
    The Security Bank of New York, Appellant, v. Herman Finkelstein, Respondent.
    First Department,
    December 31,1913.
    Limitation of action — payments from collateral assigned as security for note — new promise —when pledgee not agent of debtor in receiving payments under assignment—ratification of payments — special promise to pay deficiency.
    In an action to recover the balance due on a collateral security note, made by the defendant to the order of the plaintiff, it appeared that the defendant had assigned to the plaintiff as security for the note moneys due or to become due to the defendant from another bank, or its receiver, in which he had been a depositor. The defendant pleaded the Statute of Limitations.
    
      Held, that the receiver of the insolvent bank in paying dividends to the plaintiff under the terms of the assignment was not the agent of the defendant, and there is no legal presumption from such payments that a new promise was made by the defendant to pay the balance on the note.
    
      The plaintiff was not the defendant’s agent in collecting and applying the dividends.
    It cannot be held as a matter of law that defendant ratified the payment as made or applied on the note by the plaintiff.
    The plaintiff is not entitled to. recover on the theory that the note itself or the assignment contained a promise separate and apart from that contained in the note proper to pay any deficiency arising after the application of the moneys received under the assignment.
    Where a debtor assigns collateral as security for his note or other obligation, his debtor in making a payment to the assignee on the obligation thus assigned is not his agent, and such a payment does not give rise to a new promise on the part of the debtor.
    Ingraham, P. J., and Hotchkiss, J., dissented, with opinion.
    Appeal by the plaintiff, The Security Bank of New York, from an order and determination of the Appellate Term of the Supreme Court, entered in the office of the clerk of the county of New York on the 7th day of March, 1913, affirming a judgment of the City Court of the City of New York in favor of the defendant entered upon the verdict of a jury, and also affirming an order of said court denying plaintiff’s motion for a new trial.
    
      Morgan J. O’Brien, for the appellant.
    
      Charles Goldzier, for the respondent.
   Laughlin, J.:

This is an action on a promissory note made by the defendant on the 3d day of January, 1906, for $2,005.35, payable on demand to the order of the plaintiff under its former name, which was the Fourteenth Street Bank, with interest, to recover a balance of $375.67. The action was commenced on the 19th day of February, 1912. It is alleged that there were payments made to apply on the note as follows: January 8, 1906, $502.67; June 13, 1906, '$751.34, and March 28, 1907, $375.67. The allegations with respect to these payments were put in issue by the answer in which the Statute of Limitations was also pleaded. The payments made, which were thus put in issue, were dividends received by the plaintiff from the receiver of the Cooper Exchange Bank, under an assignment, as collateral security for the note, of defendant’s claim against said bank as a depositor.

