First Nat. Bank of Bridgeport, Conn. v. Blackman

• Decision Date: 20 November 1928
• Citation: 249 N.Y. 322,164 N.E. 113
• Parties: FIRST NAT. BANK OF BRIDGEPORT, CONN., v. BLACKMAN et al.
• Court: New York Court of Appeals Court of Appeals

249 N.Y. 322

164 N.E. 113

FIRST NAT. BANK OF BRIDGEPORT, CONN.,

v.BLACKMAN et al. ^*

Court of Appeals of New York.

Nov. 20, 1928.

Action by the First National Bank of Bridgeport, Conn., against Nathan Blackman and another, copartners doing business under the firm name and style of Nathan Blackman & Co. Judgment for plaintiff was reversed by the Appellate Division, First Department, and a new trial ordered (223 App. Div. 155, 227 N. Y. S. 602), and plaintiff appeals.

Order of the Appellate Division reversed, and judgment of the Trial Term affirmed.

Crane, J., dissenting.

Appeal from Supreme Court, Appellate Division, First Department.

Paul Bonynge, Robert J. Sykes and Daniel A. Dorsey, all of New York City, for appellant.

Jonah J. Goldstein, Thomas G. Frost and Joseph W. Ferris, all of New York City, for respondents.

KELLOGG, J.

The plaintiff seeks recovery upon four promissory notes executed by the defendants and delivered for value to the Eastern States Warehouse & Cold Storage Company, the payee named therein. Two of the notes were dated July 7, 1925, and evidenced, in each instance, a promise to pay the sum of $937.50, with interest. The remaining notes were dated July 16, 1925; one evidenced a promise to pay $1,176, with interest; the other a promise to pay $924 with interest. The defendants admitted that the payee named in the four notes indorsed and delivered the same to the plaintiff for value. Proof was offered by the defendants that, between July 7, 1925, and October 1, 1925, they paid to the Eastern States Warehouse Company, the payee, sums of money sufficient to satisfy the two notes of July 16, 1925, and one of the notes of July 7, 1925; that the payments were intended to be made and received in discharge of such notes. They also offered to show that the two notes of July 7, 1925, were a duplication; that the payee through fraud advanced the principal sum of one note only; that it nevertheless retained both notes and sold the same to the plaintiff. The defendants admitted, however, that the plaintiff had no knowledge of the fraud. There was also offered, by the defendants, proof of an alleged custom in the warehouse business whereby depositors of merchandise borrow money from warehouse companies upon notes secured by their deposits, and, upon partial withdrawals of the merchandise, make payments pro tanto to such companies. The offers were refused, and a verdict directed in favor of the plaintiff for the amount of the four notes, with interest. The Appellate Division reversed the judgment entered upon the verdict on the ground that the proof of custom should have been received, and directed a new trial. The plaintiff has appealed, stipulating for judgment absolute in the event of an affirmance.

The case hinges upon deductions to be made from undisputed proof, oral and documentary, evidencing the following:

The Eastern States Warehouse Company had its principal office, as well as its principal warehouse, at Springfield, Mass. Its bank of deposit was the Chicopee National Bank, of Springfield, Mass. On July 8, 1925, the Eastern States Warehouse Company borrowed $25,000 of the plaintiff bank; on July 16, 1925, it borrowed $10,000. On each of these occasions it delivered to the plaintiff its promissory note, whereby it promised, in four months from date, to repay the sum borrowed. Each of the notes recited that the maker had deposited, as collateral security for the payment thereof, certain ‘receivables of the Eastern States Warehouse & Cold Storage Company,’ of a face value equivalent to the amount of the note, ‘secured by warehouse receipts for goods stored with said Eastern States Warehouse & Cold Storage Company as per certificate attached herewith.’ Each contained the provision: ‘Should the face value of the receivables pledged to secure this note become less than the face value of the same, we hereby agree to deposit additional collateral at once, so that the face value of the receivables deposited shall always be equivalent to the face value of this note.’

