Union Bank of Brooklyn v. Sullivan

• Decision Date: 16 March 1915
• Parties: UNION BANK OF BROOKLYN v. SULLIVAN et al.
• Court: New York Court of Appeals Court of Appeals

214 N.Y. 332

108 N.E. 558

UNION BANK OF BROOKLYN

v.SULLIVAN et al.

Court of Appeals of New York.

March 16, 1915.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by the Union Bank of Brooklyn against David A. Sullivan and others. From a judgment of the Appellate Division (161 App. Div. 884,145 N. Y. Supp. 1148) modifying a judgment of the Trial Term, dismissing the complaint, plaintiff appeals. Reversed and remanded.

The Appellate Division modified the judgment by striking out the words ‘upon the merits.’

The superintendent of banks has taken possession of the business and property of the plaintiff, a banking corporation, and has brought this action, as provided by law, in the name of the bank, to recover upon a promissory note. The defendants were stockholders and directors of the bank.

It appears that in April, 1906, the Union Bank of Brooklyn (not the plaintiff, but the plaintiff's predecessor in interest of the same name) took over all the assets of the People's Bank of Brooklyn, and, in appraising the property of the People's Bank, overvalued the same to the extent of $175,000. Instead of charging the amount to profit and loss, and taking it out of surplus, the bank carried the $175,000 in the form of a loan to the Orr Contracting Company, a corporation having no property whatever, and took from that company a note or notes for the amount. These notes were held by the bank among its assets for several months and were then replaced by a note of $175,000, which the note in suit subsequently took the place of.

The president of the bank gave the following explanation of what was done:

‘This $175,000 was carried among the assets of the Union Bank of Brooklyn and was represented by notes of the Orr Contracting Company. * * * These notes did not represent any real value. * * * I brought the matter up at a meeting of the executive committee, * * * consisting of Buttling, Tompkins, Strasser, Albers, Damron, Brown, Michaels, Bogart and myself. * * * I stated to the committee that we were carrying $175,000 in notes among the assets of the bank which should be charged off out of the surplus.’

Michaels and Brown said:

‘That it would not look well to charge it out of the surplus of the bank; that at the next public report of the bank it would show a large deficit in our surplus and cause, not only criticism, but probably quite some of our stock would be offered for sale. * * * We discussed the advisability of placing a good note among the assets of the bank instead of these other notes which represented no value.’

The witness referred to certain ‘suspended assets' owned by the bank or held for it, and, speaking of the proposed note in connection with such assets, said:

‘If they come in we could apply it on this note of $175,000, and two or three of the members said they would take their chance on that; that they were heavily interested in the bank and would stand back of the note.’

He was then questioned and made answer as follows:

‘Q. I want to know exactly what was said about that. In case the profits realized on the (suspended assets) that you refer to were not sufficient to pay the note, then what was said by anybody present? A. I recall three at least saying they would stand back of it and the others acquiescing in it and also stating that they would take a chance on the profits paying the note. * * * Q. Was there anything said by you; did you ask them or say anything to them about standing behind the note. * * * A. I asked them all to stand behind the note when it was made, not separately, but collectively, and they all agreed to do so. * * * Q. What did they all say when they agreed? A. They acquiesced by saying, ‘Yes,’ or bowed their heads, or something. There was no objection or dissension in the matter at all.'

Pursuant to this arrangement, a note for $175,000 was made by the president, Sullivan, and was indorsed by the other members of the executive committee, being the eight individuals mentioned, who, in addition to being members of the executive committee, were all directors of the Union Bank, and were stockholders in the bank to a very considerable amount. They or their personal representatives are the defendants in this action .

It is not clear from the evidence in what account the Orr Contracting Company's notes had been carried by the bank-whether charged to bills discounted, or to demand loans, or placed in the suspense account. But, however carried, they appeared as assets in determining the bank's surplus, and when the note of the president, indorsed by the directors, was taken, the Orr Contracting Company's notes were destroyed, and the new note was substituted therefor, and the bank's surplus remained the same.

Some time later on the Union Bank sold and assigned all its property and assets, including the $175,000 note, to the Mechanics' & Traders' Bank. The indorsers of the note were all directors and stockholders in that bank, and the maker, the defendant Sullivan, was its president. Prior to July 23, 1907, collections to the amount of $25,000 had been made on account of the suspended assets before mentioned, which were applied on the $175,000 note, and on that day a new note for $150,000 was made, which is the note sued on. This note was made by Sullivan and indorsed by the same persons who had indorsed the $175,000 note, except Tompkins, who had died, and the note was indorsed in his name by his executor, the defendant Sullivan.

The Mechanics' & Traders' Bank, after it took over the Union Bank, made reports to the state banking department, as required by law, and published a statement of its financial situation, and in these reports and statement the $175,000 note at first, and afterwards the $150,000 note, were scheduled as assets and were regarded as assets in declaring dividends by the bank.

On November 1, 1907, at a meeting of the executive committee of the Mechanics' & Traders' Bank, the individual notes of the maker and each of the indorsers, except the defendant Henry Albers, for $16,666.67, were substituted for the $150,000 note. Each of the indorsers, except Albers, at the same time canceled his indorsement upon the larger note. Albers' name thereon remained uncanceled, and he gave no other note. It was proved on the trial that the board of directors of the bank did not authorize the cancellation of the $150,000 note and the substitution therefor of the individual notes of the persons liable.

The Mechanics' & Traders' Bank closed its doors in January, 1908, and resumed business in the month of August of that year under the name of the Union Bank of Brooklyn, as shown in the title of this action. On April 5, 1910, the bank again closed its doors, and the superintendent of banks took possession of the institution and placed a special deputy in charge thereof. Into the hands of this deputy came the note of $150,000, and on November 23, 1910, he caused the same to be presented for payment and to be protested for nonpayment, and notice thereof to be given to the defendants. On the evidence, of which the foregoing is a summary, the court dismissed the complaint.Joseph G. Deane, of New York City, for appellant.

Max D. Steuer, Hugo Hirsh, Omri F. Hibbard, John H. Corwin, and Joseph M. Hartifield, all of New York City, for respondents.

CUDDEBACK, J. (after stating the facts as above).

[1] The defendants contend that the note sued on was without consideration. It is difficult to frame a complete and accurate definition of what constitutes a sufficient consideration to support a contract, but this court has approved the following:

‘A valuable consideration may consist of some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.’ Rector, etc., St. Mark's Church v. Teed, 120 N. Y. 583, 586,24 N. E. 1014, 1015.

I think there was evidence upon which the jury might have found that some benefit accrued to the defendants from the note in question, and that there was a sufficient consideration therefor, within this definition.

It is necessary to keep in mind the salient features of the...