The points presented by the appeal are whether either of these last two payments made on the note gave rise by implication or presumption of law to an implied promise on the part of the defendant to pay the balance, on which the Statute of Limitations would commence to rim anew from that time; and whether plaintiff is entitled to recover on the theory of an agreement on the part of the defendant to pay the deficiency after the application of the amounts collected on the collateral security. It was a long form collateral security note such as is in use by banks. It is therein recited that the maker has deposited with the bank as collateral security for payment an- “ assignment of moneys due or to become due from the Cooper Exchange Bank ” or its receiver, with authority to the payee or its assigns without demand of payment, advertisement or notice of sale, in the event of non-payment to sell the whole or any part thereof at any broker’s board or at public or private sale, “ and after deducting all costs and expenses for collection, sale and delivery to apply the residue of the proceeds of such sale, or sales, to pay any or all ” of defendant’s liabilities to the bank, and to return the surplus to the defendant. Immediately after the provisions authorizing the assignment or sale of the collateral, the note contains the following: “And the undersigned agrees to be and remain liable to the holder hereof, for any deficiency. It is further agreed that any moneys or property at any time in the possession of the said Bank, on deposit or otherwise, belonging to or at the credit of any of the parties liable hereon to said Bank, may at any time, at the option of said Bank, be appropriated and applied as a payment on account of this note or the indebtedness evidenced hereby, and on account of any other indebtedness or liability of the parties hereto to said Bank, whether this note or any such indebtedness is then due or not due.” The assignment which it is recited in the note had been deposited with the plaintiff as security therefor, was dated and acknowledged on the 14th day of November, 1905. It recites a consideration of one dollar for which the defendant assigned to the plaintiff and to its successors and assigns “ any and all sums of money now due or to grow due” upon his claim against the Cooper Exchange Bank or its receiver, amounting to $3,006.35, which accrued to him as a depositor, and that he gave to the plaintiff “full power and authority, for its own use and benefit,” but at his expense “to ask, demand, collect, receive, compound and give acquittance for the same, or any part thereof,” and in his name “or otherwise to prosecute and withdraw any suits or proceedings at law or in equity therefor.” It is further recited that the assignment is given as collateral security “for an advance or advances ” made to the defendant by the plaintiff “on account of said claim or demand.” It is further therein provided that “when the amount of said debt or claim shall have been collected ” by the assignee it should pay over to him the surplus “ over and above the amount of any advance or advances with interest thereon” made by the assignee to him “on or on account of said claim or demand.” The final sentence of the assignment provided that “if the amount paid by the Cooper Exchange Bank, or the Receiver thereof,” on the claim assigned “shall not be sufficient to pay the amount of the advance or advances and interest thereon, and any and all costs and expenses incurred in the collection of the same by the Fourteenth Street Bank, then in that event I hereby agree to pay any deficiency thus arising.” It does not appear when the doors of the Cooper Exchange Bank were closed nor whether prior to that time the defendant had a deposit account with the plaintiff, but we are informed by the brief of the learned counsel for the appellant that the decision in this'case will be a precedent for a number of other like cases pending, arising out of the plaintiff’s making like advances to other depositors of the Cooper Exchange Bank on their notes secured by an assignment of their old accounts, “ thus enabling such depositors to continue business with banking facilities.” It is contended by the learned counsel for the respondent that the assignment was made as collateral security for a prior indebtedness. That argument is predicated on the date of the assignment and the recitals therein, the material parts of which have been set forth. There is no evidence, unless it may be inferred from the recitals in the assignment, that there was any prior indebtedness on the part of the defendant to the plaintiff. It is fairly to be inferred from the record, however, that the assignment was delivered as security for this note, for the plaintiff called its former cashier, through whom, evidently, the transaction was negotiated with the hank, and asked him whether the defendant, on January 3, 1906, made “ this note and assignment to your hank.” Whereupon counselfor the defendant said: “ That is admitted, your Honor.” The court also stated that it was admitted, hut defendant’s counsel then said: “Hot on that one point; I want to bring that out.” According to the record the question was not pressed further, and it would seem that the fact sought to be proved was taken as admitted.

The plaintiff showed payments made on the note as alleged, and that the source of the payments was dividends received from the receiver of the Cooper Exchange Bank. The plaintiff also showed that the last payment left a balance of principal unpaid of $375.67. The cashier of the bank testified in substance that at the time each payment was made he, representing the bank, informed the defendant that the dividend had been paid and applied on the loan; that the defendant seemed gratified with the collections and expressed the hope that “we would be able to get it all; ” that the defendant being a depositor frequently called at the bank and talked with him; that on the 28th day of October, 1908, defendant called at the bank on another matter and was informed by him that no dividends, other than the three, the last of which was paid on the 28th of March, 1907, had been paid by the Cooper Exchange Bank, and that the defendant said “he was sorry, and he hoped we would win out finally; those were his exact words; ” and that in February, 1909, the defendant inquired concerning the prospects of anything further being realized from the Cooper Exchange Bank, and received no encouragement.

