Case ID: ny-st-rep_15/html/0042-01.html
Source: Caselaw Access Project
Author: {"author": "Van Brunt, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Caroline L. Robinson, as Administratrix, etc., Resp’t, v. James A. Striker, App’lt.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed March 2, 1888.)
    
    1. Collateral security—Holder oe, loses right to wheh debt is paid.
    The extinguishment of a debt deprives the holder of a collateral security of any right, title, or interest therein.
    
      3. Consideration—When moral obligation to pat a debt is consideration EOR PROMISE TO PAT.
    Where a debt of a bankrupt has been discharged by the action of the parties, Quaere whether any such moral obligation to pay the debt exists, as will support a new promise to pay.
    Appeal from judgment in favor of plaintiff, entered upon verdict of á jury, rendered by the direction of the court.
    
      B. F. Dunning, for App’lt; O. De Hart Brower, for resp’t.
   Van Brunt, P. J.

The evidence in this case shows that Mr. Seth B. Robinson and the defendants were friends, and that for the accommodation of Robinson and without any consideration whatever, the defendant from time to time endorsed Robinson’s notes, which were afterwards negotiated by Robinson.

In May, 1883, to secure the defendant against loss by reason of such endorsements Robinson assigned to him a policy of insurance for $10,000 that he was then carrying upon his life, in the Equitable Insurance Company. This assignment although absolute upon its face, was intended to be simply as security. Immediately after Robinson’s assignment he delivered the policy to the defendant, and the latter retained possession of the same until he presented it for payment after Robinson’s death. Robinson paid the premiums as they became due, and turned the receipts over to the defendant.

In September, 1885, there were outstanding notes to the sum of $15 000, made by Robinson, and endorsed for his accommodation by the defendant. Hone of these notes were then due, nor had any of them become due and payable prior to the 17th of September, 1885. On the 7th of September Robinson made a general assignment for the benefit of his creditors, and filed pursuant to the act, schedules of assets and liabilities. The policy of insurance which Robinson had heretofore assigned to the defendant was not enumerated in the schedule of assets, and the defendant was named as a creditor by reason of his endorsements for $15,000.

On the 16th of September, 1885, the creditors of Robinson, including the defendant, executed a composition deed by which they agreed to receive in full satisfaction of their respective claims twenty five cents on the dollar, payable in six, nine and twelve months, and upon receipt of the notes payable at above dates, to deliver to Robinson general releases of their respective claims against him. Pursuant to the terms of the agreement Robinson delivered to the defendant three notes for $1,250 each, and the defendant delivered to Robinson a general release discharging Robinson and his assignee from all claims against them. Robinson thereupon resumed business and continued in the same store until his death in the following June. These compromise notes, amounting to $3,750, were evidently given upon the assumption that the defendant should pay the $15,000 on notes endorsed by him, which he did. The $3,750, the amount of the compromise, had not all become due at Robinson’s death, but it was wholly paid either by Robinson or his estate. Subsequent to the assignment, compromise and release, the defendant continued to hold in his possession the policy of insurance, and when the annual premiums became due in March, 1886, he sent to Robinson for the receipt for the same which the latter delivered. After the death of Robinson the defendant collected the amount of the policy, and the plaintiff, as the administratrix of Robinson, seeks by this action to recover from the defendant the $10,000 paid to him by the insurance company on the policy.

This claim is sought to be defeated upon the ground that the compromise and release thereunder did not operate to extinguish the defendant’s right to, and claim upon, the policy; but that they only operated to release any claim he had against Robinson. In the assertion of this claim it seems to us that the learned counsel for the appellant has lost sight of the fact that this policy was delivered as collateral security for any indebtedness that might arise from Robinson to the defendant because of the defendant’s endorsement of Robinson’s notes.

By the compromise agreement betweeen Robinson and his creditors of whom the defendant assumed to be one, Robinson was released by the defendant from all claims which he might have by reason of the payment of any notes which he had endorsed. No debt could therefore arise in favor of the defendant against Robinson by reason of the payment by the defendant of Robinson’s notes so endorsed. The debt, as collateral to which the policy of insurance was delivered, was extinguished and thereby the title to the collateral security reverted to its original owner.

It is a principle of law too well settled to need the citation of authority that the extinguishment of a debt deprives the holder of a collateral security of any right, title or interest therein.

It is urged, however, that this rule does not apply because it was the evident intention of the parties that that should not be the result. If such was not the intention of the parties then it was a fraud upon' the other creditors of Robinson, because the retention or exaction of any security by any of the creditors of Robinson for the payment of the compromise notes would have been a fraud upon the other •creditors signing the composition agreement and therefore void, and they had agreed to discharge Robinson upon the receipt of his unsecured notes. It is not to be presumed that Robinson and the defendant were engaged in a scheme to defraud the other creditors, and it is therefore necessary to conclude that the papers express the true intent and meaning of the parties, and that the defendant intended to release Mr. Robinson from all claims which he might have upon him because of the payment of the notes endorsed by him upon the receipt of the unsecured notes named in the agreement of compromise.

It is claimed that there is to be deduced from the evidence some new promise to pay the defendant; and that as the moral obligation rested upon Robinson to pay the balance of his debt which would form a valid consideration for such a promise, this policy of insurance was held by the defendant as collateral security for the fulfillment of this new promise.

The evidence however, fails to substantiate with that degree of certainty which the law requires, the making of a new promise. The evidence is entirely consistent with a feeling on Mr. Robinson’s part that he would at some time pay the defendant the whole amount which he had lost by reason of his endorsement, but there is nothing in the evidence which will justify the conclusion that Robinson did promise subsequent to the execution of the •composition deed to pay the defendant the amount of his loss.

And even if such promise had been made, it is doubtful whether it could be supported for want of consideration. It is true that there are a number of cases holding that moral obligation to pay a debt will form a sufficient consideration for a promise to pay after a discharge in bankruptcy or by operation of law. But there is no case to which our attention has been called in which it has been held that.where a debt has been discharged by the action •of the party any such moral obligation exists, or that such moral obligation will support a new promise to pay.

This question has been recently considered in this court, to some extent, and the reasons for the distinctions in this respect given between voluntary and involuntary discharges in the case of Zoebusch v. Von Menden, 13 N. Y., State Rep., 349.

The fact that subsequent to the compromise the defendant held the policy and Robinson continued to pay the premiums might afford some evidence of the existence of some understanding in respect thereto between Robinson and the defendant; but it can be explained upon the theory that the defendant was still holding the policy as collateral to the indebtedness of Robinson to him upon the .compromise notes, and that he supposed he had a right so to do, although in law he had not, and it was because of this supposed right that he continued to hold the security until Mr. Robinson’s death. The policy, however, had been simply collateral to Mr. Robinson’s debt to him, and that debt being discharged, the defendant had no further claim, upon it.

The judgment appealed from should be affirmed, with costs.

Macomber and Bartlett, JJ., concur.