Assets Realization Co. v. Roth

In. August, 1901, the Metropolitan Bank of Buffalo found itself in financial straits. It determined to go into voluntary liquidation and avoid the expense of a receivership. The liquidator selected was the German Bank of the same place. The rights and duties of the two banks are set forth in a written contract. The German Bank was to advance sufficient moneys to pay all the depositors of the Metropolitan Bank in full. It was also to make advances for other purposes. In return and as security for these advances, it received a pledge of all the “ assets, property, and effects of every name, nature, and kind ” belonging to the liquidated bank. In the management of the property and in the conversion of the assets into money, due diligence was to be used “ to make the conversion as rapidly as it can be done without undue sacrifice.” There was to be delivered to the liquidator by the Metropolitan Bank “ a proper guaranty of certain of its directors and stockholders ” against any and all loss as a result of the advances.

This action is brought upon a bond delivered to the liquidator in fulfillment of that covenant. The signers were officers and stockholders of the Metropolitan Bank. Each became severally liable for an amount

The German Bank took over the assets of the Metropolitan Bank. It paid all the depositors in full. It did this at once; and for that purpose advanced nearly $800,000. It then went on with the work of liquidation. It had almost finished its task when it too faced disaster. On December 21, 1904, at the suit of the attorney-general of the state, its dissolution was decreed, and a receiver was appointed. Over $830,000 had then been realized from the assets. The receiver collected about $3,500 more, and sold the few remaining assets to the plaintiff. They were, in part at least, the odd and ends that almost always remain upon the winding up of any business. From this remnant of assets the plaintiff succeeded in extracting about $34,000. It did this in co-operation with the defendant and his associates. There is no reason to believe that better results could have been realized by any one. It thus appears that 96 per cent of the total assets had been liquidated by the German Bank before its dissolution. With the added four per

The courts below have held that the defendant has been released because the liquidator died before the liquidation was complete. They have viewed the bond as a guaranty, and its signers as guarantors'. The decree of dissolution put an end to the liquidator’s life. Liquidation in its final stages was the work of substituted agencies. The bond has been read as containing an implied condition that the liquidator shall bear the loss resulting from its advances unless personal performance of its task shall be continued to the end, and this though personal performance has been made impossible by death.

We reach a different conclusion. The bond which this defendant signed is not a contract of guaranty. It is a contract of indemnity (1 Brandt on Suretyship and Guaranty, pp. 19, 20; Jones v. Bacon, 145 N. Y. 446 ; Same v. Same, 72 Hun, 506 ; Guild v. Conrad, 1894, 2 Q. B. 885; Nat. Bank v. Smith, 142 Ga. 663 , 665). The liability assumed is not secondary, but primary. We so held in Assets Realization Co. v. Howard ( 211 N. Y. 430 ). There an action was brought against this defendant and others to charge them as stockholders of the Metropolitan Bank with the statutory liability for debts. We held that the liquidator’s advances did not constitute a debt; that the stockholders were not liable under the statute; and that the liquidator, having exhausted the assets, had no security for the deficit except the contract of indemnity. The defendant helped to induce that ruling when the result was to his advantage. We will not change it at his instance now when the result is to. his detriment. This is no case, therefore, for the application of the strict rules that are enforced at times for

We think the gist and scheme of this transaction do not fairly and reasonably involve the implication of a condition that the death of the liquidator, leaving assets unadministered, shall cancel the right to indemnity for advances during life. Nearly $800,000 was owing to depositors. Liquidation through voluntary agents was impossible unless' those debts were paid at once. The German Bank was advancing the money necessary to pay them. Loss resulting from the advances was the risk that was in view; protection against such loss the controlling purpose of the bond. The moment advances were made, the risk had been incurred, and the duty to indemnify arose. Liquidation was not the act on which the right to indemnity was to depend. Liquidation was merely the means by which the measure of the loss was to be gauged. The agencies of liquidation were defined during the liquidator’s life. They were not defined after its death. They might, therefore, be any agencies appropriate in that contingency for the ascertainment of the loss. The death of the liquidator did not wipe out the advances, and business men cannot have expected it to wipe out the covenant. If loss could not be ascertained

The case for the defendant is built upon the assumption that the solé relation between the banks was one of personal employment, which the death of either would extinguish (Lacy v. Getman, 119 N. Y. 109 ; Wolfe v. Howes, 20 N. Y. 197 ; People v. Globe Mutual Life Ins. Co., 91 N. Y. 174 ; Dolan v. Rodgers, 149 N. Y. 489 , 494). The relation was that, but it was something more. The German Bank was an agent. But it was also a pledgee. The two functions and capacities were inseparably commingled. Death might terminate the agency. It could not terminate the pledge (Terwilliger v. Ontario, C. & S. R. R. Co., 149 N. Y. 86 , 93). There was no duty to surrender the pledged assets because the liquidator was dead. The right to retain and collect them passed from the pledgee to its successor, and its successor was the receiver. To avail himself of the pledge, the receiver had to convert it into money (Brightson v. Claflin, 225 N. Y. 469 ). He could not convert it into money, and thus exercise his rights as a pledgee, without becoming at the same time a liquidator. He might not liquidate in the same way as his predecessor, but he would do it in some way, and the process, whatever its form, would ascertain and fix the loss. All this the defendant and his associates, if they thought about the consequences of death at all, must have foreseen and approved. To everything that was essential to the enforcement of the pledge by the successors of the pledgee, they must be taken to have given their assent. This would be true though their position were strictly that of guarantors. Sureties on a bond “ have no right to insist upon a sacrosanct prohibition of change ” in the performance of a contract (U. S. v. McMullen, 222 U. S. 460 , 468; Tide Water Oil Co. v. Globe Ind. Co., 238 Fed. Rep. 157 ). They may assent to change if they

The defendant argues that the dissolution of the German Bank was equivalent to a voluntary abandonment of the task of liquidation (People v. Globe Mut. Life Ins. Co., supra, 181; Lorillard v. Clyde, 142 N. Y. 456 ). We think there is nothing in the point. The bank did not seek dissolution, ridding itself of its agreement as of some vexatious burden. Dissolution was forced' upon it by the action of the state. The result did not cease to be involuntary because insolvency may have been due to negligence or other wrong. (People v. Globe Mut. Life Ins. Co., supra). Mistakes, with .corporations as with men, are often paid for in shortened lives. But error is not suicide.

The judgment should be reversed, and a new trial granted, with costs to abide the event.

His cock, Ch. J., Collin, Pound, Crane and Andrews, JJ., concur; Cuddeback, J., not voting.

Judgment reversed, etc.