Stallcup v. National Park Bank — 6 N.Y. St. Rep. 512

Majority

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William H. Stallcup et al., assignees, etc., Resp’ts, v. National Park Bank of New York, App’lt.

(Supreme Court, General Term, First Department,

Filed January 22, 1887.)

Headnote

1. Set-off—Assignment for the benefit of creditors. ,

In a suit by the assignee, in order to enable the defendants to sustain a set-off, the claim must have been one existing at the time of the assignment.

2. Fraud—Rescission of contract—Intent.

Where the defendants seek to rescind a contract, by means of which credit is allowed, on the ground of fraud because of insolvency, the. question is, what was the intent in obtaining the credit. If the plaintiffs believed that they would not be able to continue their business, it was fraud for them to obtain the credit, but it does not follow if they believed that they could go on, that they were not guilty of fraud. They must show, in addition, that such belief was founded upon some reasonable ground that they had reasonable cause so to believe. .

3. Evidence—Fraudulent intent—Uncontradicted evidence—Not to BE SUBMITTED TO THE JURY.

The issue being one of intent, is necessarily to be ascertained by an inquiry into the condition of the debtor, and therefore all evidence tending to throw light upon those subjects, is relevant in order to enable the jury to judge as to -what the intent was. If the evidence is uncontradicted as to a particular fact, no such fact could be submitted to the jury.

4. Charge to the jury as to particular facts.

c No rule exists which requires the court to charge jury as to particular facts, or that certain conclusions are to be drawn from isolated facts taken out of the proof.

The firm of Lamborn & Gray had for a long time prior to the 24th day of December, 1883, been carrying on business as bankers at Alliance, Ohio, and had kept an account with the defendants, and on December 24, 1883, there was a balance due Lamborn & Gray of $4,322.24.

On the day last named, said firm made a general assignment for the benefit of creditors, to the plaintiffs, who duly qualified and entered upon the duties of their trust and brought this action to recover said balance.

The defendants resisted the collection of a part of the balance of the account on two grounds:

First. That the defendants had a right of set-off arising upon the facts hereinafter stated.

Second. That Lamborn & Gray having obtained discounts which form a part of the balance claimed, by fraud or by fraudulent suppression or concealment of their financial condition, the defendants had a right to rescind the contract of discount, and to retain the proceeds.

It appears that for some time prior to December, 1883,

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Lamborn & Gray had been in the habit of making advances upon the. monthly pay rolls of the Cleveland, Youngstown and Pittsburg Railway Company. To repay these advances, Lamborn & Gray were accustomed to receive drafts drawn to their order by the railway company on its vice-president at New York.

These drafts would be forwarded to the Bank of the Republic for collection, and the vice-president of the railway company would accept them, payable at said bank, and they, when paid, would go to the credit of the firm in the said bank.

The evidence shows that these drafts were largely paid by advances made by the bank.

Mr. Henry W. Ford, president of the bank, was also president of the railway company.

Mr. Thomas T. Buckley, vice-president of the bank, was treasurer of the railway company, and Mr. E. H. Pullen, cashier of the bank, was secretary of the railway company.

This course of business continued until the latter part of October, 1883, when, in consequence of certain communications requesting that drafts should be light and drawn on three or six days time, Mr. Lamborn came to New York and had an interview or interviews with Mr. Ford and Mr. Buckley at the Bank of the Republic.

At this time the October drafts, amounting to some $28,000, were lying in the Bank of the Republic unpaid, but Lamborn claimed that he was ignorant of this fact and believed them to have been paid, although the evidence of Mr. Gray showed that they knew as early as November 19th, that the firm had not received credit for October drafts.

Mr. Lamborn testified that he asked Mr. Ford what the trouble was with the drafts On the railway company and with the Bank of the Republic that they wanted them drawn on so little time—on three days or on six days—and why they wanted Lamborn & Gray to draw lightly against their account in the Bank of the Republic, and that Mr. Ford’s reply was:

“There is some trouble in the bank. Pullen, the cashier, is fighting Buckley and me, ” and he said, “There are some of the bank people believe that he magnifies the advances of the bank to this railroad company,” and he said, “The possibility is, unless you favor us and we get over this little trouble—well, both Buckley and I will lose our places; and we want you to draw as lightly as possible until this difficulty is over.” He said, “Lawson is in Europe” (I think he said he was in Europe, on the ninth day of November), “ and the prospects are that the bonds will be sold. We regard it as a good enterprise, and the prospect

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is that the bonds will be sold, and then this difficulty will be over; but draw as lightly as possibile for the present against the statement or credit.” Mr. Ford also stated this in most positive and unequivocal terms, if I am not mistaken, because the advance Of $30,000 thereafter depended on this statement. He said : “All your drafts on the railroad company have been taken care of, and all the advances "that you may make, and all the drafts that you may send, accompanied with the proper vouchers, to complete the road to Acbo, will be taken care of to the last dollar, because (said Mr. Ford) the completion of the road is a necessary condition for the sale of the bonds;” and I think that he said this, that “ the road was to be represented, in the efforts to sell the bonds, as a completed road from Phalanx to Acbo.”

