Opinion
February, 1904.
Willard Parker Butler, for the appellant.
William M. Bennett, for the respondent.
While Brown Brothers Co. were bankers, yet the relation which existed between that firm and the corporation was quite different from that which exists between a banker, as such, and a depositor, in the ordinary course of a strict banking business. In such relation a lien "attaches in favor of the bank upon the securities and moneys of the customer deposited in the usual course of business, for advances which are supposed to be made upon their credit. It attaches to such securities and funds, not only against the depositor, but against the unknown equities of all others in interest, unless modified or waived by some agreement, express or implied, or by conduct inconsistent with its assertion." ( Meyers v. N.Y. County Nat. Bank, 36 App. Div. 482; Smith v. Eighth Ward Bank, 31 id. 6.) The relation existing between Brown Brothers Co. and the corporation, strictly speaking, was that of a commercial correspondent advancing money or credit to a principal for the purchase of property for the principal and taking therefor as security for the advances the bills of lading. Under such circumstances it has been held that the title to the goods so purchased vests in the correspondent, subject, however, to a contract upon his part to sell the same to the principal upon receipt of the purchase price. ( Drexel v. Pease, 133 N.Y. 129.) It is not important in the disposition which we make of this case, however, to determine which rule applies, for if the relation was that strictly of banker and customer, a lien would attach to the money and securities on hand, which might be enforced for any indebtedness existing at the time of any default in payment of matured obligations. So, likewise, it was held in the case last cited that an agreement for a general lien between the correspondent and the principal would in like manner be perfectly good and would be enforced to the same extent. The question is important in the present case in view of the conclusion reached by the learned referee, for in construing the credit obligation, which was executed at the time of the issuance of the letters of credit, he has limited its effect and has not extended its operation beyond what would have been the rights of Brown Brothers Co. had there been no agreement. The rule applied would be the same in an ordinary agreement for a lien, arising out of a single transaction of purchase, which could only be enforced to the extent of a present indebtedness. In disposition of the case, therefore, the controlling question necessarily is the construction of the credit obligation. It appeared from the evidence that when the drafts were paid for the cargo shipped by the wrecked steamer, there was no indebtedness existing in favor of Brown Brothers Co. against the corporation, and no indebtedness was incurred until about six months after the payment of the drafts which had been drawn on account of such cargo. That specific transaction was then closed, and had the money then been paid upon the insurance policy, there would have been no indebtedness in favor of Brown Brothers Co., and, consequently, no lien to be enforced. The question, therefore, is, did the credit obligation create in favor of Brown Brothers Co. a lien upon the policy for future indebtedness, which might be enforced against the fund secured to be paid thereby when paid? In construing the credit obligation, we are to give force and effect to its entire language in order to arrive at the intent of the parties in executing it. In precise terms, it says: "And we hereby recognize and admit the ownership of Brown, Shipley Co., in, and their right * * * to, the possession and disposal of all goods and the proceeds thereof, for which Brown, Shipley Co. may come under any engagements in virtue of this credit, as also to the possession of all bills of lading for and policies of insurance on such goods, until such time as any indebtedness or liability existing as against us in favor of Brown, Shipley Co. or Brown Brothers Co. under the said credit or otherwise shall have been fully paid up and discharged. * * * Any proceeds of said goods coming into their hands are to be applied against the acceptances of Brown, Shipley Co. under this credit, or against any other indebtedness of ours to them or Brown Brothers Co. including all expenses incurred by either of them and commissions of sale and guarantee. This obligation is to continue in force and to be applicable to all transactions." It is evident that this language covers all transactions between the parties relating to the subject-matter, and gave to Brown Brothers Co. the right to secure from any property or securities in its hands payment of its indebtedness without regard to when it arose. If at the time Brown Brothers Co. held property or securities of the corporation and an existing debt was then due and owing to them, the contract applied to and covered it. Its express language is to make it applicable "to all transactions" and to "any" indebtedness or liability existing. It would be difficult to use words which create