Summary
In Union Bank ofBrooklyn v. Sullivan, 214 N.Y. 332; 108 N.E. Rep. 558, the Court of Appeals of New York held, in a case in which the directors of a bank gave their note for a sum sufficient to cover the amount of worthless paper, which otherwise would have been charged to its apparent surplus, that a benefit sufficient to constitute an adequate consideration accrued directly from the contract, in that "each share of stock which they held represented an aliquot part of the bank's assets, and whatever increased the assets benefited the holders of the stock."
Summary of this case from The Coast National Bank v. BloomOpinion
Argued January 13, 1915
Decided March 16, 1915
Joseph G. Dean, Rufus O. Catlin, George A. Blauvelt, Joseph A. Warren and Louis Goldstein for appellant.
Hugo Hirsh, Max D. Steuer, Emanuel Newman and Benjamin Reass for Joseph Michaels et al., respondents. John H. Corwin for James M. Brown, respondent.
Omri F. Hibbard, J. Bradley Tanner and Henry Albers, Jr., for Henry Albers, respondent.
Joseph M. Hartfield and Earle W. Webb for executors of Edward B. Tompkins, deceased, respondents.
The defendants contend that the note sued on was without consideration. It is difficult to frame a complete and accurate definition of what constitutes a sufficient consideration to support a contract, but this court has approved the following:
"A valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other." ( Rector, etc., St. Mark's Church v. Teed, 120 N.Y. 583, 586.) I think there was evidence upon which the jury might have found that some benefit accrued to the defendants from the note in question and that there was a sufficient consideration therefor within this definition.
It is necessary to keep in mind the salient features of the transaction which led to the making of the original note of $175,000. These may be briefly stated. The bank had sustained a loss of $175,000 which for some time had been represented on its books by worthless paper. There came a time when it was imperative that the bank should no longer deal with the deficiency in that way, and the president laid the matter before the executive committee. The bank could either take the $175,000 out of its apparent surplus, or require some sufficient security to make the surplus good.
The president and members of the executive committee were all stockholders of the bank and it meant a loss to them through a fall in the value of their holdings if the surplus of the bank was reduced by the sum of $175,000. They, therefore, gave their note for the amount which they hoped the bank would in some way meet, but which nevertheless they agreed to stand back of. They gave their note and the bank's surplus was not depleted. Thus a contract was made upon a sufficient consideration between the maker and indorsers of the note on the one hand and the bank, a body corporate, on the other. Certainly those who became liable on the note secured a distinct benefit which accrued directly from the contract. Each share of stock which they held represented an aliquot part of the bank's assets and whatever increased the assets benefited the holders of the stock.
In Dykman v. Keeney ( 10 App. Div. 612, 619) the defendants were the directors of a banking corporation and they each made a note to the corporation for $10,000. The notes were made pursuant to an agreement which recited that doubt existed in the minds of the directors and in the mind of the superintendent of banks as to the soundness of certain of the bank's securities, and in order to remove such doubt and make the bank unquestionably solvent, the directors had each made his note for $10,000 to the bank. It was held that these notes were supported by a sufficient consideration. The court said: "While the question whether the capital was impaired at the time the notes were given was not determined, nor did the superintendent of the banking department make any requisition upon the directors to make good any specific deficiency, still the doubt existing on that question in the mind of the superintendent arising out of the character of some of the debts and bills receivable due to the bank and the interest of the directors in the continuance of the bank as a sound financial and business institution, constituted a sufficient consideration to support the notes of the defendants given to make good any possible deficiency which did exist. These notes, therefore, became upon their delivery debts due to the bank."
The question in Dykman v. Keeney was again before the court ( 16 App. Div. 131) and the holding was the same, and the decision then made was affirmed by this court in 160 N.Y. 677.
In Brodrick v. Brown (69 Fed. Rep. 497) it appeared that a national bank had suspended business and was in the hands of a bank examiner under the Federal statutes. The examiner informed the directors that before the comptroller of the currency would permit the bank to resume business it would be necessary that the sum of $50,000 be raised and placed in the bank. Acting on this information, the stockholders voluntarily contributed and paid to the bank a sum equal to fifty percent of their holdings and amounting to $50,000. It was held that the amount was not a loan to the bank but a contribution, and was an asset of the corporation. The court said: "The law is well settled that where stockholders voluntarily assess themselves, to relieve the corporation from pecuniary embarrassment, or for the betterment of their stock, whatever may be the occasion of the assessment, the advances thus made are not debts against, but assets of, the corporation."