Mr. Ford contradicted the evidence of Mr. Lamborn that he promised to take care of all the railway drafts.

Subsequently drafts were drawn on the November pay rolls to the amount of $36,000, and paid by Lamborn & Gray, and forwarded to the Bank of the Republic.

On the sixteenth day of November Lamborn & Gray drew their draft on the Bank of the Republic for $5,000, and on the nineteenth Mr. Ford, president of the bank, telegraphed that the bank had been compelled to refuse payment of this draft.

Mr. Gray came on to New York on or about 21st of November, and had interviews with Mr. Ford and Mr. Buckley at the bank. Mr. Gray asked Mr. Ford why it was they didn’t protect their drafts in accordance with the arrangement made with Mr. Lamborn, and Mr. Ford said: “It is no use of talking, I am in trouble. Mr. Pullen and the directors of the bank-are after me, and they say if I pay out another dollar I may send in my resignation.”.

After some further conversation Mr. Ford agreed to take care of the $5,000 draft if Lamborn & Gray would put up some collateral, which they did, together with their own note, and the draft was taken care of, though not in the Bank of the Republic.

Mr. Gray also testified that Ford assured him that they, meaning the railway company, would be in funds in a very short time to pay all indebtedness, and that when he gave Ford his note for $5,000 as above stated, he stated that he would take care of the note when it matured, and send the note and collaterals back, and that he would, within ten days, place $10,000 to the credit of Lamborn & Gray in the bank.

Mr. Gray further testified that he told Mr. Ford that if they had understood that they would not take care of the November pay rolls, that they would not have advanced

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upon them, because it was all their loose capital, and that he would have to go home and close up his affairs if he did not get it.

On November 29 Lamborn & Gray wrote to the vice-president of the road that they could not possibly meet an acceptance for $3,500 then falling due, and on the third of December wrote to Mr. Pullen, cashier of the Bank of the Republic, that they were compelled to draw a draft for $3,000 in order to go through, and that “you must protect it, notwithstanding Mr. Ford writes not to draw, and to put off payments with our bank.”

On the 5th of December, 1883, Lamborn & Gray wrote to defendants asking for discount of their note for $5,000 at ninety days, with several notes as collateral. The bank discounted some of the collaterals and returned the other collaterals with the $5,000 note.

On the 10th of December Lamborn & Gray wrote to defendants, enclosing their own note for $5,000 for discount and collaterals to the amount of $6,200, consisting of note of Stanley & Hawkins for $3,200, and note of the Alliance Bagging Co. for $3,000, both endorsed by Lamborn & Gray.

The bank discounted the collaterals and returned Lam-born & Gray’s note.

On the 10th of December Mr. Gray wrote the vice-president of the railway company, asking him to devise some means by which he could get $5,000, as he did not wish to be mined, which was certain to come unless he got help.

On the 24th of December Lamborn & Gray made an assignment.

The note of Stanley & Hawkins, above named, was paid at maturity, but the note of the Alliance Bagging Company was not paid; and it is claimed by the defendants that Lamborn & Gray were at the time of obtaining this discount hopelessly insolvent, and that it was a fraud upon the defendants to obtain additional credit.

Francis C. Barlow, for def’t and appl’t; Luden Birdseye and Benjamin H. Bayliss, for pl’ffs and resp’ts.

In the foregoing statement it has not been thought necessary to state all the facts’ contained in the voluminous record before us, but simply such as will illustrate the exceptions which have been argued.

The claims of the defendants rest upon the right to set-off and the right to rescind upon the ground of fraud.

That the defendants have no right of set-off, the note upon which they claim their right of set-off not being one at the time of the assignment, seems to be established by several cases in the court of appeals directly in point. Beck-

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with v. The Union Bank, 9 N. Y., 211 ; Martin v. Kunzmuller, 37 id., 396; Jordan, admr., v. The National Shoe and Leather Bank, 74 id., 467. And therefore it is not necessary to discuss the proposition.

The questions of law raised by the exceptions taken to evidence and the exceptions to the refusal to charge of the learned judge relating to the defense of fraud, raise more serious difficulties.

The question which was to be submitted to the jury upon this branch of the case was, whether or not Lamborn & Gray had reason to believe, and did believe, at the time they procured this discount from the defendants, that they would be able to meet their obligations at maturity. If they did so believe, and had reasonable ground for such belief, then no fraud was perpetrated, but if they had no reasonable ground for such belief, or did not so believe, then they had no right to procure additional credit.

This issue is necessarily one of intent, to be ascertained by an inquiry into the condition of the" debtor, his hopes and expectations, and the basis of such hopes and expectations, and therefore all evidence tending to throw light upon these subjects is relevant in order to enable the jury to judge, placing themselves as nearly as possible in the debtor’s shoes, surrounding themselves by the circumstances which surrounded the debtor, as to what the intent of the debtor was.

