Brooklyn Bank v. . Barnaby , 197 N.Y. 210 ( 1910 )

I am unable to concur in the opinion and conclusions of Judge WERNER.

The action was brought to recover the balance or deficiency remaining unpaid on a collateral note executed by the appellant and owned by the respondent for the sum of $68,000 and interest, dated February 12, 1894, and payable on demand, and whereby and wherewith there were deposited certain collaterals with power of sale of the latter, and wherein were contained certain provisions for the payment of any deficiency remaining after the application of the proceeds of collaterals.

From time to time, between March 7, 1894, and October 3, 1895, the appellant took up various pieces of his collateral by the payment of various sums of money which were applied as credits on his notes. There is no question that these transactions amounted to voluntary payments which prevented the operation of the Statute of Limitations. August 24, 1899, the appellant wrote to the respondent a letter dated that day and reading as follows:

"BROOKLYN, N.Y., Aug. 24, 1899.

"THE BROOKLYN BANK:

"Please deliver to bearer 75 shares Knickerbocker Steamboat Company now held as collateral security in my loan of Feby. 12th, 1894, and accept in place thereof Five hundred and sixty-two 50 Dollars ($562.50)

"Respectfully, "F.A. BARNABY."

The respondent complied with the request in this letter contained and credited the money received in place of the collateral which was delivered up as a payment on said note, and this is one of the disputed transactions relied on by the respondent as a partial payment withdrawing the note from the operation of the statute up to that time. On or about December 11, 1901, in accordance with the terms of the note, respondent sold at private sale 25 shares of Eagle Warehouse Company stock, being part of the collateral security deposited by and with the note aforesaid, and received on said sale the sum of $1,775, which it credited on said note. It notified appellant of said sale and credit on said debt by letter, to which he made no response. This transaction happened less than six years before the commencement of the action and is relied on by the respondent as a partial payment preventing the operation of the statute down to the date of the sale and application as aforesaid.

The Statute of Limitations has been invoked as a defense to this action and the effectiveness of this defense has been tested by two transactions occurring, respectively, August 24, 1899, and December 10, 1901, whereby the proceeds of certain collaterals were applied as credits on said note. It has been assumed that if those transactions amounted to voluntary partial payments by the debtor on his notes, they stayed or avoided the operation of the statute down to the last date which was within six years before the commencement of the suit, and on the other hand, that if they did not amount to such payments then respondent's cause of action had become barred when this action was brought. While the first alternative embodied in this assumption is doubtless correct, the second one in my opinion is not so.

We are all agreed that the first transaction involved, and which has been fully set forth in the statement of facts, amounted to a partial payment; that when the debtor sent to the creditor a sum of money and asked that it be accepted in lieu of a piece of collateral security, he must have expected that this money would not be kept in a separate account as security, but that it would be credited as a payment on the note and, therefore, that here was a voluntary partial payment by the debtor which acknowledged a remaining balance of indebtedness and wherefrom could be inferred a promise to pay such indebtedness which within all applicable principles stayed the operation of the statute to that date.

The second transaction presents different considerations. Under the powers conferred by the note respondent sold some of appellant's collateral applying the proceeds on his note and notifying him of what had been done. It is urged that appellant's silence for many years after notification and knowledge of what had been done, amounted to an acquiescence in and ratification of the sale of the securities and the application of the proceeds to the payment of his note and that, therefore, here also was what amounted to a voluntary partial payment which acknowledged a remaining indebtedness still to be paid and from which could be inferred a promise to pay such indebtedness and which, therefore, was effective to prevent the running of the statute. It is urged on the other hand, that the authority which permitted the sale of the security and the application of the proceeds thereof to the note, did not include any power to acknowledge the remainder of indebtedness or to promise to pay such remainder, and furthermore that the creditor having a perfect right to sell the security and apply the proceeds, appellant was not called on to and could not object to what had been done, and that, therefore, there was no element of acquiescence or ratification in his silence.

I shall assume for the purpose of this discussion that the latter contention is the correct one, and that under all of the circumstances of this case the sale by respondent of appellant's securities and the application of the proceeds thereof to his note with notice to him did not amount to a partial payment sufficient to stay the running of the statute down to that date within the principles enunciated in the cases of Crow v.Gleason (141 N.Y. 489); Smith v. Ryan (66 N.Y. 352);Harper v. Fairley (53 N.Y. 442).

This, however, as intimated, does not seem to me to cast the decision of this appeal in appellant's favor.

As already stated, from time to time, during a period of several years, the debtor had made payments to his creditor in consideration of which various pieces of his security were surrendered back to him and the sums accepted in place thereof credited as payments on the note. I think we may assume from the findings and evidence and from the statements in the briefs that with the sale of the Eagle Warehouse Company stock on the occasion in question all of appellant's collateral of any value had been released or exhausted. After the application of the proceeds of this last piece of security there remained unpaid an undisputed balance and deficiency amounting at the time of the trial, with interest, to $24,815.77, for the recovery of which this action was brought. If the sale of the collateral and the application of its proceeds had amounted to a voluntary act and payment by the defendant, there would be inferred an acknowledgment of and promise to pay this deficiency. I have assumed, however, that this did not arise. But in the note itself are specific provisions which take the place of such promise. After enumerating the securities pledged for the payment of the note, the latter reads as follows: "Which (I) hereby authorize said bank or its President or Cashier, to sell * * * in case of the non-performance of this promise, applying the net proceeds to the payment of this note, including interest, and accounting to for the surplus, if any. In case of deficiency (I) promise to pay to said Bank the amount thereof forthwith after such sale, with legal interest." Thus we find an explicit promise to pay the deficiency remaining unpaid on the note after the collaterals had been exhausted. The bank, at a time when the note was not barred by the statute, although past due, sold its remaining piece of collateral and applied the proceeds, and there remained a deficiency. No question was raised of its right to do just as it did do with reference to all of the collaterals which, with the exception of this piece, were taken up by the debtor, and no question was raised about the amount of the deficiency after the application thereof, and I am unable to see how any question can be raised concerning the applicability of this promise to pay the deficiency which remained. This promise was conditioned on and measured by the deficiency which might arise or exist after the disposition and sale of the collaterals. It then for the first time became operative and effective. It took the place of the promise to pay the balance which might have been inferred at that date in case of a voluntary payment, and it was only then that the Statute of Limitations commenced to run, and the bar of this statute had not accrued when the action was commenced. (Goodell v. Sanford, 31 Mont. 163; Tebo v.Robinson, 100 N.Y. 27; Preston v. Fitch, 137 N.Y. 41;Chaplin v. Wilkinson, 62 Barb. 46; United States v.Louisiana, 123 U.S. 32.)

It seems to me, therefore, that this disposes of this appeal and leads to an affirmance of the judgment.

CULLEN, Ch. J., VANN and WILLARD BARTLETT, JJ., concur with WERNER, J.; GRAY and CHASE, JJ., concur with HISCOCK, J.

Judgment reversed, etc.