Opinion
December 29, 1911.
Daniel P. Hays, for the plaintiffs.
John Thomas Smith, for the defendant.
This action was by the trustees in bankruptcy of J.M. Fiske Co. to recover upon two causes of action. The first was upon a promissory note made by the defendant to his own order, dated December 2, 1909, whereby three months after date he promised to pay to his own order $2,500, and which said note was indorsed in blank and delivered to the bankrupt; and the second was to recover the sum of $19,566.10, the purchase price of certain stocks, bonds and securities purchased by the bankrupt for the account of the defendant, and which sum of money was advanced by the bankrupt in connection with the purchase thereof. The answer of the defendant admits the making and execution of the note, and apparently admits the allegations in relation to the second cause of action, except that there was due and unpaid the sum of money sought to be recovered. For an affirmative defense to the first cause of action it is alleged that Wood Sons, customers of the defendant, ordered the defendant, through Fiske Co., to purchase for their account 100 shares of the capital stock of the Northern Pacific Railway Company on the 14th of January, 1910; that thereafter Fiske Co. informed Wood Sons that they had purchased the same; that thereupon said Wood Sons paid to Fiske Co. $13,762.50, the purchase price thereof, and instructed Fiske Co. to have said stock transferred upon the books of the said company to the name of J.R. Wood Sons; that thereafter, on the seventeenth of January, Wood Sons ordered Fiske Co. to purchase for their account a second 100 shares of the capital stock of the Northern Pacific Railway Company, and the latter informed Wood Sons that they had so purchased the same, and that thereafter Wood Sons on the same day paid Fiske Co. $13,512.50, the purchase price thereof, and instructed Fiske Co. to have said stock transferred to J.R. Wood Sons on the books of the said railroad company; that in violation of their said agreement and instructions Fiske Co. did not transfer, or cause said capital stock to be transferred to Wood Sons, and have refused and still refuse and neglect to deliver the same to the defendant or to J.R. Wood Sons, or to pay the defendant or J.R. Wood Sons the value thereof, to the damage of the defendant in the sum of $27,275. The answer realleges the facts set forth in this defense to the first cause of action as a separate and distinct defense to the second cause of action and by way of counterclaim; and also as a second defense to the second cause of action alleges that the defendant paid to Fiske Co. on the 19th of January, 1910, the sum of $20,000, being in full payment of and in full accord and satisfaction of the amount alleged in the second cause of action to be due from the defendant to Fiske Co. For a third defense to the second cause of action the defendant alleges that on the 19th of January, 1910, the firm of Fiske Co. were indebted to Wood Sons in an amount exceeding $20,000; that on the 19th of January, 1910, and prior to the appointment of trustees herein, or of any receiver of said Fiske Co., this defendant, at the request of Fiske Co., assumed said obligation of Fiske Co. to Wood Sons to the extent of $20,000 and agreed to pay the same in discharge of the indebtedness set forth in the second cause of action, and to the extent of $433.90, on account of the claim of indebtedness set forth in the first alleged cause of action; and the defendant demands judgment dismissing the complaint and an affirmative judgment against the plaintiffs for the sum of $27,275. The plaintiffs served a reply to the counterclaim and the case came on for trial at Trial Term. The defendant assumed the affirmative and called Mr. Fiske, one of the bankrupt firm, as a witness, who testified that under the arrangement existing between the bankrupt and the defendant the bankrupt executed orders at the defendant's request prior to the nineteenth day of January and the bankrupt was to keep the books; that the firm of Wood Sons were defendant's customers; that on or about January 17, 1910, the bankrupt received a telephone order from Wood Sons to purchase 100 shares of the Northern Pacific Railway stock. Subsequently the bankrupt purchased the stock, and on January 17, 1910, received a check from Wood Sons for $13,762.50, the purchase price. Subsequently the bankrupt received another order to purchase an additional 100 shares of the said Northern Pacific stock which