Second National Bank of Oswego v. Burt.

On the 10th day of January, 1874, the defendant deposited with the plaintiff a sum more than sufficient to pay the amount of said discounted notes, for the purpose of paying such notes, as was declared by him to the officers of the bank at the time of making the deposit.

The officers received the deposit and after acquiring it refused to deliver up such notes. After demand duly made they also refused to return such moneys, or any part thereof, to the defend

ant.

At the time of this transaction the speculation in the wheat was still in embryo and might have terminated in a loss. None of the wheat was sold by the defendant until after the commencement of this action.

We agree with the referee in his opinion that "the money used by the defendant in the purchase of said wheat was the plaintiff's money, and they are legally entitled to follow the same into its product, the wheat, and take same and its fruits and products as its own."

"It is doubtless true that the cestui que trust has an election to affirin or disaffirm the pretended contract."

The cashier of a bank occupies such a situation with refercnce to the funds within his control as an officer of the bank that he cannot lawfully use such funds in private speculation to his own profit without the consent of those legally authorized to represent the bank.

In this case the defendant unlawfully took possession of the funds of his principal and was bound, at the option of his principal, either to return the funds unlawfully taken or surrender the property in which they had been invested. The election, which the plaintiff had at this time, was between the disaffirmance of the act of the defendant in borrowing its money and an assertion of the right of acquiring possession of the property bought with such funds, or the reception of the re-payment of the loan by its agent.

It could not receive its funds and also reclaim the wheat. It had the right to do either one or the other, and its election to pursue one necessarily constituted a rejection of the other alternative.

Second National Bank of Oswego v. Burt.

The only demand appearing from the evidence to have been made upon the defendant in respect to this transaction was made in the latter part of January, 1873, by one of plaintiffs' directors, and was a peremptory demand for the payment of "$5,000, profits on wheat."

No profits had at that time been realized on the transaction, and it was altogether a matter of speculation whether it resulted in a profit or loss. The same demand was much larger even than the amount eventually realized from the transaction.

The plaintiff never offered to assume the risk of the transaction or requested an immediate sale of the wheat and a determination of the result of the adventure. It simply attempted to secure the benefits of the transaction without offering to incur any risk.

No such right of election accrued as entitled it to take the profits of the adventure, if any were made, and at the same time to repudiate its possible losses. The transaction was single and entire, it was bound to affirm or disaffirm it, as it then existed in its entirety with the hazards attending it. F. L. & Trust Co. v. Walworth, 1 N. Y. 433; N. Y. & N. H. R. Co. v. Schuyler 34 id. 30. The relations existing between a banking corporation and its cashier are more analogous to those attending the relation of principal and agent than those of sureties and cestui que trust, and the principles governing the right of disaffirming unauthorized acts should be those which obtain as between principal and agent. In the case of adult parties subject to no legal disabilities the adoption or repudiation of a transaction involving the unauthorized use of their funds must be promptly made, upon discovery of the facts, and when once deliberately made is finally made. Boerum v. Schenck, 41 N. Y. 182. The plaintiff in this case had no right to impose upon the defendant the risk attending the final result of the venture, and still claim to hold an interest in it. When it accepted the return of the funds illegally invested by its agent with knowledge of all of the facts it ceased to have any interest in the transaction.

After that time it was carried on, and was consummated exclusively with the money of the defendant and not with trust funds, and he necessarily became entitled to the advantages of

Simons v. First National Bank of Union Springs.

the speculation, if any, which resulted from the continuation of the adventure.

We therefore think the referee erred in charging the defendant with the amount of the profits finally realized from the speculation in wheat.

We have examined the exceptions taken to the allowance made by the referee of the various other items of charges against the defendant and are satisfied that they were properly allowed.

It follows that the judgment should be reversed and a new trial ordered before another referee unless the plaintiff stipulates to reduce the judgment rendered on the report of the referee for damages to $379.62, in which case the judgment should be affirmed. The appellant should have costs of this appeal. All concur.

Judgment accordingly.

SIMONS V. FIRST NATIONAL BANK OF UNION SPRINGS.

(93 N. Y. 269.)