The effect, on the running of the Statute of Limitations, of the payment of principal or interest is declared by judicial decisions, but there is no statutory provision governing it. The only statutory reference to it is contained in section 395 of the Code of Civil Procedure, which is as follows: “An acknowledgment or promise contained in a writing, signed by the party to be charged thereby, is the only competent evidence of a new or continuing contract, whereby to take a case out of the operation of this title. But this section does not alter the effect of a payment of principal or interest.” By judicial decisions a rule, doubtless now as binding as a statutory enactment, has been declared to the effect that a payment of either principal or interest made by the debtor gives rise to an implied promise, or justifies an inference of a new promise, on his part made at that time, in the absence of evidence showing that he disclaimed the intent to have his act given that effect, to pay the balance of the indebtedness; and that the Statute of Limitations from that time commences to run on the new promise renewing the contract. (Murdock v. Waterman, 145 N. Y. 55; Harper v. Fairley, 53 id. 442; Smith v. Ryan, 66 id. 352; Pickett v. Leonard, 34 id. 175.)

So rigidly have the courts adhered to the underlying reason for this rule that it has been repeatedly held that-a payment by one, jointly or otherwise liable with others on the same instrument, even with the knowledge of the others liable thereon and whose liability is thus reduced, suspends the running of the Statute of Limitations only as against himself. (Hoover v. Hubbard, 202 N. Y. 289; Murdock v. Waterman, supra; Gould v. Cayuga County Nat. Bank, 86 N. Y. 75; McMullen v. Rafferty, 89 id. 456; Harper v. Fairley, supra.) The only exceptions to the rule that a payment, in order to prevent the running of the statute, must be made by the debtor, who pleads the statute, are, where the payment is made by his authorized agent clothed with sufficient authority to disclaim for him any intention to have the effect given the payment which by legal inference or presumption would otherwise attach thereto and he fails to so disclaim; or where he ratifies a payment made in his behalf. (Pickett v. Leonard, supra; Harper v. Fairley, supra ; Smith v. Ryan, supra; Murdock v. Waterman, supra.) It is well settled that where the debtor assigns collateral as security for his note or other obligation, his debtor, in making a payment to the assignee on the obligation thus assigned, is hot his agent, and that such a payment does not give rise to a new promise on the part of the debtor (Harper v. Fairley, supra ; Smith v. Ryan, supra; Acker v. Acker, 81 N. Y. 143); and the same has been held with respect to payment by a general assignee for creditors. (Pickett v. Leonard, supra.) It has also been held that the creditor in selling and applying the proceeds of collateral to the payment of the obligation is not the agent of the debtor for this purpose. (Brooklyn Bank v. Barnaby, 197 N. Y. 210.) In view of these authorities it requires no further argument to show that the receiver of the Cooper Exchange Bank in paying the dividends was not the agent of the defendant, and that there is no legal presumption or inference to be drawn from such payments that a new promise was then and there made by the debtor to pay the balance owing on the note, hior can it be successfully contended that the plaintiff itself was the defendant’s agent in collecting and applying the dividends. The plaintiff in collecting the dividends acted for itself pursuant to the rights derived by it under the assignment. There was no act involved in the collection or application of the dividends to the payment of the note that it was necessary to perform in the name of the defendant. The money when received became the property of the bank so far as required in paying the note. Its application to the payment of the note was a mere mental operation or bookkeeping entries which the officers of the plaintiff performed in its behalf and for it.

It cannot be said as matter of law that defendant ratified the payments as made or applied on the note .by the bank so that they are to be regarded the same as if he brought the money in and paid it over the counter. The question of ratification was submitted to the jury as a question of fact and was found by them adversely to the appellant. We would not be justified in disturbing the verdict on that point unless as matter of law the evidence shows a ratification. The defendant was not consulted with respect to the appropriation of the dividends to the payment of the note. He was merely informed that the dividends had been received and so applied. He had no voice in the matter and he had no standing to question the right of the plaintiff to make the application. He was not called upon to protest against the doing of that which plaintiff had a right to do; nor was he since the act was not his, required' to disclaim its effect on the Statute of Limitations or with respect to a new promise.

