Court Opinion

ID: 8301234
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:13:05.885244+00
Date Added: 2024-06-11T16:44:20.231035
License: Public Domain

Me. Special Justice. Caldwell
delivered a concurring opinion as follows:
*395The controlling question in this litigation at its present stage, that submitted for reargnment, is whether the bank is entitled to hold, as secnrity for a pre-exist-ing debt of E. B. Stahlman and wife, collaterals pledged by him with his personal note to the hank for borrowed money.
It'is usual for borrowers of money from banks to secure their loan notes by the pledge of collaterals; and it is allowable in law for the parties to agree at the time that the collaterals so pledged may he held also for the payment of pre-existing debts and subsequent debts, either or both. Jones on Collateral Security, sec. 358.
The scope of the pledge will not be extended beyond that intended by the pledgor; and, if it be written in a blank furnished by the bank, any doubt that may arise as to the proper interpretation of the language used will be resolved in favor of the customer. Bank v. Wood, 125 Tenn., 16, 140 S. W., 31.
“The reason for the rule that the language of an instrument is to be construed against the person who proposes it rather than against the person who is invited to accept it is that men are supposed to take care of themselves, and that he who chooses the words by which a right is given ought to be held to a strict interpretation of them, rather than he who only accepts them.” Gillet v. Bank of America, 160 N. Y., 555, 55 N. E., 292.
On the fifth day of April, 1906, E. B. Stahlman and wife, Mollie T. Stahlman, entered into a written con*396tract with the Fourth National Bank of Nashville, Tenn., whereby they agreed to purchase from the hank and the hank agreed to sell to them four hundred and fifty shares of the preferred capital stock of the Meck-lenburg Real Estate Company, at the par value of $45,000, payable in four installments: $10,000 December 1, 1909; $10,000 December 1, 1910; $10,000 December 1, 1911; $15,000 December 1, 1912.
The bank retained the possession of the stock and received, as collateral security for the price of the stock, five insurance policies on the life of E. B. Stahl-man, those policies aggregating $45,000.
After that E. B. Stahlman made a note to the hank on one of its blank forms for borrowed money, in the terms and figures following, viz.:
“$24,400.00 Nashville, Tenn., Apl. 10,1911.
“Ninety days after date I promise to pay to the order of Fourth National Bank twenty-four thousand four hundred and 00/100 dollars, at the Fourth National Bank, Nashville, Tennessee, for value received, without defalcation, and do hereby pledge to any holder hereof as collateral security for the payment of this note, the following property of the present market value as stated, to wit: One hundred shares Banner Pub. Co.; one hundred shares Mecklenburg R. E. Co., Pfd.; twenty-five shares Nat’l Fert. Pfd.; forty shares Nat’l Fert. Com., and do hereby agree, on demand, to deposit with any holder hereof such additional security as they may from time to time require, should the security hereby pledged become unsatisfactory or less valuable. *397In case of failure to do so, this note shall forthwith become due and payable (less rebate of interest for the unexpired term at the rate charged), anything here-inbefore expressed to the contrary notwithstanding. Upon default of payment at maturity, whether such maturity occurs by expiration of time or by default in deposition additional security, as above agreed, any holder hereof is hereby authorized and empowered for the purposes of satisfying this note with interest and all costs, and a reasonable attorney’s fee, which we agree to pay should same be incurred, to sell, transfer and deliver the whole or any part of said security, including additions thereto or substitutions therefor without any further demand for payment or for additional security, or advertisement or notice. Said sale may be public or private, either at broker’s board or elsewhere, at any time or time thereafter, at the option of the then holder hereof. Any holder hereof shall have the right to purchase and become absolute owner, free from all trusts and claims, of any securities-pledged hereon including additions and substitutions at any public sale hereunder. It is further agreed that the securitties hereby pledged, including additions and substitutions, shall be applicable in like manner to secure the payment of any other obligations of the undersigned, whether past or future, held by the holder of this obligation. All such securities in their hands shall stand as one general continuing security for the whole of such obligations so that the deficiency on any one shall be made good from the collateral upon the
*398rest. In case of any sale hereunder the holder shall only he required to account for the net proceeds of said sale, and all parties liable hereon shall remain responsible for any deficiency in payment, and do waive any benefit of all exemptions or privileges under any law now in force or hereafter enacted. All parties hereon waive demand, notice and protest.
