Union Tr. Co. of N.J. v. Knabe

Urner, J., delivered the opinion of the Court. This appeal is from an order of the Baltimore City Court-quashing an attachment. The record is a voluminous one, and it will be necessary to state briefly the circumstances under which the controversy arises and the facts upon which the parties base their several contentions. ⁵⁸⁷ William Knabe-and Ernest J. Knabe, Jr., who were engaged in extensive business enterprises, arranged with the appellant, the Union Trust Company of New Jersey, a corporation doing business in Jersey City, on the 20th of November, 1908, for the loan of $50,000".00 on the note of William Knabe, secured by collateral, with the understanding that they might secure an additional loan of $50,000.00, and on the 31st of December, 1908, the Trust Company made a further loan of $50,000.00 on a demand note of William Knabe, secured by the collateral. These notes were paid, or marked paid, on the books of the Trust Co. on the 13th of July, 1909, and on the same day the Trust Company made a loan of $80,000.00 on the demand note of Ernest J. Knabe, Jr., of that date, secured by a bond of the United Surety Company of Baltimore, guaranteeing the payment of a part of said sum, and by other collateral.

A number of payments were made on the $80,000.00 note, reducing the amount due thereon on March the 1st, 1910, to $65,000.00. In the meantime some question was raised as to the validity of the bond of the Surety Company, and on the 1st of March, 1910, Ernest J. Knabe, Jr., gave the Trust Company a new note for $65,-000.00 (the amount then due on the $80,000.00 note), secured by collateral and endorsed by his wife and William Knabe, guaranteeing the payment thereof, and on the same day the note of $80,000.00 was marked paid on the books of the Trust Company and the bond of the Surety Company was surrendered. Payments were made on the $65,000.00 note until June 1st, 1910, when, the balance due was $29,191.65. Demand was made upon William Knabe and Ernest J. Knabe', Jr., for the payment of this balance, and on or about the 12th of January, 1911, Ernest J. Knabe, Jr., went to the office of the Trust Company for- the purpose of securing further time.

On the 24th of January, 1911, the president of the Trust Company wrote N. Kufns Gill & Sons, attorneys in Baltimore, as follows: ⁵⁸⁸ “Jersey City, N. J., Jan. 24, 1915. Messrs. N. Kufus Gill & Sons, Wallis Building, 215 St. Paul St., Baltimore, Md. j Gentlemen:— We hold a note made by E. J. Knabe, Jr., and endorsed by Wm. Knabe and Mrs. J. Nellie Knabe, the wife of E. J. Knabe, Jr., a copy of which is enclosed herewith.

The note was originally for the sum of $65,000 with the following collaterals attached: 200 shares American Piano Co.,75 Pref. 500 shares American Piano Go. Common. 448 shares Commercial & Farmers National Bank stock. 14M Manister Light & Traction 5s. 29M Pittsburgh, Binghampton & Eastern E. E. 5s. 5M Hudson Eiver Electric Power 5s. 110 shares Knickerbocker Ice Co. of Baltimore. 100 shares United Surety Co. 2 shares Commercial & Farmers Nat. Bank. 250 shares Farmers Bank of Canada. But from time to time payments have been made and collateral surrendered, reducing the note to $29,-191.65 plus protest fees and interest to date, and leaving in our hands collateral as follows: $29,000 Pittsburgh, Binghampton & Eastern B. E. bonds. $5,000 Hudson Eiver Electric Company bonds. 110 shares Knickerbocker Ice Company of Baltimore. 250 shares Farmers Bank of Canada.

We desire you to begin action to recover payment of the amount in question, but before taking any steps, would be pleased to have you advise us whether in your judgment we should first proceed to dispose of the collateral in accordance with the terms of the note and apply the proceeds as ]oai*t payment. We prefer not doing this if there is any chance of our securing the full payment of the note with interest otherwise. ⁵⁸⁹ We understand that Mrs. J. Nellie Knabe is the only daughter of her father, who is a widower with quite some means in the form of a trust estate left by his wife, from which he derives the income during his lifetime and upon his death the moneys revert to his daughter. We also understand that Mr. Knabe has some valuable pieces of real estate in Baltimore and vicinity. If these conditions are so, it is very possible that you might be able to make some arrangement for adjusting the matter for us without the necessity of bringing suit or the sale of the securities.

