McCormick v. Sullivan — 55 N.Y. St. Rep. 42

Majority

p. 42

Michael McCormick, Adm’r, App’lt, v. James Sullivan, Resp’t.

(Supreme Court, General Term, Fourth Department,

Filed September 23, 1893.)

Headnote

Principal and surety—Lien.

Defendant indorsed a note of plaintiff’s intestate to enable the latter to raise money. Intestate promised the lender that he would give a mortgage to take up the note, and received from him a certificate of deposit, which he gave to defendant to cash, and out of the proceeds instructed defendant to pay a debt of his and return the balance, and died the same day without having given the mortgage. Defendant made the payment, but refused to pay over the balance to plaintiff. Held, that in collecting the certificate of deposit defendant acted as the agent of the intestate and had no other rights than an ordinary agent would have had; that he had no lien on the balance to secure the performance of intestate’s promise, nor any counterclaim against the demand, as the note was not due and the estate not shown to be insolvent.

Appeal from judgment dismissing the complaint on the merits, ■with costs against the estate of plaintiff’s intestate.

F. M. Leary (M. N. Tompkins, of counsel), for app’lt; David M. Dean, for resp’t. i

The defendant received from the plaintiff’s intestate a certificate of deposit on the Tompkins County Bank for $500, ■with instructions to collect that amount, to pay to one Brice $107.50 thereof, and return the balance to him: The defendant collected from the bank the whole amount, and paid to Brice as directed. The intestate died on the very day the defendant received the money from the bank, and this plaintiff, as his administrator, after demanding the balance of such money from the defendant, and being refused, brings this action for its recovery. Upon the trial the following facts appeared: First, it was conceded that, a day or so before he received the certificate from the deceased, the defendant had indorsed a note as surety for him, to enable him to borrow $500 from Mr. Black, and that Black had, in consideration of such note, indorsed over to the intestate the certificate in question. Such certificate was for $600, and Black had indorsed on it a direction to the bank to pay the intestate $500, and place $100 thereof to the credit of Black. Next it appeared that, prior to the giving of the note in question, there was an agreement between Black and McManus, the intestate, made for the benefit of the defendant in this action, by which McManus was to obtain a release of certain of his property from the lien of a mortgage that was then upon it, and then execute a mortgage to Black, and release the defendant, and give up the note. This last statement was determined by the jury to be the fact in reply to a specific question left to them to be answered as a special verdict. It was also conceded that the intestate died without having given any mortgage to Black. Aitother question was submitted to the jury, as follows:

“At the time the certificate of deposit was delivered to Mr. .Sullivan to bring to Ithaca to get the money on, was it then ■agreed between McManus and Mr. Sullivan that a mortgage -should be given upon a portion of McManus’ farm, to secure a note Mr. Sullivan had previously signed for Mr. McManus, to ■obtain that certificate of deposit ? ”

The jury answered, “No," to this question, and we must therefore assume that no such agreement was made with the defendant when he took the certificate. To this must be added another fact, "testified to by the defendant himself, that when he took the certificate the understanding was that he was not going to keep it. Nothing was said, when he took the certificate to get the money •on, that he was going to keep it or hold it until the mortgage was given, and he did not intend to so keep it or hold it. Such were the facts, and the only facts, appearing to the court, and ■upon them a judgment was directed dismissing the plaintiff’s complaint on the merits. From that judgment this appeal is taken.

The first question to be considered is whether, from these facts, •any defense appears to have been shown against the plaintiff’s •claim. It is important to notice that the transaction in which the loan was made, and the defendant’s liability as a surety incurred, was completed a day or two before he took the certificate of deposit to get the money on. There is no claim made that the certificate, or the money t'o be received upon it, was to be held or

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in any way applied as a security to the defendant for indorsing the note. There was not, in any form, or between any of the parties,, any arrangement that such certificate, or the proceeds of the loan,, were to be held by any one as security that the promised mortgage would be given. Nor is there anything to indicate that the-parties understood that the contract by which the loan was made-by Black, and the liability as surety incurred by the defendant, was not completely finished when the intestate delivered the note to Black with the defendant’s indorsement thereon, and received from Black the certificate in exchange therefor. The defendant himself testified that, when he received the certificate from the-intestate to go and get the money on it, he had no intention of keeping it until the mortgage was given or as security for any purpose. He was at once to return the money he had received upon it to the intestate. It is plain, therefore, that the only security which the defendant had for becoming surety on the note, or which was contemplated from the time the arrangement began-until it was fully completed, was the mere naked promise of the intestate made to Black that some time in the future he would take up the note, and substitute a mortgage in its place. Under such circumstances, I am not aware of any rule, legal or equitable, nor am I referred to any by the defendant’s counsel, that gives the defendant a lien upqn the proceeds of that note, or authorizes him to follow it into the custody of the intestate as a security for the performance of such promise.

The evidence does not present a case where the transaction is incomplete, and something remains to be done bjr the principal before the surety’s obligation is to be assumed. The obligations of the borrower, the lender, and the surety had all been fully incurred and the transaction closed up before the certificate came into the possession of the defendant. It may be conceded that the promise made by the intestate to Black was made for the defendant’s benefit, and also that, in equity and justice, it ought to-be performed; yet I am at loss to discover any principle that gives the defendant a specific lien or claim upon the proceeds of that note. It seems, therefore, that when the defendant undertook to take that certificate to the bank, get the money on it, and-return such money to the intestate, he was acting merely as an agent for the intestate, and had no other rights in the fund he was-receiving than an ordinary agent would have liad. Authorities need not be cited to show that under such circumstances, upon the death of the intestate, he was obliged to account for and pay over the proceeds to his administrator. These considerations seem to dispose of the whole case, as defendant has not pleaded any counterclaim to the indebtedness so existing against him ;• but aside from the question of pleading, the facts do not show any demand due him which he could utilize as a counterclaim in this; action. Clearly, no cause of action had accrued to him by reason of his having indorsed the note as surety for the intestate, because as yet the note had not become due, and he had never been-compelled to pay anything on account of it. Frost v. Carter, 1 Johns. Cas., 74 . Nor did he have a cause of action against the

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intestate because of his omission to give the mortgage promised to Black. Such promise, in legal effect, was little more than the promise ordinarily implied in every case between principal and surety, to wit, that the principal will indemnify the surety against loss on account of the debt which he, as suretjq assumes to pay. No cause of action could accrue to the defendant for a breach of the promise until he had in some manner been damnified. Although the note had not been taken up, he had never been called upon to pay it; nor does it seem to appear that the intestate's «state is insolvent, so that he will ultimately have to pay it. A party cannot set off, against a debt due from himself at the time -of the intestate’s death, a claim against the intestate not then existing or owned by himself. Code, § 506; Jordan v. Nat'l Shoe & Leather Bk., 74NY, 467. Nor should a cause of action be defeated by a mere equity that is not in itself sufficient to found an action upon. Armstrong v. McKelvey, 104 N. Y., 179 ; 5 St. Rep., 611 ; Canaday v. Stiger, 55 N.Y., 452 . These considerations require that the judgment should be reversed, and render unnecessary an examination of the other questions presented by the appellant.

Judgment and order reversed, and a new trial granted, with <oosts to abide the event.

Hardin, P. J., and Merwin, J., concur.