the bankrupt purchased for Wood Sons, and on January eighteenth received a check for the purchase price, including commissions, of $13,512.50. This apparently closed the transaction and all that remained was to have the stock transferred to Wood Sons. On this transaction as it stood it was quite evident that the bankrupt owed Wood Sons no money, but Wood Sons were entitled to receive on demand from the bankrupt 200 shares of the Northern Pacific Railway stock; and, so far as appears, this transaction was correctly entered in the books of the bankrupt firm. This 200 shares of stock was not delivered to Wood Sons, but, so far as appears, no demand was made upon the bankrupt for the stock, and it does not appear what, if anything, had been done with it prior to the 19th of January, 1910. On the 19th of January, 1910, the defendant was indebted to the bankrupt in the amount of this note and on an open account aggregating $22,066.10. The note, however, was not payable until March 2, 1910. About noon of January 19, 1910, Mr. Fiske, one of the bankrupt firm, made a demand on the defendant for the repayment of the money due from the defendant, when the defendant instructed Mr. Fiske "to transfer $20,000 from his account known as the J.R. Wood Sons account" to his (defendant's) personal account. To that Mr. Fiske said that it would require an authorization from Wood Sons, which the defendant said he would obtain. At that time the books of the bankrupt showed a credit of 200 shares of Northern Pacific stock, worth approximately $27,000, but there was no money due by the bankrupt to Wood Sons. What Wood Sons were entitled to were the 200 shares of stock. The defendant came back to the bankrupt's office later and produced a letter from St. John Wood, one of the members of the firm of Wood Sons, directing the transfer from his account to the defendant of $20,000. Between the time of the first interview with the defendant and his return with this letter from Wood Sons the firm of Fiske Co. had become involved financially and had notified the Stock Exchange, of which they were members, that they were unable to comply with their contracts on the exchange. So, when the defendant presented this letter of Wood Sons to Mr. Fiske, he said that so far as he was concerned the transfer had been made; that he did not know whether he could make it on the books, as they had been turned over to the receiver. He then returned this authorization from Wood Sons to the defendant, who accepted it, and that was the end of the transaction as between Fiske Co. and the defendant. Mr. Fiske further testified that at about twelve-thirty he had notified the Stock Exchange that Fiske Co. was unable to meet its obligations, and from that time on the firm made no entry upon its books, and about four o'clock that afternoon a receiver came and took possession of the firm's property and assets; and his testimony was corroborated by Mr. Sherwood, one of the bankrupt firm, who was called on behalf of the defendant. The defendant was then called as a witness and testified that he never gave any directions to the bankrupt firm in relation to the purchase of this Northern Pacific stock; that those orders came directly to the bankrupt from Wood Sons; that after the demand by Fiske Co. on the defendant for the payment of the $20,000 the defendant went to Mr. Wood who gave him a certain written instrument directed to Fiske Co.; that he took this paper to the office of Fiske Co. and had a conversation with Mr. Fiske and Mr. Sherwood; that the defendant then took the paper that Mr. Wood had given him back to Mr. Wood and Mr. Wood destroyed the paper; that the paper was:
"J.M. FISKE COMPANY:
"DEAR SIRS. — I hereby authorize you to transfer $20,000 from my account to the account of Mr. Justus G. Dettmer.
"(Signed) J.R. WOOD SONS."
Upon this testimony both sides rested, when both parties asked the court to direct a verdict. The court then dismissed each of the counterclaims, to which the defendant excepted. The plaintiffs then moved for judgment on the ground that the defendant had not proved any defense to the admitted cause of action. The court then directed a verdict for the plaintiffs for the amount claimed, and the defendant took an exception to the court's refusal to allow the defendant to go to the jury on the defense of payment alleged in the amended answer. There was no request to submit the question of fact to the counterclaim to the jury, or to submit any question, except the question of payment.
