Kilpatrick v. Dean — 19 N.Y. St. Rep. 837

Majority

p. 837

Walter P. Kilpatrick, Resp’t, v. Robert J. Dean et al., App’lts.

(City Court of New York, General Term,

Filed December 24, 1888.)

Headnote

1. Warehousemen—Assignment to a third person of goods held in -pledge—Effect of.

A delivery order to tlie plaintiff’s assignor, signed by the general owner of merchandise in the hands of warehousemen pledged for the payment of certain loans, notice of the order being given to the warehousemen, gives the transferee’s title to the goods, subject to t’'e payment of the loans, interest and lawful charges for storage. This was the effect of the order, both as a delivery order and an equitable assignment.

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2. Same—Contract of pledge—Effect of judgment of the loan.

A contract oí pledge is like the contract of suretyship. The debt is the basis of the contract, it is tbe consideration for the pledge, and when the debt is discharged the interest of the pledgee ceases.

3. Same—Payment of debt guaranteed by the warehousemen gives THEM ONLY THE PLEDGEE’S INTEREST IN THE GOODS.

Where the warehousemen had guaranteed the payment of the loans for which the goods had been pledged, and afterwards, when called upon by the pledgees to do so, paid the loans, they became subrogated to the rights of the pledgees in respect to the pledged property, but only to the extent of the interest actually transferred to the pledgees to secure the amounts loaned by them with interest, and they could not claim payment out of the fund realized from the sale of the goods, of other notes and claims, which at the time of the sale, they held against the owner but which were not connected with the original transaction and contract of pledge.

4. Same—Conversion — What constitutes — Sale of pledged goods BEFORE THE DAY AUTHORIZED BY THE AGREEMENT.

Where the warehousemen, being guarantors of the payment of the loans for which the goods were pledged, and subsequently paid tbe loans, made sale of the goods at private sale before tbe time provided in the contract of pledge for such sale had expired, and without giving any notice to the owner or his transferee, they became liable in tort for conversion of the goods. Such sale was in law a conversion.

5. Same—When such sale would not be a conversion.

If the sale had been authorized by the terms of the pledge there would have been no conversion and the pledgor’s remedy would have been an action for the net proceeds after paying the debt and expenses of sale— the surplus being so much money received by the pledgees for the use of the pledgor.

6. Same—Conversion—Measure of damages.

But when'the pledgees convert the subject of tbe pledge to their own use by making an unauthorized sale of the goods the transaction operates as a payment of the debt to the extent of the value of the property, and if the value exceeds the debt, the pledgees are liable in damages for ihe market, value of the property converted less the amount of the debt, the measure being the difference between the two amounts. Nor is the pledgor hound to buy merchandise of like kind to replace the articles sold in order to fix the exact loss.

7 Same—Tender in such cases not necessary.

No tender by the pledgor or his transferee is necessary as the unauthorized sale was made before the loans became due, and by it the defendants disabled themselves from returning the property. The law never requires a tender when it would he useless and of no avail.

8. Same—Stock transactions—Rule is different.

The purchaser in cases of stock may require the broker to replace the stock, and if he fail to do so within a reasonable time, the customer may replace it at the broker’s expense, but this is a special rule applicable to a peculiar class of cases, and does not supersede the elementary rule that in ordinary cases of conversion the wrong doer is liable for the value of the property at the time of conversion.

9. Same—Practice—Objections must be made at the trial.

Where, in a suit by the assignee for the benefit of creditors of the transferee, there was no evidence submitted at the trial of the consideration paid by his assignor for the delivery order for the merchandise, the defendants cannot on appeal raise that objection for the first time, even if proof of consideration had been necessary. Where there is no proof on the subject, it will be presumed that the deliveree is beneficially interested, and not a mere agent of the drawer.

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10. Same.

Where the objection, that the plaintiff, as assignee for the benefit of the assignor’s creditors, did not prove the filing of his oficial bond, was not specifically taken at the trial, when proof might have been supplied, it cannot be taken for the first time on appeal to the general term.

11. Same.

The rule is well settled that an objection which might have been obviated by additional proof at the trial if taken there, cannot be raised for the ' first time on appeal.

