Case ID: misc_15/html/0116-01.html
Source: Caselaw Access Project
Author: {"author": "Daly, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

David B. Sickels, as Temporary Receiver, Respondent, v. George Herold, Appellant.
    (New York Common Pleas—General Term,
    December, 1895.)
    1. Banks — Liability op director upon note given to make good IMPAIRMENT OP ASSETS — ESTOPPEL. ■
    Directors of a bank who have given notes to it to make good an impairment of its assets in order to satisfy the superintendent of banking and secure his sanction to continue its business are estopped, as against a receiver subsequently appointed, from alleging want of consideration for such notes, and from contesting their liability on the ground of an alleged agreement that the notes were not to be enforci- ■ ble until the' deficiency upon certain rejected securities should be ascertained.
    2. Same—Subrogation.
    While the makers of such notes are entitled to subrogation as to such rejected securities, they are not entitled to possession of any portion thereof until all the notes are paid.
    3. Same — Set-off — Interest.
    In such a case the deposits of the directors may be set off against the notes, but interest upon such deposits cannot be allowed, unless the receiver has earned interest while the money was in his hands.
    Appeal by defendant from a judgment. of this court in favor of the plaintiff, entered upon the decision of the judge, ■ without a jury, for $3,624.61 in an action upon a promissory note for $5,000, dated November 9, 1893, made by defendant to -the order of the Harlem River Bank, payable on demand.
    
      Charles E. Hughes and Seward & Baker, for appellant.
    
      George M. Mackellar and Lexow, Mackellar & Wells, for respondent.
   Daly, Ch. J.

At the time defendant made the note in suit he was a director of the Harlem River Bank, the payee, and the note was one of several aggregating $50,000, made by the directors, secured by collateral and delivered to the bank to make good an impairment of its capital, which had been found by the state superintendent of banking, acting under the provision of thé General Banking Law, which provides that ■ whenever he shall have reason to believe that the capital stock of any corporation, or individual banker, subject to the provisions of the act, is reduced by impairment, or otherwise, below the amount required by law,- or by its certificate, or articles of association, he shall require the corporation or banker to make good the deficiency. (Chap. 689, Laws of 1892, § 17.)

Acting under this statute, the superintendent, in November, 1893, caused the chief examiner of the banking department to investigate the 'condition of the Harlem Biyer Bank. The' examiner objected to certain securities to the nominal value óf $65,000, which. he found among the assets of the bank, and which he deemed impaired the capital -of the bank to the extent of. $50,000. He announced, that he.would have to close the bank unless the directors made the impairment good by cash, or by their notes ■ secured by mortgages; and thereupon the note in suit* with others, were given by the directors in order that the bank, might continue business, which it did until April '26, 1894, when .it was closed by the superintendent of banking. The plaintiff was appointed temporary, receiver of the .bank in Hay, 1894, and'received'the notes among the other assets of the bank.

It thus appearing that the notes in question were delivered by the directors to the bank to make up an impairment of its • assets, in order to satisfy the superintendent of banking-and secure his sanction to continue the business of the bank and to give it credit with the public for the receiving of deposits and doing its general business, the makers of the notes are " estopped, as against the receiver, who represents the creditors of the bank, from alleging want of consideration. They are also estopped from contesting their liability on the ground of the alleged agreement between them and the cashier of the bank, that the notes were not to be enforcible until the deficiency upon the rejected securities should be ascertained. Hurd v. Kelly, 78 N. Y. 588 ; Best v. Thiel, 79 id. 15.

In the case first cited, the defendant executed a bond to- a bank whose assets were impaired, to enable it to continue ■ business, with the request, on the part of the obligor, that it should do so, and with the knowledge of the bank depart-- . merit. The defenses of want of consideration, that the transaction was in violation of public policy, that there was a fraudulent suppression and concealment by the bank officials - of its true, condition, and that the bond was delivered upon condition that -others should execute it who failed.to do so, were all overruled; and it was not only held that the instru.ment was made upon good consideration, but that the obligor was estopped from setting up those defenses, the court saying that the dealings between him and the officials of the bank ought not in justice to be allowed to affect the security given by him for the protection of those dealing with the bank and who must be presumed to have relied thereon in their dealings ; and that having allowed the note to be treated as an asset, and the public to deal with the bank on this assumption until the bank had become insolvent, he was estopped from ' setting up the defenses. Hurd v. Kelly, supra.

In the second case, a mortgage had been given to the bank upon requirement of the bank department to make up a deficiency in the assets and enable the bank to continue business; and it tvas held that as it was in consequence of this and other securities given by the trustees that the superintendent of the banking department, acting officially for the public and all the creditors of the bank, permitted it to continue its business, and that in reliance upon this and other securities that depositors were .induced to make and leave deposits in the bank, it was upon the clearest principles of justice and morality that the defendant should be estopped from attacking the validity of the mortgage. Best v. Thiel, supra, citing Farrar v. Walker, Assignee, 3 Dill. 506, note.

These authorities dispose not only of the defense of want of consideration, but of an agreement that the notes should not be enforcible until the amount of deficiency upon the rejected assets was ascertained. The creditors and depositors cannot be affected by such an arrangement. But, treating the defendant and the makers of the other notes as sureties entitled to subrogation with respect to the $65,000 of questionable assets which their notes were inténded to secure, the receiver’s right to hold such assets until the whole indebtedness of the sureties is paid cannot be disputed, and until payment of the whole $50,000 by the sureties they are not entitled to such assets. Farebrother v. Wodehouse, 23 Beav. 18; Grubbs v. Wysors, 32 Gratt. (Va.) 127 ; Receivers of N. J. Midland Ry. Co. v. Wortendyke, 27 N. J. Eq. 658; 14 Am. & Eng. Ency. of Law, 701, et seq.

The defendant was allowed as an offset, or counterclaim, the amount of his deposit in the hank, but without interest. Interest was disallowed on the' ground that until demand, or actual insolvency of the bank, the deposit was not due and payable and interest did not run upon the claim. Setoff may he allowed as against a temporary receiver on application to the court (People v. St. Nicholas Bank, 76 Hun,. 622), and such application may be deemed to have been'made at. the time of the service - of the answer setting up the counterclaim but as the plaintiff’s -deposit in the bank did not hear interest 'there seems to be no ground for requiring the-receiver to pay-interest in the absence of . proof that he had earned any while the money remained in his hands.

Judgment and order appealed from must-be affirmed, with costs. ’

Bookstaver and Bisohoef, JJ., concur.

Judgment and order affirmed, with costs.