The payment of the note has been formally demand, ed, and on failure to pay the note was duly protested. Awaiting your advise, we beg leave to remain, Very truly yours, (Signed) Samuel Ludlow, Jr., “L-W” President.” To that letter N. Rufus Gill & Sons replied from Baltimore, Md., January 25th, 1911: “Union Trust Company, Jersey City, N. J. Dear Sirs:— ' We have yours of the 24th enclosing your claim vs. Ernest J. Knabe and wdfe. Mr. and Mrs. E. J. Knabe are residents of Baltimore County; William Knabe of New York City. We have made a partial examination, but can not make a full report until after we have examined the records of the Baltimore County Court, which we will do tomorrow and advise you as to the property of Mrs. Knabe.

We had an interview with Mr. E. J. Knabe this afternoon; he is now having his books balanced.by the Baltimore Auditing Company. Until this is completed he will be unable to discuss settlements with any of his creditors. He has lost entirely, if not all, of his assets. ⁵⁹⁰ As to you disposing of the remaining collateral in your hands; under our practice, it will he necessary for you to do so and credit the net proceeds of your sale, so that your suit will he for the net amount due, together with interest. Mr. Knabe, however, makes the request that you withhold the sale- of the collateral until he has submitted a statement prepared by the auditor; this of course is a matter in your discretion.

Mrs. Knabe is the daughter of Gustave Schlens, president of the William Wilkens Company, and is reputed to be worth $5,000,000. Mrs. Knabe’s interest in her mother’s estate is approximately valued at $200,-000. This we will ascertain more in detail from our examination tomorrow. At this time Mr. Knabe has no available assets from which you could collect your claim.

Yery truly yours, ( Signed) N. Rufus Gill & Sons.” Mr. Roger T. Gill had a further interview with Ernest J. Knabe, Jr., and his counsel on the 28th of January, 1911, and after communicating with the Trust Company he received the following letter from its president: “Messrs. N. Rufus Gill & Sons, 215 St. Paul St., Baltimore Md. Gentlemen: — Yours of the 28th inst., received. We desire to place with you for the protection of our interest the matter of the settlement of the Knabe loan. • We would suggest that you have Mrs. Knabe, if possible, execute direct, if you think best, the enclosed note as maker, which represents the balance due on the original transaction with interest and protest fees, the new note containing all of the collateral attached to the present loan, at the same time securing the consent of Mr. E. J. Knabe, Jr., the maker of the original note, to the surrender by us of the collateral, now ⁵⁹¹ held, to Mrs. Knabe on the payment by her of the present unpaid loan and having Mrs. Knabe direct us to apply the proceeds of the enclosed note to the payment of the Knabé note bearing her endorsement. Also secure the endorsement of Mr. Ernest J. Knabe and his brother, William Knabe, to the new note.

This suggestion is made with a view of Mrs. Knabe becoming the direct obligor on the loan, we agreeing under the circumstances to defer any action on the collateral without prejudice to ourselves until, we will say, the first of June. If you think this is a satisfactory arrangement and does not prejudice us in any way, we would suggest that you endeavor to consummate it, you at the same time maintaining this claim under your jurisdiction and watching developments in connection with the Knabe affair, to the end that our interests may be fully protected during the time that we are carrying the loan on our books. Please advise us as to your conclusion and oblige, Yery truly yours, (Signed) S. Ludlow, Jr., “L-W” President.” As. the result of his interviews with Ernest J. Knabe, Jr., and his counsel, Mr. Grill received on the 2nd of March, 1911, the following note and endorsement and authority to apply the proceeds of the note : “Demand Promissory Note. $30,239.23. Baltimore City, Md., January 31st, 1911. ......On demand............after date.......I ...........promise to pay to the Union Trust Company of New Jersey, or order,.................... thirty thousand, two hundred and thirty-nine and 23/100 dollars, with interest at. .. .six... .per cent, per annum, for value received, and have delivered as collateral security therefor $29,000 Pittsburgh, Binghampton and Eastern first mort. 5 <fo bonds, $5,000 Hudson Eiver Electric Oo.

