authority to sell and apply, and that the legal effect of such sale and application is precisely the same as though the payment had been made by the defendant himself under circumstances from which the law would imply such an acknowledgment and new promise as to extend the statutory period of limitation. The defendant admits the authority of the plaintiff to sell the collateral and apply the proceeds thereof to the payment of the note, but denies that the legal effect of this was to bind him by a new promise which operated to renew the running of the statute. These conflicting claims, based upon undisputed facts, bring into the foreground of the discussion the extent of the plaintiff’s authority under the power to sell and apply. The language of the authorization is that the plaintiff may “ sell without notice at the Board of Brokers or at public or private sale, * * * applying the net proceeds to the payment of this note.”

At common law a pledgee of stocks and bonds given to

Few lawyers would have the courage to argue that under a general authority to sell securities and apply the proceeds, a pledgee would have power to revive a debt against his pledgor already barred by the statute. That consideration may be safely dismissed without discussion since counsel for the plaintiff presents no such contention. He practically concedes that if the debt had been outlawed in 1901, when the

In the early case of Shoemaker v. Benedict ( 11 N. Y. 176 ) the original defendants were the makers of a promissory note. Only ozie defendant answered,' and he set up the defense of the Statute of Limitations. It appeared that the note bore date the 30th day of March, 1838 ; that between that time and the 18th of September, 1849, there had been indorsed upon the note live separate payments of interest; azid it was admitted that all of these payznents had been znade, not by the defendant who pleaded the Statute of Limitations, but by a co-defendant. The action was brought on the 80th day of July, 1850. This was twelve years after the day upon which the note was dated, but only one year after the last of a series of payments beginning in 1839, and continuing in 1840,1843 and 1849. It was held that these payments made by one of the joint del)tors, kept the note alive as to him, but did not affect the defense of the statute as to the defendant who did

Again in the case of Winchell v. Hicks ( 18 N. Y. 558 ) the learned judge who wrote for the court said, that until the decision in Shoemaker v. Benedict (supra) it had been supposed by some “ that there might be some distinction in principle between payments or promises made before and those made after the statute had attached-; some stress having been laid upon the fact in the case of Van Keuren v. Parmelee ( 2 N. Y. 527 ), that the promise was made after the demand had been barred by the operation of the statute. * * * But in Shoemaker v. Benedict the point was directly before the court and it was adjudicated, * * * than it is immaterial whether such payment is made before or after the statute has attached ; that in neither case is it binding upon any but the several debtors, where the debt is joint and several, and as to the rest the statute is a bar.” (p. 560.)

In the later case of Pickett v. Leonard ( 34 N. Y. 175 ) the question arose whether the running of the statute could be arrested by an assignee for the benefit of creditors in making payment upon a note executed by the assignor. There the

The next case in which this court had occasion to consider the same question was in Harper v. Fairley ( 53 N. Y. 442 ), There the case arose upon the joint and several promissory note of two makers. It was dated March 31st, 1853. Suit was commenced upon it in June, 1869. Thus sixteen years had elapsed between its execution and the institution of the action. It appeared, however, that in 1857 one of the makers delivered to the holder the promissory note of a third pelson, which was dated March 26, 1857, payable on the following first of January, and when collected the proceeds were to be applied. Payments of interest were made from time to time upon this collateral note, and the principal thereof was paid either in November of 1862 or in the same month of 1863. The court charged the jury that the payments made upon the collateral note by the maker thereof had the same effect to take the case out of the Statute of Limitations, as against the defendants who were the makers of the principal note, as though they had been made by the defendants themselves, and that if the jury should find the last payment to have been made in November, 1863, which was within six years of the date of the commencement of the action, the plaintiff was entitled to recover. The plaintiff did recover, and upon appeal to the General Term his judgment

In support of the contention of counsel for the plaintiff that there is a distinction between a payment or acknowledgment made before and one made after a debt is barred by the statute, several cases are cited which will be briefly considered. In Winchell v. Hicks (supra) the action was upon a note made by a, principal and three sureties. Five years thereafter the holder called upon two of the sureties for payment, and they referred him to the principal, who was told of what had transpired, and then made a payment. This was held to bo such an acknowledgment of liability as to arrest the running of the Statute of Limitations against the two sureties. It is to be noted, however, that it was distinctly held not to have that effect upon the third surety who took no part in the transaction, and that the liability of the two others was based solely upon the ground that they had referred the matter to their principal debtor, and thus bound themselves by his acts.

