Hanlon v. Union Bank of Medina
| Decision Date | 14 February 1928 |
| Parties | HANLON v. UNION BANK OF MEDINA. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Action by Mary Hanlon against the Union Bank of Medina. From a judgment of the Appellate Division (221 App. Div. 788, 223 N. Y. S. 871) affirming a judgment of the Special Term in favor of plaintiff, defendant appeals.
Reversed, and complaint dismissed.
See, also, 221 App. Div. 837, 224 N. Y. S. 814.
Appeal from Supreme Court, Appellate Division, Fourth department.
Simon Fleischmann, of Buffalo, and Harry Cooper, of Medina, for appellant.
William H. Munson, of Medina, for respondent.
In December, 1925, the Union Bank of Medina held some eleven notes, aggregating more than $21,000 of Francis E. Hanlon, some of which were indorsed by others. Among them was one payable on demand for $3,500 made by the plaintiff and Hanlon and indorsed by one Walsh. Of this note, the plaintiff was an accommodation maker, as the bank knew. It also held a mortgage for $14,000 given by Hanlon as continuing collateral security to secure his past and future indebtedness.
During that month Hanlon became a bankrupt. The bank then recovered a judgment against the plaintiff for the face of the $3,500, and issued execution. The judgment was paid and the note delivered to her. Thereafter the bank might enforce no claim against Hanlon or the indorser. It held its collateral as security for the balance of the indebtedness.
As for the plaintiff, she might doubtless, on paying this entire indebtedness, insist that she be subrogated to the bank's title to the collateral mortgage. Clearly this was the extent of her rights. She could not demand any pro rata or partial subrogation. McGrath v. Carnegie Trust Co., 221 N. Y. 92, 116 N. E. 787.
Later, in recognition of its claim to the collateral security, the receiver in bankruptcy turned over to the bank $14,000. It is said this was not a voluntary payment made by the debtor, but one made in the course of a judicial proceeding. Very possibly this may be true. At all events, we shall so assume for the purposes of this case. Then the application of this payment is made by the courts. How this should be done is described in Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 3 L. R. A. 302, 8 Am. St. Rep. 775. With the application of this $14,000 when paid, actually made by the bank upon the various notes held by it, we are not here concerned. We have only to determine whether a surety who has already paid and satisfied a portion of the total indebtedness for which the mortgage was held as collateral, a month or a year or an indefinite time before the proceeds of the collateral is received, may claim a portion of these proceeds. And this, where the entire proceeds are insufficient to satisfy the existing indebtedness.
That it may be done is the conclusion reached in the courts below. This we think a mistake. The collateral was...
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