12. Same.

Evidence which is allowed to go to the jury without objection, the opposing party taking the chances of its being favorable to him, cannot, when he finds it unfavorable, afterwards move to strike it out.

13. Same—Set off—§ 501 oe Civil Code.

An action being in tort in form, causes of action arising in contract forming no part of the transaction set forth in the complaint as the foundation of plaintiff's claim, cannot be set off against the wrong complained of.

14. Interpretation op contracts.

The whole contract is to be considered in determining any of its parts, and if its purpose is more clear in some parts than others, those which are obscure may be illustrated by the light of the others.

The plaintiff claiming title as general assignee of Peter Haulenbeck, sues the defendants for the conversion of 184 bags of coffee, of the value of $4,000. Haulenbeck acquired title to the coffee under a delivery order signed by Henry A. Morris, the general owner thereof, in these words r

November 16, 1886.

Messrs. R. J. Dean & Co.,

Gentlemen.—Please deliver to P. Haulenbeck, or order, the following lot of coffee, he paying advances thereon;

October 14. 25 bags M. & O. 2,906 lbs. February 17 .. $550

“ 14. 25 bags G. O. D. 3,233 lbs.

16. 25 bags A. C. H. 3,103 lbs. February 9.. 850

“ 16. 43 bags Pm. 7,274 lbs.

“ 19. 31 bags S. R. C. 3,739 lbs. January 22.. 600

“ 19. 35 bags A. O. H. 4,557 lbs.

24,813 lbs. $2,000

H. A. MORRIS.

The sums of $550, $850 and $600, indicate the loans that' Messrs. Dean & Co., made to Morris on the coffees. The defendants were warehousemen, and Morris had stored the coffees with them, and received the above advances upon the security thereof. The order to Haulenbeck was intended to transfer the property to Haulenbeck, subject to the advances so made. The advances were made in this way.

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The defendants issued three negotiable warehouse receipts, covering the coffee in question.

After the warehouse receipts had been thus issued, the defendants, at the request of Morris, negotiated three loans for him on the hypothecation of the coffee—the one with the American Loan and Trust Company of $550, the other with the National Shoe and Leather Bank, of New York, for $850, and the third with the said American Loan and Trust Company, for $600.

The usual course in that behalf was followed, viz.: Morris made his three notes, by which he promised to pay to the order of the banks, the amounts covered by the notes, and as security therefor, and also as collateral for demands of all kinds by the banks against him, past, present or future, due or not due, he pledged the coffee in question— that is, he divided up the coffee among the three notes, and he gave power to the banks to sell the coffee on non-payment, and also gave the right to the banks to demand other collaterals in case the coffee depreciated below the estimated value set forth in the notes after service of a demand of one day; and he also gave the right to the banks (the payees), in case of sale, to apply the proceeds to the payment of any demands due or not due, which the banks had against him, with the right of purchase in the banks, etc.

Then, at the request of Morris, the defendants, by indorsement in writing, guaranteed payment of each note.

Upon the back of each note was an agreement signed by Morris in the following words:

“Authority is hereby given to R. J. Dean & Co. to deliver the within note and the guaranty indorsed thereon, together with the collateral security specified therein to the payee (bank), and to receive the proceeds of the discount of the said note; and for value received, the undersigned hereby agrees that if Messrs. R. J Dean & Co. pay the within note, or it is transferred to them by said payee (bank), that said R. J. Dean & Co. shall have all the right, title and interest of the said payee (bank) in and to the col-laterals specified and referred to herein, and said R. J. Dean & Co. may hold such collaterals as security for the payment of any and all demands of said R. J. Dean & Co. against the undersigned, due or not due.

“H. A. MORRIS.”

The three notes representing the loan of $2,000 referred to in the complaint were thus negotiated by the defendants and the proceeds paid over to Morris.

The three several notes in question are dated respectively October 14, 1886, at four months; October 16, 1886, at four months; and October 19, 1886, at three months; so

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that the first did not mature until the 22d day of January, 1887.