with more certainty a continuing obligation. In comprehension it embraced all transactions during the life of the obligation, past, present and future. It is impossible by any fair construction of the terms of this instrument to limit the right of Brown Brothers Co. to any single transaction. In Agawam Bank v. Strever ( 18 N.Y. 502) the language of the memorandum which accompanied the obligation was: "The above note is left as collateral security for all liabilities incurred by * * * to the Agawam Bank." The court held that, in strict grammatical construction, the word "incurred" was used in the past tense, and strictly speaking was limited to such indebtedness as existed at the time of the delivery of the contract. Yet the court held that, in view of the circumstances, it was not justified in placing such limited significance upon the language, or in construing it in its strict grammatical sense; that construing it according to the evident intention it constituted the security a continuing obligation for debts created after its delivery, and such is the effect of the cases. ( Merchants' National Bank of Whitehall v. Hall, 83 N.Y. 338; Belloni v. Freeborn, 63 id. 383.) The credit obligation in the present case is stronger in its express terms than was the language used in the case to which we have called attention. It is quite true that the Goodsell Company, upon the payment of the drafts drawn for the goods which were lost, became, so far as that transaction was concerned, entitled at that time to receive the moneys secured to be paid by the policy of insurance. The money, however, was not then paid by the insurance company nor was the policy taken from the possession of Brown Brothers Co. Other transactions were had and indebtedness incurred, and when that indebtedness was brought into existence in favor of Brown Brothers Co. under the terms of the credit obligation, a lien attached in their favor to the policy of insurance, which it then held for the payment of such indebtedness, and the fact that at a prior time the Goodsell Company would have been entitled to the proceeds of the policy in nowise affected the lien of Brown Brothers Co. at the time when the money was paid by the insurance company, for an indebtedness then existed in their favor. The credit obligation provided that when such indebtedness existed and was due Brown Brothers Co. might apply proceeds coming to their hands, or if by any instrument money became payable they became entitled to receive and apply it in discharge of such indebtedness.
Resort is had in opposition to this conclusion to the doctrine which obtains between a mortgagor and a mortgagee and an insurance company upon a policy of insurance containing the clause: "Loss or damage, if any, under this policy shall be payable to mortgagee * * * as interest may appear," which policy for some reason has been rendered void and unenforcible. These cases simply hold that the mortgagee under such circumstances acquires no greater right to have the policy enforced than has the mortgagor. Such rule, however, has no application to the present case. No question arises as to the validity of the policy of insurance, nor as to the rights of the parties to enforce it. The loss had occurred and the liability of the insurance company to pay the sum of money had become fixed. It was payable to some one and presumptively to the person holding the policy. It was security for the payment and the money could only be had by a surrender of the policy. Under such circumstances it could make no possible difference as between these parties whether the money which was paid came from a loss sustained under the terms of the policy or was paid upon any other security held by Brown Brothers Co.; they had the right to make the application in either case. Upon the security they had a lien for the payment of the indebtedness, and questions relating to the insurable interest of a party or his disability in any other respect are entirely aside of any question presented by this case, for here the controversy is over money which was paid and not as to any rights or disabilities which might have existed between the parties at the time respecting the insurability of either. We are of opinion, therefore, that the learned referee was in error in the construction which he placed upon the credit obligation, and that under the proofs and the stipulation Brown Brothers Co. became entitled to share in the moneys paid upon the policy of insurance proportionately with the other bankers holding the other policies of insurance. As the facts upon which Brown Brothers Co. base their right to the fund are undisputed, it follows that the judgment of the referee should be reversed and judgment should be ordered in favor of Brown Brothers Co. for their proportionate amount of the fund, with costs of this appeal as against V.K. McElheny, Jr., as assignee.
O'BRIEN, INGRAHAM and McLAUGHLIN, JJ., concurred.
I concur in result. I am of opinion that a lien existed, independent of the agreement.
Judgment reversed and judgment ordered as directed in opinion, with costs of appeal as against Victor K. McElheny as assignee.