Pratt v. . Eaton

79 N.Y. 449 | NY | 1880

We have decided at this term, that the People's Safe Deposit and Savings Institution had no power under its charter to loan money on personal security, and was forbidden by the restraining act from engaging in the business of discounting notes and other commercial paper, and could not enforce notes discounted in violation of the act. But we further held in that case that where a loan had been made by the company by way of a discount of a promissory note, the company or its assignees could recover the money loaned, although the security taken was void. The decision referred to, and the principle upon which it rests, sustains the right of the plaintiffs to enforce the mortgage in question. The mortgage was executed to Patrick Lynch, an officer of the Safe Deposit Company, and was conditioned to pay to him, or his assigns, $2,000. Concurrently with the execution of the mortgage, a declaration of trust was executed by the mortgagor and mortgagee, declaring that the mortgage was executed to secure the Safe Deposit Company for any indebtedness it might hold against the mortgagor, "upon or by reason of any promissory note, bill of exchange, check, overdraft, or otherwise." Subsequently, at different times, the company loaned to the mortgagor, money, amounting in all to the sum of $950, upon the discount of his notes, which notes expressed that the maker had deposited with the company, as collateral security, the bond and mortgage in question. The notes were void, but the company, by the express terms of the eleventh section of the charter, was authorized to invest its funds in bonds and mortgages and other securities specified. There was a loan in this case, and this created an indebtedness to the bank, which was within the condition of the mortgage. The words; "or otherwise," in the declaration of trust, are broad enough to cover any debt which the company might hold against the mortgagor. The fact that the loan was made by way of discount of commercial paper, and upon the security of the notes as well as of the mortgage, does not vitiate the valid security. The substance of the transaction in respect to the mortgage was that it was taken to secure the loan, and not the notes, which at most were mere evidence of the loan. The case of Curtis v. Leavitt (15 N.Y., 97), is, we think, in point. In that case a banking corporation in this State loaned of bankers in Philadelphia certain sums of money, for which the borrower issued to the lenders time certificates of deposit, and also pledged its bonds as security for the payment of the certificates. The certificates were held to be illegal, and void, and it was claimed that the bonds pledged to secure the certificates must fall with them. But it was held that the loan being valid, the law, notwithstanding the form of the transaction, annexed the pledge to the debt for the money lent, and not to the void certificates, and the court enforced the bonds against the assets of the corporation.

We are of opinion that the mortgage in question is a valid security for the loan made to the defendant Eaton, and it follows that the judgment of the General Term should be reversed, and the judgment of the Special Term affirmed.

All concur.

Judgment accordingly.