The plaintiffs' cause of action having been conceded, the only question presented is whether it was in fact paid or discharged by the defendant prior to the adjudication in bankruptcy. The burden of establishing such payment or discharge was upon the defendant. Upon the facts as appeared upon the trial there was no money due by the bankrupt to Wood Sons. The bankrupt held 200 shares of the Northern Pacific stock which was the property of Wood Sons and to which it was entitled on demand. There is no evidence to show that the bankrupt had converted this stock to its own use, and no evidence of a demand by Wood Sons of a delivery of the stock. If the bankrupt had the stock in its possession at the time of its failure undoubtedly Wood Sons would have been entitled to receive the stock from the bankrupt and could have enforced such claim after the adjudication in bankruptcy; or if the bankrupt had converted the stock to its own use Wood Sons could have elected to demand the value of the stock from the bankrupt and could have recovered that amount, but in the absence of proof of conversion, either by an unauthorized use of the stock, or of a demand for the stock and refusal by the bankrupt to deliver it, there was no obligation on the part of the bankrupt to Wood Sons for either the value of the stock or the amount that Wood Sons had paid the bankrupt on account of the purchase price. The effect of the proposed arrangement by which the bankrupt was to accept a transfer of the bankrupt's liability to Wood Sons as an offset or satisfaction of the bankrupt's demand against the defendant, would have been in effect a loan of money by the bankrupt to Wood Sons and an application of the amount of that loan to the discharge of the defendant's obligation; and to that the bankrupt agreed provided Wood Sons authorized such a transaction. To carry out that arrangement the defendant had produced the authority from Wood Sons, but when that was delivered to the bankrupt it had in effect suspended payment and had notified the Stock Exchange that it was unable to comply with their contracts, and for that reason the bankrupt said that it could not make any alteration in its books which was evidently considered as essential to carry out the agreement that had been made. So, the authorization by Wood Sons was returned to the defendant who returned it to Mr. Wood from whom he had received it, and it was then destroyed. It seems to me that this situation was thus left just as it was before and the arrangement had not been carried out because of the fact of the bankrupt's suspension between the time when the original arrangement was made and the production of the authority from Wood Sons necessary to carry it out. Certainly if Wood Sons had demanded their 200 shares of stock from the bankrupt or its assignee, the conditions as they existed would have been no answer to a demand for the stock. True, Wood Sons had authorized a transfer of their credit on the books of the bankrupt to liquidate the defendant's obligations, but that arrangement had not been carried out. The authority that had been given to carry it out had been returned to Wood Sons and, under the circumstances, its destruction must, I think, be accepted as a revocation of the authority and an abandonment of the proposed arrangement. There was no dispute as to the facts, and the agreement by the bankrupt to accept a charge against Wood Sons as a discharge of the defendant's obligation, conditioned as it was upon the production of the authority from Wood Sons to make such a charge, had not been carried out prior to the time when the bankrupt had substantially suspended payment and admitted its insolvency and, therefore, was abandoned by the parties. The arrangement had, therefore, never become consummated and completed, and the return of the authorization to Wood Sons and its destruction by them was a revocation of their authority to substitute an obligation against them for the obligation of the defendant; and the agreement being thus unexecuted and the authority of Woods Sons to consent to the substitution revoked, the liability of the defendant was never discharged. If the bankrupt had retained the authority from Wood Sons and there had continued an existing authority to $20,000 and the substitution of liability had been actually consummated, there would probably have been a novation which would have authorized the bankrupt to look to Wood Sons for the payment of the $20,000 for which the Northern Pacific stock was held as security and the defendant would have been discharged; but as that transaction was never actually carried out, and when the plaintiffs attempted to carry it out the bankrupt, instead of accepting the authority from Wood Sons as a substitution of liability, returned the authority to the defendant who returned it to Wood Sons who destroyed it, it seems to me that the whole proposed arrangement was abandoned and the authority to make the substitution actually revoked.
It follows, therefore, that the exceptions must be overruled and the motion for a new trial denied, with costs.
CLARKE, SCOTT, MILLER and DOWLING, JJ., concurred.
Exceptions overruled and motion for new trial denied, with costs. Order to be settled on notice.