Certificates, 110 shares ⁵⁹² Knickerbocker Ice Company of Baltimore, 250 shares of Farmers’ Bank of Canada......, and do agree on demand to deposit with the holder hereof such additional securities as such holder may from time to time require, and in default thereof this note shall, without demand or notice, instantly become and be matured, due and payable, and upon default of payment at maturity, whether such maturity is created hy expiration of time or failure to deposit additional security as above agreed, do hereby authorize and empower the holder of this note to sell, transfer and deliver the Avhole or any part of such security and any additions thereto or substitute therefor, without demand, notice or advertisement, either at Brokers’ Board or public or private sale, at their option at any time or times thereafter, with the right to such holder to become, at such sales, the purchaser and thereby the actual owner thereof, free and discharged of all equities, trusts and claims; or at the option of such holder as to the whole or any part of such security, original, additional or substituted, to proceed to recover thereon by suit at law or in equity, or otherwise, as if absolute owner thereof, the net proceeds of such sale or sales, action or actions, after payment of all costs and ex-I>enses, to be applied to the payment of this note, with interest. And it is further agreed that the securities hereby pledged, original, additional or substituted, or their proceeds, shall be applicable in like manner to secure payment of any and all other past, present or future obligations of the undersigned, matured or unmatured, held, by the holder thereof, and all such securities now or hereafter in the hands of said holder shall stand as general collateral security for the whole of said obligations, upon like tepns, conditions and agreements as herein contained; the undersigned remaining responsible, however, for any and all deficiency in payment of principal or interest, and hereby waiving any and every benefit, exemption and privilege under .any Jaw. n«w or hereafter to he in force. Win. Knabe.” ⁵⁹³ “Endorsement.

In consideration of the making, at tlie request of the undersigned, of the loan evidenced by the within note, upon the terms thereof, and of the sum of one dollar, the undersigned hereby guarantee to Union Trust Company of Kew Jersey, its successors, endorsers or assigns, the prompt payment of the said loan when due and hereby consent that the securities for the said loan may be exchanged or surrendered from time to time, or the payment of the said loan or any of the securities therefor extended, without notice to or further assent from the undersigned, and that the undersigned will remain bound upon this guarantee notwithstanding such changes, surrender or extension. The undersigned • waive demand of payment from the maker of said note, and also waive notice of nonpayment or protest of the said loan or note, and also waive notice of any sale of the collateral securities held for the said note. If. Kellie Knabe, Ernest J. Knabe, Jr.” “Private.

Office Ernest J. Knabe. Jr., Calvert Building. Baltimore, February 3d, 1911. Union.

Trust Co., Jersey City, K. J. Gentlemen:— You are herewith authorized to apply proceeds of the enclosed note of $30,239.23 to the payment of the overdue note which you are now holding, with the further understanding that all collateral now attached to the old note is to be held as collateral for the note now substituted. The old note is to be returned to us. Ernest J'. Knabe, Jr., "William Knabe, Per Ernest J. Knabe, Jr., M. Kellie Kn'abe.” ⁵⁹⁴ The above note and endorsement and authority to apply the proceeds were forwarded.- by Mr. Gill to the Trust Company with the following letter: “Baltimore, Md., March 2nd, 1911.

Union Trust Company, Jersey City, E. J. Gentlemen:— We today received from the counsel of Mr. Knahe note of Mr. William Knabe, endorsed by himself and wife, which we -herewith enclose, to which you should pin the authority we send you authorizing the transfer of the collateral. We have returned the note of January the 31st, and have promised to have you send us the old protested note to return that also. We wish you would let us have this by return mail. Yours very truly, E. Rufus Gill & Sons.” In reply to the above letter the attorney and trust officer of the Trust Company wrote Mi*.

Gill as follows: “Jersey City, E. J., Mar. 4, 1911. E. Rufus Gill & Sons, 215 St. Paul St., Baltimore, Md. Gentlemen: — Your communication of the 2nd inst. enclosing new Knahe note received. This new note is made by William Knahe to the order of the Union Trust Company of Eew Jersey and guaranteed by Eellie Knabe and Ernest J. Knahe, Jr. The old note which we hold was made by Ernest J. Knahe to our order. The authority to take up the old note, which was a contract by Ernest J. Knabe with us, is signed by William Knabe, and we could, therefore, we feel, use the new note, contract of William Knabe with us, were it not for the fact that the authority to do so is signed William Knahe by Ernest J. Knabe, Jr. We have no power of attorney covering such a use of William Knabe’s name by Ernest Knahe on file with us. ⁵⁹⁵ It will, therefore, be necessary to have á power of attorney dated January 31, 1911, from William Knabe to Ernest J. Knabe, Jr., covering the situation, or else have a new note like the one you just sent us executed in which Ernest J. Knabe is maker and Nellie and William Knabe are guarantors.