‘ ‘ [Signed] E. B. Stahlman. ’ ’
At the time of the execution of that elaborate note, the entire indebtedness of E. B. Stahlman and wife under the aforesaid stock purchase contract was outstanding and unpaid, as it is now; and E. B. Stahlman was also indebted to the, bank as indorser of other notes, amounting to about $25,000; which other notes, except possibly some interest, have since been paid.
Can the bank hold the collaterals, pledged with the $24,400 note of E. B. Stahlman, as security for the stock purchase contract of E. B. Stahlman and wife!
That is what the bank seeks and what Stahlman resists by appropriate pleadings.
The collaterals enumerated in the face of the $24,400. note are worth that amount several times over. As has been seen, they are therein pledged primarily as security for the payment of that note, and in the face of that note, as has also been seen.
“It is further agreed'that,” those collaterals “shall be applicable in like manner to secure the payment of any other obligations of the undersigned, whether past or future, held by the holder of this obligation. ’ ’
*399What does this secondary provision mean in the light of the surrounding facts then and now1? Nothing conld he clearer than that “this obligation” means the $24,400 note, and that “the holder of this obligation” means the Fourth National Bank, the payee and present owner of that note.
But what do the words, “any other obligations of the undersigned, whether past or future, held by the holder of this obligation” mean?
When that language was employed that bank “held” the $25,000 of notes indorsed by-E. B. Stahlman, “the undersigned,” and it then “held” and still holds the $45,000 stock purchase contract. •
Stahlman’s relation to those notes and to that contract was that of debtor, and that relation obviously comes within the language if not within the meaning, of the pledge. Those notes and that contract were other obligations of E. B. Stahlman, in the sense that he was bound in law to meet their requirements. As to the notes he had bound himself as indorser to see them paid; and as to the stock purchase contract he had bound himself to pay the price. He and his wife had contracted to pay the bank $45,000 for the four hundred and fifty shares of stock. That contract made the purchasers of the stock debtors to the bank. It created an indebtedness from them to the bank, and that indebtedness was and is an obligation. Every debt implies an obligation to pay. A legal • promise to pay a given sum creates a legal obligation to pay that sum. *400Every agreement to buy involves an obligation to pay the stipulated price. This court bas said:
“A valid, subsisting obligation may be said to consist of a legal debt or duty." Cocke v. Hoffman, 5 Lea, 112, 401 Am. Rep., 23.
Though not binding on Mrs. Stahlman because she is a married woman, the stock purchase contract was and is binding on E. B. Stahlman according to its terms, and, being so, it was and is an obligation on his part to pay the bank the $45,000.
However, it is said in behalf of Stahlman, even though the stock purchase contract be binding on him and in one sense an.obligation, it is nevertheless not within the meaning of the words of the pledge, “any other obligations,” because, as claimed for him, it is not the same kind of obligation as the $24,400 note, in which those words are used, and because it did not arise in the usual course of banking business as did-that note.
On the other hand it is said for the bank that the language of the pledge includes every kind of legal obligation of Stahlman to the bank, and that the parties must be held to have contemplated the stock purchase contract as one of his “other obligations” .to which the collaterals were to be “applicable.”
The books afford numerous cases, tending, in a measure, to support each view. In Gillet v. Bank of America, 160 N. Y., 549, 55 N. E., 292 (cited by this court in Bank v. Woods, 125 Tenn., 16, 140 S. W., 31), it appeared that the firm of Dan Talmage’s Sons bor*401rowed $35,000 from the Bank of America, executing a note therefor and delivering therewith certain col-laterals to insure the payment. The note, which was written on a form furnished by the bank, recited that the makers had — “deposited with the said hank as collateral security for the payment of this or any other liability or liabilities of the undersigned to said bank, due or to become due, or which may hereafter he contracted or existing. ’ ’
Thereafter the bank purchased from an insurance company a past-due and dishonored note for $5,000 made by the same firm,' and sought to hold as security therefor the collaterals deposited with the $35,000 note.
The court refused the relief sought, holding that the provision in the $35,000 note as to collaterals should be construed as referring only to liabilities of the makers of that note “arising out of their ordinary dealings as bank and customer,” and not to the customer’s note to a third person purchased by the hank. In reaching that conclusion the court said the language of the agreement as to the collaterals' should be construed liberally in favor of the makers, as in case of insurance policies and other similar instruments furnished by the company to the customer.