Before maturity of the notes Morris disappeared, whereupon the payees (the banks) called upon the defendants to take up the loans, and thereupon the defendants undertook to realize on the coffee, and after receiving an offer of 13 3-4 cents per pound, which they regarded as a fair price, they, on the 14th day of December, 1886, sold the coffee to Thurber,Whyland & Oo. at that price and realized therefor $3,368.89, which they placed to the credit of Morris. No notice of sale was given to anyone.

On the following day, December 15, the defendants paid to the banks the amount of each note respectively, and they became severally transferred to them.

It is for the sale of the coffee in this manner, without notice to Morris or Haulenbeck, and before the maturity of the notes, or either of them, that the plaintiff predicts his conversion.

It is admitted that at the date of the sale neither of the three notes had in fact matured.

At the time of the sale of the coffee the defendants, R. J. Dean & Co., claimed to hold, in addition to the three notes in question of $2,000, the following other claims against Morris, to wit:

1. Note of said Haulenbeck, dated September 16, 1886, four months, payable to the order of Morris, endorsed by Morris and discounted by R. J. Dean & Co. at the request of Morris........................................ $963 11

2. Note of Henry Butters, dated October 23, 1886, two months, payable to the New York Textile Filter Co., endorsed N. Y. Textile Filter Co., per Morris..................... 21 26

3. Note of Malcolm & Flagler, dated October 23, 1886, three months, payable to N. Y. Textile Filter Co., endorsed Henry A. Morris .......... 100 98

4. • Also a bill for storage and for weighing, and commissions incident to the sale of the coffee in question......................... 35 67

5. Also a bill for storage on other coffee........ 313 27

$3,554 29

These together foot up $3,554.29, oi some $185.40 more than the amount realized on the sale of the coffee; and these respective amounts the defendants claimed the right, to set

p. 842

off against the amount realized for the coffee upon the theory that they were demands of theirs against Morris, •for which he was liable at the time of the alleged conversion, and they claimed that by the terms of the notes, and of the agreement of Morris endorsed on the back of each note, they had a right to off-set such demands against the sum which came into their hands as the proceeds of .the coffee, or against any sum which the jury might adjudge the value of the coffee to be, assuming that they should fix an amount greater than the amount so realized. The correctness of some of these items was disputed, and it was denied by the plaintiff that any lien existed in respect to any of them.

Upon the trial the court refused to hold, as matter of law, that the three first of these five demands were capable of being set off against the damages of the plaintiff awarded by the jury, upon the ground that the language of • the notes and the agreement was not broad enough to entitle the defendants to have them set off; but as defendant Dean swore to the fact that there was a parol, independent agreement made with Morris, that all coffee in his warehouse at any time should be held for any charges or demands against him, whether the coffee had been taken out and exchanged for other coffee, or otherwise, this question was submitted to the jury as one of fact, but upon that issue the jury found for the plaintiff, and the three off-sets were, therefore, disallowed. The other two items were disposed of as stated in the opinion.

The jury, on the trial before Mr. Justice Browne, awarded the 'plaintiff the value of the coffee, less the original advances of $2,000, and the interest thereon, with the proper storage charges. The verdict was for $1,999.45, and from the judgment entered thereon the defendants appeal.

Blandy & Hatch, for app’lts; Kelly & MacRea, for resp’t.

The goods being in the possession of the defendants as warehousemen at the time, the delivery of the order by Morris to Haulenbeck was sufficient to transfer the title to him, subject to the advances previously •made. This is its legal effect both as a “delivery order,” (Searle v. Keeves, 2 Esp., 598; Proudfoot v. Anderson, 7 U. C. Q. B. at p., 576), lodged with the warehousemen and assented to by them (Bentall v. Burn, 3 B. & C. 423, Story on Sales § 311, a., id., § 340. Hilliard on Sales 130, 131; Benjamin on Sales (4th Am. Ed.,) § 697, Parsons on Cont., bottom p., 576), and as an equitable assignment (Bailey v. Johnson, 9 Cow., 115 ; Bacher v. Lyon, 22 Barb., 622 ,