Tours very truly, Gr. E. Hendrickson, Atty.” On the 11th of March, 1911, counsel for William Knabe and Ernest J. Knabe, Jr., at the request of Mr. Gill, sent him the power of attorney from William Knabe to Ernest J. Knabe, Jr., referred to in the letter of Mr. Hendrickson, and Mr. Gill forwarded it to the Trust Company. Charles H. Ferling, the trust clerk of the Trust Company, states that he was the custodian of all notes upon which the Trust Company made loans; that the note for $30,239.23 was not delivered to him until the 21st of March, 1911; that up to that date he had in his possession the old note for $65,-000.00; that on the 21st of March, 1911, the note for $30,- 239.23 was handed to him by one of the officers of the Trust Company, and that he put the loan through and applied the proceeds of said note to the payment of the balance due on the note of $65,000.00; that the loan on the note of $30,- 239.23 was made on the 21st of March, 1911, and that on that day he surrendered possession of the note of $65,000.00; that usually the notes are delivered to him as soon as they are passed by the officers or executive committee; that he does not know where the note for $30,239.23 was prior to March 21st, 1911, but that it was not entered on the books of the Trust Company or “used in payment of the balance of the other note until March the 21st’’; that no money was loaned on said note, and no money was transferred in any way by the book-keeper or any other way until” March 21st, 1911. Mr. Ludlow, the president of the Trust Company, testified in his examination in chief: “When we received the note representing the loan of William Knabe for $30,239,23 ⁵⁹⁶ that had been negotiated by Mr. Gill in Baltimore, we were directed to apply the collaterals formerly on the loan of Ernest J. Knabe to the loan of William Knabe, but we had no right to do that without the written consent of all parties to the original Ernest J. Knabe loan, and as that authority we received this communication marked 'Exhibit B’ (letter of February 3rd, 1911), but when we received it we noticed that the signature of William Knabe had been made by Ernest J. Knabe, Jr.; we accepted the loan, but required .that the power of attorney authorizing Ernest J. Knabe to sign for William Knabe. be filed with us, and wrote Mr. Gill,. telling him to secure and forward the power of attorney, which he subsequently' did.

When we received the authority, or the power of attorney, it was filed in our files and the loan physically put through the books and the check drawn to the order of William Knabe, tire loan having been made to him, and then upon the authority of this communication signed by the three Knabes, we endorsed the explanation for the diversion of the fund from one name to the account of another on the book as a memorandum for future reference and placed the proceeds of the check out of the treasurer’s account for that liquidation of the Ernest J. Knabe loan. This is an unusual process and naturally we required proper authority for it, and did not act on it until the authority was in legal shape so that there could bo no question about it, as is done not only with this loan but occasionally under other circumstances.” On cross-examination, Mr. Ludlow, in answer to the question, “When did you receive the William Knabe note (the note for $30,239.23) ?” replied: “I think it was sometime in-February (referring to paper). Yo; it was March 4th, from Y. Rufus Gill & Sons, Mr. Gill. That was a new transaction.

We did not discount it then, i believe we called Mr. Gill’s attention to the discrepancy in the power of attorney attached to the latter authorizing the proceeds of the note to be applied to the payment of the Ernest J. Knabe, Jr., note, and for the transfer of the col ⁵⁹⁷ lateral from the Ernest J. Knabe note1 to the William Knabe note. I refer by that to our letter of March 4th to E. Eufus Gill. * * * At that time, March 4th, we had accepted the note with that provision. Our transaction was not complete until the authorization for the signature of William Knabe. That was on or about the date this loan sheet was entered.

