Brown v. Mechanics & Traders' National Bank — 35 N.Y. St. Rep. 665

Majority

p. 665

Timothy J. Brown, Ex’r, App’lt, v. The Mechanics & Traders’ Nat. Bank, Resp’t.

(Supreme Court, General Term, First Department,

Filed December 29, 1890.)

Headnote

Banes—Power of president—Purchase op land to protect debt.

Plaintiff’s testator, B., was president of defendant in the fall of 1874. G-. was then a debtor of defendant but not of B. G. had previously mortgaged his property and it was 'to be sold on foreclosure. G. applied to B. for help, upon the day of sale, and said “ that if there was any benefit to be derived from that property I (he) wanted the defendant to get the benefit. ” On the sale B. bought the property, taking a deed to the discount clerk of defendant, who conveyed to B. the same day. The money was practically furnished by the defendant, the clerk paying nothing and B.’s check on the sale being charged to the cashier’s account, i. e., the bank. Later in 1874 B. executed a mortgage on the property to W. and the consideration went to defendant. An account relating to the property, interest, rents, etc., was opened in defendant’s books, and continued for some years. In 1878, in consideration of one dollar, B. conveyed the property to defendant. Subsequently the mortgage of B. to W. was foreclosed and a deficiency resulted. This action was brought to have defendant protect B. or his estate from the deficiency. Held, that although plaintiff made no formal proof that this matter was brought to the notice of defendant’s directors, its appearance on the books of the defendant for five years created a presumption that it was understood and approved by them, or if this were not so it was a fiscal matter within the authority of the president and within his power, in an attempt to save defendant’s debt by a purchase of the property.

Appeal from judgment on the report of a referee.

Geo. W Stephens, for app’lt; Thos. J. McKee, for resp’t.

This action has been brought to recover the amount of a deficiency remaining ' after the sale ' of mortgaged premises, upon the foreclosure of a mortgage executed by the testator to secure his bond. He was the president of the defendant, and the theory of the action is that he gave the bond and

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mortgage for the use and benefit of the defendant, land that "the defendant is equitably bound to pay this deficiency. The plaintiff gave evidence tending to prove these facts, ana requested the referee to find them to have been proven, but he refused to do so, and to his refusals the plaintiff excepted. Included within these refusals are the requests to find that the defendant paid the larger portion of the purchase price of the land when the title to it was obtained; that the testator at no time held the title otherwise than nominally, and in trust for the defendant, that the title was conveyed to him to enable him to mortgage the land and borrow the money secured for the defendant, and in making the bond and in incurring the debt he acted for and in the interest of the defendant and as its agent.

If these facts, excluding the object of the conveyance, had been found in the plaintiff’s favor, then the question would have arisen, whether the testator had not incurred this liability so far in the nature of a surety for the defendant as to obligate it to protect his estate by satisfying this deficiency. For it is the duty of the principal for whom a legal liability may be incurred to save not only the surety, but also persons substantially in the attitude of a surety, from losses, or the liability for losses arising out of that relation. It, therefore, becomes necessary to examine the evidence to discover whether this was, in fact, the position of the testator. So far as the evidence proceeded there was no conflict presented, and the plaintiff was entitled to its reasonable effect in his favor, in the disposition of the action.

The title to the land incumbered by the mortgage was previously vested in Michael Gravin. He had given a mortgage upon it to secure the payment of $16,000 to the Emigrant Industrial Savings Bank. This mortgage was in process of foreclosure, and Gravin was at the same time indebted to the defendant, but not to the testator. And on the day of the sale he applied to the latter for assistance, stating to him “ that if there was any benefit to be derived from that property I wanted them (that is the bank) to get the benefit.” And after that interview his testimony is, that Mr. Brown went with him, and attended the sale and" bought the property. But the deed was not taken to himself, as it is to be presumed it would have been if he had made the purchase for himself, but it was taken to Fernando Baltes, who was then discount clerk, and at the time of the trial was cashier of the bank. And this grantee, on the same day, by another deed, conveyed the land to the testator. Each of these deeds expressed the consideration of $22,500. But Baltes neither paid nor, received any part of such consideration. It, on the contrary, . was paid to the extent of $20,000 by the check of the ^testator,' payable to the order ©f and endorsed by the referee who made" that sale^This check was paid by the defendant, and charged, to the" cashier’s account, which was the account of the bank itself. This took"place in .October, 1874. And on the 9th of December,, in the same year, the testator executed the bond and mortgage, now more especially involved in this action, to James B. Warden, also ^since^deceased, to secure the payment of the sum of $16,500, receiving from.him on the.

