Hunter v. First National Bank of Fort Wayne
| Decision Date | 19 March 1909 |
| Docket Number | 21,188 |
| Parties | Hunter et al. v. First National Bank of Fort Wayne et al |
| Court | Indiana Supreme Court |
From Superor Court of Allen County; Samuel E. Cook, Special Judge.
Action by the First National Bank of Fort Wayne, Indiana, against Lewis C. Hunter and others. From a judgment for plaintiff and for cross-defendant Citizens Trust Company, Hunter and others appeal.
Affirmed in part. Reversed in part.
W. G Colerick and Guy Colerick, for appellants.
Vesey & Vesey and Heaton & Yaple, for appellees.
Appellee First National Bank brought this action upon a promissory note for $ 9,500, executed by the National Duplicating Book Manufacturing Company as principal, and Lewis C. Hunter, Charles E. Archer and Adam H. Bittinger as sureties, and to set aside an alleged fraudulent conveyance to Cora M. Hunter. Appellee Citizens Trust Company was joined as a defendant because of its interest in certain collaterals pledged to secure the note, and upon application the receiver of the National Duplicating Book Manufacturing Company was also admitted to appear and defend. The Citizens Trust Company filed a cross-complaint against Archer and Hunter upon a note for $ 3,200. The court made a special finding of facts, upon which conclusions of law were stated in favor of the bank, upon the complaint, and in favor of the trust company upon its cross-complaint, and rendered judgment accordingly.
Appellant Hunter filed a cross-complaint in three paragraphs, to each of which the demurrer of the bank on the ground of insufficient facts was sustained, and these rulings have been assigned as errors for the reversal of the judgment in favor of the bank.
The first paragraph of Hunter's cross-complaint alleged, in substance, that the National Duplicating Book Manufacturing Company was principal, and the other makers were sureties on the note in suit; that the predecessor of the book manufacturing company, by another corporate name, borrowed various sums of money from the White National Bank of Ft. Wayne, and, at the instance of its sureties, pledged as collateral security for such loans certain shares of stock in the Merchants Sales Book Company of Chicago, to the amount of $ 29,000, the actual value of which was in excess of the debts thereby secured; that the debtor corporation then was and ever since has been insolvent, and all of its notes and loans were consolidated and merged in the note for $ 9,500; that the White National Bank, with all of its assets, was merged in the First National Bank, and said note was renewed by the National Duplicating Book Manufacturing Company, and extended from time to time; that while said note and the collaterals securing the same were in the hands of the White National Bank, the president of said bank caused the certificates of stock so held as collateral to be surrendered and canceled, and new certificates to be issued in lieu thereof in the individual name of the president of said bank, in whose name they still stand. This transfer is characterized as a conversion, and it is averred that the stock so converted was at the time equal in value to the amount of indebtedness owing to the bank, and it was asked that the value of such stock, at the time of its alleged conversion, be credited upon the note in suit, and upon which Hunter is a surety, either in full or in partial satisfaction of the same.
The suretyship of Hunter is otherwise shown, and the sufficiency of this paragraph is to be determined upon the manifest theory of the pleader that a wrongful conversion of the collaterals is charged. The allegations of this paragraph do not show that appellant Hunter and the other sureties have been deprived of the benefit of this collateral, or that it has been converted to the use of another, but make the fact appear that White, the president, still holds the stock in trust to secure the payment of this note. His action in causing a transfer of the stock to be made from the name of the insolvent pledgor was a proper and prudent business procedure to remove it from liability to seizure and sale on execution or attachment at the suit of some creditor in the state of Illinois. The fact may be shown that in taking the assignment of stock in his own name the president was acting officially, and the title thereto was in reality in the bank, and held for the use and benefit of the bank and of the makers of the note secured. Colebrooke, Collat. Securities (2d ed.), § 288; 1 Morse, Banks and Banking (3d ed.), § 144; Erwin Lane Paper Co. v. Farmers' Nat. Bank (1892), 130 Ind. 367, 30 Am. St. 246, 30 N.E. 411; Nave v. Hadley (1881), 74 Ind. 155; Day v. Holmes (1869), 103 Mass. 306; Rich v. Boyce (1873), 39 Md. 314; Heath v. Griswold (1881), 18 Blatch. 555, 5 F. 573.