In Loyd v. Lynchburg Bank,, 86 Va., 690, 11 S. E., 104, an unsuccessful effort was made to apply securities pledged with one note in payment of another note. The controlling words of the pledge were stated and construed by the court as follows:
*402“The language, ‘if we should come under any other liability, or enter into any other engagement, with said bank, while it is the holder of this obligation,’ must be construed to refer to any other liability or engagement of the same kind with the one described in the former part of this contract.”
The language of the pledge, construed in the case of First National Bank of Omaha v. Illinois Trust & Savings Bank (C. C.), 84 Fed., 34, was:
“And also all other present or future demands of any kind of said bank against the undersigned, due or not due. ’ ’
The court held that the bank was not thereby authorized to apply collaterals, deposited with a borrowed money note containing those words, in payment of a previous loan for a term of years on real estate security, which loan had been assumed by a subsequent purchaser of the property. In the course of the opinion the court said:
“They (the parties to the pledge) evidently thought of these words (those quoted above) as including any and all such demands as might arise in the course of commercial banking.”
In Brown v. James, 80 Neb., 475, 114 N. W., 591, the words of the collateral note construed and applied were:
‘ ‘ For the payment of this or any other liability or liabilities of ours to said firm due or to become, due, or which may be hereafter contracted.’’
*403That provision was held not to include a liability arising from a wrongful conversion of money, such a liability not being’ reasonably within the contemplation of the parties at the time the pledge was made. The court said:
“A fair interpretation of the agreement made in this case demands that it be construed to secure such indebtedness only as might be contracted by the parties in the legitimate transaction of business.”
The difference between joint liability and individual liability was the turning point in the case of Torrance v. Third National Bank of Pittsburg, 210 Fed., 806, 127 C. C. A., 356. Giraham and Salusbury executed their joint and several note to their own order for $43,000, and delivered it with their indorsement to the bank. At the same time they pledged jointly owned corporate stock as collateral security for the payment of that note—
“or any other liabilities, of the undersigned to the holder thereof, now due or to become due, or that may hereafter be contracted.”
The court held that the surplus of the collaterals could not legally be applied on notes indorsed by Graham and Salusbury individually — that only their joint liabilities were included in the language and meaning of -the pledge,
In the case of Harris v. Bank of Franklin, 77 Md., 423, 26 Atl., 523 (cited in Bank v. Wood, 125 Tenn., 16, 140 S. W., 31), it appeared that Wilson borrowed $2,000’ from the bank, executed his note therefor, and *404deposited certain stocks and bonds to secure its payment. Tbe note contained the secondary provision:
“It is also agreed that if'I shall come under any other liability, or enter into any other engagement, with said bank while it is the holder of this obligation, that the net proceeds of sale of the above securities may be applied either on this note, or any other of my liabilities or engagements held by said bank, as its president or cashier may elect.”
The bank sought to hold those securities for a debt created five months previously, but failed. The court, referring to the language just quoted, observed:
‘ ‘ The plain and obvious meaning of the contract, and that which was contemplated by the parties at the time of its execution, was to cover future liabilities made after the execution of the note, and those entered into at the time of its delivery”
—and not a pre-existing debt.
Other courts have been somewhat less liberal towards the pledgor.
In Hallowell v. Blackstone National Bank, 154 Mass., 359, 28 N. E., 281, 13 L. R. A., 315, the court held that the words, “any excess of collaterals upon this note (executed by Smith to the bank for a loan) shall be applicable to any other note or claim against me held by said bank,” bound the excess of the collaterals as security for acceptances of a firm of which Smith was a member, discounted by the bank before the loan to Smith. The court said:
*405“It cannot he denied that the acceptances "were *claims against him.’ ”
Again:
“The clause pledging the property for any other claims against the debtor is not inserted with a view to certain specific debts, but as a dragnet to make snre that whatever comes to the creditor’s hands shall be held by the latter until its claims are satisfied.” ■
Following that case, the court, in Norfleet v. Insurance Company, 160 N. C., 329, 75 S. E., 937, held that the words, “any excess of collaterals upon this note shall be applicable to any other note or claim against me held by said bank,” included an open account, as well as another note of the pledgor, due to the bank. In . the opinion the court observed:
“The language of the contract in this case is exceedingly broad. . . . We can hardly think of any more certain language that could have been employed by the parties to embrace this particular kind of obligation, if they had in mind, and intended at the time, to secure it by the deposit of collaterals.”
