Continental Nat'l Bank v. Bell

I am unable to find in the record any evidence to justify a conclusion that the note of the defendant was pledged by Crosby to secure rent which might accrue to the plaintiff subsequent to May 1, 1885, or that the plaintiff ever acquired any right from Crosby to hold the note as security therefor. The only arrangement between Crosby and the bank in respect to the note was made some time in February, 1885, and whatever right or interest the bank acquired therein depended upon the arrangement, then made. Crosby was indebted to the bank for three quarters' rent past due, amounting to $1,500, on his lease, and another quarter’s rent of $500 would become due thereon May 1, 1885, on which day the lease by its terms was to expire. The bank had been unable to collect the rent due. This was the situation when the three notes, including the note of the defendant, were left by Crosby with the bank as security for the rent due and to accrue under the lease, the bank having previously refused to discount them. The claim now made by the bank is that the notes having been deposited both to secure the rent due and to become due, it. held them as security not only for the rent accrued and to accrue on the existing lease, but also for any rent which might become due from Crosby on any new letting of the same or other rooms thereafter at any time made.

This is, we think, an inadmissible construction of the transaction, in view of the circumstances. There had been at the time no treaty between the bank and Crosby, either for the renewal of the existing lease or for a lease of other rooms. There is no evidence that either party then contemplated that the tenancy would continue beyond the term of the existing lease. It would be quite extraordinary under such circumstances that either party should undertake to provide for such a contingency.

The general evidence of the president and cashier of the bank that the notes were left as security for rent due and to become due, fairly interpreted, refers to the rent past due on the existing lease, and to become due thereon. That this was what the bank understood seems to be placed beyond question by the statement of the president in an affidavit made by him and admitted as evidence generally on the trial of the present action, wherein, after referring to this transaction and to the fact that Crosby was-then indebted to the bank in the sum of $1,500 for rent due, and that the bank threatened to turn him out unless the rent was paid, he continues: “ He (Crosby) thereupon, on or about February 9, 1885, brought to the bank the note on which this suit was founded

The general term has found, contrary to the finding of the referee, and we think justly, that the note was an accommodation note, and this was known to the bank soon after it received it. Assuming that there was no wrongful diversion of the note by Crosby, nevertheless the bank cannot enforce it against the accommodation maker for any amount beyond that for which it was pledged, nor for a debt for which it was not pledged. In respect of any excess it stands in the situation of Crosby, who clearly could not enforce payment Gordon v. Boppe, 55 N. Y., 665 ; Atlas Bank v. Doyle, 9 R. I., 76 ; Stoddard v. Kimball, 6 Cush., 469 .

By the j udgment in this case the bank was permitted to recover on this note as though it was pledged as well for the rent on the original lease as for that accruing on the new lease made in March. This was, I think, erroneous, and the point that the note was not pledged for the rent on the subsequent lease was specifically made in the answer, and is, I think, sufficiently raised by exception.

There is another ground on which the judgment is assailed, and that is that the note was wrongfully diverted by Crosby from the purpose designed, and in violation of a restriction imposed upon its use by Bell when the note was made. This, if true, would, under the decisions in this state, prevent the bank from enforcing the note as against Bell to collect the portion of the- rent which was past due when the note was pledged. Coddington v. Bay, 20 Johns., 636 ; Stalker v. McDonald, 6 Hill, 93 ; Grocers' Bank v. Penfield, 69 N. Y., 502 .

The evidence on the part of the defendant tends to show that Bell gave the note upon the representation of Crosby that he would procure the money on it and use the proceeds in purchasing the outstanding shares in a company known as The Albermarle Company, for the purchase of which shares he had an option which when acquired would as he claimed enable him immediately to complete the sale of the marl beds and property of the company to a Paris syndicate for a large sum of money, out of which when received, which would be in a very short time, he promised to pay Bell a debt which Crosby owed him of several thousand dollars. The findings of the referee in respect to this defense are quite vague and somewhat inconsistent. In his original report he finds that Bell made and delivered the note to Crosby, “ having made no special restriction as to its use although expecting the same was to be used in some transactions in which said Crosby was interested.” In his special findings he finds “ that the said Crosby represented to said Bell, among other things, that he required certain moneys for the purpose of making certain purchases of stock in the Albermarle Company in which he was largely interested, and he assured the said Bell that it was his intention to have the said note discounted and apply the proceeds thereof to such purpose; ” also “ that Mr. Crosby promised said

We think there should be a new trial on which the questions ' involved may be more clearly presented.

The judgment of the court below should be reversed and a new trial ordered, with costs to abide the event.

All concur.