The only debatable point is whether the plaintiff is entitled to recover on the theory that the note itself or the assignment contains a promise, separate and apart from the promise contained in the note proper, to pay any déficiency arising after the application of the moneys received under the assignment. In Brooklyn Bank v. Barnaby (supra) the Court of Appeals had' this question under consideration in an action on a note in substantially the same form as that in the case at bar, and the collateral was sold and the proceeds applied thereon. There the deficiency could not be ascertained until the sale of the collateral and on that ground three of the judges maintained that a cause of action on the promise to pay the deficiency did not arise until the deficiency was known; but the majority of the court decided otherwise, and that decision is controlling on this court on that proposition.

I am also of opinion that the action cannot be maintained on the theory of a promise contained in the assignment to pay the deficiency. The action is upon the note and not on the assignment. This provision of the assignment is not set forth in the complaint. It would now be too late, if the attempt were made — but it is not by counsel for appellant — to read it into it now, for the action evidently was not tried on that theory and the proof is not sufficient to show that no more could have been realized under the assignment, nor does it appear but that there might have been some other defense had the action been on the assignment. However, it would seem doubtful whether the action, if properly brought on the assignment, could be sustained on that theory. In Brooklyn Bank v. Barnaby (supra) it does not appear that there was a separate formal assignment such as in the case at bar. On the theory upon which that case was decided, however, I am of opinion that the separate assignment does not materially distinguish the case at bar from it. The court there held that there was but one promise and that was the promise in the note proper to pay the indebtedness, and that the promise to pay the deficiency had reference to the unconditional promise to pay the indebtedness and was to be so construed, These views require an affirmance.

It follows that the determination should be affirmed, with costs.

McLaughlin and Dowling, JJ., concurred; Ingraham, P. J., and Hotchkiss, J., dissented.

Ingraham, P. J. (dissenting):

The action is on a promissory note dated January 3, 1906, by which the defendant promised to pay to the plaintiff on demand $2,005.35. There were certain payments on the note, the last payment being made on March 28, 1907. The action was commenced on the 19th day of February, 1912. The answer set up the Statute of Limitations and the only question presented on this appeal was whether the cause of action was barred. The answer to this question depends upon whether the last payment credited upon the note was sufficient to take the case out of the bar of the statute.

Section 410 of the Code of Civil Procedure provides that “where a right exists but a demand is necessary to entitle a person to maintain an action the time within which the action must be commenced must be computed from the time when the right to make the demand is complete. ” There are exceptions to this provision which do not apply to the case at bar. Section 395 of the Code of Civil Procedure provides that “An acknowledgment or promise contained in a writing, signed by the party to be charged thereby, is the only competent evidence of a new or continuing contract, whereby to take a case out of the operation of this title. But this section does not alter the effect of a payment of principal or interest.” These are the only provisions of the Code of Civil Procedure that apply.