Applying this rule to the exclusion of the letter of December 5, 1883, the ruling would seem to have been error.

It is true that the letter did not prove as a fact anything stated in it, but it was a letter from the Bank of the Re-

Íublic, written by one of its executive officers, informing jambom & Gray of the position taken by the bank in respect to their relations, and a notice that no further advances would be made by the bank to them.

In view of the previous relations of the bank to them, this letter was of great importance to Lamborn & Gray. Mr. Gray knew that the October railway drafts were not paid, and that the November railway drafts were not paid, amounting in all to the sum of $65,000, and this letter was notice that they need expect no accommodation from the bank.

The ruling rejecting this letter is sought to be upheld upon the ground that no proper foundation was laid for making the letter evidence. If this objection had been made at the trial it could"^easily have been remedied, as the record shows that the witnesses were in court who could have given the requisite testimony.

The only objection appearing upon the record was a

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general one, bringing up only the question of the materiality of the letter.

This ruling is sought to be sustained upon the ground that the letter contained numerous statements which required independent proof to establish, and also numerous statements which were wholly incompetent - and were entirely improper to be submitted to a jury.

It is undoubtedly true that the Bank of the Republic could not make, evidence in their own behalf in this way, but in coming to a conclusion as to the belief and the grounds thereof of Lamborn & Gray, the position of the Bank of the Republic, whether well taken or not, was an important element and could not be disregarded. Neither does the suggestion that, as far as the material parts of the letter are concerned, they were proved by Mr. Ford’s evidence, remedy the difficulty, because the manner in which the requests of the previous letter were rejected in the letter excluded is very different from the testimony given by Mr. Ford.

But there is a more important error which pervaded the charge of the learned court, and some of the requests to charge upon the part of the plaintiffs, and which were charged by the learned court and excepted to by the defendants.

The learned court charged the jury that the question was whether Lamborn & Gray, at the time of applying for this discount, had reasonable cause to believe that they were a solvent firm, or whether they knew themselves to be insolvent; and again, whether, on December 10, 1883, they had good reason and proper cause to suppose * * * , that money would be forthcoming to protect these drafts.

It is true that these charges were not excepted to, and if ' they stood alone the defendants could not have availed themselves of the fact that what Lamborn & Gray actually believed in reference to these matters was not submitted to the jury.

That the question which the jury was to pass upon was as to what Lamborn & Gray had reasonable cause to believe was accentuated by the twenty-fourth request of the plaintiffs, and which was charged and excepted to.

This request was as follows: “ If Lamborn & Gray either believed, or had reasonable cause to believe, that the drafts accepted by the Cleveland, Youngstown & Pittsburg Railroad Company, or its officers, for moneys paid by Lamborn & Gray for work and materials used in the construction of that road, were either paid, or were put to their credit in the Bank of the Republic, or would soon be paid or so put to their credit, that they were guilty of fraud or conceal

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ment, either actual or constructive, in accepting the discount of the Alliance Bagging Company’s note by defendant.”

_ The form of this request was erroneous, as it was entirely immaterial as to what Lamborn & Gray had reasonable cause to believe in respect to these matters if they did not so believe.

The question was as to their intent. If they believed that they would not be able to continue business, it was a fraud- for them to obtain this credit, but it does not follow that if they believed that they could go on, they were not guilty of fraud, they must show in addition that such belief was founded upon some reasonable ground; that they had reasonable cause so to believe. -

, This request entirely ignores the, necessity that they should have faith in their ability to go on, but instructs the jury that, if they had reasonable cause to believe the facts in the request stated, although they did not in fact believe them, no fraudulent intent could be inferred, which is not á correct statement of the rule of law..

The request also submits to the jury the question as to whether Lamborn & Gray believed, or had reasonable ground to believe, among other things, that the drafts of the railway company were either paid, or were put to their credit in the Bank of the Republic.

The evidence in the case was uncontradicted, that at the time of this discount they .knew that such drafts had not been paid, and had not been put to their credit in the bank, and therefore no such question could be submitted to the jury.

The error crept in because of the earnest endeavor of counsel to get the court to charge that this fact did not constitute a fraud or that fact, or the, other, thus causing the jury to lose sight of the facts of the case as a whole.

We know of no rule which requires the court to charge the jury as to particular facts, or that certain conclusions are to be drawn from isolated facts taken out of the proof, when the other facts of the case may modify materially the effect of the facts sought to be isolated, and this was persistently sought to be done in the case at bar, with the result that in many of the propositions, facts which might, in the opinion of the jury, materially modify those contained in the proposition, were not presented as part of the request.

For the errors above stated, we are of the opinion that the judgment must be reversed and a new trial ordered, with costs to the appellants to abide event.

Daniels, J., concurs; Brady, J., concurs in the result.