Mortgage

to secure future debts — evidence — power of National bank to take. A mortgage recited that it was "intended as collateral security for the payment of any indebtedness" of the mortgagors to the mortgagees, and provided that when the mortgagors "shall have paid all such indebtedness this mortgage shall become null and void." No indebtedness existed when it was executed, but one was subsequently incurred to about the sum specified in the mortgage. In an action by junior mortgagees to have their mortgage declared the first lien, held, that the real intention of the parties might be shown aliunde; and it appearing by such evidence that the mortgage was intended as a continuing security for future indebtedness, the action was not maintainable. A National bank may lawfully take a mortgage to secure future indebtedness.

A

CTION to set aside a sale on foreclosure by advertisement of a mortgage executed by defendants Shank & Shoemaker to defendant the First National Bank of Union Springs, to have a mortgage owned by plaintiffs, covering the same premises, adjudged to be the prior lien, and for a foreclosure thereof. The facts are stated in the opinion. Judgment for defendant.

Simons v. First National Bank of Union Springs.

H. V. Howland, for appellants.

W. E. Hughitt, for respondents.

ANDREWS, J. The mortgage of the First National Bank of Union Springs was prior in date to the plaintiffs' mortgage and was first recorded. It was regularly foreclosed by advertisement under the statute, and the premises were purchased on the sale by the defendant Schenck, who subsequently conveyed them to the defendant Kyle. The only ground upon which the plaintiffs rely to sustain the claim to set aside the sale and to have their mortgage declared the first lien upon the premises is, that there was no existing indebtedness from Shank & Shoemaker to the Bank of Union Springs when the mortgage to the bank was executed, and that only indebtedness existing at that time is within the condition of the mortgage. It is not open to question that it was the intention of the parties to the mortgage that it should be a continuing security for any indebtedness which might be incurred by the mortgagors to the bank after the mortgage was executed. The court found upon the request of the plaintiffs that the mortgage was executed solely to secure any future indebtedness which might accrue from the mortgagors to the bank, and the plaintiffs cannot now controvert this finding.

If therefore the condition of the mortgage can be construed as covering indebtedness of the mortgagors to the bank, which might be contracted subsequent to its execution, the action must fail. No fraud is found or proved, and it is undisputed that there was a debt nearly or quite equal to the whole nominal consideration of the mortgage at the time of the foreclosure. The mortgage recites a consideration of $5,000, and the condition is as follows: "This grant is intended as collateral security for the payment of any indebtedness of the said first parties to the said party of the second part, by note or otherwise; and whenever the said first party shall have paid all such indebtedness, this mortgage shall become null and void; which said sums, principal and interest, the said parties of the first part hereby covenant and agree to pay to the party of the second part, in the manner and at the time or times aforesaid, and this conveyance shall be void

Raynor v. Pacific National Bank.

if such payment be made as herein specified." It will be ob served that there are no express words confining the security to debts existing when the mortgage was made. The words are "any indebtedness." The language may refer as well to contemplated as to existing debts, and the real intention of the parties may be shown aliunde without infringing the rule which excludes parol evidence to extend or change the meaning of written instruments. Truscott v. King, 6 N. Y. 147.

The plaintiffs' mortgage was given to secure an antecedent debt. When taken the mortgage to the bank was on record. The plaintiffs could by actual notice have prevented subsequent advances by the bank on the credit of its mortgage to the plaintiffs' prejudice. In this case the evidence tends to show that the indebtedness of Shank & Shoemaker to the bank was not increased after the execution of the plaintiffs' mortgage. We think the plaintiffs failed to establish their case independently of the special ground upon which their complaint was dismissed at the trial. It is now settled that a National bank may lawfully take a mortgage to secure future indebtedness. National Bank v. Whitney, 103 U. S. 99; ante 5.

The judgment should be affirmed.

All concur.

Judgment affirmed.

RAYNOR V. PACIFIC NATIONAL BANK.

(93 N. Y. 371.)

Attachment- against insolvent bank.

An attachment issued against an insolvent National bank is invalid (U. S. R. S., § 5142), and is not made valid by the subsequent acquisition by the bank of further capital.

Although the bank after the issuing of the attachment paid a large amount of its debts in full, this does not estop it from questioning the validity of the attachment.

The provision of the National Banking Act prohibiting attachments in such cases is not repealed by the act of Congress of July 12, 1883, providing that