Smith v. First National Bank

The action is in equity to compel the defendant bank to apply the proceeds of certain collateral pledged by the plaintiff and the defendant Patton to the satisfaction of certain notes to the exclusion of certain other notes, and for an accounting.

The defendant Patton was a lumber merchant in the city of Albany, and a patron of the National Exchange Bank of that city, which subsequently became merged in defendant First National Bank. The plaintiff, who lived in the city of New York, and Patton, were engaged in certain joint enterprises in timber lands in certain of the Canadian provinces. In the latter part of the year 1902 or the fore part of the year 1903, all that remained of these joint enterprises was what is known as the Gaspereaux lands in Nova Scotia, in which the plaintiff and Patton held an equal interest. The plaintiff concedes that during the years 1902 and 1903 one note of $15,000 and another of $11,856.06 signed by Patton and himself, or by himself and indorsed by Patton, were discounted by the defendant bank or its predecessor, and that for them or their renewals the Gaspereaux property was pledged as collateral originally by deed, and later it would seem by stock of the Gaspereaux Company, a corporation, formed to take over the lands. The plaintiff also concedes that such collateral is properly held for certain advances made by the defendant bank on account of and for the benefit of the Gaspereaux property which the defendant claims amounted to the sum of $3,872.03. The defendant bank claims that the Gaspereaux property was pledged to secure the payment, not only of the foregoing, but also of notes then held by it of Patton and his wife, aggregating something over $27,000. The plaintiff’s name does not appear on any of these latter notes, and the bank held, and still holds, other security as collateral to them which Patton or his wife had furnished. Negotiations for the discounting of the $15,000 note and $11,000 note and the pledging of the collateral therefor were had with the bank by Patton.

The defendant bank insists that the plaintiff either expressly authorized Patton to pledge his, the plaintiff’s, interest, not only for their joint indebtedness, but also for Patton’s individual indebtedness, or, if he did not go so far as that, he at least clothed Patton with sufficient apparent authority to authorize the bank to rely upon his having authority so to do, and that he is now estopped from asserting to the contrary. The plaintiff claims that he gave Patton no. such authority, nor did he clothe him with any apparent authority of that character, and that his share of the collateral should not be applied to the payment of any individual indebtedness of Patton, but only to such indebtedness as related to their joint enterprise. The defendant bank entered into a contract for the sale of the Gaspereaux property for $80,000, about $50,000 of which has been paid, and it is assumed that the balance due on the contract is secure and may be treated as money. The aggregate of the joint enterprise indebtedness and of the Patton individual indebtedness with accumulated interest is in the neighborhood of $60,000, or $65,000, and, according to the bank’s own claim, when the full amount for which the Gaspereaux property is contracted to be sold shall have been paid, there will confessedly be a surplus remaining to be divided between the plaintiff and Patton.

[1] We are of opinion the learned trial court was in error in such dismissal. The action was in equity. The proper parties were before the court, and the court had jurisdiction of them and of the subject-matter in controversy, and the plaintiff was entitled at least, even if Patton was authorized to pledge the plaintiff’s share of the Gaspereaux property for the payment .of the individual notes of himself and wife, to have it decreed that Patton’s half interest should be exhausted, as well as the other collateral given by Patton, before resort was had to his own interest in the Gaspereaux property. If the plaintiff was not interested in the $27,000 which Patton had individually borrowed prior to the discounting of the notes on the faith of the Gaspereaux property, and was not under obligation to pay any part of it, even though he authorized Patton to pledge his interest in the Gaspereaux property for its payment, the.legal relation between the two would be that of principal and surety. In such a case the debt would be Patton’s debt, and the plaintiff would be a surety, who had placed additional collateral with the defendant bank therefor.

[2] "At law a surety will be compelled to pay the debt and after that look to the collaterals of his principal for indemnity. But in equity, if there be circumstances from which it appears directly or by reasonable inference that substantial injury or prejudice will not result to the creditor by enforcement, in the first instance, of the surety’s right, and have the debt paid from the principal’s property, the surety may in the case of hardship compel the creditor to resort to the securities in' the creditor’s hands or under his control, the property of the principal, in satisfaction of the debt before coming upon him.” Pingrey on Surety & Guaranty, § 149; Philadelphia & Reading R. R. Co. v. Little, 41 N. J. Eq. 519 , 529, 7 Atl. 356 ; Ingalls & Stockman v. Morgan, 10 N. Y. 178 ; Wright v. Austin, 56 Barb. 13 . No prejudice can result to the defendant bank from compelling it to realize upon the collateral security which it holds pledged by Patton for the various notes aggregating $27,000. Nor can injury or inconvenience resiilt from compelling it to apply Patton’s half of the surplus above the joint indebtedness received from the Gaspereaux, property to the payment of such notes before resorting to the one-half belonging to the -plaintiff.

