Case ID: misc_33/html/0613-01.html
Source: Caselaw Access Project
Author: {"author": "Bischoff, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George W. Moore, Plaintiff, v. James W. Alexander et al., Defendants.
    (Supreme Court, New York Special Term,
    January, 1901.)
    Bills and notes — Allegations insufficient to excuse demand and notice of dishonor upon a note of a “ practically defunct ” corporation which had secured the indorser,
    A complaint against the representatives of the indorser of a promissory note made by a foreign corporation, in order to excuse a failure to demand payment of the maker and give notice of dishonor to the said indorser, alleged that at the time of the making of the note the maker transferred all its property to a trustee as collateral security for the payment of the note and also to effectually secure and indemnify the said indorser for or on account of any assignment, Indorsement or guaranty of said note. It also alleged that the maker then became “ practically defunct ”, On demurrer,
    Held, that as there was no allegation that the indorser had a right upon paying the note to have recourse to the fund at once, and as it was not shown that the maker was actually out of existence, the failure to make demand and give notice of dishonor was not excused.
    Demubber to complaint for insufficiency and. for defect of parties.
    
      Harmon & Mathew'son, for plaintiff.
    Charles B. Alexander, for defendants.
   Bischoff, J.

The demurrer upon the ground of a defect of parties, having, apparently, heen waived, hut a single question of law is presented.

The action is brought by an indorsee of a promissory note against the personal representatives of an indorser, .and the inquiry relates to the sufficiency of the allegations to excuse the plaintiff’s omission to make demand upon the maker, and to give notice of nonpayment to the indorser, as a condition of the enforcement of the demand against the latter.

It is not questioned, nor open to question, that, unless excused, the failure of demand .and notice is fatal to the plaintiff’s case, and to establish that excuse it is alleged that, at the time of the making of the note, the maker (a foreign corporation) transferred all of its property to a trustee “ as collateral security for the payment thereof, and also to effectually secure and indemnify the said Henry B. Hyde (this indorser) for or on .account of any assignment, indorsement or guaranty of said note.”

It is further alleged that the corporation-maker then became and remained “ practically defunct ”, and did not exercise its corporate functions.

Examination of the authorities discloses a conflict of opinion between the courts of this and of other jurisdictions upon the point whether the taking of an assignment, by the indorser, of all the maker’s property, without an attendant agreement to the effect that the indorser makes the debt his own, will operate to excuse demand and notice.

The underlying principle is, however, that demand and notice may he dispensed with when the omission cannot by any possibility harm the indorser (Mechanic’s Bank v. Griswold, 7 Wend. 166, 168), and the casto in this State are to the effect that where theindorser has already taken everything of which the debtor is possessed, he cannot he harmed if no demand is made. Taylor v. French, 4 E. D. Smith, 458; Clark v. Tryon, 4 Misc. Rep. 63; 23 N. Y. Supp. 780, 781; Gawtry v. Doane, 48 Barb. 148.

To give this effect to the assignment, however, there is one element which must he present, that is, the immediate right of the indorser to apply the property assigned when payment is demanded of him, without further question from the maker. Otherwise the omission of demand and notice would certainly harm the indorser by changing his obligation to a primary one without warrant.

•In the present case, the transfer of the maker’s property was made, not to the indorser, hut to a trustee, at the time of the delivery of the note, “ as collateral security ” for its payment, as weE as to indemnify Mr. Hyde for or on acount of bis future indorsement. Mr. Hyde was the payee of the note, and it is evident that the assignment thus described was to afford collateral security for the maker’s payment, according to the terms of the instrument, or, if Mr. Hyde transferred the note and incurred liability by reason ■of his indorsement, to indemnify him.

Here the question naturally is — to indemnify him for what? Certainly not for the consequences of an agreement by him to become primarily Hable, since he made none, and he incurred no Lability sufficient to enable him to demand the “ indemnity ” from the trustee until that liability was fixed by law, which could not be until the maker’s rights, as against the trustee, were also determined by its refusal of the demand for payment by the holder •of the note.

It may well he that an indorser, in absolute possession of the maker’s property, may he assumed to have consented to pay the note himself, hut I am referred to no authority for the proposition that a hare assignment of the maker’s property to a trustee, to indemnify the indorser, without an agreement whereby he may have recourse to the fund at once upon his payment, would suffice to excuse presentment and notice.

The case of Denny v. Palmer, 5 Ired. (N. C.) 610, is in point, .and the reasoning employed is, to my mind, persuasive. See also 2 Daniel Neg. Inst. (4th ed.) § 1141.

In the absence of allegations showing that the corporation-maker was actually out of existence and that, accordingly, no demand upon it could he made, this complaint cannot be viewed as stating a ■cause of action.

Demurrer sustained, with costs; leave to amend, on payment of ■costs, within twenty days.