Case Name: Third Nat. Bank of Malone v. Shields et al.
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1889-12-28
Citations: 8 N.Y.S. 298
Docket Number: 
Parties: Third Nat. Bank of Malone v. Shields et al.
Judges: 
Reporter: West's New York Supplement
Volume: 8
Pages: 298–301

Head Matter:
Third Nat. Bank of Malone v. Shields et al.
(Supreme Court, General Term, Third Department.
December 28, 1889.)
1. Principal and Surety—Rights of Sureties—Collateral Security.
Where a creditor holds his debtor’s notes, indorsed by third persons, for the debt- or’s accommodation, and also holds a mortgage of the debtor’s property as collateral security, he may sue the indorsers without first resorting to the mortgage.
2. Same—Subrogation.
The indorsers, being sureties, will be subrogated to the creditor’s rights under the-mortgage on paying the notes.
3. Same—Release of Security.
Where a creditor releases a portion of his debtor’s property, which was mortgaged to him as security for the debtor’s indorsed notes, without the consent of" the indorsers, they will-have a defense pro tcrnto in an action on the notes.
4. Same—Presumption of Payment.
When the Holder of a note takes- possession of the debtor’s property as collateral security, under a "mortgage containing power of sale, presumption of payment of the debt secured thereby does not attach, after default of the mortgagor, in favor-of the indorsers of the note, until the mortgagee refuses to sell'the property.
5. Jury—Right to Jury Trial—Waiver.
Defendants desired a trial by jury, but finally consented in open court that if the-case, which was then placed on the calendar of the circuit court, might go over it should be tried at the ensuing special term, and, in pursuance of an order to that, effect, it was afterwards tried at the special term without a jury. Held, that such, agreement constituted a waiver in open court of a trial by jury.,
Appeal from special term, Franklin county.
Action by the Third National Bank of Malone against Patrick H. Shields and Daniel Shane on three promissory notes, made by Lyman J. Folsom, and indorsed for his accommodation by the defendants Shields and Shane, and discounted for Folsom by the plaintiff. The plaintiff knew that the defendants were accommodation indorsers. The notes were given at different dates in October, 1886, and the last one fell due February 28,1887. Default was made in payment of all the notes, of which the indorsers had due notice. Folsom died March 1, 1887. In November, 1886, while the plaintiff held the notes, Folsom gave to it a bill of sale or chattel mortgage upon 30 top carriages of Hotchkin’s make, “to hold as collateral security for any and all overdrafts or past-due paper that they may have or hold.” It was recited in the mortgage that these carriages were stored in “Mechanics’ Hall,” on the fair grounds in Malone. In December, 1886, Folsom gave plaintiff another chattel mortgage on 50 other carriages of the same make, recited in the mortgage as stored in the same hall. This mortgage was recited to be to secure the plaintiff in the sum of $3,500, and interest, the face of the notes, which Folsom owed plaintiff, and as security for any paper held by it, indorsed by defendants. This mortgage gave the plaintiff a power of sale. Folsom, in January following, gave to Adams and Martin a chattel mortgage upon 40 carriages, recited in the mortgage to be stored in the said Mechanics’ hall. This mortgage was given to secure Adams and Martin against their indorsements upon Folsom’s notes for $2,000, then past due, and held by the People’s National Bank of Malone.
It was conceded upon the argument that the plaintiff’s mortgages had priority of lien over the mortgage of Adams and Martin. Folsom having died March 1, 1887, both the plaintiff and Adams and Martin, on March 2d, went to Mechanics’ hall to secure the carriages covered by their mortgages. Plaintiff had the key of the building at the time of Folsom’s death. There were 79 carriages in the building. Adams and Martin claimed the right to take 40 of them under their mortgage, and did take them, the plaintiff interposing no objection. The plaintiff took the remainder, 39. Folsom was a dealer in carriages, and whether the carriages found in the hall after his death were identical with those there when he gave the several mortgages did not appear. The defendants knew that Folsom had given the plaintiff the two mortgages, and Shields, the appellant, was told by plaintiff the week of the transaction that Adams and Martin took 40 of the carriages out of the hall under their mortgage, and that the plaintiff took only 39. Shields made no objection, and subsequently made a partial payment upon one note, and promised to pay the three in full. Mrs. Hotchkin, the manufacturer of the carriages, soon after Folsom’s death claimed to own them, and brought suits against the plaintiff and against Adams and Martin to recover the possession of the carriages respectively held by them. These actions are at issue and undetermined. Because of the action of Mrs. Hotchkin, the plaintiff has not sold the carriages. The defendants by their answer claimed credit upon the notes for the full-value of the 80 carriages. The court.found the carriages to be worth $45 each, or $3,600 in all, and found against the claim of the defendants, and directed judgment for plaintiffs for the full amount of the notes. The defendant Shields alone appeals.
Argued before Learned, P. J., and Landon and Ingalls, JJ.
Kellas & Munsill, for appellants. John I. Gilbert, for respondent.

Opinion:
Landon, J.
The action was tried at special term without a jury. The appellant insists that the defendants seasonably demanded a jury trial, and refused to waive it. This presents a question of fact respecting which the case settled by the learned trial judge must be deemed conclusive. The case was upon the calendar of the Franklin circuit in March, 1888, and the plaintiff pressed it for trial. The defendants objected, and finally consented that, if it might go over, it should be tried at the special term to be held in the county in May following, and it was thereupon so ordered, and in pursuance of such order subsequently tried at said special term. The same justice presided at both terms, and enforced at the special term the agreement and order made at the circuit. The defendants having asked the favor of a trial at the future special term, and their request being granted, were properly held to performance when the term arrived. We think it was a waiver in open court of the trial by jury. We have examined the other questions of practice presented by the appellants, and think their disposition was at the discretion of the court, which was properly exercised.