The case of Lawrence v. Harrington ( 122 N. Y. 408 ) is also relied upon by the plaintiff. That was an action brought to recover moneys expended for the use of a firm of which the defendant was the surviving partner. The defendant pleaded a discharge in bankruptcy, and the Statute of Limitations. Upon the trial it appeared that the plaintiffs had loaned their promissory notes to the defendant’s firm, and thereafter the latter were adjudged bankrupts and discharged of their debts. Subsequently the plaintiffs renewed two of these notes, and the defendants made some payments on account. The renewal notes matured in 1878, and were then paid by the plaintiffs. In 1883 and 1884, which was within

In view of the repeated and unequivocal declarations of this court that a part payment, whether made before or after a debt is barred by the statute, does not revive the contract unless made by the debtor himself or by some one having authority to make a new promise for the residue, I deem it unnecessary to refer to the cases in other states, for that could not be satisfactorily done without extending this discussion beyond reasonable limits. It is sufficient to say that the great weight of authority in other states supports the rule adopted by this court.

A further point relied upon by the plaintiff remains to be noticed. It is urged that the defendant ratified the act of the plaintiff in applying upon the note the proceeds of the stock and bonds sold, and that this is the equivalent of a new promise by the defendant. That claim is based upon the letter mailed by the plaintiff to the defendant, notifying.the latter that the

These views lead to the conclusion that the transaction of 1901 was not such a payment as to arrest the running of the Statute of Limitations by virtue of a new promise made by the defendant, but was simply the plaintiff’s exercise of the right to sell pledged collateral and apply its proceeds in reduction of the debt.

Some of my brethren who dissent from the foregoing views have receded from the position that the defendant, by his silence after receiving notice of the sale of the Eagle Warehouse Company stock and of the application of its proceeds upon his note, ratified the acts of the plaintiff so as to raise the legal implication of a new promise which extended the period of limitation. But they have now taken a position which, in my judgment, is even less tenable than the one which they have abandoned. The latest argument is that although the plaintiff’s right of action upon the note, as a note, is barred by the Statute of Limitations, yet a right of action survives upon the defendant’s special written promise to pay any deficiency which might exist after a sale of the pledged collaterals and the application of the proceeds of such sale upon the note. As I understand it this conclusion is based upon the premise that the deficiency did not become due until the amount thereof became fixed and that the statute did not begin to run until that time. This is a novel con

In the light of this distinction I have no criticism to make upon the authorities cited by my brother Hisoook, except that they have no application to the case at bar. They are all characterized by contingencies or alternatives which contemplate no original undertaking or liability, and under which the conditional promises depended upon the mere possibility of future events. A brief analysis of these cases will show the difference between them and the case at bar. In Tebo v. Robinson ( 100 N. Y. 27 ) the defendant promised to pay a certain sum of money “ the moment I am able to pay it.” That was a promise conditioned upon the promisor’s ability to pay ; and his ability to pay was the principal question of fact litigated. The defense was the Statute of Limitations. That raised the subsidiary question of fact whether he was able to pay within six years before the action was brought, for it was properly assumed that no cause of action arose until the promisor was able to pay. The case of Goodell v. Sanford ( 31 Mont. 175 ), stripped of many confusing details not essential to the point here involved, dealt with a sale of lands by an executrix to a syndicate acting through a trustee. It was part of the arrangement that upon the failure of the

I recommend that the judgment herein should be reversed and a new trial ordered, with costs to abide the event.

(dissenting). I am unable to concur in the opinion and conclusions of Judge Werner.

