Coats v. . Donnell , 1883 N.Y. LEXIS 408 ( 1883 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The right of the plaintiff to maintain this action, so far as respects the sum of $34,833.49 of the deposit standing to the credit of the Mastin Bank of Kansas City, Missouri, on the books of Donnell, Lawson Co., on the morning of August 3, 1878, depends upon the force and validity of an oral agreement of June 10, 1878, made in the city of New York between John J. Mastin as cashier of the bank, and Donnell, Lawson Co., taken in connection with the subsequent appropriation by Donnell, Lawson Co., in execution of that agreement, and with the consent of the cashier, of sufficient of the funds of the Mastin Bank in their hands, to meet their outstanding acceptances. The agreement of June 10, 1878, as found by the referee, was in substance that if Donnell, Lawson Co. would accept the four accommodation drafts of June 8, 1878, drawn upon them, which drafts had already been negotiated by the bank, but had not yet been presented to the drawees for acceptance, the Mastin Bank would keep on deposit with Donnell, Lawson Co., in New York, at all times until their maturity, a sum or balance equal to the amount of the drafts, and that the drawees should have a lien thereon as security for their liability upon the acceptances, and should be kept informed of the condition of the bank, and have the right at any time to charge the account with the acceptances, and appropriate or apply the deposit, or so much thereof as might be necessary, to their payment. The cashier of the bank represented to Donnell, Lawson Co. at the interview of June 10, 1878, that the bank was in straits for money, but that with their assistance, through the acceptance of the drafts, and other aid which could be procured, the bank would be able to tide over its embarrassment, and continue its business. Donnell, Lawson Co. accepted the drafts under the agreement of June 10, 1878. The proceeds were, within a day or two after they were accepted, deposited by the Mastin Bank with Donnell, Lawson Co., who had for several years been the correspondent of the Mastin Bank in the city of New York, and the bank subsequently and prior to August 3, 1878, made other deposits with the firm. Subsequent to June 10, 1878, sight drafts in favor of customers, in the usual course of business, were drawn from time to time by the Mastin Bank upon Donnell, Lawson Co., and such drafts as were presented prior to August 3, 1878, were paid by the drawees, and charged to the account of the bank. On the morning of that day the credit to the bank on the books of Donnell, Lawson Co. was $50,459.68. The acceptances of Donnell, Lawson Co. of $35,000 had not yet matured, and were held by third parties. They did not draw interest, and their value at that time was $34,833.49. The cashier of the Mastin Bank, on or about the 27th day of July, 1878, wrote to Donnell, Lawson Co., informing them that he apprehended a run on the bank, and directing them to charge up the acceptances to the bank. This letter was received by Donnell, Lawson Co. on or about the 30th day of July, but they did not immediately act upon it. On the 3d of August they received a telegram from the cashier, announcing the failure of the bank, and immediately thereafter, on the same day, they charged the acceptances to the Mastin Bank, and subsequently, on their maturity, paid them to the holders.

The bank on the 3d of August, 1878, made a voluntary assignment of its property to the plaintiff for the benefit of its creditors. This assignment, though made on the same day, was executed after Donnell, Lawson Co. had charged up the acceptances. There were at the time of the assignment outstanding unaccepted drafts to the amount of about $40,000, drawn by the bank upon Donnell, Lawson Co., which are still unpaid.

The appropriation by Donnell, Lawson Co. on the 3d of August, 1878, of sufficient of the funds of the Mastin Bank in their hands, for the payment of their immature acceptances, was in precise conformity to the agreement of June 10, 1878, as found by the referee. It is claimed on behalf of the appellant that the agreement found, is inconsistent with the presumed intention of the parties, for the reason that as the drafts were negotiated to provide a fund to be deposited with Donnell, Lawson Co., against which drafts might be drawn by the Mastin Bank, it could not have been contemplated that the fund so provided should be subject to appropriation by Donnell, Lawson Co. to the payment of their acceptances, to the prejudice of the holders of drafts, for whose benefit the fund was provided. This claim leaves out of view the important fact that the drafts drawn on Donnell, Lawson Co. had already been negotiated by the Mastin Bank before the agreement of June 10, 1878, was made, and the urgency of the situation so far as the Mastin Bank was concerned in respect to their acceptance, and also the further fact that so far as appears, it was no part of the arrangement between the Mastin Bank and Donnell, Lawson Co. on the 10th of June, 1878, that the proceeds of the drafts should be deposited with them to meet subsequent drafts of the bank. The fact that the proceeds were subsequently deposited with the firm, or that the drafts were negotiated by the bank for the very purpose of obtaining funds, to be deposited with Donnell, Lawson Co., subject to its drafts, does not affect the right of Donnell, Lawson Co. to enforce the agreement of June 10, 1878, or authorize the interpolation of a term into the contract, inconsistent with the actual agreement.

The main controversy between the parties here turns upon the questions, first, whether the cashier of the Mastin Bank had authority to bind the bank by the agreement of June 10, 1878;second, whether that agreement, if authorized by the bank, was invalid as contrary to public policy, or in its nature was ineffectual to create a lien upon the deposit according to its terms, and to justify the appropriation, even though at the time such appropriation was made, it was expressly authorized by the bank; and third, (if the agreement was for any reason invalid or ineffectual) whether the plaintiff, as the assignee of the bank, can repudiate the agreement without paying the drafts, or indemnifying Donnell, Lawson Co. for the money expended in discharging their liability as acceptors.