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Gibson v. Lenane, 94 N. Y., 183 ; and see Lenx v. Jansen, 18 How., Pr., 265 ), delivery orders being of that class of instruments. The defendants were promptly notified of the transfer (fols., 37, 58), and apparently assented to it from which an agreement may be implied to thereafter hold the goods for Haulenbeck, só that he succeeded to the rights which Morris held at the time it was made. Evidence as to what consideration was paid for the order or what occurred at the time it was given does not appear, but Haulenbeck was permitted (without objection) to testify to the effect of the transaction. It was, he said, a transfer and bill of sale to him (fols. 47, 51). The objection that the witness gave his conclusions instead of fact's was not taken and cannot be raised now. . If the objection had been taken, it might have been obviated by giving the facts instead of the witness’ understanding of them. The defendants did not require the plaintiff to prove by Haulenbeck, what (if any) consideration he paid for the order or the nature of the understanding upon which» he received it, but they contented themselves by objecting to want of title in the plaintiff. (Fol. 80). They did not make the point that Haulenbeck had not received title by the order, and consequently had nothing to transfer, nor did they object to want of proof of consideration therefor, and that question cannot be raised for the first time upon appeal. A party is always bound by the mode he adopts in trying his case, and he cannot assume the existence of a fact, and afterwards on appeal complain that it was not' proved. Jencks v. Smith, 1 N. Y., 90 . Chace v. Higgins, 1 T. & C., 229. In order to show that the order was intended to pass title, the circumstances under and purpose for which Haulenbeck received the order and the consideration he paid for it (Tallman v. Hoey, 89 N. Y., 537 ), were proper subjects of proof, for these (if necessary) would have negatived the possible idea that Haulenbeck was to have only a temporary or special control of the goods, in the interest of the person who gave the order, and proved that the absolute title and possession together were to go to him in his own right as owner. But the courts have gone so far as to hold, that even where there is no proof on the subject,- it will be intended that the deliveree is beneficially interested, and not a mere agent of the drawer. Bailey v. Johnson, 9 Cow., 114 . It is sufficient however to say that proof upon this subject was not required by the defendants in the court below, for it was not called forth by any objection or request that made the purposes intelligible to the court or to the adverse counsel. Its absence cannot be objected to now. Jencks v. Smith, and Chase v. Higgins, supra. The rule is well established that an objection which might have been obviated by additional

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proof at the trial, if taken there, cannot be raised for the first time upon appeal. Vide same cases. Devoe v. Brandt, 58 Barb., 493 ; Newton v. Harris, 6 N. Y., 345 ; Binsse v. Wood, 37 id., 526; Thayer v. Marsh, 75 id., 340. The motion to strike out the oral evidence of Haulenbeck in respect to the nature and effect of the order (fols. 79, 80) came too late. The evidence was allowed to go in without objection. The defendants took the chances of its being favorable to them, and finding it unfavorable could not afterwards move to strike it out. 41 N. Y., 349 ; 64 id., 628; 82 id., 340; 104 id., 74; 27 Hun, 331 . The motion was therefore properly denied. .Assuming then that Haulenbeck acquired title by the delivery of the order, and the assent thereto of the defendants, it is clear that the plaintiff by the transfer from Haulenbeck, in turn succeeded to his rights in the premises. The objection that the plaintiff as assignee for the benefit of creditors, did not prove the filing of his official bond, was not specifically taken at the trial, when the proof might have been supplied, and it cannot under the cases cited, be taken for the first time at general term. The defendants having guaranteed the payment of the advances made by the trust company and bank, became subrogated to their rights by paying to them the sums loaned with the accrued interest.

Neither of these institutions had any other claim upon the property pledged, and it was to the extent only of the interest actually transferred by them to the defendants that they succeeded to their rights in respect to the pledged property. How far these institutions would have been protected under the terms of the pledge, if they had made further advances or incurred losses on the credit and faith of the pledge need not be considered because they advanced nothing beyond the original $2,000, and incurred no expense in respect to the security given thei'efor. A contract of pledge is like a contract of suretyship. It bears much the same relation to the original debt. The debt is the basis of the contract;' it is the consideration for the pledge, and when the debt is discharged the rights of the pledgee cease. The plaintiff or his assignors could have redeemed the pledged goods by the payment of these advances to the institutions that made them, and upon tender of the amount restitution would have been required.