The facts upon which this question is presented are as follows: The defendant had an account with the Cobper Exchange Bank, which became insolvent and went into the hands of a receiver. By an instrument dated November 14, 1905, defendant assigned to the plaintiff any and all sums of money now due or to grow due upon his claim against the Cooper Exchange Bank or R. Ross Appleton, Esq., as receiver of the Cooper Exchange Bank, amounting to $3,006.35, which claim accrued to the defendant by reason of his having been a depositor in the Cooper Exchange Bank, with power and authority, for its own use and benefit, but at the defendant’s own cost, to ask, demand, collect, receive, compound and give acquittance for the same or any part thereof, and further providing that this assignment of claim was given “as collateral security for an advance or advances made to me by the Fourteenth Street Bank, East Side Branch, on account of said claim or demand. And it is further understood that when the amount of said debt or claim shall have been collected by the said Fourteenth Street Bank, under this assignment, that said bank shall pay over to me any and all sum or sums of money over and above the amount of any advance or advances with interest thereon made by the said Fourteenth Street Bank, to me, on or on account of said claim or demand. And it is further understood that if the amount paid by the Cooper Exchange Bank, or the receiver thereof, on my aforesaid claim or demand against said Cooper Exchange Bank, shall not be sufficient to pay the amount of the advance or advances and interest thereon, and any and all costs and expenses incurred in the collection of the same by the Fourteenth Street Bank, then in that event I hereby agree to pay any deficiency thus arising.” On the 3d of January, 1906, the defendant made and delivered to the plaintiff his promissory note whereby he promised to pay to the plaintiff or order $2,005.35 on demand. Upon the trial an assistant manager of the plaintiff was called as a witness and was asked: Did he [defendant] on January 3rd, 1906, make this note and assignment to your bank?” and defendant’s counsel-stated: “That is admitted.” The witness then testified that on January 8, 1906, the plaintiff received on account of this assignment $502.67; on January 13, 1906, $751.34; on March 28, 1907, $375! 67; that these sums were received from the receiver on account of dividends under the assignment, and that allowing these payments there was due on the note $580.34. The witness then testified that on January 8, 1906, he told the defendant that certain dividends had been paid, and the defendant said he was very glad of it, and hoped that the plaintiff would get it all; that in June, 1906, the witness told the defendant that the bank had received a dividend of twenty-five per cent, and that it had been applied to his loan; that on March 28, 1907, the witness told the defendant that the plaintiff had received from the receiver of the Cooper Exchange Bank another dividend that had been applied to his loan, to which the defendant replied that he was glad plaintiff was getting the money; that on the 28th of October, 1908, the witness told the defendant that no other dividend had been paid, to which the defendant said he was sorry. Upon this testimony both parties moved for the direction of a verdict, which the court denied, and submitted to the jury the question whether the defendant ratified the acts of Mr. Clark, the cashier of the plaintiff, when Mr. Clark said to the defendant: “We had received a dividend,” or dividends. The court stated to the jury: “If you believe from all the facts in the case and the circumstances connected therewith that the words used by the defendant were a promise or ratification sufficient to take it out of the Statute of Limitations then the plaintiff is entitled to a verdict in the sum of $580.34. ” The jury returned a verdict in favor of the defendant, and from the judgment entered thereon the plaintiff appeals.

