Streeter v. Jefferson County National Bank

Action by the Jefferson County National Bank against John C. Streeter upon promissory notes. Judgment for plaintiff. 12 N. E. Rep. 706, 106 N. Y. 186. Defendant brings error. Affirmed.

Statement by Mr. Justice SHIRAS: On each of the dates, January 21 and February 7, and February 12, 1877, at the city of Watertown, Jefferson county, N. Y., Henry V. Cadwell, James C. Cadwell, and Lewis A. Cadwell, copartners doing business as such under the firm name of H. V. Cadwell & Co., executed their promissory note, payable one month from date, to the order of H. V. Cadwell & Co. at the Jefferson County National Bank of Watertown, N. Y., the first two notes being for the sum of $1,000 each, and the third for $750. Each of said notes was indorsed by the firm in their firm name, and by John C. Streeter as accommodation indorser, and passed into the possession of the bank, the defendant in error.

The notes, at their maturity, were presented for payment where the same were payable, and payment thereof demanded, which was refused; whereupon the notes were duly protested for nonpayment, and notice of such demand, refusal, and protest, in each instance thereof, was then and there duly given to each of said indorsers.

On or about the 16th day of March, 1877, the bank commenced an action on the three notes in the supreme court of the state of New York against Henry V. Cadwell, James C. Cadwell, and Lewis A. Cadwell, and such proceedings were had therein that the plaintiff, the said bank, recovered a judgment against the makers of the said notes for the full amount thereof. In this action the plaintiff in error, John C. Streeter, was impleaded as a defendant, but no service was made on him, and he did not appear. On the same day an execution on the judgment was issued and delivered to the sheriff of Jefferson county, who by virtue thereof levied upon the property of the defendants to an amount sufficient to satisfy the execution.

On the day the said levy was made, a petition in bankruptcy was filed in the district court of the United States for the northern district of New York against the said Henry V. Cadwell, james C. Cadwell, and Lewis A. Cadwell, upon which petition the said Cadwells were, on May 1, 1877, adjudged bankrupts, and an assignee of their property was appointed. By order of the court the sale, by virtue of the said execution, of the property so levied upon was enjoined, and the sheriff was appointed receiver of the estate of the said bankrupts, and directed to sell the property levied upon by him, and deposit the proceeds of such sale in the depository of the said court, subject to the further order of the court; which sale was made, and the proceeds so deposited. The order also directed that the lien of the judgment creditors, if there should be such lien, should follow and attach to the moneys arising from the said sale.

In November, 1877, John C. Brown, the assignee, filed his bill in equity in the said district court of the United States, charging that the said bank, being a creditor of the said Henry V. Cadwell, James C. Cadwell, and Lewis A. Cadwell, and having reason to believe that they, the said Cadwells, were insolvent, did, with the assent, connivance, and procurement of the said Cadwells, and knowing that a fraud on the act of congress of March 2, 1867, and acts supplementary to and amendatory thereof, was intended, commenced an action in the supreme court of the state of New York against the said Cadwells in which action the said bank obtained judgment as aforesaid upon the said notes against the makers thereof. This bill avers that before the filing thereof the assignee demanded of the defendant, the said bank, that it surrender its preference and all claims derived from the judgment to the property of the said Cadwells, and all liens it claimed to have by virtue of the said judgment and execution, which the bank refused, and persisted in refusing, to do. The bill alleged that said judgment and execution were void as against the assignee by reason of these acts, and prayed that the said judgments be decreed to be in fraud of the said bankruptcy laws of the United States, and void as against the plaintiff and creditors of the insolvents aforesaid.

The answer to this bill admits the refusal of the said bank to surrender its said preference and liens, but denies that it had knowledge of the insolvency of the said Cadwells at the time its said action was commenced against them, that said judgments were obtained with the consent, connivance, and procurement of the makers of the said notes, and that any fraud was intended upon the bankruptcy laws of the United States. Other allegations appear in the bill and answer, but upon them there was no contention at the trial of the cause.

The court being of opinion, from the evidence before it, that the said bankrupts, in contemplation of insolvency, desiring to secure their indorsers and the said bank, had decided to do so by means of judgments and executions, and that as the attorneys who brought the actions were the bankrupts' attorneys, and as the attorneys were under no professional obligations not to disclose the circumstances and designs of clients who desired to assist their employer, the said bank should be charged with all the knowledge possessed by the said attorneys. The court therefore rendered a decree in the cause adjudging the said judgment and execution void as against the complainant, the said assignee, and that the money which arose from the said sale by said receiver belonged to the said assignee.

The defendant, the said bank, took an appeal from this judgment and decree to the circuit court of the United States for the northern district of New York, where the action of the said district court was affirmed, and judgment of affirmation entered in the said circuit court on March 15, 1881. Subsequently, upon an order of the said court, the money so deposited as aforesaid was paid to the said assignee.

In September, 1881, the Jefferson County National Bank brought an action in the supreme court of the state of New York against John C. Streeter, as indorser on the said notes, for the respective amounts thereof, averring in its complaint the protest for nonpayment of the said notes, and notice thereof duly given to the said indorser, and alleging liability on the part of the said indorser for their payment. The defendant, Streeter, in his answer to said complaint, alleges that by reason of a fraudulent arrangement between the bank and the makers of the said notes, by which the bank became a preferred creditor of the same, and by reason of the decree aforesaid of the said circuit court of the United States adjudging such action of the bank to be void, the bank had, by reason of the provisions of the said statutes of the United States, precluded itself from all right or claim against the property of the makers of the said notes, and that all rights and remedies on the part of the bank and of himself, the said Streeter, were thereby lost; and that the defendant was thereby discharged from all liability to the plaintiff as indorser of said notes.

This case came for trial in the said supreme court of New York, and, a jury being waived, was tried by the court, and judgment given for the plaintiff; the court holding that the bank is not precluded from making a claim against the property of the makers of the said notes, or from proving its claim against them as bankrupts, and that the defendant, Streeter, has not been discharged from liability as indorser on said notes.

An appeal from this judgment was taken to the court of appeals of the state of New York, which affirmed the order of the said supreme court. On remittitur, entered June 8, 1887, the judgment of the said supreme court of appeals was made the order of the said supreme court of New York. 12 N. E. Rep. 706.

Thereupon the said John C. Streeter, defendant in the said action, sued out his writ of error, bringing the case before this court.

Watson M. Rogers, for plaintiff in error.

[Argument of Counsel from pages 40-43 intentionally omitted]

John Lansing, for defendant in error.

Mr. Justice SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the court.