To the extent stated, the defendants succeeded to the rights of the institutions which made the advances. The defendants, after paying the advances to the institutions which made them, and without awaiting the maturity of the notes or calling for additional security or giving notice of sale or observing any of the conditions of the pledge inserted for the pledgor’s protection, sold the coffee, and by

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their unauthorized sale converted the same to their own use to the plaintiff’s damage. Indeed, the sale which constituted the conversion took place December 14, 1886, and it was not until the following day that the defendants paid the banks, and became subrogated to their rights in respect to the coffee.

If the sale made had been authorized by the terms of the pledge, there would have been no conversion, and the pledgor’s remedy would have been an action for the net proceeds, after payment of the debt and the expenses of the sale, the surplus being regarded as so much money received by the pledgees to and for the use of the pledgor. But where, as in this case, the pledgees convert the subject of the pledge to their own use by making an unauthorized sale of it, the transaction operates as a payment of the debt to the extent of the value of the property, and if the value exceeds the debt, the pledgees are liable in damages for the market value of the property converted, less the amount of the debt, the measure being the difference between the two amounts, and that is the extent of the recovery had here. No tender by the plaintiff was necessary as the unauthorized sale was made before the notes became due, and by it the defendants disabled themselves from returning the property. Wilson v. Little, 2 N. Y., 443 . The law never requires a tender when it would be useless and of no avail. Hayner v. Am. P. L. I. Co., 69 N. Y., at p. 439; Lawrence v. Miller, , 86 N. Y., 131 .

Payment and restitution go together; here there could be no redemption because the pledgees had disabled themselves from making restitution. The sale made by the defendants contrary to the terms of the pledge was, in law, a conversion of the property by them. Dykers v. Allen, 7 Hill, 497 ; Hardy v. Jaudon, 1 Robt., 261; Ogden v. Lathrop, 1 Sweeny, 643 ; Wilson v. Little, 2 N. Y., 443 ; Lewis v. Graham, 4 Abb. Pr., 106 ; Wheeler v. Newbould, 16 N. Y., 392 ; Stearns v. Marsh, 4 Den., 227 ; Garlick v. James, 12 Johns., 146 ; Nelson v. Eaton, 26 N. Y., 417 ; Milliken v. Dehon, 27 id., 375; Baker v. Drake, 66 id., 522.

The jury allowed the market value of the property at the •time of the conversion (see judge’s charge at fol. 210), less the advances and the legitimate storage expenses. The question of reasonable time in applying the measure of damages as requested by the defendants (fol. 213), is without force, as the trial judge applied a rule more favorable to them by limiting the damages to the time of the conversion. Nor was the plaintiff bound to purchase coffee of like kind to replace that wrongfully converted by the defendants, in order to fix the exact loss (fol. 214). True, that is one way of ascertaining damages against a broker who

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wrongfully sells stock of a customer, who held it not for investment but for speculation. The purchaser may require the broker to replace the stock, and if he fails to do so within a reasonable time, the customer may replace it at the-broker’s expense. Baker v. Drake, 53 N. Y., 211 . The rule is a special one, applicable to a peculiar class of cases, and the option which the injured party may adopt does not supersede the elementary rule that in ordinary cases of conversion like the present, the wrongdoer is liable for the-value of the property at the time of conversion. The correct rule was, therefore, applied in this case. The jury allowed the defendants from the market value, the advances, originally made upon the security of the pledge, with intrest, and all allowances they were entitled to claim on the facts found. The defendants were not entitled to set off the (1) Haulenbeck note of $963.11; (2) the Butter’s note for $121.26; or (3) the Malcolm & Flagler note for $100.98. First. Because the action being in tort, causes of action arising on contract and forming no part of the transaction set forth in the complaint.as the foundation of the plaintiff’s claim, cannot be set-off against the wrong complained of. (Code, § 501). Second. The provision in the original notes to the banking institutions authorizing them to apply the proceeds of sale to any demands, present or future, due or not due, by proper construction refers to demands growing out of present or future specific advances upon the coffee, or to-subsequent incidental expenditures in reference to it, such as charges for storage, insurance, protest fees or the necessary expenses of any sale made ‘pursuant to the authority conferred by the terms of the pledge. It does not extend to- or contemplate independent demands to be purchased by these institutions, in no way connected with the transactions to which the original notes refer. The provision contained in the written authority given by Morris to the-defendants, providing that in case of payment by them of the notes, they should succeed to the rights of the banks in respect thereto, and might hold the coffee as security, ‘ ‘for the payment of any and all demands of said R. J. Dean & Co., against the undersigned due or not due,” is in like manner to be construed as applying to the demands secured by the instruments of pledge or growing due in consequence of the keeping of the goods, and perhaps for any fresh advance made on the credit and security thereof.

