Assets Realization Co. v. Roth

• Decision Date: 20 May 1919
• Parties: ASSETS REALIZATION CO. v. ROTH.
• Court: New York Court of Appeals Court of Appeals

226 N.Y. 370

123 N.E. 743

ASSETS REALIZATION CO.

v.ROTH.

Court of Appeals of New York.

May 20, 1919.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by the Assets Realization Company against Philip W. Roth. From a judgment of the Appellate Division of the Supreme Court for the Fourth Department (179 App. Div. 324,166 N. Y. Supp. 388), affirming a judgment of the Trial Term entered upon a verdict in favor of the defendant under the direction of court, plaintiff appeals. Reversed, and new trial granted.

Carlos C. Alden, of Buffalo, for appellant.

W. C. Carroll, of Buffalo, for respondent.

CARDOZO, J.

In August, 1901, the Metropolitan Bank of Buffalo found itself in financial straits. It determined to go into voluntary liquidation and avoid the expense of a receivership. The liquidator selected was the German Bank of the same place. The rights and duties of the two banks are set forth in a written contract. The German Bank was to advance sufficient moneys to pay all the depositors of the Metropolitan Bank in full. It was also to make advances for other purposes. In return and as security for these advances, it received a pledge of all the ‘assets, property, and effects of every name, nature, and kind’ belonging to the liquidated bank. In the management of the property and in the conversion of the assets into money, due diligence was to be used ‘to make the conversion as rapidly as it can be done without undue sacrifice.’ There was to be delivered to the liquidator by the Metropolitan Bank ‘a proper guaranty of certain of its directors and stockholders' against any and all loss as a result of the advances.

This action is brought upon a bond delivered to the liquidator in fulfillment of that covenant. The signers were officers and stockholders of the Metropolitan Bank. Each became severally liable for an amount equal to the par value of his shares. The limit of the aggregate liability of all subscribers was $57,200. The limit of the defendant's liability was $21,200. The bond recites the voluntary liquidation of the Metropolitan Bank, the request that the German Bank undertake the work of liquidation, and the covenant to furnish to the liquidator ‘a guaranty against loss.’ The recitals are followed by a covenant in these words:

‘We, the undersigned, all of Buffalo, New York, do hereby covenant and agree, each for himself and not for the other, to and with the said German Bank that we will at all times hereafter keep and save harmless and indemnify the said the German Bank of, from and against all loss damage or injury which it may in any manner sustain by reason of any and every advance which it may make pursuant to the aforesaid agreement, and of and from all costs or expenses that may in any manner grow thereout.’

The German Bank took over the assets of the Metropolitan Bank. It paid all the depositors in full. It did this at once; and for that purpose advanced nearly $800,000. It then went on with the work of liquidation. It had almost finished its task when it too faced disaster. On December 21, 1904, at the suit of the Attorney General of the state, its dissolution was decreed, and a receiver was appointed. Over $830,000 had then been realized from the assets. The receiver collected about $3,500 more, and sold the few remaining assets to the plaintiff. They were, in part at least, the odds and ends that almost always remain upon the winding up of any business. From this remnant of assets the plaintiff succeeded in extracting about $34,000. It did this in co-operation with the defendant and his associates. There is no reason to believe that better results could have been realized by any one. It thus appears that 96 per cent. of the total assets had been liquidated by the German Bank before its dissolution. With the added 4 per cent. produced through the efforts of the receiver and the plaintiff, the proceeds, after deducting expenses, are insufficient to repay the liquidator's advances. There remains a deficit of nearly $250,000. The plaintiff, as the assignee of the bond of indemnity, brings this action to charge the defendant with his proportion of the loss.

[1][2][3] The courts below have held that the defendant has been released because the liquidator died before the liquidation was complete. They have viewed the bond as a guaranty, and its signers as guarantors. The decree of dissolution put an end to the liquidator's life. Liquidation in its final stages was the work of substituted agencies. The bond has been read as containing an implied condition that the liquidator shall bear the loss resulting from its advances unless personal performance of its task shall be continued to the end, and this though personal performance has been made impossible by death.

We reach a different conclusion. The bond which this defendant signed is not a contract of guaranty. It is a contract of indemnity. 1 Brandt on Suretyship and Guaranty, pp. 19, 20; Jones v. Bacon, 145 N. Y. 446, 40 N. E. 216;Same v. Same, 72 Hun, 506, 25 N. Y. Supp. 212; Guild v. Conrad, [1894] 2 Q. B. 885; Nat. Bank v. Smith, 142 Ga. 663, 665, 83 S. E. 526, L. R. A. 1915B, 1116. The liability assumed is not secondary, but primary. We so held in Assets Realization Co. v. Howard, 211 N. Y. 430, 105 N. E. 680. There an action was brought against this defendant and others to charge them as stockholders of the Metropolitan Bank with the statutory liability for debts. We held that the liquidator's advances did not constitute a debt; that the stockholders were not liable under the statute; and that the liquidator, having exhausted the assets, had no security for the deficit except the contract of indemnity. The defendant helped to induce that ruling when the result was to his advantage. We will not change it at his instance now when the result is to his detriment. This is no case, therefore, for the application of the strict rules that are enforced at times for the relief of voluntary guarantors. Guaranty Co. v. Pressed Brick Co., 191 U. S. 416, 426, 24 Sup. Ct. 142, 48 L. Ed. 242;Ill. Surety Co. v. Davis Co., 244 U. S. 376, 37 Sup. Ct. 614, 61 L. Ed. 1206;St. John's College v. AEtna Ind. Co., 201 N. Y. 335, 341,94 N. E. 994. We do not say that even under those rules the defendant would be discharged. Wilkinson v. McKimmie, 229 U. S. 590, 593, 33 Sup. Ct. 879, 57 L. Ed. 1342;Equitable Surety Co. v. McMillan, 234 U. S. 448, 458, 34 Sup. Ct. 803, 58 L. Ed. 1394;U. S. v. U. S. Fidelity & G. Co., 236 U. S. 512, 524, 35 Sup. Ct. 298, 59 L. Ed. 696;Richardson v. County of Steuben, 226 N. Y. 13, 122 N. E. 449. That question is not here. The defendant and his associates had a business interest to protect, and in order to protect it they assumed a primary liability as insurers against loss. The liability is not to be whittled down by the implication of conditions not fairly and reasonably involved in the gist and scheme of the transaction.

[4][5] We think the gist and scheme of this transaction do not fairly and reasonably involve the implication of a condition that the death of the liquidator, leaving assets unadministered, shall cancel the right to indemnity for advances during life. Nearly $800,000 was owing to depositors. Liquidation through voluntary agents was impossible unless those debts were paid at once. The German Bank was advancing the money necessary to pay them. Loss...