Wagner v. Kohn
| Decision Date | 06 July 1915 |
| Docket Number | 293. |
| Citation | 225 F. 718 |
| Parties | WAGNER v. KOHN. |
| Court | U.S. Court of Appeals — Second Circuit |
Barber Watson & Gibboney, of New York City (Stuart G. Gibboney and George M. Burditt, both of New York City, of counsel), for plaintiff in error.
McKennell & Appell, of New York City (Thomas Abbott McKennell and Alfred H. Appell, both of New York City, of counsel), for defendant in error.
Before LACOMBE, WARD, and ROGERS, Circuit Judges.
This is an action brought by plaintiff as receiver of the Mt. Vernon National Bank to recover on a note made to the bank by the defendant. At the time the note was given and as a part of the transaction there was deposited as collateral with the bank certain bonds issued by the Westchester County Brewery Company and which had a face value of $4,000. It appears that the Westchester County Brewery Company, hereinafter referred to as the Company, was indebted to the defendant in the sum of $6,000, secured by a mortgage on its property. This mortgage was found to interfere with the plan of the Company to put out a bond issue, and defendant was asked to discharge it of record, and it was so discharged in August, 1910, and at that time it paid $3,000, one-half the amount due. In October following defendant was pressing for payment of the balance. The Company had $1,000 available for that purpose and applied to the bank to borrow $2,000 additional. The president of the bank advised the Company that the bank already 'had all the loaning paper the bank could stand under the Westchester County Brewery's name,' and it was agreed to ask defendant to sign a collateral note for $2,000, which the cashier was to discount. It was also agreed between the bank and the Company that the bonds of the latter to the value of $4,000 would be given to the cashier as collateral to secure the payment of the note, and at that interview the president of the bank handed the cashier bonds to the amount named to be used for the purpose. The evidence shows that the president of the bank was also the money adviser of the Company, and was to float the bond issue of the latter, and had at the time some of the bonds in his possession with authority to sell. The defendant assented to this arrangement, executed the collateral note, and received the cashier's check drawn to his order. The note and bonds were put into an envelope and left with the bank.
The note made by defendant is dated October 25, 1910. It recites that the undersigned promises to pay on demand to the bank or its order $2,000, with interest at the rate of 6 per cent per annum, 'having deposited with the said bank as collateral security for the payment of this and any other liability or liabilities of the undersigned, or of the guarantors hereof, * * * the following property, viz.: Four thousand dollars ($4,000) par value first mortgage bonds Westchester County Brewery, * * * and the undersigned also hereby gives to the holder hereof a lien for the amount of all the said liabilities upon all the property or securities,' etc. It also empowers the holder, upon nonpayment 'of any of the liabilities above mentioned when due,' to sell at public or private sale the said securities or any part thereof.
There was testimony to show that it was understood that the note was to be paid by the Company. But as between the plaintiff and the defendant there can be no question but that defendant was liable on the note according to its terms and that the written agreement could not be overcome by a parol understanding that the Company would pay it.
The bonds deposited were Nos. 591-600, being 10 in number and of the par value of $100 each, and Nos. 41-46, being 6 in number and of the par value of $500 each. On December 30, 1910, these bonds, without the knowledge or consent of defendant, were delivered by the president of the bank to the Empire Trust Company, the trustee under the mortgage which secured them, and were exchanged for bonds of a second issue of equal par value; the bonds of the first issue being canceled. The authorized amount of the first issue was $125,000, and of the second issue $200,000. The substituted bonds came into the possession of the receiver of the bank, a receiver having been appointed in April, 1911, who sold them prior to the commencement of this action and realized 66 2/3 of the par value, or more than the amount of the note.
These being the facts as disclosed upon the record, the defendant insists that the action on the note cannot be maintained against him. Upon the close of the case in the court below his counsel moved to dismiss the complaint, upon the ground that the plaintiff had not produced the security mentioned in the note, and that there was no proof of any tender of the security contemporaneous with the demand for payment, nor at any other time, and upon the further ground that it affirmatively appeared that the securities pledged for the note had been converted by the bank, and that they were in value sufficient to extinguish the liability on the note. Counsel for the plaintiff asked the court to direct a verdict for the plaintiff for the full amount of the note. It was agreed that the plaintiff made out a prima facie case by the production of the note and proof of payment of the recited consideration to defendant.
If the note had been an ordinary note this argument on behalf of plaintiff would have been sound. But the note is not an ordinary one.
It is a collateral note, and that fact appears by its recital, and the testimony conclusively establishes that the collateral was in fact deposited. The evidence shows that before this action was brought the collateral was surrendered by the bank without defendant's knowledge and canceled. The substituted bonds were likewise, before action and without defendant's knowledge, sold by the plaintiff or by his predecessor in the receivership, and he did not possess them at the time of the trial. In the absence of a special agreement to resort first to the collateral, the plaintiff as holder of the note was under no obligation to realize upon the collateral before suing upon the note. Lewis v United States, 92 U.S. 618, 23 L.Ed. 513 (1875); De Cordova v. Barnum, 130 N.Y. 615, 617, 29 N.E. 1099, 27 Am.St.Rep. 538 (1892); Jenkins v. Conklin, 146 A.D. 302, 303, 130 N.Y.Supp. 778 (1911). Whether he could obtain payment of the note without making tender of...
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