We probably entered it the same day, about March 21st, 1911.” He further testified that he passed on all new loans made by the Trust Company, and that they are then submitted to the executive committee for approval; that the committee has the right to reject or approve a loan; that the loan of $30,239.23 was approved by the executive committee sometime after March the 5th, 1911, as the final act on the part of the Trust Company, and that when they passed on it they had the right to reject or approve it. On the day following the day on which the above testimony was given the same witness, in answer to a question of counsel for the Trust Company, said: “In this particular loan the board of directors could not have approved the arrangements made, because the arrangement was made by me, with their knowledge, and explained from time to time, as the process proceeded, and was at all times acceptable to the board of directors”; that he reported to the board of directors and executive committee and that they approved of his action; but that there were no minutes of any resolution of the directors or executive committee; and in reply to- the Court, he said that he could not recollect exactly what was said at any meeting and that no resolution was passed. On the 30th of June, 1911, Ernest J. Knabe, Jr., and his wife and William Knabe, executed the following agreement: “Whereas, William Knabe, as maker, executed and delivered his demand collateral promissory note dated Baltimore City, Md., January 31st, 1911, for tlie sum of $30,239.23, with interest, to the Union Trust Company of Eew Jersey, or order, for the payment of which note and interest Ernest J. Knabe, Jr., and M. Eellie Knabe, his wife, became endorsers on said note: ⁵⁹⁸ And Whereas, The interest on said note due June 30th, 1911, amounting to $755.98, became due and payable, but the said William Knabe was unable to pay the same, and has requested said Trust Company to grant him an extension of time to October 1st, 1911, in which to pay said interest and principal debt, which it has consented to do, by and with the consent of the said endorsers; Now, therefore, in consideration of the premises and of the sum of one dollar, and of the extension of time of payment as hereinbefore set forth, we, and each of us, do hereby remain bound as makers and endorsers respectively of the payment of said sum of $30,239.23 and all interest due and to become due thereon to the Union Trust Company of NTew Jersey represented by the note aforesaid, and we, and each of us, do hereby waive demand for payment, protest and notice thereof. Witness our hands and seals this 30th day of June, A. D. 1911.

Witness: E. A. Dalle. Ernest J. Knabe, Jr. (Seal) M. Kellie Knabe. (Seal) Wm. Knabe (Seal)” On the 26th of July, 1912, the Union Trust Company sued out of the Baltimore City Court a writ of attachment against Ernest J. Knabe, Jr., and M. Kellie Knabe; bis wife, as non-residents, and filed with the affidavit of its vice-president the short note and account, the note of January 31st, 1911, and the agreement of June 30th, 1911, referred to above.

Certain property of Mrs. Knabe was attached, and the attachment was also laid in the hands of Gustav A. Schlens, individually and as administrator of Henrietta Schlens. A motion was filed in each case by the garnishee to quash the attachment on the ground that 11. Kellie Knabe was the wife of Ernest J. Knabe, Jr.; that she signed the guaranty ⁵⁹⁹ on said note and said agreement at the request and for the accommodation of her said husband and William Knabe; that she did not by said endorsement or agreement obtain, directly or indirectly, any money, property or thing of value for her use, or the use, benefit or advantage of her separate estate; that said note was “negotiated, transferred and delivered to the plaintiff in the State of New Jersey, * * * and came for the first time into legal existence in said State”; that under the laws of the State of New Jersey she and her property are not liable on said endorsement, and that said endorsement as to her is void, and is not a proper voucher against her upon which to base an attachment. Depositions were taken by agreement of counsel in Cincinnati, Ohio-, and filed May 2nd, 1913.

On the 12th of May, 1913, the Trust Company filed in each case a motion for a jury trial, as follows: “The plaintiff prays a jury trial in the above entitled case on the motions to quash filed by Gustav A. Schlens, individually and as administrator, garnishee.” The Court below overruled the motion for a jury trial, and on the 4th of June, 1913, proceeded to hear the motion to quash without a jury. In addition to the evidence to which we have already referred, there was further evidence to the effect that the note of $65,000.00 was endorsed by Mrs. Knabe in Maryland at the request of her husband, and was taken by him to New Jersey and there delivered to the Trust Company; that the endorsement on the note of $30,239.23 and the authority to apply the proceeds were signed by her in Maryland at the request of her husband, and were delivered by him or his attorney to N. Eufus Gill &■ Sons in Baltimore City; that the agreement of June 30th, 1911, was signed by her at the request of her husband in Cincinnati, Ohio, and was delivered by him or his attorney to said attorneys of the Trust Company in Baltimore City, Maryland; that the one dollar mentioned in said endorsement and in said agreement of J une 30th were not paid, and that Mrs. Knabe did not on the faith of said endorsement or agreement obtain, ⁶⁰⁰ directly or indirectly, any money, property or thing of value, for her use, or for the use, benefit or advantage of her separate estate. There was also additional evidence reflecting upon the question whether the several notes we have referred to represented new and independent loans, or were only continuations or extensions of the previous loans, the contention of the Trust Company being that they were separate and independent transactions. But in the view we take of the case it is not