Wright Steam Engine Works v. McAdam

The action was originally brought against the New York Kerosene Oil Engine Company. Subsequently, George W. McAdam, the present defendant, was substituted as a party defendant, and the plaintiff served an amended summons and complaint. The amended complaint alleged that on or about the 1st day of May,1902, for the purpose of securing to the plaintiff a claim of $725 against a corporation styled the “Riotti Company,” certain chattels were, by the duly authorized agents of said company, delivered to and pledged with the plaintiff; that the claim of the said company remains unpaid; that on the 10th day of May, 1904, and while the said chattels were in the

The action was referred to a referee to hear and determine. The referee found that on the 3d day of September, 1901, McCrea, being in possession of the goods and chattels mentioned in' the complaint, delivered them to the plaintiff as security for an indebtedness which the plaintiff then claimed was owing from the Riotti Company, to recover which the plaintiff had theretofore bro.ught an action against the Riotti Company in the Supreme Court of this state, which action was then pending and undetermined; that in said action the defendant the Riotti Company had set up a counterclaim against the plaintiff in excess of the plaintiff’s claim; that, upon the delivery of said chattels to the plaintiff by the said McCrea, the plaintiff hired premises at Newburgh, N. Y., and placed the said chattels therein and paid for the rent of said premises during the period from September, 1901, to May, 1904, in all the sum of $480; that on or about the-day of May, 1904, Mc-Créa removed said goods and chattels from the premises where they had been placed by the plaintiff, and for value received delivered the same to the defendant George W. McAdam; that after this action was begun, and shortly before the answer of the defendant was interposed, and on or about the 11th day of October, 1904, the plaintiff and the Riotti Company duly made and executed an agreement in writing, whereby it was stipulated and agreed that the alleged indebtedness of the Riotti Company should be adjusted at the sum,of $5,000; that all securities held by the plaintiff for such alleged indebtedness should be sold and the net proceeds thereof, as well as the net proceeds of securities theretofore sold, applied towards the payment of said sum of $5,000, and that any surplus of such proceeds over the sum of $5,000 should be paid to the Riotti Company, and that then in any event mutual releases should be exchanged; that such settlement and agreement were made without the knowledge of McCrea and without the knowledge and consent of the defendant, and knowledge thereof did not come to the defendant until the facts came out upon the trial in this action; that the said agreement of settlement was put in evidence by the plaintiff on the trjal of this action without objection—and, as a con

Upon the trial, the president of the plaintiff testified that in the years 1900, 1901, and 1902, the plaintiff was doing considerable work for the Riotti Company, and that McCrea owned a majority of the stock of that company and was a director thereof; that there was due and owing in September, 1901, from the Riotti Company to the plaintiff about $10,000 or $11,000; that in September, 1901, the witness and McCrea had numerous conversations regarding the Riotti Company’s indebtedness to the plaintiff, and that the amount then standing on the plaintiff’s books was something like $18,000; that McCrea said that he had 16 or 17 launches of the Riotti Company for which he had a bill of sale; that they were his, and that he would turn them over to the plaintiff as security for the indebtedness of the Riotti Company, and at the same time he assumed $7,000 or $8,000 of indebtedness of the Riotti Company and gave his notes for it; that the next day the plaintiff took possession of these launches and stored them in a warehouse at Newburgh, where they remained from September, 1901, to May or June, 1904, when they were removed from the warehouse by McCrea, without the consent of the plaintiff. It was subsequently admitted by the defendant that McCrea took these boats from the warehouse in the early part of May, 1904, and that they were subsequently in the possession of the defendant. The notes that McCrea gave to the plaintiff, amounting to $7,300, on account of the indebtedness of the Riotti Company to the plaintiff, were subsequently paid by McCrea.

On behalf of the defendant, it was proved that these chattels were delivered by the Riotti Company to McCrea and one Street, as security for moneys advanced by them to the Riotti Company, and a formal bill of sale was executed by that company to McCrea, and that under that bill of sale Street and McCrea took possession of the property. It also appeared that the plaintiff had commenced an action against the Riotti Company for a breach of a contract arid for work done for it; that the Riotti Company answered setting up a counterclaim for damages against the plaintiff for its failure to perform its contract with the Riotti Company and claimed the sum of $35,000 damages, a sum largely in excess of that claimed by the plaintiff against the Riotti Company. But McCrea subsequently paid a large sum of money on account of the Riotti Company, and Street also advanced $3,000 for its account. The plaintiff then offered in evidence an agreement be

I think it is apparent that McCrea had a special interest in this property which he had pledged to the plaintiff as security for advances which he and Street had made to the Riotti Company. The evidence is undisputed that McCrea and Street advanced to the company an amount largely in excess of the value of these launches, and that the launches were then formally transferred to McCrea by the Riotti Company as security for these advances. It is also clear that McCrea pledged this property, not on behalf of the Riotti Company, but as a pledge of his individual interest or property in them to secure any indebtedness that existed in favor of the plaintiff against the Riotti Company. Occupying that relation, an agreement was made between

The plaintiff, however, claimed before the referee, and now insists, that this defense was not available, as it had not been pleaded by the defendant. The fact, however, was proved by the plaintiff as a part of the plaintiff’s case. When presenting the evidence to establish its cause of action, it proved a fact which destroyed its cause of action and established that it was not entitled to the possession of the property for which the action was brought. It has many times been held that evidence of a defense offered by the defendant and received without objection justified the dismissal of the complaint, although that defense was not pleaded; and certainly the rule is not different when the plaintiff itself has proved a defense to the cause of action sought to be enforced. If the defendant had offered this agreement betwen the plaintiff and the Riotti Company in evidence, and it had been received without objection, it is clear that the plaintiff could not after-wards insist that it was not available because not pleaded; but here, the plaintiff having offered it as a part of the proof to establish a cause of action, and which when proved established a defense, it would seem to follow that the plaintiff cannot recover.