The second paragraph of Hunter's cross-complaint contained the same general allegations as the first, except that no conversion was charged, but it was averred that when it was pledged the corporate stock was of greater value than the debt thereby secured, and that the bank failed and neglected to dispose of the same, but, continuing to hold such stock, suffered it to depreciate until now it is of less value than the amount due on the note, and it was asked that the amount of such depreciation be ascertained and entered as a credit upon said note. This paragraph was not founded upon the stipulations of any special contract between the parties, and the agreement upon which such collateral was held contained no power to sell, or provision with respect to the sale of, such stock. It is not alleged that the bank was ever requested to procure authority of court to sell, or otherwise to sell or dispose of such collateral. In the absence of some special agreement or action the holder of collateral securities is not obliged to watch the market and sell at the highest price at his peril, but may remain wholly passive, although he may have notice of a probable decline or depreciation in the value of such collaterals. Wasson v. Hodshire (1886), 108 Ind. 26, 8 N.E. 621; Vance v. English (1881), 78 Ind. 80; Philbrooks v. McEwen (1868), 29 Ind. 347; Rozet v. McClellan (1868), 48 Ill. 345, 95 Am. Dec. 551; Brick v. Freehold Nat. Banking Co. (1875), 37 N.J.L. 307; Cherry v. Miller (1881), 7 Lea (Tenn.) 305; Whitin v. Paul (1880), 13 R.I. 40; Henry Wood's Sons Co. v. Schaefer (1899), 173 Mass. 443, 53 N.E. 881, 73 Am. St. 305; Colebrooke, Collat. Securities (2d ed.), § 118; Stearns, Suretyship, § 99.
The third paragraph alleged many of the same general facts, and averred that the stock pledged as collateral represented the purchase price of the plant and property of the National Duplicating Book Manufacturing Company, the principal on the note, which property had been sold to the Merchants Sales Book Company of Chicago, and said pledged stock constituted all of the assets of the company, except the proceeds of the sale of certain lots, and some rental money, now in the hands of defendant Bittinger as trustee, and that certain persons had subscribed for, and on payment of less than par value had received, stock in said debtor corporation, prior to the execution of the note in suit. The prayer was for the appointment of a receiver to take possession and control of all assets, to require an accounting from Bittinger, and to enforce the collection of the balance due on subscription for such shares of stock.
It appears that Hunter has not paid the debt in question, and ordinarily a surety has no right to initiate affirmative action until he shall have paid the debt for which he is bound as surety. Stearns v. Irwin (1878), 62 Ind. 558; Covey v. Neff (1878), 63 Ind. 391.
A cross-complaint must in all cases be germane to the subject-matter of the original complaint, and the relief sought must be connected with the matters involved in the principal action, or in some way depend upon the contract or transaction upon which the original action was founded. A party defendant, notwithstanding the liberal rules of pleading and practice, may not by cross-complaint bring in new parties in order to litigate matters wholly between themselves, and which cannot affect the right of the plaintiff to recover upon his complaint. Fischer v. Holmes (1890), 123 Ind. 525, 24 N.E. 377; Bennett v. Mattingly (1887), 110 Ind. 197, 10 N.E. 299; Scobey v. Finton (1872), 39 Ind. 275; Manning v. Gasharie (1866), 27 Ind. 399; Frear v. Bryan (1859), 12 Ind. 343; Conklin v. Bowman (1858), 11 Ind. 254; Heaton v. Lynch (1894), 11 Ind.App. 408, 38 N.E. 224. This paragraph of cross-complaint is not germane, and furthermore the facts averred do not entitle appellant Hunter to the relief demanded.
We find no error in connection with the proceedings and judgment of the First National Bank.
Appellant Hunter has assigned errors upon the overruling of his demurrer to the cross-complaint of the Citizens Trust Company, and upon the conclusions of law stated in favor of said trust company.
The insufficiency of the trust company's cross-complaint was urged because of the absence of exhibit A, filed therewith, from the record, but this omission has been supplied by a writ of certiorari, and it is clear that this cross-complaint is sufficient.
The note upon which this cross-complaint was founded was signed by Charles E. Archer and by appellant Hunter. Hunter's answer was a special plea of non est factum, the substance of which was that when the original note, of which the one in suit is a renewal, was given to the trust company the makers thereof agreed, in the presence and with the knowledge of the secretary of the trust company, that the note should be signed by Archer as principal and by Hunter and Harry Sprague as his sureties; that all extensions and ...
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