In the case of Brooklyn Bank v. Barnaby (197 N. Y. 210) the Court of Appeals held that where the debtor requested the creditor to deliver certain collateral security held by the creditor, and to accept in place thereof $562.50, and the bank delivered the collateral and received the money and credited it on the note, that was a payment by the defendant upon his written request that the plaintiff accept a sum of money in lieu of part of the collateral then held by it, and supported the implication that the defendant intended to acknowledge the obligation of the debt and to make a new promise to pay the balance due; but it was also held that where the bank upon its own initiative sold some of the collateral which it held and realized therefrom the sum of $1,775, and applied the amount thus realized to the payment of the debt, that was not such a payment as suspended the Statute of Limitations. It was said that the effect of a part payment in enlarging the time during which an action may be brought is because a part payment made on account of a claim is an acknowledgment by the debtor of his liability for the whole demand, and from this acknowledgment a new promise on his part to pay the residue is implied. The undertaking of the debtor as to the unpaid part of the debt is thus by a legal presumption renewed and made to date from the time of the part payment. “ The debtor can always make a new promise, but where circumstances are relied upon to constitute such a promise it may make a radical difference whether they occurred before or after the debt was barred. In the former case, with a debt still alive, it would require less evidence to create a promise to extend the running of the statute than in the latter case, with a debt barred, to revive the debt and renew the expired period.” There was a strong dissent in that case based upon the transfer of the collateral obligation, which, after enumerating the security pledged for the payment of the note, said: “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.” By the minority opinion it was held that the time that barred that obligation was six years from the ascertainment of the deficiency. The majority opinion, after considering some authorities relied upon by the plaintiff, said: “ Quite different is the case at bar, for here the defendant’s promise was definite and unequivocal, covering the whole debt, dependent upon no condition or contingency which might relieve him from it, and embracing nothing that the law would not have implied if he had not reduced it to writing. If judicial construction can metamorphose such an indivisible transaction into two or more separate and distinct parts, governed by as many different periods of limitation, we may as well abolish the statute, for it will no longer be the shield of him who is sued, but the sword of him who sues.” So that, accepting this decision as controlling, the question is whether the defendant ever either made a payment or authorized the acceptance of money by the plaintiff as a payment upon his obligation from which a new promise to pay the balance due could be inferred. According to the testimony this agreement of the 14th of November, 1905, and the note in suit were made to the bank on the same day, January 3, 1906. By the note the defendant agreed to pay to the bank on demand the sum of $2,005.35. By the agreement that was delivered at the same time he assigned to the bank a claim against an insolvent bank or its receiver amounting to $3,006.35 expressly giving to the plaintiff power and authority for its own use and benefit but at the defendant’s cost to ask, demand, collect and receive some or any part thereof, and in the defendant’s name or otherwise to prosecute and withdraw any suits or proceedings at law or in equity therefor. The defendant then agreed that this assignment was made as collateral security for an advance or advances made to the defendant by the plaintiff on account of said claim or demand and that when the- claim or demand shall be collected under the assignment the bank would pay over to the defendant all sum or sums of money over and above the amount of any advance or advances with interest thereon made by the said Fourteenth Street Bank to the defendant on account of said claim or demand, and that if the amount paid by the Cooper Exchange Bank or the receiver thereof on the defendant’s aforesaid claim or demand against siich Cooper Exchange Bank shall not be sufficient to pay the amount advanced with interest and any and all costs and expenses incurred in the collection of the same by the Fourteenth Street Bank, then in that event the defendant agreed to pay any deficiency thus arising. These two instruments must be read together in determining the exact relation between the plaintiff and the defendant. The note was a demand note, was delivered with this assignment, which recited that the defendant delivered a demand note which represented the money advanced at the time the note and assignment were delivered; the money advanced was advanced to the defendant ‘ on account of said claim or demand ” which had been assigned to the bank; the plaintiff was authorized to ask, demand, collect, receive and give acquittance for the same or any part thereof in the defendant’s name, or otherwise; and the advance thus made on account of the assigned claim was to be paid by the money received from the insolvent bank or its receiver, any surplus accounted for to the defendant, or if the amount received by the plaintiff was not sufficient to pay the amount advanced, the defendant promised to pay. Under Judge Werner’s opinions in Brooklyn Bank v. Barnaby (supra) it seems to me that there was here an express authority given by the defendant to the plaintiff to receive the amount from the insolvent bank or its receiver on account of the indebtedness represented by the note, and the receipt of such a payment, the statute being not then a bar, was evidence of a new promise which bound the defendant.

The complaint here expressly alleged the making of the note, the delivery of this assignment of the defendant’s claim as depositor against the Cooper Exchange Bank or its receiver, and that thereafter the plaintiff paid to the defendant the sums which it had received as the agent of the defendant from the Cooper Exchange Bank or its receiver and that such receipts were a payment by the defendant. Here the plaintiff advanced to the defendant a sum of money on account of a claim against the Cooper Exchange Bank or its receiver. It took from him a demand obligation for the repayment of that sum. The defendant authorized the plaintiff to ask, demand, collect and receive payments made by the Cooper Exchange Bank and that any balance received in excess of the amount advanced by the plaintiff to the defendant was to be paid to the defendant and any deficiency over the amount received was to be paid by the defendant to the plaintiff. The receipt of any part of that demand assigned to the plaintiff was, it seems to me, clearly a payment by the defendant on account of the amount advanced which implied a new promise to pay what was in excess of the amount received from the Cooper Exchange Bank, and that the defendant’s express promise to pay any deficiency related to the credit by the plaintiff of the amount that it received as agent of the defendant from the Cooper Exchange Bank.

I think, therefore, that the cause of action was not barred by the statute and that the judgment must be reversed. As both parties submitted the right to a verdict to the court and there was no request to submit any question to the juiy, I think we should now grant the plaintiff’s motion and direct a verdict for the amount then due, $580.34, with interest from December 11, 1912, together with costs in this court and in the court below.

Hotchkiss, J., concurred.

Determination affirmed, with costs.  