The last case was reaffirmed without discussion, in Milling Company v. Steverson, 161 N. C., 512, 77 S. E., 676, where the words, “any other obligation,” used in a pledge of collaterals, were held to include ‘ ‘ any other indebtedness. ’ ’
It appeared in Bank v. Lumber Company (C. C.), 194 Fed., 732, that the Lumber Company, being already indebted to the bank in the sum of about $43,500, bor*406rowed from the bank the further sum of $20',000i, executing its note therefor and delivering’ certain corporate stock as collateral security. One of the questions in litigation which followed was whether the collateral was given to secure the payment of the $20,000' alone, or to secure that note and also the other indebtedness of the Lumber Company to the bank. In deciding in favor of' the latter view th*e court remarked:
“The words used in the note appear to be plain and unambiguous, for in the note it is stated: ‘ The undersigned having herewith deposited as collateral security for the payment of this note and every other liability of the undersigned to said bank, direct or contingent, due or to become due, or which may hereafter be contracted or existing.’ . . . Language not as comprehensive nor as specific as that employed in this note in question has been held by several of the highest courts of the States to mean that the collateral was not given for the specific indebtedness of the note alone, but for all of the indebtedness” (citing cases from Alabama, Georgia, Illinois, Ohio and Massachusetts).
In Wilson v. Carothers (Ky.), 43 S. W., 684, it was disclosed that Carothers & Bro. were indebted to Wilson and Muir by two notes for $1,000 each, and those notes were signed by other persons as sureties. While those notes were outstanding Carothers & Bro. executed other notes to Wilson and Muir for other sums and delivered to them certain collaterals—
*407“ as security for the payment of onr notes this day executed, or any other unsecured liability, or liabilities of ours to Wilson & Muir.”
In construing that language, which it was contended .on one side did not include the two $1,000' notes, the court said:
“We think the clause, ‘or liabilities of ours to Wilson & Muir,’ is broad enough to include any liabilities which Carothers & Bro. were under to Wilson & Muir”
—and hence includes the two $1,000 notes though they were signed by other persons as sureties of Carothers- & Bro.
Our court of chancery appeals in the case of Hanover National Bank v. Brown, 53 S. W., 206 (affirmed orally by this court), held that the excess, if any, of collaterals pledged for the payment of a note to the bank for $25,000 of borrowed money, ‘ ‘ or any other liability or liabilities of ours to the said bank, due or to become due,” could be applied by the holder on notes of the maker previously rediscounted for him by the holder.
The ruling in that case was approved in Bank v. Wood, 125 Tenn., 16, 140 S. W., 31, where it was decided, in an opinion by Mr. Justice Creen, that a written pledge of additional collaterals was controlled by its own terms, and not by general provisions as to additional collaterals and renewals found in the face of a collateral note, previously executed and subsequently renewed. General provisions in the note were not allowed to “override, add to, or vary the terms of a definite written agreement particularly witnessing *408the pledge of 'this property/' as did the agreement pledging additional collaterals.
In the opinion the court in that case further said:
“While it has been held in Tennessee (Hanover National Bank v. Brown, 53 S. W., 206), that these provisions in a note authorizing a bank to hold, as security for a general indebtedness, property pledged for a particular debt are valid, nevertheless an examination of the authorities shows the rule to be that such an agreement will not be construed so as to extend the obligation beyond that intended by the pledgor; and, if such agreement is on a printed form furnished by the bank and signed by its customer, and any doubt arises as to its proper interpretation, it will be construed in favor of the customer.” 125 Tenn., 16, 140 S. W., 31.
None of the numerous cases mentioned by us, nor any of the many other kindred cases that could be mentioned, furnish an exact parallel to the present case, either in the words of the pledge or in the attendant facts; none of them afford a conclusive criterion throughout for the decision of this case. After all, and properly, this ease must stand and must be decided upon its own particular facts, which are different in some aspects from all other cases.
The $24,400- note, with its several provisions, including those in reference to the collaterals now in question, is a contract; and, as in other contracts, the intention of the parties, when ascertained under proper rules of construction, if lawful, will be enforced by the court.
It is well observed, in a case already mentioned, that:
*409“In the construction of written contracts it is the duty of the court, as near as may he, to place itself in the situation of the parties, and from a consideration of the surrounding circumstances, the occasion and apparent object of the parties, to determine the meaning and the intent of the language employed. Indeed, the great object, and practically the only foundation of the rules for the construction of contracts is to arrive at the intention of the parties. This is a most conspicuous and far-reaching rule, and involves the nature of the instrument, the condition of the parties, and the objects which they had in view, and when the intent is thus ascertained, it is to be effectuated unless forbidden by law. ‘ Contracts are not to be interpreted by giving-a strict and rigid meaning to general words or-expressions without regard to. the surrounding circumstances or the apparent purpose, which the parties sought to accomplish.’ ” Gillet v. Bank of America, 160 N. Y., 555, 556, 55 N. E., 292.