The action was brought to recover the balance or deficiency remaining unpaid on a collateral note executed by the appellant and owned by the respondent for the sum of $68,000 and interest, dated February 12,1894, and payable on demand, and whereby and wherewith there were deposited certain collaterals with power of sale of the latter, and wherein were contained certain provisions for the payment of any deficiency remaining after the application of the proceeds of collaterals.

From time to time, between March 7, 1894, and October 3, 1895, the appellant took up various pieces of his collateral by the payment of various sums of money which were applied as credits on his notes. There is.no question that these transactions amounted to voluntary payments which prevented the operation of the Statute of Limitations. August 24, 1899, the appellant wrote to the respondent a letter dated that day and reading as follows:

“ Brooklyn, N. Y., Aug. 24, 1899.

“ The Brooklyn Bank :

“Please deliver to bearer 75 shares Knickerbocker Steamboat Company now held as collateral security in my loan of Feby. 12th, 1894, and accept in place thereof Five hundred and sixty-two 50 Dollars ($562.50)

“ Respectfully,

“ F. A. B AREASY.”

The respondent complied with the request in this letter contained and credited the money received in place of the collateral which was delivered up.as a payment on said note, and this is one of the disputed transactions relied on by the respondent as a partial payment withdrawing the note from the operation of the statute up to that time. On or about December 11, 1901, in accordance with the ternas of the note, respondent sold at private sale 25 shares of Eagle Warehouse • Company stock, being part of the collateral security deposited by and with the note aforesaid, and received on said sale the

The Statute of Limitations has been invoked as a defense to this action and the effectiveness of this defense has been tested by two transactions occurring, respectively, August 24, 1899, and December 10,1901, whereby the proceeds of certain collaterals were applied as credits on said note. It has been assumed that if those transactions amounted to voluntary partial payments by the debtor on his notes, they stayed or avoided the operation of the statute down to the last date which was within six years before the commencement of the suit, and on the other hand, that if they did not amount to such payments then respondent’s cause of action had become barred when this action was brought. While the first alternative embodied in this assumption is doubtless correct, the second one in my opinion is not so.

We are all agreed that the first transaction involved, and which has been fully set forth in the statement of facts, amounted to a partial payment; that when the debtor sent to the creditor a sum of money and asked that it be accepted in lien of a piece of collateral security, he must have expected that this money would not be kept in a separate account as security, but that it would be credited as a payment on the note and, therefore, that here was a voluntary partial payment by the debtor which acknowledged a remaining balance of indebtedness and wherefrom could be inferred a promise to pay such indebtedness which within all applicable principles stayed the operation of the statute to that date.

The second transaction presents different considerations. Under the powers conferred by the note respondent sold some of appellant’s collateral applying the proceeds on 1ns note and notifying him of what had been done. It is urged that appel

I shall assume for the purpose of this discussion that the latter contention is the correct one, and that under all of the circumstances of this case the sale by respondent of appellant’s securities and the application of the proceeds thereof to his note with notice to him did not amount to a partial payment sufficient to stay the running of the statute down to that date within the principles enunciated in the cases of Crow v. Gleason ( 141 N. Y. 489 ); Smith v. Ryan ( 66 N. Y. 352 ); Harper v. Fairley ( 53 N. Y. 442 ).

This, however, as intimated, does not seem to me to cast the decision of this appeal in appellant’s fav.or.

As already stated, from time to time, during a period of several years, the debtor had made payments to his creditor in consideration of which various pieces of his security were surrendered back to him and the sums accepted in place thereof credited as payments on the note. I think we may assume from the findings and evidence and from the statements in the briefs that with the sale of the Eagle Warehouse Company stock on the occasion in question all of appellant’s collateral of any value had been released or exhausted. After

It seems to me, therefore, that this disposes of this appeal and leads to an affirmance of the judgment.

Cullen, Ch. J., Vann and Willard Bartlett, JJ., concur with Werner, J.; Gray and Chase, JJ., concur with Hiscook, J.

Judgment reversed, etc.