With respect to the merits, the defendants were liable upon their contract of indorsement, and the plaintiff could sue them upon that contract without first exhausting its remedy upon the carriages which the maker had transferred to it as security. Bank v. Wood, 71 N. Y. 405. If the indorsers, being sureties, desire the benefit of any securities held by the creditor, they must pay up the debt, and thereby become subrogated to- the rights of the creditor as to the securities. Id. But the indorsers being sureties, and being known to be so by the creditor, the creditor cannot, without the consent of the sureties, release any hold which he has actually acquired upon the property or estate of the maker which might be made effectual for the payment of the debt. Shutts v. Fingar, 100 N. Y. 539-546, 3 N. E. Rep. 588; Cory v. Leonard, 56 N. Y. 494; Grow v. Garlock, 97 N. Y. 81; Schroeppell v. Shaw, 3 N. Y. 446; Smith v. Erwin, 77 N. Y. 466. To the extent that the indorsers are injured by such release of the securities, they have a defense against the plaintiff upon the notes. Same cases; Vose v. Railroad Co., 50 N. Y. 369.
The trial court refused to find that the 40 carriages covered by the mortgage to Adams and Martin were the same carriages previously mortgaged to the plaintiff, but the finding made is to the effect that at least 20 of them were. The court refused to find that the carriages taken by Adams and Martin were taken from the possession of the plaintiff, or were in its possession when Adams and Martin took them. The court did find that the defendants, during the week of Folsom's death, " were informed about the said chattel mortgages and as to the possession of the said carriages; that they made no complaint as to what had been done in respect to them, but acquiesced in the same." This latter refusal to find, and the finding itself, cover questions which were sharply contested upon the trial, and are undoubtedly supported by the evidence. The appellant Shields afterwards made partial payments upon one of the notes, and promised to pay all of them.
We think the acquiescence of the defendant is fatal to the portion of the defense resting upon the ground that the plaintiff relinquished its hold upon a portion of the carriages. Although it is not disputed on this argument that the plaintiff's mortgages were prior in lien to those of Adams and Martin, it is plain, from the attention given to the question upon the trial, that it was not certain which lien was prior at the time the carriages were taken. The plaintiff did not withstand Adams' and Martin's pretensions, and Shields, upon being advised of the fact, did not insist that it should. If Shields had objected to plaintiff's action plaintiff might have retraced its steps, or at least have attempted to do so. Mrs. Hotchkin, the manufacturer of the carriages, soon after Folsom's death claimed to own them, and sued the plaintiff and Adams and Martin to recover possession of such part of them as each party had taken. These actions are at issue and undetermined. Unless Folsom gave to plaintiff a title to the carriages defensible against Mrs. Hotchkin, he gave to it no security. The defendants should have paid the notes at their maturity, and taken the securities. If they can, by their default in their obligation, and notwithstanding their acquiescence when told of the taking by Adams and Martin of 40 of the carriages, compel the plaintiff and Adams and Martin to try titles with Mrs. Hotchkin, and themselves escape costs or risk, and then reap the advantages of success, or, without regard to the title of Folsom, recoup in this action the full value of the carriages, they will be unconscionably favored.
The defense in this action is an equitable one, and we think, under the circumstances, the defendants have no equity to recoup against the plaintiff for the carriages taken by Adams and Martin. They have shown no actual loss to themselves. It does not yet appear that they would be better off than they now are if plaintiff had taken all the carriages.
It remains to consider whether the defendants are entitled to be allowed the value of the 39 carriages taken possession of by the plaintiff. The defendants' position is that, since the plaintiff took possession of the carriages under Folsom's mortgages, given to secure these notes, the debt which they were given to secure was thereby presumed to be paid, or paid to the extent of the proved value of the carriages; that the only way the plaintiff could relieve itself from that presumption was to sell the carriages at public auction, and thus ascertain the amount actually paid, and the amount remaining unpaid; and that, since the plaintiff has not sold the carriages, the presumption of payment remains in full force, and thus defeats the right of recovery either in full or protanto. The following cases, among others, are cited in support of this position: Pulver v. Richardson, 3 Thomp. & C. 436; Case v. Boughton, 11 Wend. 107; Stoddard v. Denison, 38 How. Pr. 296; Vose v. Railroad Co., 50 N. Y. 369. The presumption of payment, at least to the proved value of the mortgaged property taken possession of by the mortgagee after default, attaches when the mortgagee refuses to sell the property. He thus defeats the ascertainment of the exact sum the property could produce, and it is right that he should be charged with its fair value. Here Folsom's rights against the plaintiff measure the defendants' rights. The carriages have not been sold by plaintiff, because Folsom's right to mortgage them remains to be determined. It is not plaintiff's fault that the carriages have not been sold. It is either Folsom's fault or misfortune that his claim of title is disputed by Hotchkin, and, whether fault or misfortune, it postpones the determination, of the question whether he gave the plaintiff any security, and thereby postpones the question whether plaintiff should credit him with anything upon account of it.
The defendants, by paying the note, can be subrogated to plaintiff's rights against the carriages, and as between the defendants and the plaintiff they clearly ought to incur the risk of the failure of Folsom's title. The judgment should be affirmed, with costs. All concur.