Summary
In Hurd v. Kelly (78 N.Y. 588) and Best v. Thiel (79 id. 15) the Court of Appeals held that on the suit of a receiver the obligors of promises made to banks to deceive bank examiners were, on grounds of public policy, estopped from setting up a secret agreement with the bank.
Summary of this case from County Trust Co. v. MaraOpinion
Argued November 10, 1879
Decided November 18, 1879
William A. Beach, for appellant.
A.J. Vanderpoel, for respondent.
The objections to the recovery in this case will be briefly considered. It is claimed that the bond was not due at the time of the commencement of the suit. This turns upon the construction of the instrument. The bond was executed by several obligors who bound themselves severally, in separate amounts each for himself, and not for the others, to pay to the bank a sum specified "on the first day of January, one thousand eight hundred and eighty-three (1883), or six months after a demand therefor," the aggregate undertaking of all the obligors amounting to the sum of $100,000. The counsel for the defendant insists that the obligors had a right to pay the bond on the first day of January, 1883, but that the bank could only require payment after a demand of six months terminating at that date or any subsequent period. We do not think this construction admissible.
The general rule is that when the condition of an obligation is in the disjunctive it may be discharged by the performance of either of the enumerated acts at the election of the obligor. This is ordinarily consistent with the language and design of the instrument, but it is entirely competent for the parties to give the election to the obligee, and when the language of the instrument gives to the latter the right to demand payment or enforce performance in either of two ways, there is no arbitrary rule which prevents effect being given to it. Mr. Justice STORY in the U.S. v. Thompson (1 Gal., 389), in speaking of the general rule to which we have adverted says: "An exception to the rule is when the parties have saved the election to the other party." We think it is quite clear from the language of the bond in question that the intention was to fix the first day of January, 1883, as the day upon which the obligation should mature, in the absence of any prior demand of payment by the bank, but at the same time to enable the bank to accelerate the time of payment by six months' demand, if earlier payment was deemed necessary or required. The circumstances under which the bond was executed confirm this construction. It appears that when the bond was given the assets of the bank had become impaired to an amount as great or greater than the amount of the bond. The bond was executed for the purpose of being exhibited to the bank department as an asset so that the bank might pass the examination and inspection of the department and be enabled to continue its business. Under these circumstances it was quite natural that the bond should be drawn so as to make it available for the use of the bank within a short time in case of an emergency and the obligors probably deemed themselves sufficiently protected against being called upon for payment before payment was needed, by the fact that the most of the obligors were trustees of the bank, and their interests would be adverse to such action. We are of opinion that the bond was payable six months after demand of payment by the bank, made at any time after its execution.
It is also claimed that the bond was void for want of consideration. This objection is untenable. The bond is dated on the 28th of December, 1872. The undertaking of the several obligors is stated therein to be upon the consideration that the bank upon the request of each of the obligors, continues its ordinary business after the 15th day of January, 1873, and of the mutual covenants contained in the instrument. The bank did continue its business until the sixth day of December, 1875, when a receiver was appointed. The continuance of its business and the incurring of new obligations by the bank, incident to such continuance was a good consideration. The bank if solvent was not bound to continue its business and enter into new obligations. If, on the other hand, the bank was insolvent, it was not bound to discontinue its business so long as there was a fair expectation that its losses might be retrieved under a better management and under more hopeful and prosperous conditions. It may have been unwise for the bank to have continued the struggle after the losses it had incurred but having undertaken to continue its business at the request of the obligors, there was ample consideration for their promise. Nor do we perceive that the transaction was in violation of public policy. The intention of the parties was to provide a security in the nature of a guarantee fund of $100,000, to enable the bank to continue its business. It is not claimed that the transaction was ultra vires, and if it was, that objection cannot prevail as against the claims of depositors who are represented by the receiver and who is seeking to collect the bond as an asset of the bank, for distribution among those for whose protection it was given. ( Hope Ins. Co. v. Perkins, 38 N.Y., 404; Whitney Arms Co. v. Barlow, 63 id., 62; Railway Co. v. McCarthy, 96 U.S. 258.)
The defense that there was a fraudulent concealment by the persons who solicted the defendant to sign the bond, of the true condition of the bank, was, under the circumstances of this case, no answer to the action. It appears from the defendant's answer that he was informed, when he executed the bond, that it was to be used in reference to the relations of the bank to the banking department "so that a better showing of the apparent assets of the bank would appear." The defendant was thus apprised that this bond was to be used to give credit to the bank, with the bank department and with the public, so that it should be enabled to continue its business. The fact communicated to him was notice that the bank was in a precarious condition. He knew that if the bond was treated as an asset and the bank thereby allowed to continue its business, new obligations to depositors would be entered into on the faith of the solvency of the institution. Under such circumstances it would be gross injustice to permit the defendant, after having aided the bank to procure credit with the community, to avoid, as against depositors and creditors, the payment of his bond on the allegation that the exact condition of the bank was not disclosed to him, or that it was much worse than was represented. The dealings between him and the officials of the bank, at whose request he signed the bond, ought not, in justice, to be allowed to affect the security given by him for the protection of those dealing with the bank and who must be presumed to have relied thereon in their dealings. It was the duty of the defendant to have inquired and ascertained the condition of the bank before signing the bond, and having allowed the bond to be treated as an asset for three years and the public to deal with the bank on this assumption until the bank has become insolvent, he is estopped from setting up the defense in question. ( Farrar v. Walker, assignee, (MILLER, J.) 3 Dillon, 510; Casoni v. Jerome, 58 N.Y., 315; McWilliams v. Mason, 31 id., 294.)
The offer to show that the bond was delivered upon the consideration that certain other persons should execute it, and that this condition was not performed was properly overruled, if for no other reason on the ground that this defense was not alleged. The answer alleged that the defendant was induced to sign the bond upon the representations that certain other persons named would also execute the same and that it was not intended that it was to become obligatory as against this defendant unless said persons executed it, and that it was not so executed by them. These allegations are quite insufficient to show that the bond was delivered in escrow or upon the condition that it should be executed by other parties. It does not appear who made the representations or that they were made by the bank or by any one acting for it, and what is still more important, it does not allege that any condition was annexed to the execution and delivery of the bond by the defendant. ( Dillon v. Anderson, 43 N.Y., 231; Russell v. Freer, 56 id., 67.) If the evidence is examined, it is quite clear that no such condition was annexed to the delivery of the bond. The representations upon which the defendant relies, were made several days before he signed the bond. The bond was taken to him by a notary for execution and was signed by him and returned to the notary. It is not claimed that on this occasion anything was said upon the subject of its execution by other parties. The bond, so far as appears, was complete and perfect. The whole sum of $100,000, proposed to be guaranteed by it was covered by the several sums assumed by the obligors who executed it. The inference is very strong that if it was originally contemplated that persons not named in the bond should execute it, that purpose was abandoned and that other parties executed it in their place.
Upon the whole case we are of opinion that the judgment is right and should be affirmed.
All concur.
Judgment affirmed.