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30th of the month, his check for $16,000. This check was drawn upon the defendant, to the order of, and endorsed by the testator, and the amount was credited to the same account as the check to the referee had been charged to. In that manner the defendant had the full benefit of this loan, and there was certainly no violation of its corporate powers involved in receiving these proceeds. And after that, and in June, 1875, an account was opened in the books of the defendant with the Thirty-eighth street real estate, which was the land conveyed and mortgaged in the manner already mentioned.

Mr. Gavin testified that he remained in possession of the property after its sale and conveyance and paid part of the rent to the bank, and asked the privilege of using some of the money; and the plaintiff, who seems to be uninterested in the action, testified that he insured the property, from 1874 to February, 1879, in the name of Gavin, and sent the bills to the bank, where they .-were paid.

The mortgage to Warden was payable with seven per cent interest, and it appeared from the books of the bank that the sum of $560, which was the amount of the interest accruing every six months on this sum of $16,000, had been paid by it, from time to time, from July 1, 1875, to the 22d of January, 1880. In two instances it is stated to have been for six months’ interest to J. B. Warden, and it was also admitted that the mortgage the interest was paid upon was this mortgage.' The land was conveyed by the testator and his wife to the bank on the 1st of January, 1878, for the nominal consideration of one dollar, subject to this mortgage and the interest, which completely vested the bank with the full benefit and advantage of the property. While the testator held the title it is clear that he did so for the bank, and the bank received its profits and bore its burthens; so far as the evidence has disclosed the facts the testator derived no benefit whatever from the property. He obtained it at the suggestion of the debtor of the bank, taking the title to Baltes and then to himself, for the avowed reason that the bank could not hold it; and all that he afterwards did with the land was not for himself, but for and on account of the bank. And the same management preceded, as well as followed, the formal conveyance of the title to the bank.

There was no formal proof that this business was brought to the notice of the directors ; but from the fact of its appearance in its different features upon the books of the bank, extending over a period of about five years, it may well be presumed to have been understood and approved by them.

But if it were not, it was one of the fiscal affairs necessarily within the authority of the president, as the testator was. A debt of considerable magnitude was owing to the bank, and no other mode of avoiding its jeopardy, or its loss, then appeared, and to promote the interests of the bank'by guarding against this danger its money was advanced and this property obtained, and it was nursed along with the expectation that profit would be derived from it, and that management of it continued after the testator left

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his office, and very nearly to the event of his own decease, when further payments were discontinued and the mortgage to which the land was subject was foreclosed. There was no misconduct or want of authority in these acts. Neither has any been alleged by way of defense. But they appertain so directly to the business of the bank as to be within-the province and power of this officer. As the sequel has proved it would have been more fortunate to have abandoned the debt, instead of trying, as the president did, to save it. But for this error of judgment his estate cannot consistently, or equitably, be declared to be liable for this deficiency.

The proof was abundant that the testator, in all that he did with this property, acted not for himself, but as the president of the defendant, and without any dissent on the part of either of its other officers. And the referee erred in not finding the main facts to have been proved which are included in these requests. And so he did in his conclusion that the bank never authorized, and did - not ratify or adopt, any of these transactions.

Whether the action can surely be maintained with these facts found in behalf of the plaintiff, it is not proper now to consider, for on that subject the referee has not acted. They are indispensable for the presentation of that point, and it is by no means so clear that the action cannot be sustained if these facts are found as to. justify a decision against the plaintiff. The fact that the j udgment has not been entered declaring the amount of the deficiency, and that the plaintiff has paid no part of it, subjects his action at least to doubt. But the right of the estate to indemnity underthe broad principles of equity maintaining the protection of sureties, and others standing in like relations, may prove sufficient to remove this doubt. At the present time that is not a practical question, and when it shall become such will be the time for its more careful examination.

Important errors have intervened against the plaintiff, and it is because of them, and not for want of present favorable equities, that the referee concluded the action could not be maintained. And they can be corrected only by another trial. The testator ■was held liable also upon a note endorsed by him which the bank had discounted. This note was payable to the order of ‘George W. Youle, cashier, and from the facts proved may be presumed to have been received from, and discounted for the maker. The testator’s endorsement may have been placed upon the paper to give the maker credit with the bank. But it can hardly be said to have been proved, even, by a very liberal construction of the proof. This part of the case, therefore, is not free from grave doubt. And justice seems to require that the judgment should be reversed, and a new trial ordered, with costs to the plaintiff to abide the result

Van Brunt, P. J., and Brady, J., concur.