‘The certificate attached’ to the $25,000 note of July 8th was a document executed by the Chicopee National Bank, wherein it was stated that the Chicopee Bank had received for the plaintiff, and held for its account, as security for the payment of the note, the notes of variously named customers of the Eastern States Warehouse Company; that these customers had warehoused merchandise, consisting of cases of eggs and tubs of butter, the lot numbers of which were given, with that company and had procured advances thereupon; that such notes were ‘secured by warehouse receipts for goods stored in the Eastern States Warehouse & Cold Storage Company.’ The notes were specifically described in the certificate and totaled $25,303. Listed among the notes so held was a note of Nathan Blackman & Co. for $937.50, stated to have been secured by the deposit of ‘125 cases of eggs.’ The note was made by the defendants and is one of the notes now in suit. ‘The certificate attached,’ to the $10,000 note of July 16th was a similar document, executed by the Chicopee National Bank, certifying to the deposit of similar notes, similarly secured, totaling $10,205.50, to be held as security for the note in chief, Among the notes listed in the certificate were notes of Nathan Blackman & Co., one for $937.50, one for $1,176, and one for $924, stated to have been secured by a specified number of cases of eggs. These notes were made by the defendants and are the other three notes now in suit. Each of the certificates expressed ‘the understanding’ of the Chicopee National Bank ‘that we may exchange same from time to time for other notes and warehouse receipts, provided that such notes at all times aggregate in face value the amount of said note of the Eastern States Warehouse & Cold Storage Company.’

The Eastern & Cold Storage Company had in fact deposited with the Chicopee National Bank, as agent of the plaintiff, the four Blackman notes, to be held as collateral to secure the two notes given by the Eastern States Warehouse Company to the plaintiff. It had also deposited with the Chicopee Bank, as the agent of the plaintiff, four warehouse receipts issued by it for the merchandise deposited by Blackman & Co., which were held as collateral to the Blackman notes. These receipts, curiously enough, were issued, not to the Blackman Company, but directly to the Chicopee National Bank. They recited that certain cases of eggs, identified by lot numbers, had been received by the Eastern States Warehouse Company ‘for the account of Chicopee National Bank, trustee, Springfield, Mass.’ In each receipt the amount of advances made upon the merchandise was stated. The amount, so expressed, corresponded with the amount of a Blackman note, which the receipt accompanied.

The four Blackman notes, which were delivered to the Chicopee Bank to secure the notes of the Eastern States Warehouse Company to the plaintiff, and which are now in suit, were payable on demand to the order of Eastern States Warehouse & Cold Storage Company at its office in Springfield, Mass. Each note contained a recital that certain specified cases of eggs had been deposited by the makers of the note with the payee as collateral security for the payment of the note. Each contained a provision that the makers agreed ‘to deliver to the said company additional securities, to its satisfaction, should the market value of the said securities, as a whole, suffer any decline.’ Each contained the further provision that upon the failure of the makers ‘to furnish satisfactory additional securities in case of decline, as aforesaid, or in the case of insolvency, bankruptcy, or failure in business' of the makers, then, ‘this note and all other liabilities' of the makers should ‘forthwith become due and payable.’

In October, 1925, the Eastern States Warehouse Company became financially insolvent, and at a later date was adjudged a bankrupt. In the month named the Chicopee National Bank, learning of the condition of the warehouse company, sent the Blackman notes, which it had been holding as the agent of the plaintiff, and the warehouse receipts securing them, to its principal, the plaintiff. The Eastern States Warehouse Company defaulted in the payment of its notes to the plaintiff. Thereafter this action was brought upon the Blackman notes to procure their collection.

‘An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable.’ Negotiable Instruments Law, § 24 (Consol. Laws, c. 38). In many jurisdictions it has been held that a promise to furnish additional collateral, further to secure an instrument for the payment of money, should the collateral originally supplied depreciate in value, does not render the instrument nonnegotiable. Empire Nat. Bank of Clarksburg, W. Va., v. High Grade Oil Refining Co., 260 Pa. 255, 103 A. 602;Kennedy v. Broderick (C. C. A.) 216 F. 137, L. R. A. 1915B, 472;Hunter v. Clarke, 184 Ill. 158, 56 N. E. 297,75 Am. St. Rep. 160;Finley v. Smith, 165 Ky. 445, 177 S. W. 262, L. R. A. 1915F, 777;Mechanics & Metals Nat. Bank of New York v. Warner, 145 La. 1022, 83 So. 228. In other jurisdictions a contrary opinion has found support. Lincoln Nat. Bank v. Perry (C. C. A.) 66 F. 887;Holliday State Bank v. Hoffman, 85 Kan. 71, 116 P. 239,35 L. R. A. (N. S.) 390, Ann. Cas. 1912D, 1. We take the view expressed in the group of decisions first above cited, that such a stipulation is not a promise to do an act ‘in addition to the payment of money,’ but a promise, rather, to do an act in aid of, and incidental to, the payment of money. ‘The question in every case is not whether the act is technically ‘additional’ to the payment of money, but whether it is substantially so. If its real purpose is to aid the holder to secure the payment of money and protect him from the risks of insolvency, if it steadies the value of the note, and makes it...