Executive Securities Corp., by MacRae v. Gray

• Court: New York Supreme Court — Appellate Division
• Citation: Executive Securities Corp., by MacRae v. Gray, 413 N.Y.S.2d 674, 67 A.D.2d 860 (N.Y. App. Div. 1979)
• Decision Date: 15 February 1979
• Parties: EXECUTIVE SECURITIES CORPORATION, By Cameron F. MacRAE III, Trustee, Plaintiff-Appellant, v. Richard GRAY, Defendant-Respondent.

Page 674

413 N.Y.S.2d 674

67 A.D.2d 860

EXECUTIVE SECURITIES CORPORATION, By Cameron F. MacRAE III Trustee, Plaintiff-Appellant, v. Richard GRAY, Defendant-Respondent.

Supreme Court, Appellate Division, First Department.

Feb. 15, 1979.

E. H. Moss, New York City, for plaintiff-appellant.

R. J. Suttenberg, New York City, for defendant-respondent.

Before MURPHY, P. J., and BIRNS, FEIN, SULLIVAN and LUPIANO, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County entered March 9, 1978, denying plaintiff's motion for summary judgment and granting summary judgment to defendant pursuant to CPLR 3212(b), despite the absence of a cross-motion for such relief, unanimously modified, on the law, to the extent of denying summary judgment to defendant and otherwise affirmed, without costs or disbursements on the appeal.

The action brought by plaintiff trustee in liquidation, seeks to recover upon a promissory note in the sum of $62,000, issued by defendant to accommodate plaintiff's bankrupt, then known as Dopler & Co. (Dopler). Defendant had withdrawn from Dopler. He asserts he was "forced out". He received a general release from all liability on September 13, 1971. The note in issue here was allegedly a rollover note executed on or about February 22, 1973, backdated to October 1, 1972 to replace a prior note issued in January 1972, backdated to September 30, 1971. That note was allegedly issued "dated back to September of 1971 to conform with their year end report. That was for their benefit, not for mine." The firm remained in business for some time, until February 14, 1975, when it was placed in liquidation under the Securities Investor Protection Act of 1970 (11 U.S.C. § 1 Et seq.) and its property turned over to the trustee, who thereupon commenced this action to recover on the promissory note. On March 5, 1973 Dopler had merged with Executive Securities Corporation with Executive the surviving corporate entity. Prior to its liquidation Executive functioned as a securities broker and dealer, maintaining approximately 8,200 securities accounts for over 2,500 investors.

Defendant, to avoid liability on the note, claims that it was procured by fraud and duress and without legal or valuable consideration. He also relies upon an alleged collateral agreement with Dopler and a filed UCC financial statement limiting recourse which purport to exonerate him from personal liability.

Plaintiff contends that defendant should be estopped from relying upon fraud, duress or want or failure of consideration in the action to recover on the note for the benefit of Executive's creditors. Principal reliance is placed upon authorities in this State which have invoked public policy considerations to preclude the maker of a promissory note, issued for the accommodation of a banking institution, from claiming either that he received no consideration for the note or that it was procured by fraud or duress. The maker of such an instrument in the form of a binding obligation has been held to be estopped on public policy grounds from enforcing an alleged oral collateral agreement not to enforce the note in accordance with its terms (Mount Vernon Trust Co. v. Bergoff, 272 N.Y. 192, 5 N.E.2d 196; Bay Parkway Nat. Bank v. Shalom, 270 N.Y. 172, 200 N.E. 685; President & Directors of Manhattan Co. v. Cocheo, 256 App.Div. 560, 10 N.Y.S.2d 770). Plaintiff asserts that similar policy considerations warrant that protection be afforded to stock brokerage firms.

In view of the disposition which we here reach, we deem it unnecessary to decide, on this record, whether the principle, designed to afford necessary protection to a bank's depositors and creditors, need be automatically extended to the securities industry. The cases relied upon do not so hold. (Matter of Weis Securities, Inc., 425 F.Supp. 212 (S.D.N.Y.1977), affd., --- F.2d ----; Redington v. Exchange Nat. Bank of Chicago (U.S.D.C.N.D.Ill., 1977), not officially reported; Redington v. O'Hare Int. Bank (U.S.D.C.N.D.Ill., 1978), not officially reported. The banks made loans and expressly agreed to subordinate their rights of set off. They received consideration for their loans and subordination as part of a scheme to enable the dealer to satisfy the SEC net capital rule. Their claims of fraud and the right to rescission were held not to be tenable. Public policy was held to preclude any right to rescission. The banks had knowingly participated in the...