Wyckoff, Church & Co. v. Riverside Bank

On the 5th of July, 1907, the defendant held the plaintiff’s demand note for $20,000, and as collateral security for its payment there was pledged 150 shares of the common stock of the Borden Condensed Milk Company. The note was collateral in form, and specified the collateral already held and promised to furnish such additional collateral as the officers of the defendant might require. The provisions of the note with respect to the sale of such collateral were as follows:

“And we hereby give to said bank, its president, vice president, cashier or assistant cashier, full power, at their option, to sell, assign and deliver the whole or any part of said collaterals, or any substitutes therefor.or additions thereto at any broker’s board, or elsewhere, at public or private sale, on the nonperformance of the above promises, or of any of them, or at any time thereafter, and without demand, notice or advertisement. * * * And it is further agreed that the undersigned do hereby authorize and empower the said bank, at its option, at any time', to appropriate and apply to the payment and extinguishment of any of the above named obligations or liabilities, whether now existing or hereafter contracted, any and all moneys, securities or other property now or hereafter inj the hands of such bank on deposit or otherwise, to the credit of or belonging to the undersigned, whether the said obligations or liabilities- áre then due or not due.”

The defendant bank also held other notes aggregating $36,500 for loans made to members of the plaintiff corporation which were carried as companion transactions, making an aggregate of $56,500 of loans made by the defendant to the plaintiff or those associated with it. Interest was paid on the $20,000 note to September 1, 1907, and again to October 1st of the same year, upon statements made by the defendant to the plaintiff. On the 8th of October the defendant demanded payment of the note as well as the balance of the loans made to those associated with the plaintiff. A representative of the plaintiff called upon the officers of the defendant, and such negotiations were had that, as the plaintiff claims, in consideration of the payment of 1 per cent, commission, the defendant through its vice president, Brower, acting as president and in charge' of the bank, agreed to extend the time of payment of the $20,000 note and the other notes aggregating $36,500 for the term of four months. The plaintiff paid to the defendant on the 11th day of October $565, which was 1 per cent, on the aggregate of the loans, but which defendant claims was not paid as consideration for an extension of the time of payment, because no such agreement was made. After this payment, nothing further was ' done until October 19th, when defendant’s cashier wrote a letter which was received by the plaintiff on the 21st demanding payment of the $20,000 loan. On the day following another demand for payment was made by Mr. Brower; he stating that the executive committee which was in charge of the affairs of the bank because of the financial panic prevailing declined to extend the loan. The plaintiff refused to pay,

We are of the opinion this view was erroneous. A contract between the debtor and creditor whereby the debtor pledges collateral to secure the payment of his debt is one of bailment, and certain duties are imposed upon the pledgee. Such a contract is of such class that the right to sell the security for the payment of the debt may be waived by the mere extension of the time without any new or independent consideration, and also by the conduct of the parties. Toplitz v. Bauer, 161 N. Y. 325 , 55 N. E. 1059 ; Bailey v. American Deposit & Loan Co., 52 App. Div. 402 , 65 N. Y. Supp. 330 , affirmed 165 N. Y. 672 , 59 N. E. 1118 . If the right to sell collateral can be waived by mere agreement without consideration, or by the course of conduct between the parties, it surely can be waived by a new and independent ■ contract founded upon valuable consideration.

All the circumstances surrounding the transaction show that the plaintiff understood that by payment of the 1 per cent, commission, not only the time of payment of the note was extended, but that the right

For the purposes of its argument, the defendant concedes that the agreement found by the jury to have been made operated to extend the time of payment of the loan, but insists that, inasmuch as there was-no specific agreement with respect to the sale of the collateral, the last clause of the note giving the right to sell at any time whether the liabilities of the plaintiff were then due or not due survived the agreement for extension. If the defendant desired to retain this right, it should have so notified the plaintiff at the time the extension agreement was made. In the absence of any express reservation, the conduct of the defendant .was such as to mislead plaintiff and to induce it to suppose that the agreement to extend the time of payment carried with it a suspension of the right to sell the collateral until the extended time should have expired. Confessedly the $565 was paid, and the defendant cannot escape from a contract made by its vice president on the. ground that the executive committee of the bank refused to carry it out. The vice president was in charge of the bank, and had authority to make contracts respecting its business. Besides, the defendant through its executive committee could not retain the money paid to its vice president and repudiate his act. If they accepted the fruits of his action, it was a ratification of his act even if it was originally unauthorized. Our conclusion is that the sale of the plaintiff’s collateral was unauthorized; and hence that an action for conversion was maintainable, and- that the dismissal of the complaint was error.

The defendant asks that we permit the order setting aside the verdict to stand, even though we come to the conclusion that the dismissal of the complaint was erroneous. The learned trial court seemed to have no doubt as to the correctness of the verdict of the jury, or that it was in any manner against the weight of evidence, if the plaintiff’s theory of the action was correct. Nor do we find that the ver- . diet is against the weight of evidence. Indeed, there are. many circumstances confessed by the defendant’s witnesses corroborating the plaintiff’s version of the transaction. We see no grounds for. submitting to another jury the question as to-whether or not the extension agreement was in fact made. The measure of damages was proper and properly proven, and there seems to have been no error committed upon the trial except the fundamental one which we have discussed.

The- judgment dismissing _the plaintiff’s complaint should be re

(concurring). I agree with Mr. Justice HOUGHTON in the reversal of this judgment.

The result of the agreement between the plaintiff’s president and the defendant was to give an extension upon these three notes for four months. That agreement was based upon a sufficient consideration and was binding upon the defendant. The effect of this agreement was, I think, to change the loans from demand loans to loans for four months. I do not think it can be construed as changing any of the other terms and conditions upon which the loans were made. The loans were still secured by the collateral originally deposited, and the bank had the right to call for additional security. Upon a failure of the debtor to furnish such additional security, or to pay the loan when due, the bank was authorized to dispose of the collateral security, but had not such right, except upon a failure of the ■obligors to comply with some demand made by the defendant which the note authorized it to make. If the plaintiff had failed to furnish the additional security called for, or to pay the note when due, the bank had the right then to sell without notice the collateral securities and to apply the proceeds to the payment of the obligations. It also had the right to apply any other property of the maker of the notes in its hands to the payment of any balance due to the defendant. The last clause of the stock note which authorized the bank to appropriate •and apply to the payment and extinguishment of this obligation all moneys, securities, or other property now or hereafter in the hands ■of the said bank could only be applicable upon the default of the maker of the note to perform some of their obligations. This clause did not authorize the bank before the note became due, and when the maker of the note had performed all of its obligations, to sell either the collateral or other property of the makers of the note in the hands of the defendant to pay the loans. When additional securities were •demanded by the defendant, the obligors tendered to the bank additional securities which the bank declined, not because they were not sufficient, but because they insisted on a repayment of the loan notwithstanding the agreement to extend it for four months.

I think, therefore, that the sale was unauthorized and was a conversion, and that the plaintiff was entitled to recover. I agree with Mr. Justice HOUGHTON that there was no error on the trial which would justify us in ordering a new trial.

The judgment dismissing the complaint and the order setting aside the verdict must be reversed, with costs, and judgment directed for the plaintiff upon the verdict, with costs.