[3] The whole situation being before the court, these matters should have been adjusted, for, when a court of equity has obtained jurisdiction of the parties and of the subject-matter of an action, it will retain it and adapt its relief to the exigencies of the case, even though it is impracticable to grant the specific equitable relief demanded. Valentine v. Richardt, 126 N. Y. 272 , 27 N. E. 255 ; Mott v. Oppenheimer, 135 N. Y. 312 , 31 N. E. 1097 , 17 L. R. A. 409 ; Consolidated Fruit Jar Co. v. Wisner, 110 App. Div. 99 , 97 N. Y. Supp. 52 . Not

[4] For the purpose of ascertaining whether or not apparent authority was given, the learned trial court correctly ruled that all the surrounding circumstances might be shown. The plaintiff and Patton were not such general partners as gave the latter authority to pledge joint enterprise property, and, if any apparent authority existed, it did not flow from any general partnership relation.

[5] So, too, the court properly held that parol evidence was competent to show for what indebtedness the Gaspereaux property was pledged. The collateral notes on their face do not purport to contain all of the contract. One of the originals was signed by the plaintiff and Patton and the other by the plaintiff alone. The clause pledging the collateral for the payment of any other liabilities than the notes themselves reads in the original $11,000 note and in the original of the $15,000 note “claims held against-,” the space never having been filled in. Besides, the consideration was open to explanation. If the plaintiff had the benefit in any joint enterprise of the $27,000 or any part of it, that fact would have a bearing upon whether he permitted his half interest in the Gaspereaux property to be pledged for its payment. If he did not have the benefit of any part of it, then there would be less reason for his consenting to any such arrangement.

[6] While the answer of the defendant bank might have been more specific with respect to defendant’s claim in regard to the various notes which it claimed the collateral was applicable to, we think its allegations taken in connection with the letter which is made a part of the answer and attached as “Exhibit A” are sufficient to permit proof of the entire situation. The statement in the letter is that the collateral is held for “various notes,” including the two confessedly given in the joint enterprise. If the plaintiff had desired a more specific description of such notes, he could have called, for a bill of particulars.

[7] Nor was the action prematurely brought, notwithstanding the fact that the bank had not chosen to apply the proceeds of the collateral to the full payment of the joint notes. It was asserting its right and threatening to apply the proceeds of plaintiff’s half of the .collateral to the payment of Patton’s individual notes. The plaintiff

It follows that the judgment should be reversed and a new trial granted, with costs to the appellant to abide the event. All concur; KELLOGG, J., in memorandum.

I concur in all Justice HOUGHTON says, except with reference to the answer. I am satisfied the answer does not present the issue litigated. The complaint alleges the turning over to the defendant bank of certain securities and property to secure the so-called $15,000 note, that there was no authority to pledge it for other purposes, but that the bank claims to hold it for other indebtedness of Patton, that the bank had realized more than enough to pay the indebtedness intended to be secured, and had refused to return or account for the securities, and it prayed an accounting and that the plaintiff’s interest in .the property pledged be fixed.

The answer contains several denials, alleges that the collateral was intended to secure the so-called $11,000 note, and that there is $577.24 unpaid upon it, and that the defendant has the right to retain the collateral until such loan is paid. It then alleges that the defendant served upon the plaintiff a certain notice, a copy of which is attached to the answer, but which apparently is of no force as a pleading. The statements in the notice are not even alleged to be true. Apparently from the face of the pleadings the plaintiff would be entitled to the return of the securities mentioned in the complaint upon payment of the $577.24. In an action for an accounting, if the defendant held the security for other indebtedness, it was its duty to allege the facts. I think the alleged notice does not help out the answer, and that there is an absence of any allegations which justify the proof of other indebtedness for which the defendant claims to hold the collateral.