It did not apply to, contemplate or cover independent demands purchased by them afterwards and in no way connected with the transaction to which the notes or written authority relate. Still, the trial judge sent to the jury the question whether there was any understanding outside-of the -papers for a lien on the goods in respect to these independent demands, ánd the jury found against the existence of any such understanding. To hold that the language

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of the original notes or of the written authority given to E. J. Dean & Co., contemplated security for any claims or demands they might purchase against the pledgor, would be to extend the security to an extent limited only by the ability and willingness of the pledgees to purchase outstanding obligations against the pledgor, a contingency too remote to have been within the presumed contemplation of the parties. Their minds did not meet as to any such outside financial operation. The whole contract is to be considered in determining any of its parts, and if its purpose is more dear and certain in some parts than in others, those which are obscure may be illustrated by the light of others.

The $2,000 advanced to Monis on the coffee was divided into three notes, and each of them specified with particularity the coffee pledged for its payment. A provision for additional security was inserted, and all the details thereof provided for, together with the events which were to authorize a sale. There was no running account between the parties, no provision requiring future advances to be made or to be accepted, and the instruments in their entirety look forward to but one transaction, with the possible incidents of growing storage charges, insurance, protest fees and expenses of sale. This is evidently what the parties intended, and as intent is the life of the contract, it must be enforced when once ascertained.

Third. The delivery order given to Haulenbeck, and presented to the defendants and assented to by them, •specifically enumerates the advances made on the coffee as aggregating $2,000, which is another circumstance showing that the parties contemplated a transfer of the coffee, subject only to the payment of these advances and the charges incidental to them.

The parties evidently did not at the time the pledge was made contemplate the purchase of independent outside obligations of the pledgor which might possibly increase the lien of the pledgee to an extent which might render redemption of the goods impracticable, if not impossible, and yet such a contingency is justified by the construction the defendants placed on the original notes and written authority executed by the pledgor. The defendants, however, evidently feared that neither the notes to the banks, nor the written authority given by Morris to E. J. Dean &; Co., were sufficient by their terms to bear the interpretation they sought to have placed upon them, in respect to covering the three notes subsequently discounted by them, for they undertook to supply the necessary authority by proof aliunde, but the jury found against them as to the existence of any such authority. The defendants were interested witnesses, and the jury were not bound to accept

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their theory of the facts in regard to the oral understanding they claim to have had with the pledgor. Kavanagh v. Wilson, 70 N. Y., 177 .

The jury, under proper instructions from the court, found against the defendants as to the existence of any special arrangement for a lien outside of the writings, and they consequently disallowed the three notes subsequently discounted by the defendants, and not held by them when the pledge and advances were made. The item of $313.75 was properly rejected by the court, as that charge had been previously paid-by one Fisher, who on removing certain goods from the defendants paid the bill, upon some understanding that if it should be got back from Morris, it was to be returned to Fisher. If the payment was made because-Fisher was bound to make it, it discharged the liability forever. If Fisher was under no obligation to discharge the-debt, the payment was voluntarily made, and cannot be recovered back by him or by anyone on his behalf. First Nat. Bk. v. Supervisors, etc., 106 N. Y., 488 . The item of $55.67 for additional storage, etc., was allowed to the defendants, deducting, however, $15.19 included therein for'weighing, and $18.40 for selling'the bags. These two-charges were not authorized by anything that appears in the case, which seems to have been well tried.

The verdict is supported by the evidence, and the exceptions are without merit. It follows that the judgment must be affirmed, with costs.