Court Opinion

ID: 5228355
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:50:20.902198+00
Date Added: 2024-06-11T08:27:37.526844
License: Public Domain

The following is the opinion of Bischoff, J.:
Bischoff, J.:
The defense and counterclaim founded upon the plaintiff’s neglect and refusal to exchange the corporate bonds held as collateral for the note in suit and to accept substituted securities under a proposed plan of reorganization of the corporation do not proceed upon facts sufficient to ¡support the finding of any breach of duty upon the part of the¡ plaintiff. A creditor-holding property pledged as collateral security is bound to use reasonable care in the matter of the physical preservation of the property (Willets v. Hatch, 132 N. Y. 41), and this duty extends also to the preservation of the value of commercial paper in the hands of the pledgee as security, by taking the ordinary steps to charge an indorser upon default. (Easton v. German-Am. Bank, 24 Fed. Rep. 523.) Where there has been a loss of value through the pledgee’s refusal to change the form of the security, however, the' question is simply whether the refusal proceeded upon an honest exercise of judgment, and the mere fact'that a loss followed the pledgee’s neglect to make or accept the change upon the pledgor’s request would not suffice for a case. (Field v. Leavitt, 37 N. Y. Super. Ct. 215.) It is apparent from the facts alleged that the election to participate in the plan of reorganization was to be exercised or withheld as a matter of business judgment, and in the absence of anything to suggest bad faith upon the plaintiff’s part when exercising its judgment for the protection of its own rights in the collateral security, the matter alleged in these answers is insufficient in substance. The further defense that the note in suit was made by ¡a business corporation, not for its own debt, but to secure the debt of another party to the knowledge of the plaintiff is also demurrable when sought to be interposed by *279the defendants sued as indorsers. Granting that the note itself was ultra vires the corporation (10 Cyc. 1115), the new contract evidenced by the indorsement was not dependent upon the validity of the note (Daniel Heg. Inst. [5th ed.] §§ 673, 678a) in the absence of fraud upon the part of the holder whereby the indorsement had been procured. (Turner v. Keller, 66 N. Y. 66; Mosher v. Carpenter, 13 Hun, 604.) For the purposes of the indorser’s contract the party taking the note with the indorsement is a holder in due course, notwithstanding his knowledge that the note was not an enforcible obligation of the maker. (Erwin v. Downs, 15 N. Y. 575.) Demurrers severally sustained, with costs, with leave to defendants to amend upon payment of costs within twenty days.