There can, we apprehend, be no serious doubt of the proposition that the agreement of June 10, 1878, was one which the cashier of the bank was authorized to make, first, as incident to his office of cashier, in the absence of any special authority to enter into the particular transaction, and second, by reason of the by-law of the bank defining the authority of the cashier, which declares that "he shall have the immediate charge and supervision of the bank; shall attend to the making of loans, discounts, and other active business transactions of the bank, exercising his own judgment as to all such matters, when not otherwise directed by the finance committee or board of directors." The drafts in question were drawn and negotiated for the purpose of procuring money for the use of the bank and to enable it to carry on its legitimate and usual business. The cashier of a bank is its executive officer, and it is well settled that as incident to his office he has authority, implied from his official designation as cashier, to borrow money for, and to bind the bank for its repayment, and the assumption of such authority by the cashier, will conclude the bank as against third persons who have no notice of his want of authority in the particular transaction, and deal with him upon the basis of its existence. (Curtis v. Leavitt, 15 N.Y. 9; Barnes v.Ontario Bank, 19 id. 152.) The negotiation of the drafts in this case by the cashier was within his authority. The power to borrow being admitted, the power to secure the loan by pledge of the property or funds of the bank, (in the absence of any statutory restraint,) in the ordinary course of business, would seem to be a necessary inference from the primary power, and this is recognized in the cases to which we have referred. The exigency of the bank when the agreement in question was made, rendered it of the utmost importance to its interests to prevent the protest of the drafts, and the authority of the cashier to make the agreement of June 10, 1878, giving to Donnell, Lawson Co. a lien upon any deposit in their hands, for their security, if at all doubtful irrespective of the by-law, was ample under the comprehensive grant of authority thereby conferred.

The contention that the agreement of June 10, 1878, was ineffectual to create a lien on the deposit in favor of Donnell, Lawson Co., is founded upon the alleged rule of the common law that no lien can be created by contract, upon property not inesse when the contract is made. But that a contract for a lien on property not in esse may be effectual in equity to give a lien as between the parties, when the property comes into existence, and where there are no intervening rights of creditors or third persons, seems to be established by several decisions in this court. (Hale v. Omaha Natl. Bank, 49 N.Y. 626;McCaffrey v. Woodin, 65 id. 459; 22 Am. Rep. 644; Wisner v.Ocumpaugh, 71 N.Y. 113.) It is to be observed that the lien of Donnell, Lawson Co., was to attach only to funds of the bank in their hands. If the bank did not perform its agreement to keep the deposit good, the only remedy of Donnell, Lawson Co., would be upon the contract, or in case of payment of the acceptances, upon the implied contract for reimbursement. In this case the bank not only entered into an agreement to give a lien, but subsequently put the fund upon which the lien was to attach, into the possession of the pledgee, and in addition to the original authority, concurrently with, or at about the time of the appropriation, specifically authorized its application to the discharge of Donnell, Lawson Co.'s liability upon the acceptances. Here was not only the precedent declaration spoken of in some of the cases, but the subsequent act uniting with it to perfect and complete the transaction. The agreement was, we think, effectual between the parties, unless forbidden upon some notion of public policy.

The claim that the transaction was invalid on this ground cannot be maintained. It is said that it constituted an unlawful preference. But the agreement for the lien was concurrent with the obligation assumed by Donnell, Lawson Co., and was made to secure them against their liability as accommodation acceptors for the bank, assumed on the faith of the agreement. When the fund was appropriated, the appropriation was made in pursuance of the original agreement, as well as by the subsequent express authority of the bank. Moreover, regarding the transaction, disconnected from the equities which surround it, as a simple preference of one creditor of the corporation, we do not understand that such preference is unlawful. The right of a failing debtor to prefer one creditor to another in the distribution of his property, while it has been often regretted, is recognized both in courts of law and equity. (1 Sto. Eq., § 370; 2 Kent's Com. 532; Wilkes v. Ferris, 5 Johns. 335;Murray v. Riggs, 15 id. 571; Jacobs v. Remsen, 36 N.Y. 668. ) A corporation possesses in this respect the same right as an individual. It may execute a mortgage, or give a lien which shall operate as a preference, unless restrained by its charter or by statute. (In re File Co. v. Birmingham Banking Co., L.R., 6 Ch. App. 83; Catlin v. Eagle Bank, 6 Conn. 233;Dana v. Bank U.S., 5 W. S. 223; 2 Kent's Com. 315, note; Angell Ames on Corp., § 187.) The Revised Statutes prohibit preferences by insolvent corporations. (1 R.S. 593, § 9.) But the prohibition applies to domestic and not to foreign corporations, and we have not been referred to any provision of the charter of the Mastin Bank, or any statutory provision of Missouri, which forbids a transaction like the one in question. Neither was the agreement of June 10, 1878, fraudulent as to the holders of drafts on the defendants, issued by the Mastin Bank after that agreement was made. The defendants were under no obligation to accept the drafts to which that agreement related. They incurred the liability of acceptors upon the condition that they should have a lien and a right of appropriation for their indemnity. They did not agree to accept subsequent drafts, nor were such drafts taken on the faith of any agreement that they should be paid out of the deposit with Donnell, Lawson Co. The lien claimed by Donnell, Lawson Co. attached only to funds in their actual possession, and was not subject to the objection which lies to secret liens attempted to be given or enforced upon property in possession of the general owner. The equity of the defendants is superior to that of the other creditors of the bank, and we see no reason for setting aside the arrangement between Donnell, Lawson Co. and the bank, for the benefit of general creditors.

The point that the plaintiff was entitled to recover the difference between the present value of the drafts on the 3d of August, 1878, and their nominal amount, is not we think well taken. They had a right, under the agreement made, to charge against the account of the bank the face of the drafts, and to hold that amount to meet the sum which they would be bound to pay at their maturity. The question as to the part of the deposit which exceeded the sum claimed in the complaint, was properly disposed of by the General Term.

The judgment should be affirmed, with costs.

All concur.

Judgment affirmed.