I think, therefore, the judgment was right, and that it should be affirmed, with costs.

PATTERSON and CLARICE, JJ., concur.

(dissenting). This action was brought to recover the possession of five wooden launches which were pledged to the plaintiff as security for work performed and to be performed for the Riotti Company, the claim for which was in litigation. The plaintiff received 'the launches from one McCrea, but claims that they were owned by said Riotti Company, and that McCrea, in delivering the same to the plaintiff as security, was acting as the agent of the owner. On the other hand, it is claimed by defendant that McCrea owned the launches jointly with another, and that he pledged them both with the consent of his co-owner and in his own right, thereby becoming a surety tc the extent of the property or his interest therein. It appears that, subsequently to the commencement of this action, the plaintiff entered into an agreement in writing with the Riotti Company on the 11th day of October, 1904, compromising the action or the claim to secure which the property was pledged, and agreeing that its claim against the Riotti Company should be deemed $5,000. The terms of the compromise,

The defendant has recovered upon the theory that McCrea was a surety, and that the mere execution of this agreement, without the terms being carried out, released the surety and entitled him to a return of the pledged property. Neither the issue of suretyship nor the discharge of the surety was presented by the pleadings, and it is therefore contended that the defendant was not entitled to defeat the plaintiff upon that theory. It is true that the complaint was framed upon the theory that McCrea was the agent for the Riotti Company, and not its surety, and that the defense of suretyship and the change in the contract discharging the surety was not pleaded. The defendant, however, set up ownership and right to possession of the launches in him, and the plaintiff, after first offering the contract and its being excluded under defendant’s objection, and after defendant then showed by parol the substance of the contract on the cross-examination of one of plaintiff’s witnesses, introduced the contract in evidence. It is contended in behalf of the appellant that the contract was introduced for the purpose of showing that the plaintiff had a substantial claim and cause of action against the Riotti Company. The defendant subsequently assumed to take advantage of this evidence, and claimed in his motion for a nonsuit that it showed the discharge of the surety, and moved to amend the answer by setting up that defense. This theory was opposed by counsel for the plaintiff, on the ground, in substance, that the contract was made after the commencement of the action, and that its effect was not in issue. The motion was denied, with leave to renew. The motion was renewed at the close of the evidence, and again denied.

I am of the opinion that the plaintiff, by introducing the contract in these circumstances, did not subject itself to this new defense without an amendment of the answer presenting it as an issue. There was some evidence tending to show that McCrea claimed to own the launches, and that he was acting for himself, and not as trustee or agent for the Riotti Company in pledging the launches; but I am of the opinion that that theory of the case is against the preponderance of the evidence and should not be permitted to prevail. The Riotti Company was engaged in manufacturing and selling launches. During the summer of 1899 it became financially. embarrassed, and a meeting of its directors and stockholders was held on the 27th day of July of that year, at which McCrea, whose ‘only relationship to the company was that of a stockholder, was present. As a result of the discussion of ways and means of meeting the demand of the creditors, it was determined to give a bill of sale of all the property of the company to Street, an officer and director of the company, and McCrea, for the purpose of securing them for advances made by them in refunding money to purchasers who made advance payments on contracts for launches, and in further advances necessary to render the uncompleted

The evidence tends to show that McCrea and Peck and Street each advanced certain moneys under this trust arrangement; that the funds were handled by McCrea, who also received and took charge of the property of the company; that, in the course of his management of its affairs, he represented to the plaintiff that he had a bill of sale from the Riotti Company of the launches in question, and offered to turn them over to it as a security for the claim it had against the Riotti Company which was in litigation, and to execute a bill of sale thereof to it; that he delivered the launches to it, but, although requested, refused to execute a bill of sale; that at about the same time he purchased all other claims the plaintiff had against the Riotti Company, and in the agreement by which it assigned them to him he agreed to turn over to it as security for its claim in litigation “whatever interest he has in the property of the Riotti Company.” It appears that thereafter, and shortly before the commencement of his action, McCrea, without the knowledge or consent of the plaintiff, removed the launches from its possession and sold and delivered them to the defendant to apply on an antecedent indebtedness upon which he was given credit for $1,000, the agreed value of the launches. The evidence, however, indicates that the defendant held other security ample to indemnify him upon McCrea’s indebtedness, and that he took the launches merely as further security.

It does not satisfactorily appear that, at the time that McCrea pledged the launches to the plaintiff, he had paid out in the execution of the trust more than he had received; and, if not, he had no individual interest that he could, without the co-operation of his co-trustees, either sell or pledge. But, however that may be, I think that the fair inference is that in this matter he was acting, not for himself individually, but for the Riotti Company with the implied consent of his co-trustee and dealing with the property of the company for which, they were both required to account; and that he left the plaintiff to so understand his position. His agreement to assign any interest he had to the plaintiff is not inconsistent with this view. He and Street held the legal title, and the plaintiff knew that, but understood and was justified in understanding that they held it as trustees. Moreover, assuming that he had individually advanced under the trust more than he had received, and that upon that theory he had a special interest in the property which he could sell or pledge so that he could be said to be a surety, still I am of the opinion that the compromise agreement did not affect his rights or remedies against the Riotti Company, and that therefore the property was not released. It is manifest that the plaintiff did not intend to release the property, for the agreement ex

It follows that the judgment should be reversed, and a new trial ordered, with costs to appellant to abide the event.

O’BRIEN, P. J., concurs.