In Hope Mutual Life Ins. Co. v. Perkins ( 38 N.Y. 404) the defendant gave to the plaintiff a note for $2,500. This was one of several notes given for the purpose of paying losses which might accrue on policies issued by the company after all the other funds in the hands of the company had been first applied. It was also provided that the company should pay interest to the makers of the notes. In a suit against the defendant it was objected that the note was without consideration. The court held that the provision for the payment of interest was a sufficient consideration and also that the note was made to give the company credit with the public and thus induce individuals to insure with it. And the presumption was that they were thus induced to insure and that was a sufficient consideration.
Hurd v. Kelly ( 78 N.Y. 588) was an action by the plaintiff as receiver of the Third Avenue Savings Bank against the defendant and others upon a bond. The consideration mentioned in the bond was that the savings bank, as requested by the obligors, should continue its ordinary business until January 15, 1873, and the further consideration was the mutual covenants of the bond. The condition of the bond was that the obligors should each pay a specific sum, with interest. It appeared that the assets of the bank had been impaired and the bond was executed for the purpose of being exhibited to the banking department as an asset so that the bank might pass examination and inspection and be able to continue business. It was objected that the bond was without consideration, but the court held that the continuance of business by the bank and the incurring of new obligations incident thereto was a good consideration.
There was sufficient evidence within the doctrine of the decisions cited to go to the jury upon the question of consideration.
There are three other questions involved in the case. The first of these has reference to the presentment of the $150,000 note for payment. Of course, it was not intended at any time by the parties to the note that the maker, Sullivan, should be primarily liable thereon as the principal debtor. The understanding and agreement was that they all, maker and indorsers alike, should stand behind the note "not separately but collectively." In fact they were all makers, and those who were in form indorsers had no right to expect or require that Sullivan would pay the note. Under such circumstances, presentment for payment was not necessary. (Negotiable Instruments Law, sections 130, 140; Witherow v. Slayback, 158 N.Y. 649; Haddock, Blanchard Co. v. Haddock, 192 N.Y. 499.)
The second question arises out of the cancellation of the $150,000 note. The evidence shows that the cancellation was made by the very individuals, except the defendant Albers, and except Tompkins, deceased, who are now charged with liability on the note. The original understanding, as has been said, was that the parties to the note should be liable collectively and not separately, and when the names of the indorsers were erased it was sought thereby to change this liability and make each responsible for his proportionate share of the note, and so each of them, when he crossed out his name as indorser, at the same time handed back to the bank a new note for one-ninth of the $150,000. This was done without the authority and without the knowledge of the board of directors.
Section 204 of the Negotiable Instruments Law (Cons. Laws, ch. 38) provides that "A cancellation [of a note] made * * * without the authority of the holder, is inoperative * * * but * * * the burden of proof lies on the party who alleges that the cancellation was made * * * without authority." The evidence to which reference has been made meets the burden of proof which the statute requires. While the defendant Albers did not take part in the cancellation of the indorsements, the validity of his indorsement was not affected if it is found that the cancellation of the others was unauthorized.
The third question is whether the defendant Sullivan by his indorsement of the $150,000 note as the executor of the last will and testament of Edward B. Tompkins, deceased, bound the estate of the decedent. It appears that Sullivan was only one of several executors of the Tompkins will, and the others are not made parties to this action. It is sufficient to say that he could not, without the co-operation of the other executors, indorse the note so as to bind the Tompkins estate. ( Bailey v. Spofford, 14 Hun, 86; Finnern v. Hinz, 38 Hun, 465.) The motion to dismiss the complaint as to the defendant Sullivan, as executor, was properly allowed.
I, therefore, recommend that the judgment appealed from be reversed and a new trial granted, with costs to abide the event as to the defendants, except David A. Sullivan, as executor of, etc., of Edward B. Tompkins, deceased, and as to said defendant the judgment be affirmed, with costs.
WILLARD BARTLETT, Ch. J., HISCOCK, COLLIN, HOGAN, CARDOZO and SEABURY, JJ., concur.
Judgment reversed, etc.