Applying that familiar rule of construction and considering especially the fact that this contract was written in a blank form furnished by the bank to its customer, we have come to the conclusion that the language employed by the parties in this case means and was by them both intended to mean, that the collaterals pledged with the $24,400 note should, after the payment of that note, be “applicable” also “to any other obligations” of E. B. Stahlman to the bank, including the $45,000' stock purchase contract.
*410This we think does not extend the scope of the pledge ‘ ‘ beyond that intended by the pledgor, ’ ’ bnt is in accord with the intention of both of the parties. The language of the pledge is very broad and comprehensive. It could not well have been more so. Viewed in the light of the surrounding facts and circumstances, the meaning of that language is so plain and obvious as not to admit of any doubt to be resolved in favor of the pledgor, as should be done in case of doubt, the blank in which the pledge is written having been furnished by the bank.
It is only where the language is ambiguous and the meaning in doubt, or where the meaning to such effect is clear, that the secondary provision in a collateral note made to a bank by its customer will be limited to other liabilities, or other obligations, “arising out of their ordinary dealings as bank and customer” (Gillet v. Bank, supra), or “in the course of commercial banking” (First Nat. Bank v. Ill. T. & S. Bank, supra), or “of the same kind with the one described in the former part of the contract” (Loyd v. Lynchburg Bank, supra), or joint and not individual (Torrance v. Third Nat. Bank, supra), or simultaneous and future but not preexisting (Bank v. Harris, supra). Where the language is plain and the meaning obvious to such effect, the court must hold that the pledge includes all other legal liabilities or obligations.
Being already indebted to the bank in the matter of the $45,000 stock purchase contract and also as indorser of $25,000 of notes of other persons (since paid), E. B. *411Stahlman executed to the bank the $24,400 note, pledging therewith the collaterals now in question, they being of a market value several times as great as that note.. The collaterals were pledged first to secure the payment of that note, and then “to secure the payment of any other obligations of the undersigned, whether past or future, held by the holder of this obligation; ’ ’ and this stock purchase contract was then one of the pledgor’s past obligations, which he manifestly intended to secure, and but for the securing of which he, as an experienced and intelligent business man, would have withheld the larger part of the collaterals actually pledged.
That such was the intention of the parties is emphasized, we think, by the next sentence in the1 note, as follows:
“All such securities in their hands shall stand as one general continuing security for the whole of said obligations, so that the deficiency on any one shall be made good from the collateral upon the rest. ’ ’
Applied to the facts of this case that provision means that any deficiency that may occur in the collaterals put up with the $45,000' stock purchase contract shall be made good from the collaterals pledged with the $24,400 note.
It maybe well to remark, in reference to the language of this pledge, that it cannot properly be construed to mean that another bank to which the Fourth National Bank, the payee, might have transferred the $24,400 note with its collaterals could hold those collaterals as *412security for other debts which Stahlman might have created with that other bank. To so construe the pledge would be to extend its scope “beyond that intended by the pledgor, ’ ’ and to do what the court said, in Bank v. Wood, 125 Tenn., 16, 140 S. W., 31, cannot be done. Such other debts to such other bank in the supposed ease could not be held to have been in the contemplation of the parties when the collaterals were put up with the $24,400’ note; hence they could not have the benefit'of that pledge. Only that note and any other obligations of Stahlman, past or future, to the Fourth National Bank can reasonably be said to have been within the contemplation of the parties; and for that reason only that note and such other obligations could fall within the scope of the pledge. Another bank holding that note and those other obligations, including the stock purchase contract, would be allowed to hold these collaterals for that note and those other obligations, because all of them were contemplated when the pledge was made; but the collaterals could not be held for other debts created with another bank, because such other debts were not contemplated.
The observation may also be made, in construing the provisions of this pledge, that a surety or an in-dorser on the $24,400 note, had there been one and had he paid the note, would by the payment, ipso facto nothing else appearing, have become entitled to be subrogated to the place of the bank as to these collat-erals to the extent of the payment made; and such right of subrogation could not be defeated by the application *413of the collaterals on any other debts to the hank, the collaterals being pledged primarily, as we have seen, for the payment of the $24,400 note.